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Note 14 - Leases

9 Months Ended

Sep. 30, 2023

NOTE 14 - LEASES

The Company adopted ASU 2016-02, Leases (Topic 842) and elected the package of practical expedients, which allows the Company not to reassess its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected all of the new standard’s available transition practical expedients, including the short-term lease recognition exemption that includes not recognizing Right-of-Use (“ROU”) assets or lease liabilities for existing short-term leases, and the practical expedient to not separate lease and non-lease components for all of the Company's leases.

The Company determines if a contract arrangement is a lease at inception and primarily enters into operating lease contracts for its branch locations, office space, and certain equipment. As part of its property lease agreements, the Company may seek to include options to extend or terminate at lease when it is reasonably certain that the Company will exercise those options. The Company's measurement of the ROU assets and operating lease liabilities does not include payments associated with the option to extend or terminate the lease. The ROU lease assets also include any lease payments made and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company did not possess any leases that have variable lease payments or residual value guarantees as of September 30, 2023.

The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses FHLB advance rates to determine the present value of its lease liabilities.

The Company leases several of its operating facilities under various non-cancellable operating leases expiring at various dates through 2037. The Company is also responsible for common area maintenance, taxes, and insurance at the various branch locations.

Future minimum rent payments on the Company’s leases were as follows at September 30, 2023:

*(dollars in thousands)*
As of September 30, 2023:
2023 remaining	$	956
2024		4,884
2025		4,762
2026		4,884
2027		4,816
Thereafter		14,564
Total	$	34,866
Less amount of payment representing interest		(3,601	)
Total present value of lease payments	$	31,265

The minimum rent payments shown above are given for the existing lease obligation and are not a forecast of future rental expense. Total rental expense, recognized on a straight-line basis, was $1.5 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively, and $4.3 million and $4.0 million for the nine months ended September 30, 2023 and 2022, respectively. The Company recorded rental income of $144,000 and $106,000 for the three months ended September 30, 2023 and 2022, respectively, and $425,000 and $376,000 for the nine months ended September 30, 2023 and 2022, respectively.

The following table presents the operating lease related assets and liabilities recorded on the Company's consolidated balance sheet, and the weighted-average remaining lease terms and discount rates as of September 30, 2023 and December 31, 2022:

	*September 30,*			*December 31,*
*(dollars in thousands)*	*2023*			*2022*
Operating Leases
ROU assets	$	29,949		$	25,447
Lease liabilities		31,265			26,523

Weighted-average remaining lease term (in years)		7.91			7.91
Weighted-average discount rate		2.95	%		2.19	%