Leases

9 Months Ended

Sep. 30, 2021

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)		2021		2020		2021		2020
Operating lease cost	Occupancy/Equipment expense	$	2,995	$	3,952	$	9,388	$	19,786
Finance lease cost:
Amortization of right-of-use assets	Occupancy expense	593		311		1,714		733
Interest on lease liabilities	Interest expense	108		98		323		267

Sub-lease income	Occupancy expense	(142)		(129)		(420)		(378)
Total		$	3,554	$	4,232	$	11,005	$	20,408

Supplemental balance sheet information related to leases was as follows:


(dollars in thousands)	September 30, 2021			December 31, 2020
Operating Leases
Operating lease right-of-use assets	$	69,912		$	76,197
Operating lease liabilities	76,771			86,598

Finance Leases
Premises and equipment, net	16,004			11,351
Other borrowings	16,688			11,813

Weighted-Average Remaining Lease Term (in Years)
Operating leases	10.4			10.6
Finance leases	8.0			10.3

Weighted-Average Discount Rate
Operating leases	3.39		%	3.40		%
Finance leases	3.06		%	3.46		%

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended September 30,
(dollars in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	10,692	$	12,194
Operating cash flows from finance leases	323		267
Financing cash flows from finance leases	1,492		569

The following table presents a maturity analysis of the Company’s lease liability by lease classification at September 30, 2021:


(dollars in thousands)	Operating Leases		Finance Leases
2021	$	3,464	$	640
2022	13,002		2,641
2023	9,273		2,673
2024	8,219		2,683
2025	8,079		2,682
Thereafter	49,815		7,591
Total undiscounted lease payments	91,852		18,910
Amounts representing interest	(15,081)		(2,222)
Lease liability	$	76,771	$	16,688

Old National leases certain office space and buildings to unrelated parties in exchange for consideration. All of these tenant leases are classified as operating leases. The following table presents a maturity analysis of the Company’s tenant leases at September 30, 2021:


(dollars in thousands)	Tenant Leases
2021	$	642
2022	2,047
2023	1,598
2024	1,420
2025	1,083
Thereafter	2,922
Total undiscounted lease payments	$	9,712

Leases