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Note 17 - Lease Commitments

12 Months Ended

Dec. 31, 2020

Note 17. Lease Commitments

On January 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)" and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU No. 2018-11 and did not adjust prior periods for ASC 842. There was no cumulative effect adjustment at adoption. The Company also elected certain practical expedients within the standard and did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. Prior to adoption, all of the Company's leases were classified as operating leases and remained operating leases at adoption. The implementation of the new standard resulted in recognition of a right-of-use asset and lease liability of $390 thousand for leases existing at the date of adoption.

Contracts that commence subsequent to adoption are evaluated to determine whether they are or contain a lease in accordance with Topic 842. The Company has elected the practical expedient provided by Topic 842 not to allocate consideration in a contract between lease and non-lease components. The Company also elected, as provided by the standard, not to recognize right-of-use assets and lease liabilities for short-term leases, defined by the standard as leases with terms of 12 months or less. The Company has not entered into any new operating leases since adoption.

Lease liabilities represent the Company's obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company's incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company's right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and, if applicable, prepaid rent, initial direct costs, and any incentives received from the lessor.

Lease payments

Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Payments for leases with terms longer than twelve months are included in the determination of the lease liability. Payments may be fixed for the term of the lease or variable. If the lease agreement provides a known escalator, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability. Three of the Company's leases provide known escalators that are included in the determination of the lease liability. The remaining leases do not have variable payments during the term of the lease.

Options to extend, residual value guarantees, and restrictions and covenants

Of the Company's six leases, four leases offer the option to extend the lease. The calculation of the lease liability includes the additional time and lease payments for options which the Company is reasonably certain it will exercise. None of the Company's leases provide for residual value guarantees and none provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following table presents the operating lease right-of-use asset and operating lease liability as of December 31, 2020 and 2019 (in thousands):

	Classification in the Consolidated Balance Sheet	2020		2019
Operating lease right-of-use asset	Other assets	$	347	$	325
Operating lease liability	Accrued interest payable and other liabilities		341		321

The following table presents the weighted average remaining operating lease term and the weighted average discount rate for operating leases as of December 31, 2020 and 2019:

	2020			2019
Weighted average remaining lease term, in years		3.2			2.9
Weighted average discount rate		1.72	%		2.60	%

The following table presents the components of operating lease expense and supplemental cash flow information for the years ended December 31, 2020 and 2019 (in thousands):

	2020		2019
Lease Expense
Operating lease expense	$	135	$	133
Short-term lease expense		2		4
Total lease expense (1)	$	137	$	137

Cash paid for amounts included in lease liability	$	138	$	136

(1)	Included in occupancy expense in the Company's consolidated statements of income.

The following table presents a maturity schedule of undiscounted cash flows that contribute to the operating lease liability as of December 31, 2020 (in thousands):

Twelve months ending December 31, 2021	$	139
Twelve months ending December 31, 2022		115
Twelve months ending December 31, 2023		42
Twelve months ending December 31, 2024		31
Twelve months ending December 31, 2025		21
Total undiscounted cash flows	$	348
Less: discount		(7	)
Operating lease liability	$	341

The contracts in which the Company is lessee are with parties external to the Company and not related parties.