Leases

9 Months Ended

Sep. 30, 2023

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

The Company’s long-term lease agreements are classified as operating leases. Certain leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

During the third quarter of 2023, the Company acquired long-term branch leases and equipment leases due to the acquisition of TCFC. These leases were reassessed by management as of the Acquisition Date, which included updating the incremental borrowing rates and remaining lease terms.

The following tables present information about the Company’s leases.


(Dollars in thousands)	September 30, 2023			December 31, 2022
Lease liabilities	$	13,082		$	9,908
Right-of-use assets	$	12,741		$	9,629
Weighted average remaining lease term	11.07 years			12.55 years
Weighted average discount rate	3.18		%	2.50		%
Remaining lease term - min	0.64 years			0.16 years
Remaining lease term - max	17.93 years			18.68 years


	Three Months Ended September 30,				Nine Months Ended September 30,
Lease cost (in thousands)	2023		2022		2023		2022
Operating lease cost	$	485	$	340	$	1,153	$	1,007

Total lease cost	$	485	$	340	$	1,153	$	1,007

Cash paid for amounts included in the measurement of lease liabilities	$	459	$	318	$	1,090	$	939

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:


Lease payments due (in thousands)	As of September 30, 2023
Three months ending December 31, 2023	$	460
2024	1,768
2025	1,544
2026	1,554
2027	1,454
Thereafter	8,669
Total undiscounted cash flows	$	15,449
Discount	2,367
Lease liabilities	$	13,082

Total gross rental income was $0.3 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively. Total gross rental income was $0.9 million and $0.7 million for the nine months ended September 30, 2023, and 2022, respectively.

The following table presents our minimum future annual rental income on such leases as of September 30, 2023.


(In thousands)	As of September 30, 2023
Three months ending December 31, 2023	$	206
2024	701
2025	719
2026	737
2027	418
Thereafter	1,554
Total	$	4,335