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Leases | 12 Months Ended
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Dec. 31, 2021
Leases [Abstract] |
Leases |
(8) | Leases
On January 1, 2019, Mid Penn adopted ASU No. 2016-02, Leases (Topic 842), and all subsequent ASUs that modified Topic 842, which primarily affected the accounting treatment for operating lease agreements in which Mid Penn is the lessee. As of the January 1, 2019 adoption date, Mid Penn leased twenty-four branch locations under non-cancelable operating leases, which expire at various dates through the year ending December 31, 2035. Three of Mid Penn’s operating leases are with related parties. Subsequent to the adoption of Topic 842, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039. In 2016, Mid Penn entered into two subleasing agreements with unrelated parties on one of its properties under an operating lease. Both subleases included escalation clauses. The first sublease agreement began on April 1, 2016, while the second sublease began on July 1, 2016. One sublease was terminated during the first quarter of 2019 due to the bankruptcy of the tenant. The remaining sublease ends on March 31, 2022. As a result of the adoption of ASU 2016-02, the remaining balance of a deferred sale/leaseback gain originated in 2017 was eliminated through an opening adjustment to retained earnings. The adoption of this standard also resulted in an increase to both other assets and other liabilities to record right-of-use lease assets and corresponding lease liabilities for all of Mid Penn’s leased facilities. Please reference Note 23, Recent Accounting Pronouncements, for more information. Operating and finance lease right-of-use assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt. Mid Penn has elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) on the Consolidated Balance Sheet. There were no sale and leaseback transactions or leveraged leases as of December 31, 2021. There were no leases that had not commenced as of December 31, 2021. On December 7, 2021 the Corporation announced a Retail Network Optimization Plan under which the Bank announced its intention to close certain retail locations throughout its expanded footprint. The branch closures occurred on or about March 4, 2022. During the fourth quarter of 2021, Mid Penn recognized $1,348,000 of right-of-use asset abandonment expense within post-acquisition restructuring expenses on the Consolidated Statements of Income due to the announced closure of six leased retail locations under the Retail Network Optimization Plan. Below is a summary of the operating and finance lease right-of-use assets and related lease liabilities, as well as the weighted average lease term (in years) and weighted average discount rate for each of the lease classifications as of December 31, 2021 and December 31, 2020.
(Dollars in thousands) |  | December 31, 2021 |  |  | December 31, 2020 |
|  | Operating Leases |  |  | Finance Lease |  |  | Operating Leases |  |  | Finance Lease |
Right of use asset |  | $ | 9,055 |  |  | $ | 3,087 |  |  | $ | 10,157 |  |  | $ | 3,267 |
Lease liability |  | $ | 11,363 |  |  | $ | 3,380 |  |  | $ | 11,200 |  |  | $ | 3,467 |
Weighted average remaining lease term (in years) |  |  | 7.03 |  |  |  | 17.17 |  |  |  | 8.05 |  |  |  | 18.17 |
Weighted average discount rate |  |  | 3.12 | % |  |  | 3.81 | % |  |  | 3.30 | % |  |  | 3.81 | %
A summary of lease costs during the years ended December 31, 2021 and December 31, 2020 is presented below. Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income.
(Dollars in thousands) |  | Year Ended |
|  | December 31, 2021 |  |  | December 31, 2020 |  |  | December 31, 2019 |
Finance lease cost: |  |  |  |  |  |  |  |  |  |  |  |
Amortization of right-of-use asset |  | $ | 180 |  |  | $ | 180 |  |  | $ | 150 |
Interest expense on lease liability |  |  | 130 |  |  |  | 133 |  |  |  | 113 |
Total finance lease cost |  |  | 310 |  |  |  | 313 |  |  |  | 263 |
Operating lease cost |  |  | 2,002 |  |  |  | 2,061 |  |  |  | 2,077 |
Short-term and equipment lease costs |  |  | 29 |  |  |  | 40 |  |  |  | 55 |
Variable lease cost |  |  | — |  |  |  | — |  |  |  | — |
Sublease income |  |  | (27 | ) |  |  | (21 | ) |  |  | (24 | )
Total lease costs |  | $ | 2,314 |  |  | $ | 2,393 |  |  | $ | 2,371 |
A summary of cash paid for amounts included in the measurement of lease liabilities is presented below.
