Leases

3 Months Ended

Mar. 31, 2022

Leases

Leases

NOTE 14. Leases

The Company follows ASU 2016-02, "Leases (Topic 842)," which revised certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. ASU 2016-02 requires that a lessee recognize the assets and liabilities on its balance sheet that arise from all leases with a term greater than 12 months. The core principle requires the lessee to recognize a liability to make lease payments and a "right-of-use" asset.

Operating leases in which the Bank is the lessee are recorded as right-of-use ("ROU") assets and lease liabilities and are included in Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively, on the Bank’s Consolidated Balance Sheets. The Bank does not currently have any finance leases in which it is the lessee.

Operating lease ROU assets represent the Bank’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate. The incremental borrowing rate was calculated for each lease by taking a variable rate FHLB ARC product and then swapping it to a fixed rate borrowing by adding a fixed mid swap rate for the desired term. The borrowing rate for each lease is unique based on the lease term. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in Occupancy expense in the Consolidated Statements of Income.

The Bank’s leases relate primarily to bank branches, office space and equipment with remaining lease terms of generally 1 to 10 years. Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

Certain real estate leases have lease payments that adjust based on annual changes in the Consumer Price Index ("CPI"). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability.

Operating lease ROU assets totaled $5.4 million at March 31, 2022, compared to $5.2 million at December 31, 2021. As of March 31, 2022, operating lease liabilities totaled $5.4 million, compared to $5.3 million at December 31, 2021.

The table below summarizes our net lease cost:

	For the three months ended March 31,
(In thousands)	2022		2021
Operating lease cost	$	188	$	149
Net lease cost	$	188	$	149

The table below summarizes the cash and non-cash activities associated with our leases:

	For the three months ended March 31,
(In thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	182	$	145
ROU assets obtained in exchange for new operating lease liabilities	$	582	$	—

The table below summarizes other information related to our operating leases:

(In thousands, except percentages and years)	March 31, 2022			December 31, 2021
Weighted average remaining lease term in years		11.33			11.40
Weighted average discount rate		3.17	%		3.20	%
Operating lease right-of-use assets	$	5,353		$	5,249

The table below summarizes the maturity of remaining lease liabilities:

(In thousands)	March 31, 2022
2022	$	549
2023		670
2024		624
2025		622
2026		624
2027 and thereafter		3,168
Total lease payments	$	6,257
Less: Interest		(818)
Present value of lease liabilities	$	5,439

As of March 31, 2022, the Company had not entered into any material leases that have not yet commenced.