SIERRA BANCORP Leases Disclosure
6. OPERATING LEASES
The Company leases space under non-cancelable operating leases for 30 branch locations, three off-site ATM locations, one administrative building, and two loan production offices. Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs). Payments for taxes and insurance as well as non-lease components are not included in the accounting of the lease component but are separately accounted for in occupancy expense. The Company recognized lease expense of $4.6 million for the year ended December 31, 2025, $4.5 million for the year ended December 31, 2024, and $2.3 million for the year ended December 31, 2023. Most leases include one or more renewal options available to exercise. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right-of-use assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably
certain of exercise, we include the renewal period in our lease term. As most of our leases do not provide an implicit rate, we used our incremental borrowing rate in determining the present value of the lease payments.
There were no leveraged leases or lease transactions with related parties during the years ending December 31, 2025 and 2024.
In December 2023, the Company completed a sale and leaseback transaction on 11 branch buildings with a book value of $4.8 million, for a gain on sale of $15.3 million. In the first quarter of 2024 the Company completed another sale leaseback transaction of two additional branch buildings with a book value of $0.7 million, for a gain on sale of $3.8 million. These branch buildings were subsequently leased back to the Company and are reflected in the tables in this footnote. The 2023 sale and leaseback transaction resulted in additions to the Company’s right of use asset and operating lease liability of $18.0 million and $13.8 million, respectively at the year ended December 31, 2023. The 2024 sale and leaseback transaction resulted in additions to the Company’s right of use asset and operating lease liability of $3.9 million and $3.1 million, respectively at the year ended December 31, 2024. Each of the new leases have an average life of 18 years.
At December 31, 2025, the Company’s right-of-use assets and operating lease liabilities were $26.5 million and $23.1 million, respectively. The weighted average remaining lease term for the lease liabilities was 12.8 years, and the weighted average discount rate of remaining payments was 8.7 percent. At December 31, 2024, the Company’s right-of-use assets and operating lease liabilities were $27.8 million and $23.7 million, respectively. The weighted average remaining lease term for the lease liabilities was 13.5 years, and the weighted average discount rate of remaining payments was 8.7 percent for the year ended December 31, 2024. Lease liabilities from new right-of-use assets obtained during the year ending December 31, 2025, and December 31, 2024, were $1.4 million and $4.7 million, respectively. There was $0.2 million in variable lease costs for each of the years ending December 31, 2025, 2024, and 2023. Cash paid on operating leases was $4.0 million for the year ended December 31, 2025, and $4.0 million for the year ended December 31, 2024.
Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2025, are as follows (dollars in thousands):
Year Ending December 31, | |||
2026 | | $ | 3,913 |
2027 | 3,731 | ||
2028 | 3,097 | ||
2029 | 2,539 | ||
2030 | 2,383 | ||
Thereafter | 25,043 | ||
Total undiscounted lease payments | $ | 40,706 | |
Less: imputed interest | (17,637) | ||
Net lease liabilities | $ | 23,069 |
The Company generally has options to renew its facilities leases after the initial leases expire. The renewal options range from to ten years.
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.