(Dollars in thousands) |  | Year Ended |
|  | December 31, 2021 |  |  | December 31, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |  |
Operating cash flows from finance leases |  | $ | 130 |  |  | $ | 133 |
Operating cash flows from operating leases |  |  | 2,113 |  |  |  | 2,105 |
Financing cash flows from finance leases |  |  | 87 |  |  |  | 83 |
A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below.
(Dollars in thousands) |  | December 31, 2021 |
|  | Operating Leases |  |  | Finance Lease |
Lease payments due: |  |  |  |  |  |  |  |
Within one year |  | $ | 2,426 |  |  | $ | 217 |
After one but within two years |  |  | 2,042 |  |  |  | 217 |
After two but within three years |  |  | 1,863 |  |  |  | 252 |
After three but within four years |  |  | 1,476 |  |  |  | 259 |
After four but within five years |  |  | 1,249 |  |  |  | 259 |
After five years |  |  | 3,626 |  |  |  | 3,473 |
Total undiscounted cash flows |  |  | 12,682 |  |  |  | 4,677 |
Discount on cash flows |  |  | (1,319 | ) |  |  | (1,297 | )
Total lease liability |  | $ | 11,363 |  |  | $ | 3,380 |
The following summary reflects the future minimum rental payments by year under Mid Penn’s operating and finance leases as of December 31, 2021, including a breakdown of the sublease rental income and future minimum payments owed to related parties.
|  | As of December 31, 2021 |
(Dollars in thousands) |  | Lease Obligation |  |  | Sublease Rental Income |  |  | Net Rental Expense |
2022 |  | $ | 2,901 |  |  | $ | 27 |  |  | $ | 2,874 |
2023 |  |  | 2,446 |  |  |  | — |  |  |  | 2,446 |
2024 |  |  | 2,156 |  |  |  | — |  |  |  | 2,156 |
2025 |  |  | 1,739 |  |  |  | — |  |  |  | 1,739 |
2026 |  |  | 1,508 |  |  |  | — |  |  |  | 1,508 |
thereafter |  |  | 7,099 |  |  |  | — |  |  |  | 7,099 |
|  | $ | 17,849 |  |  | $ | 27 |  |  | $ | 17,822 |
The rental expense paid to related parties was $274,000 in 2021, $269,000 in 2020, and $279,000 in 2019. The future minimum payments to related parties are $274,000 (2022), $274,000 (2023), $274,000 (2024), $185,000 (2025), $178,000 (2026), and $1,171,000 thereafter. The following summary reflects the future minimum rental payments by year under Mid Penn’s operating leases as of December 31, 2020, including a breakdown of the sublease rental income and future minimum payments owed to related parties.
|  | As of December 31, 2020 |
(Dollars in thousands) |  | Lease Obligation |  |  | Sublease Rental Income |  |  | Net Rental Expense |
2021 |  | $ | 2,445 |  |  | $ | 21 |  |  | $ | 2,424 |
2022 |  |  | 2,426 |  |  |  | — |  |  |  | 2,426 |
2023 |  |  | 2,179 |  |  |  | — |  |  |  | 2,179 |
2024 |  |  | 2,013 |  |  |  | — |  |  |  | 2,013 |
2025 |  |  | 1,632 |  |  |  | — |  |  |  | 1,632 |
thereafter |  |  | 8,543 |  |  |  | — |  |  |  | 8,543 |
|  | $ | 19,238 |  |  | $ | 21 |  |  | $ | 19,217 |
Rental expense in connection with leases was $2,393,000 in 2020 and $2,371,000 in 2019.

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