Leases

12 Months Ended

Dec. 31, 2022

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 primarily has operating leases for branches, office space, ATM locations, and certain equipment. As of December 31, 2022, 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 $24.9 million and $25.2 million, respectively, compared to right-of-use assets of $25.2 million and lease liability of $27.2 million at December 31, 2021. Total lease cost for the year ended December 31, 2022 was $7.9 million, compared to $7.7 million for the year ended December 31, 2021. 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 29 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)
2023	$	6,168
2024	4,684
2025	3,001
2026	2,434
2027	2,204
After 2027	13,743
Total lease payments	$	32,234
Less: Interest	7,003
Present value of lease liabilities	$	25,231

(1) Excludes $2.1 million 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, 2022		December 31, 2021
Weighted-average remaining lease term	10.6 years		11.1 years
Weighted-average discount rate	3.73	%	3.05	%

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


	For the Year Ended December 31
(in thousands)	2022		2021
Operating cash paid toward lease liabilities	$	6,529	6,180
Leased assets obtained in exchange for new lease liabilities	$	5,161	4,407

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 3 months to 16 years.

The following table provides the components of lease income.


	For the Year Ended December 31
(in thousands)	2022		2021
Direct financing and sales-type leases	22,144		22,736
Operating leases(1)	8,948		7,488
Total lease income	$	31,092	$	30,224

(1) Includes rent from Tower Properties, a related party, of $76 thousand for the years ended both December 31, 2022 and 2021.

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


(in thousands)	December 31, 2022		December 31, 2021
Lease payment receivable	$	704,509	$	655,885
Unguaranteed residual assets	72,157		66,638

Total net investments in direct financing and sales-type leases	$	776,666	$	722,523
Deferred origination cost	3,222		3,035
Total net investment included within business loans	$	779,888	$	725,558

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


(in thousands)	Direct Financing and Sale-Type Leases		Operating Leases		Total
2023	$	200,282	$	9,451	$	209,733
2024	169,469		11,518		180,987
2025	132,892		10,248		143,140
2026	103,897		9,595		113,492
2027	74,193		11,716		85,909
After 2027	87,260		62,977		150,237
Total lease receipts	767,993		$	115,505	$	883,498
Less: Net present value adjustment	63,484
Present value of lease receipts	$	704,509