Leases

12 Months Ended

Dec. 31, 2022

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. 2016-02 “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 eleven non-cancelable operating leases, including four Bank branch locations and four for administrative and operational space, two locations for an Interactive Teller Machine (“ITM”) and an automated teller machine (“ATM”), 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 cash flows for purposes of calculating the ROU and lease liability. The Company has no finance leases (previously referred to as a capital lease).

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, 2022 and 2021, the Company recognized ROU assets of $2.2 million and $2.6 million, respectively, and lease liabilities of $2.4 million and $2.8 million, respectively. ROU lease assets are included in other assets on the consolidated balance sheet. The lease liabilities are included in accrued expenses and other liabilities on the consolidated balance sheet.

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, 2022, the fixed lease costs and variable lease costs for the non-cancelable operating leases were $582,000 and $39,000, respectively. For the year ended December 31, 2021, the fixed lease costs and variable lease costs for the non-cancelable operating leases were $571,000 and $38,000, respectively. 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.

The following is a maturity analysis of the operating lease liabilities as of December 31, 2022:


(in thousands)	Operating lease Obligation
Years ending December 31,
2023	$	583
2024	446
2025	329
2026	299
2027	252
Thereafter	830
Total undiscounted lease payments	$	2,739

Less imputed interest	(379)

Present value of operating lease liabilities	$	2,360

Operating lease right-of-use asset	$	2,223


	Year Ended December 31,
	2022		2021		2020
Lease cost
Operating lease cost	$	582	$	571	$	565
Short-term lease cost	12		12		18
Total lease cost	$	594	$	583	$	583

Other information
Operating cash flows from operating leases	$	582	$	552	$	543


	December 31,
	2022		2021
Weighted -average remaining lease term - operating leases (in years)	8		8
Weighted -average discount rate - operating leases	3.35	%	3.30	%

As of December 31, 2022 and 2021, the undiscounted lease payments were $2.7 million and $3.2 million, respectively. The lease payments were not reduced by minimum sublease rentals of $964,000 and $812,000 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, 2022, 2021 and 2020, total rent expense for cancellable and non-cancellable operating leases was $594,000, $583,000, and $583,000, respectively.

For the years ended December 31, 2022, 2021 and 2020, Patriot recognized gross rental income of $566,000, $543,000, and $523,000 offset by rental costs of $5,000, $5,000, and $5,000, respectively.