Operating Leases

9 Months Ended

Sep. 30, 2021

(9) Operating Leases

The Company adopted Topic 842 “Leases” effective January 1, 2019 and has applied the guidance to all operating leases within the scope of Topic 842 at that date. The company elected to adopt practical expedients, which among other things, does not require reassessment of lease classification.

The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s balance sheets.

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine present value of operating lease liabilities. Additionally, the Company does allocate the consideration between lease and non-lease components. The Company’s lease terms may include options to extend when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. As of September 30, 2021 the Company did not have any leases with terms of twelve months or less.

As of September 30, 2021 the Company has one lease that the construction has not started yet. At September 30, 2021 lease expiration dates ranged from five months to 23.0 years and have a weighted average remaining lease term of 8.7 years. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. As mentioned above the leases generally also include variable lease components which include real estate taxes, insurance, and common area maintenance (“CAM”) charges in the annual rental payments.

Other information related to leases was as follows:

(dollars in thousands)	Three months ended September 30,
	2021		2020
Operating lease cost	$	2,010		1,966
Variable lease cost		499		369

Total Lease costs	$	2,509		2,335

(dollars in thousands)	Nine months ended September 30,
	2021		2020
Operating lease cost	$	6,029		5,893
Variable lease cost		1,508		1,524

Total Lease costs	$	7,537		7,417

(dollars in thousands)	Nine months ended September 30,
	2021			2020
Supplemental cash flows information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6,121			6,022

Right-of-use assets obtained in exchange for lease obligations:		2,696			287

Weighted average remaining lease term	8.7 years			8.9 years
Weighted average discount rate		3.07	%		3.25	%

Future minimum lease payments under non-cancellable leases as of September 30, 2021 were as follows:

(dollars in thousands)

Year ending December 31,
2021^(a)	$	2,072
2022		8,014
2023		7,719
2024		7,595
2025		7,223
Thereafter		25,291
Total lease payments	$	57,914
Less: Interest		7,399

Present value of lease liabilities	$	50,515

(a)	Excluding the nine months ended September 30, 2021.

A member of the Board of Directors has an ownership interest in five entities that own commercial real estate leased by the Company for use as branch locations. Total lease payments from the Company to those entities, which are included in the table above, owed at September 30, 2021, were $3.7 million, which includes interest in the amount of $525 thousand.