Note 4 - Premises and Equipment, Net

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.    PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	September 30,		December 31,
	2023		2022
Land and improvements	$	13,072,000	$	13,532,000
Buildings		57,076,000		53,865,000
Furniture and equipment		24,658,000		22,941,000
		94,806,000		90,338,000
Less: accumulated depreciation		42,575,000		38,862,000
Premises and equipment, net	$	52,231,000	$	51,476,000

Depreciation expense totaled $1.5 million during the third quarters of both 2023 and 2022. Depreciation expense totaled $4.4 million during the first nine months of 2023, compared to $4.5 million during the first nine months of 2022.

We enter into facility leases in the normal course of business. As of September 30, 2023, we were under lease contracts for eleven of our banking facilities. The leases have maturity dates ranging from February, 2024 through December, 2029, with a weighted average life of 2.2 years as of September 30, 2023. All of our leases have multiple three- to five-year extensions; however, these were not factored in the lease maturities and weighted average lease term as it was not reasonably certain we would exercise the options on the dates we entered into the lease agreements.

Leases are classified as either operating or finance leases at the lease commencement date, with all of our current leases determined to be operating leases. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term, while lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date at the estimated present value of lease payments over the lease term. We use our incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments. The weighted average discount rate for leases was 5.9% as of September 30, 2023.

The right-of-use assets, included in premises and equipment, net on our Consolidated Balance Sheets, and the lease liabilities, included in other liabilities on our Consolidated Balance Sheets, totaled $4.0 million and $3.5 million as of September 30, 2023, and December 31, 2022, respectively. As permitted by applicable accounting standards, we have elected not to recognize short-term leases with original terms of twelve months or less on our Consolidated Balance Sheet. Total operating lease expense associated with the leases aggregated $0.4 million and $0.2 million during the third quarters of 2023 and 2022, respectively, and $1.3 million and $0.6 million during the first nine months of 2023 and 2022, respectively.

Future lease payments were as follows as of September 30, 2023:

2023	$	354,000
2024		1,210,000
2025		721,000
2026		612,000
2027		553,000
Thereafter		1,696,000
Total undiscounted lease payments		5,146,000
Less effect of discounting		(1,147,000	)
Present value of future lease payments (lease liability)	$	3,999,000