Note 9 - Lease Obligations

The Company leases certain branch offices under operating or finance leases. Certain lease arrangements contain extension options which are typically for 5 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

As of December 31, 2025 and 2024, two of the Company’s branch offices were subject to operating leases with associated ROU assets of $759,000 and $938,000, respectively, and lease liabilities of $778,000 and $944,000, respectively. The ROU assets are recorded under other assets and the lease liabilities are recorded under other liabilities and accrued interest payable on the consolidated statements of financial condition.

Operating lease costs that were recorded in occupancy and equipment expense on the consolidated statements of income for each of the years ended December 31, 2025 and 2024 were $180,000 and $152,000, respectively.

The Company has one long-term finance lease agreement for a branch location and the outstanding balance of the finance lease (included in other liabilities and accrued interest payable on the consolidated statements of financial condition) at December 31, 2025 and 2024 was $277,000 and $378,000, respectively, with a discount rate of 9.22%. The remaining term of this lease is 2.5 years. The asset related to this finance lease is included in premises and equipment and consists of the cost of $1.1 million less accumulated depreciation of $839,000 and $797,000 at December 31, 2025 and 2024, respectively. Interest expense recognized on the Company's finance lease amounted to $35,000 and $44,000 for the years ended December 31, 2025 and 2024, respectively.