Operating Lease Obligations

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Operating Lease Obligations

12. OPERATING LEASE OBLIGATIONS

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 in exchange for consideration. On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), and all subsequent ASUs that modified Topic 842 using the optional transition method. The adoption of this standard resulted in the recording of a ROU asset and lease liability of $556,000 as of January 1, 2019 for the Company’s four operating lease obligations in which the Company is the lessee.

The Company elected the package of practical expedients, which removed the requirements to reassess whether any expired or existing contracts contain leases, reassess the lease classification for any expired or existing leases, and reassess the initial direct costs for any existing leases. The Company also elected two other practical expedients allowing the combination of lease and nonlease components by class of underlying asset and using hindsight in determining the lease terms since most of the leases have an extension option.

The four operating leases, one of which is with a related party, are comprised of real estate property for branch and office space with terms extending through 2029. Operating leases were previously not recognized on the Company’s consolidated statements of condition, but with the adoption of Topic 842, operating lease agreements are recognized on the consolidated statements of condition as a ROU asset and a corresponding lease liability. As of December 31, 2020, the Company had operating lease ROU assets totaling $379,000 included in other assets and operating lease liabilities totaling $388,000 included in other liabilities.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

Topic 842 requires the use of the rate implicit in the lease as the discount rate if that rate is readily determinable. As this rate is rarely determinable, the Company utilized its incremental borrowing rate at lease inception, which is the rate the Company would have incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Because the four operating leases existed prior to the adoption of Topic 842 on January 1, 2019, the incremental borrowing rate for the remaining lease term at January 1, 2019 was used.

As of December 31, 2020, the weighted-average remaining operating lease term was 7.1 years, and the weighted-average discount rate was 5.46%.

The Company elected, for the real estate class of underlying assets which is currently its only class, not to separate lease and nonlease components and to account for them as a single lease component. The Company has one operating lease agreement containing a monthly ATM surcharge, which is combined with the property rental payment because of electing the practical expedient. The Company’s total operating lease cost for the years ended December 31, 2020 and 2019 were $116,000 and $120,000, respectively. During the years ended December 31, 2020 and 2019, total operating lease payments made to a related party totaled $24,000 and $23,000, respectively.

The future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2020 were as follows:

(Dollars in thousands)
Years ending December 31,	Lease Obligation
2021	$	120
2022		50
2023		46
2024		47
2025		47
2026 and beyond		159
Total Future Minimum Lease Payments		469
Amounts Representing Interest		(81)
Present Value of Net Future Minimum Lease Payments (Lease Liability)	$	388