Leases

12 Months Ended

Dec. 31, 2023

The Company's leasing activities include leasing certain real estate and equipment, providing lease financing to commercial customers, and leasing office space to third parties. The Company uses the FHLB fixed-advance rate at lease commencement or at any subsequent remeasurement event date based on the remaining lease term to calculate the liability for each lease.

Lessee

The Company's operating leases are primarily for branches, office space, ATM locations, and certain equipment. As of December 31, 2023, the right-of-use asset for operating leases, reported within premises and equipment, net, and lease liability, reported within other liabilities, recognized on the Company's consolidated balance sheets totaled $26.5 million and $26.9

million, respectively, compared to right-of-use assets of $24.9 million and lease liability of $25.2 million at December 31, 2022. Total lease cost for the year ended December 31, 2023 was $8.3 million, compared to $7.9 million for the year ended December 31, 2022. For leases with a term of 12 months or less, an election was made not to recognize lease assets and lease liabilities for all asset classes, and to recognize lease expense for these leases on a straight-line basis over the lease term. The Company's leases have remaining terms of 1 month to 28 years, most of which contain renewal options. However, the renewal options are generally not included in the leased asset or liability because the option exercises are uncertain.

The maturities of operating leases are included in the table below.


(in thousands)	Operating Leases(1)
2024	$	6,290
2025	4,434
2026	3,833
2027	3,609
2028	3,303
After 2028	12,624
Total lease payments	$	34,093
Less: Interest	7,199
Present value of lease liabilities	$	26,894

(1) Excludes $743 thousand of legally binding minimum lease payments for operating leases signed but not yet commenced.

The following table presents the average lease term and discount rate of operating leases.


	December 31, 2023		December 31, 2022
Weighted-average remaining lease term	9.9 years		10.6 years
Weighted-average discount rate	4.11	%	3.73	%

Supplemental cash flow information related to operating leases is included in the table below.


	For the Year Ended December 31
(in thousands)	2023		2022
Operating cash paid toward lease liabilities	$	6,486	6,529
Leased assets obtained in exchange for new lease liabilities	$	7,085	5,161

Lessor

The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases may include options to renew or to expand the leased space, and currently the leases have remaining terms of 1 month to 15 years.

The following table provides the components of lease income.


	For the Year Ended December 31
(in thousands)	2023		2022
Direct financing and sales-type leases	31,127		22,144
Operating leases(1)	13,036		8,948
Total lease income	$	44,163	$	31,092

(1) Includes rent from Tower Properties, a related party, of $76 thousand for the years ended both December 31, 2023 and 2022.

The following table presents the components of the net investments in direct financing and sales-type leases.


(in thousands)	December 31, 2023		December 31, 2022
Lease payment receivable	$	729,891	$	704,509
Unguaranteed residual assets	134,105		72,157

Total net investments in direct financing and sales-type leases	$	863,996	$	776,666
Deferred origination cost	3,024		3,222
Total net investment included within business loans	$	867,020	$	779,888

The maturities of lease receivables are included in the table below.


(in thousands)	Direct Financing and Sale-Type Leases		Operating Leases		Total
2024	$	218,641	$	11,976	$	230,617
2025	182,103		10,725		192,828
2026	146,430		10,080		156,510
2027	110,328		9,034		119,362
2028	67,850		8,352		76,202
After 2028	80,861		46,783		127,644
Total lease receipts	806,213		$	96,950	$	903,163
Less: Net present value adjustment	76,322
Present value of lease receipts	$	729,891