Leases

9 Months Ended

Sep. 30, 2022

LEASES

Old National has operating and finance leases for land, office space, banking centers, and equipment. These leases are generally for periods of 5 to 20 years with various renewal options. We include certain renewal options in the measurement of our right-of-use assets and lease liabilities if they are reasonably certain to be exercised. Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit and loss when incurred. Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.

Old National has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated. For certain equipment leases, Old National accounts for the lease and non-lease components as a single lease component using the practical expedient available for that class of assets.

Old National does not have any material sub-lease agreements.

The components of lease expense were as follows:


	Affected Line Item in the Statement of Income	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)		2022		2021		2022		2021
Operating lease cost	Occupancy/Equipment expense	$	7,657	$	2,995	$	21,323	$	9,388
Finance lease cost:
Amortization of right-of-use assets	Occupancy expense	680		593		2,003		1,714
Interest on lease liabilities	Interest expense	105		108		315		323

Sub-lease income	Occupancy expense	(87)		(142)		(389)		(420)
Total		$	8,355	$	3,554	$	23,252	$	11,005

Supplemental balance sheet information related to leases was as follows:


(dollars in thousands)	September 30, 2022			December 31, 2021
Operating Leases
Operating lease right-of-use assets	$	187,626		$	69,560
Operating lease liabilities	207,725			76,236

Finance Leases
Premises and equipment, net	14,756			16,451
Other borrowings	15,700			17,233

Weighted-Average Remaining Lease Term (in Years)
Operating leases	9.2			10.4
Finance leases	7.1			7.6

Weighted-Average Discount Rate
Operating leases	2.91		%	3.34		%
Finance leases	3.14		%	3.02		%

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	22,223	$	10,692
Operating cash flows from finance leases	315		323
Financing cash flows from finance leases	1,839		1,492

The following table presents a maturity analysis of the Company’s lease liability by lease classification at September 30, 2022:


(dollars in thousands)	Operating Leases		Finance Leases
2022	$	7,983	$	736
2023	30,128		2,968
2024	28,717		3,018
2025	27,407		3,029
2026	26,405		1,790
Thereafter	117,486		6,031
Total undiscounted lease payments	238,126		17,572
Amounts representing interest	(30,401)		(1,872)
Lease liability	$	207,725	$	15,700

Leases