Leases

3 Months Ended

Mar. 31, 2019

Note 8 – Leases

Operating leases are recorded as a right-of-use (“ROU”) asset and operating lease liability, included in other assets and other liabilities, respectively, on the consolidated balance sheet beginning January 1, 2019 when the Company adopted ASU 2016-02 prospectively. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating liability, is recognized on a straight-line basis over the lease term, and is recorded primarily in net occupancy expense in the consolidated statements of income.

The Company adopted the guidance on January 1, 2019 by electing the optional alternative transition method permitted by ASU 2018-11 allowing for recognition of applicable leases as of January 1, 2019. Additionally, the Company elected the following accounting policies:

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The practical expedient package that forgoes:

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Reassessment of any expired or existing contracts for a lease

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Reassessment of lease classification for expired or existing leases

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Reassessment of initial direct costs for existing leases

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The hindsight practical expedient to determine lease term and impairment of ROU assets

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Other practical expedients regarding combination of lease and non-lease components and the exclusion of short-term leases

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The practical expedient for land easements and the portfolio approach were not elected

Operating leases relate primarily to bank branches and office space with remaining average lease terms of seven years. The weighted average discount rate utilized to calculate the ROU asset and operating lease liability was approximately 2.57%, which represents the incremental borrowing rate. At inception, the Company recorded a ROU asset and operating lease liability of $3.5 million. At March 31, 2019, a ROU asset of $3.3 million is included in other assets and an operating lease liability of $3.4 million is included in other liabilities, respectively. Options to extend a lease were considered in the remaining lease term determination. The lease expense for operating leases was $148,000 for the three months ended March 31, 2019.

Future minimum operating lease payments under non-cancellable leases with initial or remaining lease terms at March 31, 2019 were as follows:


Year	Amount
2020	$	484
2021		476
2022		483
2023		504
2024 and thereafter		1,483
Total lease payments	$	3,430
Less: Interest		(180	)
Present value of lease liabilities	$	3,250