Quarterly report pursuant to Section 13 or 15(d)

Leases

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Leases
9 Months Ended
Sep. 30, 2024
Leases [Abstract]  
Leases

Note 13 — Leases

 

The Company enters into leases in the normal course of business primarily for bank branch offices, back-office operations locations, business development offices, information technology data centers and information technology equipment. The Company’s leases have remaining terms ranging from one month to nine years and seven months, some of which include renewal or termination options to extend the lease for up to none.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the term of the lease. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term.

As of September 30, 2024, the outstanding balances for our right-of-use asset and lease liability were $37.3 million and $41.6 million, respectively. The outstanding balances of the right-of-use asset and lease liability were $42.4 million and $46.4 million, respectively, as of December 31, 2023. The right-of-use asset is reported in prepaid expenses and other assets line item and lease liability is reported in accrued expenses and other liabilities line item on the Consolidated Balance Sheets.

In determining the discount rates, since most of our leases do not provide an implicit rate, we used our incremental borrowing rate provided by the FHLB of San Francisco based on the information available at the commencement date to calculate the present value of lease payments.

At September 30, 2024, future minimum rental commitments under these non-cancelable operating leases, with initial or remaining terms of one year or more, were as follows:

 

 

 

Amount

 

 

 

(in thousands)

 

2024

 

$

8,407

 

2025

 

 

7,188

 

2026

 

 

6,699

 

2027

 

 

6,529

 

2028

 

 

5,608

 

Thereafter

 

 

11,959

 

Remaining lease commitments

 

 

46,390

 

Interest

 

 

(4,767

)

Present value of lease liability

 

$

41,623

 

 

Net lease expense recognized for the three months ended September 30, 2024 and 2023 was $2.1 million and $2.4 million, respectively. Net lease expense recognized for the nine months ended September 30, 2024 and 2023 was $6.8 million and $6.6 million, respectively. Net lease expense included operating lease costs of $2.2 million and $2.3 million for the three months ended September 30, 2024 and 2023, respectively. Operating lease costs were $6.7 million and $6.5 million for the nine months ended September 30, 2024 and 2023, respectively. Sublease income for operating leases was immaterial for both the three and nine months ended September 30, 2024 and 2023.

 

Weighted average remaining lease terms for the Company's operating leases were 6.51 years and 6.82 years as of September 30, 2024 and December 31, 2023, respectively. Weighted average discount rates used for the Company's operating leases were 3.29% and 2.98% as of September 30, 2024 and December 31, 2023, respectively.

Cash paid and included in cash flows from operating activities for amounts used in the measurement of the lease liability of the Company's operating leases was $2.2 million and $2.3 million for the three months ended September 30, 2024 and 2023, respectively, and $6.4 million and $6.4 million for the nine months ended September 30, 2024 and 2023, respectively.