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Premises and Equipment and Lease Commitments
 9 Months Ended
Sep. 30, 2023
Premises and Equipment and Lease Commitments [Abstract]  
Premises and Equipment and Lease Commitments
Note 5.  Premises and Equipment and Lease Commitments

Premises and equipment at September 30, 2023 and December 31, 2022 are summarized as follows (in thousands):

 
 Range of Useful Lives
September 30, 2023December 31, 2022
LandNot applicable$33,176 $71,741 
Buildings15 years-30 years101,840 206,434 
Leasehold improvements14 years-35 years70,755 62,209 
Furniture and equipment3 years-20 years181,972 144,979 
  387,743 485,363 
Less: accumulated depreciation and amortization 135,074 157,478 
   $252,669 $327,885 

Depreciation and amortization expense was $7.3 million and $22.1 million, respectively, for the three and nine months ended September 30, 2023 compared to $6.7 million and $19.1 million, respectively, for the three and nine months ended September 30, 2022.

Pinnacle Financial has entered into various operating leases, primarily for office space and branch facilities. The leases are classified as operating or finance leases at commencement. Right-of-use assets representing the right to use the underlying asset and lease liabilities representing the obligation to make future lease payments are recognized on the balance sheet within other assets and other liabilities. These assets and liabilities are estimated based on the present value of future lease payments discounted using Pinnacle Financial's incremental secured borrowing rates as of the commencement date of the lease. Certain lease agreements contain
renewal options which are considered in the determination of the lease term if they are deemed reasonably certain to be exercised. Pinnacle Financial has elected not to recognize leases with an original term of less than 12 months on the balance sheet.

During the second quarter of 2023, Pinnacle Bank consummated a sale-leaseback transaction pursuant to which it sold a combined 49 properties to two unaffiliated entities, PNB TN Portfolio Owner LLC and PNB Portfolio Owner, LLC (each, a "Purchaser" and collectively, the "Purchasers"), each of whom is an affiliate of Oak Street Real Estate Capital, for an aggregate cash purchase price of $198.2 million and concurrently agreed to separately lease each of those properties for an initial term of 14.5 years, with two five (5) year renewal options that Pinnacle Bank may exercise to extend the term of any of the leases. The pre-tax, net gain recorded associated with the sale of these 49 properties was $85.7 million, after deducting transaction-related expenses. The aggregate annual lease expense associated with these properties will be approximately $17.0 million for the first twelve months of the lease term, with each lease including a 1.9% annual rent escalation during the initial term, and a 2.0% annual rent escalation during each of the two five-year renewal terms, if exercised. The proceeds of the sale-leaseback transaction have been retained in Pinnacle Bank's cash accounts at the Federal Reserve, where they are currently anticipated to remain through at least the end of 2023.

Right-of-use assets and lease liabilities relating to Pinnacle Financial's operating and finance leases are as follows at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Right-of-use assets:
Operating leases$293,013 $126,767 
Finance leases1,148 1,318 
Total right-of-use assets$294,161 $128,085 
Lease liabilities:
Operating leases$300,965 $133,108 
Finance leases2,233 2,458 
Total lease liabilities$303,198 $135,566 

The total lease cost related to operating leases and short term leases is recognized on a straight-line basis over the lease term. For finance leases, right-of-use assets are amortized on a straight-line basis over the lease term and interest imputed on the lease liability is recognized using the effective interest method. The components of Pinnacle Financial's total lease cost were as follows for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Operating lease cost$12,729 $6,466 $24,460 $14,539 
Short-term lease cost93 75 267 286 
Finance lease cost:
Interest on lease liabilities55 62 141 158 
Amortization of right-of-use asset75 76 188 188 
Sublease income(348)(338)(1,014)(998)
Net lease cost$12,604 $6,341 $24,042 $14,173 

The weighted average remaining lease term and weighted average discount rate for operating and finance leases at September 30, 2023 and December 31, 2022 are as follows:
September 30, 2023December 31, 2022
Weighted average remaining lease term
Operating leases12.18 years10.44 years
Finance leases5.01 years5.84 years
Weighted average discount rate
Operating leases4.23 %3.11 %
Finance leases7.22 %7.22 %
Cash flows related to operating and finance leases during the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Operating cash flows related to operating leases$11,790 $5,859 $22,648 $13,528 
Operating cash flows related to finance leases55 62 141 158 
Financing cash flows related to finance leases101 94 250 233 

Future undiscounted lease payments for operating and finance leases with initial terms of more than 12 months are as follows at September 30, 2023 (in thousands):
Operating LeasesFinance Leases
2023$8,944 $127 
202436,046 527 
202533,787 527 
202631,418 527 
202730,316 527 
Thereafter252,829 440 
Total undiscounted lease payments393,340 2,675 
Less: imputed interest(92,375)(442)
Net lease liabilities$300,965 $2,233