LEASES

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 “Leases” and all subsequent ASUs modifying ASC 842. For the Company, ASC 842 primarily affects the accounting treatment for operating lease agreements where the Company is the lessee.

Lessee Accounting

Substantially all of the leases pursuant to which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2040. All leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset with a corresponding lease liability using the modified retrospective approach. The total of ROU assets and lease liabilities were $9.0 million as of January 1, 2019.

The Company has elected the following practical expedients in conjunction with implementation of ASC 842 as follows:


•	Package of practical expedients:


◦	Lease classification as an operating lease under the prior standards is grandfathered.


◦	Re-evaluation of embedded leases evaluated under the prior standards is not required.


◦	No re-assessment of previously recorded initial direct lease costs.


•	Election to exclude short-term leases (i.e., leases with initial terms of twelve months or less), from capitalization on the consolidated balance sheets.

The following table presents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities as of December 31, 2019:



(in thousands)		December 31, 2019
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	9,623

Lease Liabilities
Operating lease liabilities	Other liabilities	9,651

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 for the present value of 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, ASC 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, 2019, the rate for the original lease term as of January 1, 2019 was used.



	December 31, 2019
Weighted-average remaining lease term
Operating leases	8.96

Weighted-average discount rate
Operating leases	3.27	%

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes, common area maintenance and utilities.



(in thousands)	Twelve Months Ended December 31, 2019
Lease Costs
Operating lease cost	$	698
Variable lease cost	711
Total lease cost	$	1,409

Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2019 are, as follows:



(in thousands)	Operating Leases
Twelve Months Ended:
December 31, 2020	$	1,194
December 31, 2021	1,199
December 31, 2022	1,222
December 31, 2023	1,219
December 31, 2024	1,190
Thereafter	5,984
Total future minimum lease payments	12,008
Amounts representing interest	(2,357		)
Present value of net future minimum lease payments	$	9,651