Leases

6 Months Ended

Jun. 30, 2020

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 and all subsequent ASUs that modified this topic (collectively referred to as “Topic 842”). For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Substantially all of the leases in which the Company is the lessee are comprised of real estate for branches and office space with terms extending through 2027. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheet. With the adoption of Topic 842, operating lease arrangements are required to be recognized on the consolidated balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability.

The following table represents the consolidated balance sheet classification of the Company’s ROU assets and liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated balance sheet.

(dollars in thousands)

Classification

June 30, 2020

December 31, 2019

Assets

Operating lease right-of-use assets

Other assets

633

572

Liabilities

Operating lease liabilities

Other liabilities

633

547

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2020, the rate for the remaining lease term as of January 1, 2020 was used.

Operating lease cost was $64,000 and $31,000 for the three months ended June 30, 2020 and 2019, respectively, and $116,000 and $61,000 for the six months ended June 30, 2020 and 2019 respectively.

As of June 30, 2020, the weighted average remaining lease term was 4.59 years and the weighted average discount rate was 1.78%.

The following table represents the future maturities of the operating lease liabilities and other lease information as of June 30, 2020.


(dollars in thousands)	Lease Liability
2021	$	222
2022	152
2023	101
2024	45
2025	45
After June 30, 2025	104
Total lease payments	$	669
Less: interest	(36)
Present value of lease liabilities	$	633

Supplemental lease information:
Cash paid for amounts included in the measurement of lease liabilities:	June 30, 2020
Operating cash flows from operating leases (cash payments)	$	116
Operating cash flows from operating leases (lease liability reduction)	110
Operating lease right-of-use assets obtained in exchange for leases entered into during the period	196