As described in “Note 12 – Adoption of New Accounting Standards,” the Bank adopted Accounting Standards Update (“ASU”) 2016-02 “Leases” and all subsequent amendments on January 1, 2019.

The Bank leases certain branch and back-office locations under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2032 and have a weighted average remaining term of 7.61 years at September 30, 2019. Many of the Bank’s leases include renewal options of up to 10 years. The exercise of lease renewal options is at the Bank’s sole discretion.

Rental payments required by the Bank’s lease agreements may increase over time based on certain variable components such as real estate taxes and common area maintenance charges.

The Bank determines if an arrangement is a lease at inception. ASU 2016-02 requires the recognition of a right-of-use (“ROU”) asset and lease liability at the commencement date based on the present value of lease payments over the lease term. As most of the Bank’s leases do not provide an implicit interest rate, the Bank uses its incremental borrowing rate to determine the present value of the lease payments. The weighted average discount rate for leases in place at September 30, 2019 was 3.09%. For leases entered into on a going forward basis, the Bank’s ROU asset and lease liability may include options to extend the lease when it is reasonably certain that the Bank will exercise that option. Lease expense will be recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Bank has one such lease at September 30, 2019 and recognizes lease expense for this lease on a straight-line basis over the lease term.

The components of lease expense for the nine and three months ended September 30, 2019 are as follows:



	Nine Month Ended		Three Months Ended
(in thousands)	September 30, 2019		September 30, 2019
Operating lease cost	$	1,969	$	662
Variable lease cost		345		104
Short-term lease cost		3		—
	$	2,317	$	766

The following is a maturity analysis of the operating lease liability as of September 30, 2019.



(dollars in thousands)
12 months ended September 30,	2020	$	2,580
	2021		2,464
	2022		2,451
	2023		2,171
	2024		1,996
	Thereafter		6,071
Total lease payments			17,733
Less: interest			1,977
Present value of lease payments		$	15,756