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6. LEASES

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment, including vehicles and machinery, with terms ranging from 1 month to 122 months. At December 31, 2023 and 2022, the carrying value of residual assets covered by residual value guarantees and residual value insurance was $84.1 million and $44.3 million, respectively. For more information on the Company’s lessor arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in this Form 10-K.

Total net investment in sales-type and direct financing leases consists of the following as of December 31, (dollars in thousands):

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Lessee Arrangements

The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 23 years. For more information on the Company’s lessee arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in this Form 10-K.

In the third quarter of 2023, the Bank entered into and closed on an agreement for the purchase and sale of 27 properties, which included 25 branches and a drive thru and parking lot, each adjacent to a sold branch, to a single purchaser, for an aggregate purchase price of $45.8 million. The Bank also executed a sale-leaseback transaction in the fourth quarter of 2023 involving the sale of one branch location to a single purchaser, for an aggregate purchase price of $3.6 million. Concurrently with each sale-leaseback transaction, the Bank entered into absolute net lease agreements with the purchaser under which the Bank will lease the properties for an initial term of 17 years with specified renewal options. Each lease agreement includes a 1.5% annual rent escalation during the initial term and 2.0% rent escalation during the renewal terms, if exercised. The sale-leaseback transactions executed in 2023 resulted in pre-tax gains of $29.6 million for the year ended December 31, 2023, included in Other Operating Income in the accompanying Consolidated Statements of Income. The Company recorded operating lease ROU assets and corresponding operating lease liabilities of $41.3 million and $41.2 million, respectively, which primarily drove the increases in operating ROU assets and operating lease liabilities at December 31, 2023, compared to December 31, 2022.

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The tables below provide information about the Company’s lessee lease portfolio and other supplemental lease information as of and for the years ended December 31, (dollars in thousands):

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⁽¹⁾ A lease implicit rate or an incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date.

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The maturities of lessor and lessee arrangements outstanding as of December 31, 2023 are presented in the table below for the years ending, (dollars in thousands):

⁽¹⁾ Lessor – unearned income and unearned guaranteed residual value; Lessee – imputed interest.

⁽²⁾ Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements.