Annual report pursuant to Section 13 and 15(d)

Leases

v3.22.0.1
Leases
12 Months Ended
Dec. 31, 2021
Leases [Abstract]  
Leases

NOTE 12. LEASES

 

 

ASU 2016-02, “Leases (Topic 842),” was adopted by the Company on January 1, 2021. The Company adopted FASB ASC Topic 842 utilizing the modified retrospective transition approach prescribed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” The Company did not elect the package of practical expedients, which includes reassessing whether any expired or existing contracts are or contain leases, reassessing the lease classification and reassessing initial direct costs. Also, the Company did not elect to adopt the hindsight practical expedient therefore maintaining the lease terms previously determined under FASB ASC Topic 840, “Leases.” The Company accounts for lease and non-lease components separately where applicable as such amounts are readily determinable.

 

Once the Company identifies and determines certain contracts are leases according to FASB ASC Topic 842, the Company classifies it as an operating or a finance lease and recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The lease liability represents the present value of the lease payments that remain unpaid as of the commencement date and ROU is the initial lease liability recognized for the lease plus any lease payments made to the lessor at or before the commencement date as well as any initial direct costs less any lease incentives received.

 

The Company does not have any finance leases at December 31, 2021. The Company has operating leases for its office branches, operations offices, and certain equipment utilized at those properties.  Property leases typically have original lease terms ranging from 1 to 10 years, some of which may also include an option to extend the lease beyond the original lease term. The Company includes renewal and termination options within the lease term if deemed reasonably certain of exercise. The remainder of the lease portfolio is comprised of equipment leases that

have remaining lease terms of 1 year to 3 years. Operating leases may vary in term and, from time to time, include incentives and/or rent escalations. Examples of these type of incentives may include periods of “free” rent and leasehold improvement incentives. The Company recognizes incentives on a straight-line basis over the lease term as a reduction or increase to rent expense, as applicable, within occupancy and equipment expenses in the consolidated statements of income. As of December 31, 2021, the Company’s operating lease ROU asset and operating lease liability totaled $4.5 million and $4.7 million, respectively. The Company’s leases typically have one or more renewal options included in the lease contract. Due to the nature of the Company’s leases, for leases with renewal options available, the Company evaluates each lease to determine if exercise of the renewal option is reasonably certain.

 

In order to calculate its ROU assets and lease liabilities, FASB ASC Topic 842 requires the Company to use the rate of interest implicit in the lease when readily determinable. If the rate implicit in the lease is not readily determinable, the Company is required to use its incremental borrowing rate, which is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. The Company was unable to determine the implicit interest rate in any of the leases and therefore used its incremental borrowing rate.

 

The table below presents additional information related to the Company’s leases as of December 31, 2021:

 

 

 

December 31,

2021

 

Weighted-average remaining term (in years) - operating leases

 

 

4.22

 

Weighted-average discount rate - operating leases (1)

 

 

4.00

%

(1) The incremental borrowing rate used to calculate the lease liability was determined based on facts and circumstances of the economic environment and the Company's credit standing as of the effective date of ASC 842. Additionally, the total lease term and total lease payments were also considered in determining the rate.

 

 

 

 

The Company’s leases have remaining lease terms of 1 to 10 years, with a weighted average lease term of 4.22 years at December 31, 2021.

 

The following is a schedule of the Company’s operating lease liabilities by contractual maturity as of December 31, 2021:

 

 

 

(Dollars in thousands)

 

2022

 

 

1,784

 

2023

 

 

1,009

 

2024

 

 

812

 

2025

 

 

625

 

Thereafter

 

 

883

 

Total Lease Payments

 

 

5,113

 

Less: Imputed Interest

 

 

(393

)

Total present value of lease liabilities

 

 

4,720

 

 

 Total operating lease costs of $2.4 million were included as part of occupancy and equipment expense for the twelve months ended December 31, 2021. Included in these costs is $157 thousand relating to the lease of the Colleyville branch location from Beall Legacy Partners L.P., an entity controlled by one of the Company’s directors and his children. The Company believes the amounts paid and terms of the lease are reasonable, customary, and consistent with market.

 

 

 

The below table shows the supplemental cash flow information related to the Company’s operating leases for the three and nine months ended December 31, 2021:

 

 

 

For the Year Ended

 

 

 

December 31,

2021

 

 

 

(Dollars in thousands)

 

Operating cash flows (fixed payments) included in occupancy and equipment expenses

 

$

2,243

 

Operating cash flows (liability reduction) included in occupancy and equipment expenses

 

 

1,850