Premises and Equipment

12 Months Ended

Jun. 30, 2020

Premises and Equipment

Premises and Equipment

NOTE 5: Premises and Equipment

Following is a summary of premises and equipment:

	June 30,
(dollars in thousands)	2020		2019
Land	$	12,585	$	12,414
Buildings and improvements		56,039		54,304
Construction in progress		435		466
Furniture, fixtures, equipment and software		18,109		16,514
Automobiles		120		107
Operating leases ROU asset		1,965		—
		89,253		83,805
Less accumulated depreciation		24,147		21,078
	$	65,106	$	62,727

Leases. The Company adopted ASU 2016-02, Leases (Topic 842), on July 1, 2019, using the modified retrospective transition approach whereby comparative periods were not restated. The Company also elected certain relief options under the ASU, including the option not to recognize right of use (“ROU”) asset and lease liabilities that arise from short-term leases (leases with terms of twelve months or less). The Company has five leased properties and numerous office equipment lease agreements in which it is the lessee, with lease terms exceeding twelve months. Adoption of this ASU resulted in the Company recognizing a ROU asset and corresponding lease liability of $437,000, while entry into a new operating lease agreement in September, 2019, resulted in the recognition of a ROU asset and corresponding lease liability of $1.6 million.

All of the leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASU 2016-02, these operating leases are now included as a ROU asset in the premises and equipment line item on the Company’s consolidated balance sheets. The corresponding lease liability is included in the accounts payable and other liabilities line item on the Company’s consolidated balance sheets. Because these leases are classified as operating leases, the adoption of the new standard did not have a material effect on lease expense on the Company’s consolidated statements of income.

ASU 2016-02 also requires certain other accounting elections. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. ROU assets or lease liabilities are not to be recognized for short-term leases. The calculated amount of the ROU assets and lease liabilities in the table below are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. 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. Regarding the discount rate, the ASU requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception over a similar term. The discount rate utilized was 5%. The expected lease terms range from 18 months to 20 years.

	At or For the
	Twelve Months Ended
	June 30, 2020
Consolidated Balance Sheet
Operating leases right of use asset	$	1,965
Operating leases liability	$	1,965
Consolidated Statement of Income
Operating lease costs classified as occupancy and equipment expense	$	214
(includes short-term lease costs)
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	174
ROU assets obtained in exchange for operating lease obligations:	$	2,004

For the years ended June 30, 2020 and 2019, lease expense was $214,000 and $213,000, respectively. At June 30, 2020, future expected lease payments for leases with terms exceeding one year were as follows:

(dollars in thousands)
2021	$	269
2022		243
2023		243
2024		243
2025		243
Thereafter		2,181
Future lease payments expected	$	3,422