Leases

9 Months Ended

Sep. 30, 2022

Note 6 - Leases

The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception.

Operating lease right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Operating lease liabilities represent an obligation to make lease payments arising from the lease. An operating lease ROU asset and operating lease liability will be recognized for any new operating leases at the commencement of the new lease.

The Company’s leases do not provide an implicit interest rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities.

The Company’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Company’s lease agreements do not contain any residual value guarantees.

Operating leases with terms of 12 months or less are not included in ROU assets and operating lease liabilities recorded in the Company’s consolidated balance sheets. Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis. At September 30, 2022, lease expiration dates ranged from four months to 22.4 years, with additional renewal options on certain leases typically ranging from 5 to 10 years. At September 30, 2022, the weighted average remaining lease term inclusive of renewal options that the Company is reasonably certain to renew for the Company’s operating leases was 8.2 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $351,000 and $1.0 million, respectively, for the three and nine months ended September 30, 2022, and $343,000 and $1.0 million respectively, for the three and nine months ended September 30, 2021. Variable lease components, such as inflation adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at September 30, 2022:


(dollars in thousands; unaudited)	September 30, 2022

October 1 to December 31, 2022	$	326
2023	1,272
2024	864
2025	713
2026	719
2027 and thereafter	2,490
Total lease payments	6,384
Less: amounts representing interest	870
Present value of lease liabilities	$	5,514

The following table presents the components of total lease expense and operating cash flows for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
	(dollars in thousands; unaudited)
Lease expense:
Operating lease expense	$	320	$	321	$	961	$	962
Variable lease expense	52		37		137		108
Total lease expense (1)	$	372	$	358	$	1,098	$	1,070
Cash paid:
Cash paid reducing operating lease liabilities	$	371	$	356	$	1,090	$	1,061

(1)Included in net occupancy expense in the Condensed Consolidated Statements of Income (unaudited).

The Company entered into a five-year prepaid capital lease for ATM machines beginning October 1, 2021. The equipment is recorded as fixed assets on the Company’s balance sheet and depreciation expense is recognized on a straight-line basis over the term of the lease. Depreciation expense was $32,000 and $96,000, respectively, for the three and nine months ended September 30, 2022 and $34,000 and $100,000, respectively, for the three and nine months ended September 30, 2021, with $384,000 remaining as of September 30, 2022.