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. There was one lease that renewed during the quarter ended March 31, 2021.

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. As of March 31, 2021, the Company does not have any leases that have not yet commenced. At March 31, 2021, lease expiration dates ranged from nine months to 24 years, with additional renewal options on certain leases typically ranging from 5 to 10 years. At March 31, 2021, the weighted average remaining lease term for the Company’s operating leases was 8.8 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $341,000 and $343,000, respectively, for the three months ended March 31, 2021 and 2020. 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, 2021:

	March 31,
	2021
	(dollars in thousands)
April 1, 2021 to December 31, 2021	$	953
2022		1,279
2023		1,272
2024		864
2025		713
2026 and thereafter		3,209
Total lease payments		8,290
Less: amounts representing interest		1,185
Present value of lease liabilities	$	7,105

The following table presents the components of total lease expense and operating cash flows for the three months ended March 31, 2021:

	March 31,
	2021
	(dollars in thousands)
Lease expense:
Operating lease expense	$	321
Variable lease expense		34
Total lease expense (1)	$	355
Cash paid:
Cash paid reducing operating lease liabilities	$	352

(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, 2020. 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 $33,000 for the three months ended March 31, 2021, with $599,000 remaining as of March 31, 2021. This capital lease began in October 2020, therefore there was no depreciation expense for the ATM capital lease as of March 31, 2020.