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Note 25 - Leases

12 Months Ended

Dec. 31, 2020

25. Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The new standard was adopted by the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption. The Company elected to apply ASU 2016-02 as of the beginning of the period of adoption ( January 1, 2019) and will not restate comparative periods. Adoption of ASU 2016-02 resulted in the recognition of total operating lease liability obligations totaling $35.1 million and the recognition of operating lease right-of-use assets totaling $34.2 million at the date of adoption. The initial balance sheet gross up upon adoption was related to operating leases on land and buildings for twenty-three lease agreements. The Company has no finance leases or material subleases for which it is the lessor of property. The Company has elected to apply the package of practical expedients allowed by the new standard under which the Company need not reassess whether any expired or existing contracts are leases or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases.

At December 31, 2020, the Company had forty-two operating lease agreements, which include operating leases for twenty branch locations, seven offices that are used for general office space, and fifteen operating leases for equipment. Two of the real property operating leases did not include one or more options to extend the lease term. Eight of the operating leases for branch locations are land leases where the Company is responsible for the construction of the building on the property. The forty-two operating leases have maturity dates ranging from August 2021 to August 2059 most of which include options for multiple five and ten year extensions which the Company is reasonably certain to exercise. No operating leases include variable lease payments that are based on an index or rate, such as the CPI. The weighted average remaining operating lease term for these leases is 21.04 years as of December 31, 2020.

At December 31, 2019, the Company had thirty-seven operating lease agreements, which include operating leases for seventeen branch locations, seven offices that are used for general office space, and thirteen operating leases for equipment. Two of the real property operating leases did not include one or more options to extend the lease term. Five of the operating leases for branch locations are land leases where the Company is responsible for the construction of the building on the property. The thirty-seven operating leases have maturity dates ranging from January 2020 to December 2058 most of which include options for multiple five and ten year extensions which the Company is reasonably certain to exercise. No operating leases include variable lease payments that are based on an index or rate, such as the CPI. The weighted average remaining operating lease term for these leases is 19.75 years as of December 31, 2019.

The discount rate used in determining the operating lease liability obligation for each individual lease was the assumed incremental borrowing rate for the Company that corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered in to. The weighted average operating lease discount rate was 3.33% and 3.58% as of December 31, 2020 and 2019, respectively.

The following table presents operating lease costs net of sublease income for the twelve months ended December 31, 2020 and 2019.

	Twelve Months Ended December 31, 2020		Twelve Months Ended December 31, 2019
(dollars in thousands)
Operating lease cost	$	7,915	$	6,817
Sublease income		-		(302	)
Total lease cost	$	7,915	$	6,515

Rent expense was approximately $4.4 million for the year ended December 31, 2018.

The following table presents a maturity analysis of total operating lease liability obligations and reconciliation of the undiscounted cash flows to total operating lease liability obligations at December 31, 2020 and 2019.

	December 31, 2020			December 31, 2019
(dollars in thousands)
Operating lease payments due:
Within one year	$	8,260		$	7,221
One to three years		15,719			11,385
Three to five years		14,938			10,028
More than five years		85,176			70,721
Total undiscounted cash flows		124,093			99,355
Discount on cash flows		(46,517	)		(30,499	)
Total operating lease liability obligations	$	77,576		$	68,856

The following table presents cash and non-cash activities for the twelve months ended December 31, 2020 and 2019.

	Twelve Months Ended December 31, 2020		Twelve Months Ended December 31, 2019
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	7,383	$	5,387

Non-cash investing and financing activities
Additions to Operating leases – right of use asset
New operating lease liability obligation	$	10,973	$	72,648