Leases and Commitments

12 Months Ended

Dec. 31, 2021

Leases and Commitments

Leases and Commitments

10.  Leases and Commitments

Leases

The Company follows ASU 2016-02, "Leases (Topic 842)," which revised certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. ASU 2016-02 requires that a lessee recognize the assets and liabilities on its balance sheet that arise from all leases with a term greater than 12 months. The core principle requires the lessee to recognize a liability to make lease payments and a "right-of-use" asset.

Operating leases in which the Bank is the lessee are recorded as right-of-use ("ROU") assets and lease liabilities and are included in Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively, on the Bank’s Consolidated Balance Sheets. The Bank does not currently have any finance leases in which it is the lessee.

Operating lease ROU assets represent the Bank’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate. The incremental borrowing rate was calculated for each lease by taking a variable rate FHLB ARC product (based on Libor plus a spread) and then swapping it to a fixed rate borrowing by adding a fixed mid swap rate for the desired term. The borrowing rate for each lease is unique based on the lease term. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in Occupancy expense in the Consolidated Statements of Income.

The Bank’s leases relate primarily to bank branches, office space and equipment with remaining lease terms of generally 1 to 10 years. Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

Certain real estate leases have lease payments that adjust based on annual changes in the Consumer Price Index ("CPI"). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability.

Operating lease ROU assets totaled $5.2 million at December 31, 2021, compared to $2.4 million at December 31, 2020. As of December 31, 2021, operating lease liabilities totaled $5.3 million, compared to $2.4 million at December 31, 2020.

The table below summarizes our net lease cost:

	For the years ended December 31,
(In thousands)	2021		2020
Operating lease cost	$	638	$	593
Net lease cost	$	638	$	593

The table below summarizes the cash and non-cash activities associated with our leases:

	For the years ended December 31,
(In thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	614	$	570
ROU assets obtained in exchange for new operating lease liabilities	$	3,138	$	41

The table below summarizes other information related to our operating leases:

(In thousands, except percentages and years)	December 31, 2021			December 31, 2020
Weighted average remaining lease term in years		11.40			5.96
Weighted average discount rate		3.20	%		5.45	%
Operating lease right-of-use assets	$	5,249		$	2,365

The table below summarizes the maturity of remaining lease liabilities:

(In thousands)	December 31, 2021
2022	$	681
2023		617
2024		572
2025		589
2026		595
2027 and thereafter		3,104
Total lease payments	$	6,158
Less: Interest		(827)
Present value of lease liabilities	$	5,331

As of December 31, 2021, the Company had not entered into any material leases that have not yet commenced.

Commitments to Borrowers

Commitments to extend credit are legally binding loan commitments with set expiration dates. They are intended to be disbursed, subject to certain conditions, upon the request of the borrower. The Company was committed to advance approximately $399.8 million to its borrowers as of December 31, 2021, compared to $288.4 million at December 31, 2020. At December 31, 2021, $170.1 million of these commitments expire within one year, compared to $114.2 million a year earlier. At December 31, 2021, the Company had $4.3 million in standby letters of credit compared to $4.5 million at December 31, 2020. The estimated fair value of these guarantees is not significant. The Company believes it has the necessary liquidity to honor all commitments.

Litigation

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. In the best judgment of management, based upon consultation with counsel, the consolidated financial position and results of operations of the Company will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments.