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Note 8 - Leases

9 Months Ended

Sep. 30, 2023

Note 8: Leases

The Company’s leases are recorded under ASC Topic 842, “Leases”. The Company examines its contracts to determine whether they are or contain a lease. A contract with a lease is further examined to determine whether the lease is a short-term, operating or finance lease. As permitted by ASC Topic 842, the Company elected not to capitalize short-term leases, defined by the standard as leases with terms of 12 months or less. The Company also elected the practical expedient not to separate non-lease components from lease components within a single contract.

Right-of-use assets and lease liabilities are recognized for operating and finance leases. 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 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.

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 12 months are included in the determination of the lease liability. Payments may be fixed for the term of the lease or variable. Variable payments result when the lease agreement includes a clause providing for escalation of lease payments at specified dates. If the escalation factor is known, 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. One of the Company’s leases provides a known escalator that is 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 operating leases as of September 30, 2023, four leases offer the option to extend the lease term. Two of the leases have two options of five years each and one lease has two options of three years each. Another lease has one option to extend the term for an additional five years. The Company exercised a previous option to extend this lease in 2020. At the time of capitalization, the Company was not reasonably certain whether it would exercise the options and did not include the time period in the calculation of the lease liability. The lease agreements provide that the lease payment will increase at the exercise date based on the Consumer Price Index for All Urban Consumers (“CPI-U”). Because the CPI-U at the exercise date is unknown, the increase is not included in the cash flows determining the lease liability. 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 contracts in which the Company is lessee are with parties external to the Company and not related parties. The Company’s lease right of use asset is included in other assets and the lease liability is included in other liabilities. The following tables present information about leases as of the dates and for the periods indicated:

	September 30, 2023			December 31, 2022
Lease liability	$	1,205		$	1,444
Right-of-use asset	$	1,175		$	1,415
Weighted average remaining lease term (in years)		4.58			5.14
Weighted average discount rate		3.29	%		3.29	%

	For the Three Months Ended September 30,
Lease Expense	2023		2022
Operating lease expense	$	91	$	84
Short-term lease expense		10		1
Total lease expense	$	101	$	85
Cash paid for amounts included in lease liabilities	$	100	$	83
Right-of-use assets obtained in exchange for operating lease liabilities commencing during the period	$	-	$	79

	For the Nine Months Ended September 30,
Lease Expense	2023		2022
Operating lease expense	$	275	$	238
Short-term lease expense		11		2
Total lease expense	$	286	$	240
Cash paid for amounts included in lease liabilities	$	286	$	239
Right-of-use assets obtained in exchange for operating lease liabilities commencing during the period	$	-	$	104

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:

Undiscounted Cash Flow for the Period	As of September 30, 2023
Twelve months ending September 30, 2024	$	351
Twelve months ending September 30, 2025		289
Twelve months ending September 30, 2026		219
Twelve months ending September 30, 2027		187
Twelve months ending September 30, 2028		189
Thereafter		64
Total undiscounted cash flows	$	1,299
Less: discount		(94	)
Lease liability	$	1,205

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