Leases

3 Months Ended

Mar. 31, 2023

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 weighted average discount rate as of March 31, 2023 was 3.45%.

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 March 31, 2023, lease expiration dates ranged from 11 months to 21.9 years, with additional renewal options on certain leases typically ranging from 5 to 10 years. At March 31, 2023, 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 8.1 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $358,000 three months ended March 31, 2023, and $346,000 for the three months ended March 31, 2022. 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 March 31, 2023:


(dollars in thousands; unaudited)	March 31, 2023

April 1 to December 31, 2023	$	987
2024	894
2025	715
2026	719
2027	667
2028 and thereafter	1,823
Total lease payments	5,805
Less: amounts representing interest	783
Present value of lease liabilities	$	5,022

The following table presents the components of total lease expense and operating cash flows for the three months ended March 31, 2023 and 2022:


	Three Months Ended
	March 31, 2023		March 31, 2022
	(dollars in thousands; unaudited)
Lease expense:
Operating lease expense	$	321	$	320
Variable lease expense	52		41
Total lease expense (1)	$	373	$	361
Cash paid:
Cash paid reducing operating lease liabilities	$	379	$	358

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