LEASES

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

LEASES

LEASES

Operating lease assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent the Corporation's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Corporation's incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the condensed consolidated statements of income.

The Corporation leases certain full-service branch offices, land, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion. The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option. Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index.

Leases	Classification	September 30, 2023		December 31, 2022
Assets:
Operating lease assets	Operating lease assets	$	36,065	$	32,307
Finance lease assets	Premises and equipment, net (1)	232		286
Total leased assets		$	36,297	$	32,593
Liabilities:
Operating lease liabilities	Operating lease liabilities	$	37,998	$	33,726
Finance lease liabilities	Accrued interest payable and other liabilities	316		383
Total leased liabilities		$	38,314	$	34,109

(1) Finance lease assets are recorded net of accumulated amortization of $984 thousand as of September 30, 2023 and $930 thousand as of December 31, 2022.

The components of the Corporation's net lease expense for the three and nine months ended September 30, 2023 and 2022, respectively, were as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
Lease Cost	Classification	2023		2022		2023		2022
Operating lease cost	Net occupancy expense	$	745	$	577	$	2,224	$	1,635
Variable lease cost	Net occupancy expense	27		14		71		44
Finance lease cost:
Amortization of leased assets	Net occupancy expense	18		18		54		54
Interest on lease liabilities	Interest expense - borrowed funds	4		5		12		15
Sublease income (1)	Net occupancy expense	(20)		(23)		(66)		(56)
Net lease cost		$	774	$	591	$	2,295	$	1,692

(1) Sublease income excludes rental income from owned properties.

The following table sets forth future minimum rental payments under noncancellable leases with initial terms in excess of one year as of September 30, 2023:

Maturity of Lease Liabilities as of September 30, 2023	Operating Leases (1)		Finance Leases		Total
2023	$	843	$	26	$	869
2024	2,554		105		2,659
2025	2,579		105		2,684
2026	2,567		105		2,672
2027	2,543		—		2,543
After 2027	50,239		—		50,239
Total lease payments	61,325		341		61,666
Less: Interest	23,327		25		23,352
Present value of lease liabilities	$	37,998	$	316	$	38,314

(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $4.8 million of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of September 30, 2023 and December 31, 2022 were as follows:

Lease Term and Discount Rate	September 30, 2023		December 31, 2022
Weighted-average remaining lease term (years)
Operating leases	23.2		23.9
Finance leases	3.3		4.0
Weighted-average discount rate
Operating leases	4.05	%	3.83	%
Finance leases	4.49	%	4.49	%

Other information related to the Corporation's lease liabilities as of September 30, 2023 and 2022, respectively, was as follows:

Other Information	September 30, 2023		September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	869	$	888

LEASES

LEASES

Operating lease assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent the Corporation's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Corporation's incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the condensed consolidated statements of income.

The Corporation leases certain full-service branch offices, land, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion. The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option. Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index.

Leases	Classification	September 30, 2023		December 31, 2022
Assets:
Operating lease assets	Operating lease assets	$	36,065	$	32,307
Finance lease assets	Premises and equipment, net (1)	232		286
Total leased assets		$	36,297	$	32,593
Liabilities:
Operating lease liabilities	Operating lease liabilities	$	37,998	$	33,726
Finance lease liabilities	Accrued interest payable and other liabilities	316		383
Total leased liabilities		$	38,314	$	34,109

(1) Finance lease assets are recorded net of accumulated amortization of $984 thousand as of September 30, 2023 and $930 thousand as of December 31, 2022.

The components of the Corporation's net lease expense for the three and nine months ended September 30, 2023 and 2022, respectively, were as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
Lease Cost	Classification	2023		2022		2023		2022
Operating lease cost	Net occupancy expense	$	745	$	577	$	2,224	$	1,635
Variable lease cost	Net occupancy expense	27		14		71		44
Finance lease cost:
Amortization of leased assets	Net occupancy expense	18		18		54		54
Interest on lease liabilities	Interest expense - borrowed funds	4		5		12		15
Sublease income (1)	Net occupancy expense	(20)		(23)		(66)		(56)
Net lease cost		$	774	$	591	$	2,295	$	1,692

(1) Sublease income excludes rental income from owned properties.

The following table sets forth future minimum rental payments under noncancellable leases with initial terms in excess of one year as of September 30, 2023:

Maturity of Lease Liabilities as of September 30, 2023	Operating Leases (1)		Finance Leases		Total
2023	$	843	$	26	$	869
2024	2,554		105		2,659
2025	2,579		105		2,684
2026	2,567		105		2,672
2027	2,543		—		2,543
After 2027	50,239		—		50,239
Total lease payments	61,325		341		61,666
Less: Interest	23,327		25		23,352
Present value of lease liabilities	$	37,998	$	316	$	38,314

(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $4.8 million of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of September 30, 2023 and December 31, 2022 were as follows:

Lease Term and Discount Rate	September 30, 2023		December 31, 2022
Weighted-average remaining lease term (years)
Operating leases	23.2		23.9
Finance leases	3.3		4.0
Weighted-average discount rate
Operating leases	4.05	%	3.83	%
Finance leases	4.49	%	4.49	%

Other information related to the Corporation's lease liabilities as of September 30, 2023 and 2022, respectively, was as follows:

Other Information	September 30, 2023		September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	869	$	888