Leases

12 Months Ended

Dec. 31, 2022

LeasesThe 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. Any new operating leases entered into will be recognized as an operating lease ROU asset and operating lease liability at the commencement date 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 weighted average discount rate used to discount operating lease liabilities at December 31, 2022 was 3.4%.

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 original terms of 12 months or less are not included in ROU assets and operating lease liabilities recorded in our 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 December 31, 2022, lease expiration dates ranged from less than one month to 22 years, with additional renewal options on certain leases typically ranging from 5 to 10 years. At December 31, 2022, the dollar weighted average remaining lease term 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 $1.4 million for the years ended December 31, 2022 and 2021. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following sets forth, as of December 31, 2022, the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew:


(dollars in thousands)	December 31, 2022
2023	$	1,272
2024	864
2025	713
2026	719
2027	667
2028 and thereafter	1,823
Total lease payments	6,058
Less: amounts representing interest	824
Present value of lease liabilities	$	5,234

The Company leases its Downtown Everett facility from related parties (Note 12). Office space at a small number of branches is leased and sub-leased to a few tenants on month-to-month and multi-year leases. Lease and sublease income was $157,000 and $127,000 for 2022 and 2021, respectively.

The following table presents the components of total lease expense and operating cash flows for the year ended December 31, 2022:


	For the Year Ended
(dollars in thousands)	December 31, 2022		December 31, 2021
Lease expense:
Operating lease expense	$	1,281	$	1,283
Variable lease expense	193		148
Total lease expense (1)	$	1,474	$	1,431
Cash paid:
Cash paid reducing operating lease liabilities	$	1,473	$	1,419

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