Operating lease commitments and contingencies

12 Months Ended

Dec. 31, 2023

Operating lease commitments and contingencies

Operating lease commitments and contingencies

6. Operating lease commitments and contingencies:

The Company is obligated under non-cancelable operating leases for certain branch locations.  We determine if an arrangement is a lease at inception by assessing whether a contract contains a right to control an identified asset for a period of time in exchange for consideration. For all leases, we recognize a right-of-use asset and lease liability at the effective date of the lease. Operating leases right-of-use assets are included in premises and equipment, and lease liabilities are included in other liabilities in the consolidated balance sheet.  We have no finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

Certain leases include options to renew, with renewal terms generally containing one or more five-year renewal options. At December 31, 2023, the Company’s leases have remaining renewal terms that can extend the lease terms from five years to thirty years that are reasonably certain of being exercised. The weighted average remaining lease term at December 31, 2023 is 19.4 years. At December 31, 2022, the weighted average remaining lease term was 17.1 years. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term. The discount rate used for leases added subsequently was the annual percentage increase outlined in the terms of each lease. There were two leases added in 2023 and no new leases added in 2022. At December 31, 2023 and December 31, 2022, discount rates ranged from 1.60 percent to 5.25 percent and from 1.60 percent to 3.85 percent with an average discount rate of 3.61 percent and 3.00 percent respectively.

At December 31, 2023, right-of-use assets of $10.6 million were included in premises and equipment, and the related lease liability totaled $11.0 million was included in other liabilities in the consolidated balance sheet. Right-of-use assets and the related lease liability were $8.0 million and $8.3 million, respectively, at December 31, 2022. There were two new leases in 2023 for our North Allegheny and King of Prussia Offices, and one lease, for the previous Doylestown branch, was not renewed. Rent expense for the years ended December 31, 2023, 2022 and 2021 amounted to $1.0 million, $1.0 million, and $760 thousand, respectively, and is included in occupancy expenses.

Future minimum lease payments under operating leases are summarized as follows:

(Dollars in thousands)
2024	$	838
2025		858
2026		862
2027		789
2028		809
Thereafter		11,942
Total future minimum lease payments		16,098
Less amount representing interest		(5,138)
Present value of future minimum lease payments	$	10,960

Neither the Company nor any of its property is subject to any material legal proceedings. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising out of pending and threatened lawsuits will have a material effect on the operating results or financial position of the Company.