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Leases

12 Months Ended

Dec. 31, 2023

Note 8: Leases

The Company’s operating leases are real estate leases which are comprised of bank branches and office space with terms extending through 2029. Prior to 2022, these leases were not recognized on the Company's consolidated financial statements. With the adoption of ASU 2016-02, operating lease agreements were required to be recognized on the consolidated balance sheets as an ROU asset and a corresponding lease liability. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the

exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

Operating lease ROU assets represent the Company’s right to use the underlying asset during the lease term and operating lease liabilities represent the Company’s 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 the rate implicit in the lease. As the rate implicit in the lease is rarely determinable, the Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments. The Company's incremental borrowing rate is based on the FHLB amortizing advance rate, adjusted for the lease term and other factors.

As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance, property taxes and other costs associated with the lease. These variable payments are not included in the lease liability and are expensed as incurred.

The following table presents the components of lease expense and cash flow information related to operating leases as of the periods indicated:


	December 31,
(dollars in thousands)	2023		2022
Operating Lease Cost	$	557	$	538
Variable Lease Cost		262		253
Total Lease Cost	$	819	$	791

Prior to the adoption of ASU 2016-02, rent expense, net of rental income, including common area maintenance pertaining to banking premises totaled $52,000 for the year ended December 31, 2021.

The following table presents other information on the Company’s operating leases for the years ended December 31, 2023 and 2022:


	December 31,
(dollars in thousands)	2023			2022
Operating Lease Right-of-Use Assets	$	1,938		$	2,472
Operating Lease Liabilities		1,972			2,496
Weighted Average Remaining Lease Term (in Years)		4.95			6.12
Weighted Average Discount Rate		1.68	%		1.46	%

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	543		$	513

The following table presents the future expected operating lease payments under the Company's operating lease agreements as of December 31, 2023:


	December 31,
(dollars in thousands)	2023
2024	$	587
2025		540
2026		354
2027		251
2028		254
Thereafter		53
Total Undiscounted Lease Payments		2,039
Discount for Present Value of Expected Cash Flows		(67)
Total Lease Liability	$	1,972

The Greenwood location is leased pursuant to the terms of a non‑cancelable lease agreement with Bridgewater Properties Greenwood, LLC, a related party through common ownership, in effect at December 31, 2023. The lease contains one option to extend the lease for a period of five years. Future minimum rent commitments under the operating lease are listed below at December 31, 2023.


(dollars in thousands)	2023
2024	$	178
2025		181
2026		108
Total	$	467

The Company receives rents from the lease of office and retail space in its corporate headquarters building. Rental income is included in noninterest expense as an offset to rental expense. Future minimum rental income under these leases are listed below at December 31, 2023.


(dollars in thousands)	2023
2024	$	514
2025		519
2026		301
2027		263
2028		231
Thereafter		486
Total	$	2,314

Rental income, which is included in occupancy and equipment expense, including common area maintenance pertaining to banking premises for the years ended December 31, 2023, 2022 and 2021, totaled $894,000, $907,000 and $634,000, respectively.