Note 10. Lease Commitment

The Company 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 Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things allowed the Company to carry forward the historical lease classifications. Additionally, the Company elected the hindsight practical expedient to determine the lease term for existing leases.

The Company leases eighteen locations for administrative offices and branch locations. Sixteen leases were classified as operating leases and two 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 Company 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 Company 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.

The following tables present information about the Company’s leases for the year ended December 31, 2019:


	Dollars in Thousands
Balance Sheet
Operating Lease Amounts
Right-of-use asset classified as premises and equipment	$	4,504
Lease liability classified as other liabilities		4,797
Finance Lease Amounts
Right-of-use asset classified as premises and equipment	$	1,961
Lease liability classified as other liabilities		2,355

Income Statement
Operating lease cost classified as premises and equipment	$	511
Finance lease cost classified as borrowings		25

Weighted average lease term - Operating Leases (Yrs.)		8.39
Weighted average lease term - Finance Leases (Yrs.)		14.09
Weighted average discount rate - Operating Leases (1)		2.79	%
Weighted average discount rate - Finance Leases (1)		2.87	%
Operating outgoing cash flows from operating leases	$	516
Operating outgoing cash flows from finance leases	$	74

(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.

Minimum lease payments for the next five years and thereafter, assuming renewal options are exercised, are approximately as follows:


	Dollars in Thousands
Operating Leases:
One year or less	$	785
One to three years		1,240
Three to five years		1,127
Over 5 years		2,369
Total undiscounted cash flows		5,521
Less: Discount		(724)
Lease Liabilities	$	4,797

Finance Leases:
One year or less	$	168
One to three years		357
Three to five years		380
Over 5 years		1,988
Total undiscounted cash flows		2,893
Less: Discount		(538)
Lease Liabilities	$	2,355