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RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

9 Months Ended

Sep. 30, 2023

RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

8. RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

The Company records as operating lease liabilities the present value of its required minimum lease payments plus any amounts probable of being owed under a residual value guarantee. Offsetting these operating lease liabilities, the Company records right-of-use assets for the underlying leased property.

As of September 30, 2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 40 of its offices, with 12 such operating leases contracted with a related party of the Company. As of September 30, 2023, payments on 22 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company recorded two third-party lease renewals during the first nine months of 2023 with a total right-of-use asset value of $1.5 million and recorded five new third-party leases during the first nine months of 2023 with a total right-of-use asset value of $2.0 million.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	2023		2022		2023		2022

Operating lease expense:
Related Party:
Variable lease expense	$	1,202	$	1,101	$	3,631	$	3,635
Fixed lease expense		58		57		175		149
Third-Party:
Variable lease expense		390		222		1,070		639
Fixed lease expense		409		346		1,184		1,040
Total operating lease expense	$	2,059	$	1,726	$	6,060	$	5,463

Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,667	$	1,709	$	5,168	$	5,121
Cash paid for variable rent payments not included in measurement of operating lease liabilities		151		151		453		453
Short-term lease payments not included in the measurement of lease liabilities		—		—		—		—

The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of September 30, 2023 and December 31, 2022:


	September 30, 2023			December 31, 2022

Weighted average remaining term in years		7.78			8.44
Weighted average discount rate		2.28	%		2.10	%

The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of September 30, 2023:


Year (in thousands)	Related Party		Third-Party		Total

2023	$	961	$	720	$	1,681
2024		3,726		2,826		6,552
2025		3,569		2,244		5,813
2026		3,640		1,925		5,565
2027		3,680		1,603		5,283
Thereafter		11,750		4,698		16,448
Total undiscounted cash flows	$	27,326	$	14,016	$	41,342
Discount applied to cash flows		(2,884)		(1,732)		(4,616)
Total discounted cash flows reported as operating lease liabilities	$	24,442	$	12,284	$	36,726