Leases

12 Months Ended

Dec. 31, 2025

Note 16—Leases

Lessee – Operating Leases

Operating leases in which we are the lessee are recorded as operating lease right-of-use (“ROU”) assets and operating lease liabilities, included in other assets and other liabilities, respectively, on our consolidated balance sheets. We do not currently have any significant finance leases in which we are the lessee.

Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating 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 at the lease commencement date. ROU assets are further adjusted for lease incentives. 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 net in occupancy expense in the consolidated statements of income.

Our leases relate primarily to office space and bank branches with remaining lease terms of generally nine months to 7 years. Certain lease arrangements contain extension options that typically range from 5 to 10 years at the then fair market rental rates. ASC 842 requires lessees to evaluate whether option periods, if available, will be exercised in order to determine the full life of the lease. The Company used the first option period, unless it is a relatively new lease that has a long initial lease term or other extenuating circumstances.

As of December 31, 2025, operating lease ROU assets and liabilities were $1.6 million and $1.7 million, respectively. As of December 31, 2024, operating lease ROU assets and liabilities were $2.2 million and $2.3 million, respectively. Operating lease expenses totaled $798,000, $758,000 and $737,000 for the years ended December 31, 2025, 2024 and 2023, respectively.

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

	Year Ended December 31,
(in thousands except for percent and period data)	2025			2024
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating Cash Flow from Operating Leases	$	798		$	758

Weighted-Average Remaining Lease Term - Operating Leases, in Years		3.11			3.56
Weighted-Average Discount Rate - Operating Leases		2.7	%		2.7	%

The table below summarizes the maturity of remaining lease liability:

(Dollars in thousands)	Amount
2026	$	740
2027		407
2028		283
2029		186
2030		101
Total lease payments		1,717
Discount		(62	)
Net present value of lease liabilities	$	1,655

As of December 31, 2025, we had no additional operating leases for office space that had not yet commenced or that are anticipated to commence during the first quarter of 2026.

Lessor – Direct Financing Leases

The Company is the lessor in direct finance lease arrangements. Leases are recorded at the principal balance outstanding, net of unearned income and charge-offs. Interest income is recognized using the interest method. Leases typically have a maturity of three to ten years, and fixed rates that are most often tied to Treasury indices with an appropriate spread based on the amount of perceived risk. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed with qualified, independent appraisers that establish the residual values the Company uses in structuring a lease. At the conclusion of the lease, the lessee has the option to extend the lease, purchase the leased asset or return the leased asset to the Company.

Lease payments due to the Company are typically fixed and paid in equal installments over the lease term. Variable lease payments that do not depend on an index or a rate (e.g., property taxes) that are paid directly by the Company are minimal. The majority of property taxes are paid directly by the client to third-parties and are not considered part of variable payments and therefore are not recorded by the Company.

As a lessor, the Company leases certain types of agriculture equipment, solar equipment, construction equipment and other equipment to its customers. The Company's net investment in direct financing leases, included in the line item “Loans and leases held for investment, net of unearned income” on the balance sheet, was $181.0 million at December 31, 2025 and $179.7 million at December 31, 2024.

The following table provides the components of leases receivable income for the period indicated:

	Year Ended December 31,
(Dollars in thousands)	2025		2024		2023

Interest income on net investments in leases	$	11,653	$	11,760	$	7,766

The following table presents the components of lease receivables as of the date indicated:

	December 31,
(Dollars in thousands)	2025		2024
Direct financing leases
Lease receivables	$	180,776	$	176,760
Unguaranteed residual values		228		2,959
Total net investment in direct financing leases	$	181,004	$	179,719

The following table presents maturities of direct financing lease receivables for the years ending December 31:

(Dollars in thousands)	Amount
2026	$	3,114
2027		11,988
2028		21,020
2029		11,037
2030		74,356
Thereafter		100,833
Total lease payments		222,348
Less: unearned interest income and guaranteed residual value		(41,572	)
Net lease receivables	$	180,776