Lease Commitments

9 Months Ended

Sep. 30, 2019

Lease Commitments

Lease Commitments

8.   Lease Commitments

Due to the adoption of ASU 2016-02, Leases (Topic 842) , the Company completed a comprehensive review and analysis of all its property contracts. As a result of this review, it was determined that the Company leases two office locations and office equipment under operating leases. Several assumptions and judgments were made when applying the requirements of Topic 842 to the Company’s existing lease commitments, including the allocation of consideration in the contracts between lease and non-lease components, determination of the lease term, and determination of the discount rate used in calculating the present value of the lease payments.

The Company has elected to account for the variable non-lease components, such as common area maintenance charges, utilities, real estate taxes, and insurance, separately from the lease component. Such variable non-lease components are reported in net occupancy expense on the Consolidated Statements of Operations when paid. These variable non-lease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. The following table presents the lease cost associated with both operating and financing leases for the three-month period ending March 31, 2019 (in thousands). Total operating rent expense recorded during the three-month period ended September 30, 2019 and 2018 was $134,000 and $119,000, respectively. Total operating rent expense recorded during the nine-month period ended September 30, 2019 and 2018 was $385,000 and $354,000, respectively.

Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of January 1, 2019. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at September 30, 2019.

	Operating
Weighted-average remaining term (years)		4.62
Weighted-average discount rate		3.50	%

The following table presents the undiscounted cash flows due related to operating and financing leases as of September 30, 2019, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets.

	Operating
Undiscounted cash flows due:
Within 1 year	$	433
After 1 year but within 2 years		438
After 2 years but within 3 years		447
After 3 years but within 4 years		455
After 4 years but within 5 years		92
After 5 years		133
Total undiscounted cash flows		1,998
Discount on cash flows		(248	)
Total lease liabilities	$	1,750

Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of September 30, 2019, the Company had one lease for its Mount Airy branch that had a term of twelve months or less that did not include a purchase option.  This lease is excluded from total lease liabilities.