11. LEASES

The Company adopted ASU 2016-02, Leases (Topic 842) on January 1, 2019. As a result, the Company recognized a right-of-use asset of $4,417,000 included in Interest receivable and other assets and lease liabilities of $4,812,000 included in Interest payable and other liabilities on the Balance Sheet. The recognition of a cumulative-effect adjustment to the opening balance of retained earnings was not necessary as prior to the adoption of this ASU, the Company recognized lease expense on a straight-line basis over the life of the lease term. As such, the difference between the right-of-use asset and lease liabilities was offset by accrued rent and tenant improvement receivables as of January 1, 2019.

The Bank leases nine branch and administrative locations. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Bank combines lease and nonlease components. As of March 31, 2019, all of the Bank’s leases are operating leases.

Most leases include options to renew, with renewal terms that can extend the lease term from 3 to 10 years. The exercise of lease renewal options is at the Bank’s sole discretion. Most leases are currently in the extension period. For the remaining leases with options to renew, the Bank has not included the extended lease terms in the calculation of lease liabilities as the options are not reasonably certain of being exercised. Certain lease agreements include rental payments that are adjusted periodically for inflation. The Bank's lease agreements do not contain any residual value guarantees or restrictive covenants.

The Bank uses its FHLB advance fixed rates, which are the Bank’s incremental borrowing rates for secured borrowings, as the discount rates to calculate lease liabilities.

As of March 31, 2019, the Company had right-of use assets and lease liabilities totaling $4,225,000 and $4,618,000, respectively. For the three months ended March 31, 2019, the Company recognized lease expense totaling $223,000, which includes expenses related to short-term leases totaling $29,000 and a reduction of $21,000 for the recognition of deferred gain on sale-leaseback. Lease expense is included in Occupancy and equipment expense on the Income Statement.

The table below summarizes the maturity of remaining lease liabilities:

(in thousands)	March 31, 2019
2019	$	656
2020		858
2021		802
2022		738
2023		669
After 2023		1,387
Total lease payments		5,110
Less: interest		(492	)
Present value of lease liabilities	$	4,618

The table below summarizes other information related to our operating leases:

(in thousands except for percent and period data)	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	217
Right-of-use assets obtained in exchange for new operating lease liabilities		4,417
Weighted-average remaining lease term - operating leases, in years		6.41
Weighted-average discount rate - operating leases		3.03	%