Note

12.

Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On

January 1, 2019,

the Company adopted ASU

No.

2016

“Leases” (Topic

842

) and all subsequent ASUs that modified Topic

842.

For the Company, Topic

842

primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Patriot has

ten

non-cancelable operating leases, including

four

Bank branch locations and

four

for administrative and operational space,

one

ITM location, and

one

equipment lease. The leases expire on various dates through

2032

and some include renewal options. Most of the leases contain rent escalation provisions, as well as renewal options for

one

or more periods. The last potential year the leases can be extended through

2037.

All of our leases are classified as operating leases, and therefore, were previously

not

recognized on the Company's consolidated balance sheets. With the adoption of Topic

842,

operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset and a corresponding lease liability. Renew periods were included in the future cashflows for purposes of calculating the ROU and lease liability. The Company has

finance leases (previously referred to as a capital lease).

Operating leases are recorded as a ROU lease assets and are included in other assets on the consolidated balance sheet. The Company's corresponding lease obligations are included in accrued expenses and other liabilities on the consolidated balance sheet. ROU lease assets represent the Company's right to use an underlying asset for the lease term and lease obligations represent the Company's obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do

not

provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company's lease terms

may

include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

As of

December

31,

2020

and

2019,

the Company recognized ROU assets of

$2.7

million and

$3.2

million, respectively, and lease liabilities of

$2.9

million and

$3.3

million, respectively, which are included in other assets and other liabilities, respectively, on the consolidated balance sheets. At the time of adoption on

January 1, 2019,

a cumulative-effect adjustment of

$11,000

was recorded to the accumulated deficit on the consolidated balance sheets.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. Short-term leases are leases having a term of

twelve

months or less. The Company recognizes short-term leases on a straight-line basis and does

not

record a related lease asset or liability for such leases, as allowed as practical expedient of the standard. The Company elected to separate lease and non-lease components. The fixed lease costs are recognized as ROU lease assets and Lease liability. The variable lease cost primarily represents variable payments such as common area maintenance and utilities, which are included in the occupancy and equipment expenses on the consolidated statements of operations. For the year ended

December

31,

2020,

the fixed lease costs and variable lease costs for the non-cancelable operating leases were

$565,000

and

$38,000,

respectively. For the year ended

December 31, 2019,

the fixed lease costs and variable lease costs for the non-cancelable operating leases were

$517,000

and

$27,000,

respectively.

The following is a maturity analysis of the operating lease liabilities as of

December

31,

2020:

(in thousands)	Operating lease
Years ending December 31,	Obligation
2021	$	560
2022		486
2023		458
2024		350
2025		238
Thereafter		1,325
Total undiscounted lease payments	$	3,417

Less imputed interest		(552	)

Present value of operating lease liabilities	$	2,865

Operating lease right-of-use asset	$	2,739

	Year Ended December 31,
	2020		2019
Lease cost
Operating lease cost	$	565	$	517
Short-term lease cost		18		119
Total lease cost	$	583	$	636

Other information
Operating cash flows from operating leases	$	543	$	459

	December 31,
	2020			2019
Weighted -average remaining lease term - operating leases (in years)		9			10
Weighted -average discount rate - operating leases		3.48	%		3.48	%

As of

December 31, 2020

and

2019,

the undiscounted lease payments were

$3.4

million and

$3.9

million, respectively. The lease payments were

not

reduced by minimum sublease rentals of

$1.7

million and

$2.0

million due in the future under non-cancelable subleases, respectively.

Rent expense for operating leases is recognized in earnings on a straight-line basis over the base term of the respective lease and is included in the consolidated statement of operations as a component of Occupancy and Equipment expense. For the years ended

December

31,

2020,

2019

and

2018,

total rent expense for cancellable and non-cancellable operating leases was

$583,000,

$636,000,

and

$593,000,

respectively.

For the years ended

December

31,

2020,

2019

and

2018,

Patriot recognized gross rental income of

$523,000,

$589,000,

and

$413,000

offset by rental costs of

$5,000,

and

$5,000,

respectively.