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Premises and Equipment and Lease Commitments | 6 Months Ended
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Jun. 30, 2023
Premises and Equipment and Lease Commitments [Abstract] |
Premises and Equipment and Lease Commitments | Note 5. Premises and Equipment and Lease Commitments Premises and equipment at June 30, 2023 and December 31, 2022 are summarized as follows (in thousands):
| Range of Useful Lives |  | June 30, 2023 |  | December 31, 2022
Land | Not applicable |  | $ | 31,598 |  |  | $ | 71,741 |
Buildings | 15 years | - | 30 years |  | 100,874 |  |  | 206,434 |
Leasehold improvements | 15 years | - | 20 years |  | 67,065 |  |  | 62,209 |
Furniture and equipment | 3 years | - | 20 years |  | 173,863 |  |  | 144,979 |
|  |  |  |  | 373,400 |  |  | 485,363 |
Less: accumulated depreciation and amortization |  |  |  |  | 128,547 |  |  | 157,478 |
|  |  |  |  | $ | 244,853 |  |  | $ | 327,885 |
Depreciation and amortization expense was $7.5 million and $14.8 million, respectively, for the three and six months ended and June 30, 2023 compared to $6.4 million and $12.4 million, respectively, for the three and six months ended June 30, 2022. Pinnacle Financial has entered into various operating leases, primarily for office space and branch facilities. The leases are classified as operating or finance leases at commencement. Right-of-use assets representing the right to use the underlying asset and lease liabilities representing the obligation to make future lease payments are recognized on the balance sheet within other assets and other liabilities. These assets and liabilities are estimated based on the present value of future lease payments discounted using Pinnacle Financial's incremental secured borrowing rates as of the commencement date of the lease. Certain lease agreements contain renewal options which are considered in the determination of the lease term if they are deemed reasonably certain to be exercised. Pinnacle Financial has elected not to recognize leases with an original term of less than 12 months on the balance sheet. During the second quarter of 2023, Pinnacle Bank consummated a sale-leaseback transaction pursuant to which it sold a combined 49 properties to two unaffiliated entities, PNB TN Portfolio Owner LLC and PNB Portfolio Owner, LLC (each, a "Purchaser" and collectively, the "Purchasers"), each of whom is an affiliate of Oak Street Real Estate Capital, for an aggregate cash purchase price of $198.2 million and concurrently agreed to separately lease each of those properties for an initial term of 14.5 years, with two five (5) year renewal options that the Bank may exercise to extend the term of any of the leases. The pre-tax, net gain recorded associated with the sale of these 49 properties was $85.7 million, after deducting transaction-related expenses. The aggregate annual lease expense associated with these properties will be approximately $17.0 million for the first twelve months of the lease term, with each lease including a 1.9% annual rent escalation during the initial term, and a 2.0% annual rent escalation during each of the two five-year renewal terms, if exercised. The proceeds of this sale-leaseback transaction are expected to be initially retained in Pinnacle Bank's cash accounts at the Federal Reserve. Right-of-use assets and lease liabilities relating to Pinnacle Financial's operating and finance leases are as follows at June 30, 2023 and December 31, 2022 (in thousands):
| June 30, 2023 |  | December 31, 2022
Right-of-use assets: |  |  |
Operating leases | $ | 236,689 |  |  | $ | 126,767 |
Finance leases | 1,205 |  |  | 1,318 |
Total right-of-use assets | $ | 237,894 |  |  | $ | 128,085 |
Lease liabilities: |  |  |
Operating leases | $ | 243,906 |  |  | $ | 133,108 |
Finance leases | 2,309 |  |  | 2,458 |
Total lease liabilities | $ | 246,215 |  |  | $ | 135,566 |
The total lease cost related to operating leases and short term leases is recognized on a straight-line basis over the lease term. For finance leases, right-of-use assets are amortized on a straight-line basis over the lease term and interest imputed on the lease liability is recognized using the effective interest method. The components of Pinnacle Financial's total lease cost were as follows for the three and six months ended June 30, 2023 and 2022 (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Operating lease cost | $ | 6,997 |  |  | $ | 4,086 |  |  | $ | 11,731 |  |  | $ | 8,073 |
Short-term lease cost | 89 |  |  | 98 |  |  | 174 |  |  | 211 |
Finance lease cost: |  |  |  |  |  |  |
Interest on lease liabilities | 42 |  |  | 48 |  |  | 86 |  |  | 96 |
Amortization of right-of-use asset | 56 |  |  | 56 |  |  | 113 |  |  | 112 |
Sublease income | (323) |  |  | (337) |  |  | (666) |  |  | (660) |
Net lease cost | $ | 6,861 |  |  | $ | 3,951 |  |  | $ | 11,438 |  |  | $ | 7,832 |
The weighted average remaining lease term and weighted average discount rate for operating and finance leases at June 30, 2023 and December 31, 2022 are as follows:
| June 30, 2023 |  | December 31, 2022
Weighted average remaining lease term |  |  |
Operating leases | 11.87 years |  | 10.44 years
Finance leases | 5.34 years |  | 5.84 years
Weighted average discount rate |  |  |
Operating leases | 4.04 | % |  | 3.11 | %
Finance leases | 7.22 | % |  | 7.22 | %
Cash flows related to operating and finance leases during the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Operating cash flows related to operating leases | $ | 6,399 |  |  | $ | 3,835 |  |  | $ | 10,858 |  |  | $ | 7,669 |
Operating cash flows related to finance leases | 42 |  |  | 48 |  |  | 86 |  |  | 96 |
Financing cash flows related to finance leases | 74 |  |  | 70 |  |  | 149 |  |  | 139 |
Future undiscounted lease payments for operating and finance leases with initial terms of more than 12 months are as follows at June 30, 2023 (in thousands):
| Operating Leases |  | Finance Leases
2023 | $ | 15,014 |  |  | $ | 244 |
2024 | 30,478 |  |  | 527 |
2025 | 28,159 |  |  | 527 |
2026 | 25,724 |  |  | 527 |
2027 | 24,540 |  |  | 527 |
Thereafter | 189,769 |  |  | 439 |
Total undiscounted lease payments | 313,684 |  |  | 2,791 |
Less: imputed interest | (69,778) |  |  | (482) |
Net lease liabilities | $ | 243,906 |  |  | $ | 2,309 |

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