Note 9 - 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, we adopted ASU No. 2016-02 “Leases” (“Topic 842”) and all subsequent ASUs that modified Topic 842. For us, Topic 842 primarily affected the accounting treatment for operating lease agreements in which we are the lessee.

Substantially all of the leases in which we are the lessee are comprised of real estate property for branches, ATM locations, office equipment, and office space with terms extending through 2035. All of our leases are classified as operating leases, and therefore, were previously not recognized on the our consolidated statements of financial condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of financial condition as an ROU asset and a corresponding lease liability.

The following table represents the consolidated statements of financial condition classification of our ROU assets and lease liabilities, included in other assets and other liabilities, respectively. We elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) on the consolidated statements of financial condition.


	September 30, 2019
	(dollars in thousands)
Lease ROU assets	$	2,534
Lease liabilities		2,572

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 to present value the minimum lease payments. Our lease agreements often include one or more options to renew at our discretion. If at lease inception, we consider the exercising of a renewal option to be reasonably certain we will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, we utilize our incremental borrowing rate at lease inception over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. The weighted-average remaining lease term was 11.85 years and the weighted-average discount rate was 3.26% as of September 30, 2019.

The following table represents lease costs and other lease information. As we 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 common area maintenance and utilities. Variable lease cost also includes payments for ATM location leases in which payments are based on a percentage of ATM transactions (i.e., ATM surcharge fees), rather than a fixed amount.


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
	(dollars in thousands)
Operating lease costs	$	110	$	323
Variable lease cost		—		—
Total lease cost		110		323

Cash paid on operating lease liabilities amounted to $81,000 and $240,000 for the three and nine months ended September 30, 2019 and 2018, respectively.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more were as follows:


	September 30, 2019
Lease payments due:	(dollars in thousands)
September 30, 2020	$	353
September 30, 2021		330
September 30, 2022		326
September 30, 2023		279
September 30, 2024		250
Thereafter		1,627
Total future minimum lease payments		3,165
Amounts representing interest		(593)
Present value of net future minimum lease payments		2,572