Leases

9 Months Ended

Sep. 30, 2022

The Company enters into leases in the normal course of business. As of September 30, 2022, the Company leased 16 branch offices for which the land and buildings are leased and nine branch offices for which the land is leased but the buildings are owned. The Company also leases office space for several operational departments. All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from July 2023 through May 2076, some of which include options for multiple five- and ten-year extensions. The weighted average remaining life of the lease term for these leases was 19.6 years as of September 30, 2022. Certain of the Company's lease agreements include variable lease payments based on changes in inflation, with the impact of that factor being insignificant to the Company's total lease expense. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated Balance Sheets. The short-term lease cost for each period presented was insignificant.

Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of the Company's leases have been determined to be operating leases. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use 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. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is not known. The weighted average discount rate for leases was 2.94% as of September 30, 2022.

Total operating lease expense was $0.7 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively, and $2.3 million and $1.8 million for the nine months ended September 30, 2022 and 2021, respectively. The right-of-use assets and lease liabilities were $19.2 million and $19.8 million as of September 30, 2022, respectively, and were $20.7 million and $21.2 million as of December 31, 2021, respectively.

Future undiscounted lease payments for operating leases with initial terms of one year or more as of September 30, 2022 are as follows.


($ in thousands)
October 1, 2022 to December 31, 2022	$	584
2023	2,360
2024	2,163
2025	1,706
2026	1,685
Thereafter	19,988
Total undiscounted lease payments	28,486
Less effect of discounting	(8,639)
Present value of estimated lease payments (lease liability)	$	19,847