Note 5. Lease Commitments

The Bank adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, using a modified-retrospective approach, whereby comparative periods were not restated. No cumulative effect adjustment to the opening balance of retained earnings was required. The Bank also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things allowed the Bank to carry forward the historical lease classifications. Additionally, the Bank elected the hindsight practical expedient to determine the lease term for existing leases.

The Bank leases eight locations for administrative offices and branch locations. Seven leases were classified as operating leases and one as a finance lease. Leases with an initial term of 12 months or less as well as leases with a discounted present value of future cash flows below $25,000 are not recorded on the balance sheet and the related lease expense is recognized over the lease term. The Bank elected to use the practical expedient to not recognize short-term leases on the consolidated balance sheet and instead account for them as executory contracts.

Certain leases include options to renew, with renewal terms that can extend the lease term, typically for five years. Lease assets and liabilities include related options that are reasonably certain of being exercised. The Bank has determined that it will place a limit on exercises of available lease renewal options that would extend the lease term up to a maximum of fifteen years, including the initial term. The depreciable life of leased assets are limited by the expected lease term.

Adoption of this standard resulted in the Company recognizing a right of use asset and a corresponding lease liability of $3.6 million on January 1, 2019.

Supplemental lease information at or for the six months ended June 30, 2019 is as follows:


Balance Sheet	Dollars in Thousands

Right-of-use asset classified as premises and equipment	$	3,385
Lease liability classified as other liabilities		3,413

Income Statement

Operating lease cost classified as premises and equipment	$	243

Weighted average lease term, in years		7.80
Weighted average discount rate (1)		3.27	%
Operating cash flows	$	250

(1)

The discount rate was developed by using the fixed rate credit advance borrowing rate at the Federal Home Loan Bank of Atlanta for a term correlating to the remaining life of each lease. Management believes this rate closely mirrors its incremental borrowing rate for similar terms.

A maturity analysis of the Company's lease liabilities at June 30, 2019 was as follows:


	Dollars in Thousands
One year or less	$	—
One to three years		120
Three to five years		—
Over 5 years		3,777
Total lease payments		3,897
Less: Interest		(484)
Present value of lease liabilities	$	3,413