Finward Bancorp Leases Disclosure
Note 18 – Leases
Under ASC 842, operating lease expense is generally recognized on a straight-line basis over the term of the lease. On February 22, 2024, the Bank closed its previously announced sale-leaseback transaction with MountainSeed Real Estate Services, LLC (the “Buyer”), pursuant to which the Bank sold to the Buyer properties owned and operated as branch locations (the “Properties”) for an aggregate purchase price of $17.2 million, including customary closing adjustments. Under the Sale Agreement, the Bank also entered into triple net lease agreements (the “Lease Agreements”) with the Buyer under which the Bank leases each of the Properties, and pursuant to which the Bank is responsible for the insurance, real estate taxes, and maintenance and repairs for each of the properties. Each of the Lease Agreements became effective upon the closing of the sale-leaseback transaction and have an initial term of 15 years. The Bank’s obligations under the Lease Agreements are guaranteed by the Company.
As the rate implicit in the leases generally is not readily determinable for our operating leases, the discount rates used to determine the present value of our lease liability are based on our incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. Our incremental borrowing rate for a lease is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are excluded from our weighted-average remaining lease term.
The following table summarizes supplemental cash flow and other information related to our operating leases:
| (Dollars in thousands) | Twelve months ended December 31, | |||||||
| 2024 | 2023 | |||||||
| Gain on sale-leaseback transaction, net | $ | (11,772 | ) | $ | - | |||
| Operating cash flows | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities for leases | 1,360 | 69 | ||||||
| ROU assets obtained in the exchange for lease liabilities - Operating leases (1) | 16,140 | - | ||||||
| Weighted-average remaining lease terms (in years) - Operating leases | 14 | 5 | ||||||
| Weighted-average discount rate - Operating leases | 7.67 | % | 3.00 | % | ||||
| Variable lease Payments | $ | 279 | $ | - | ||||
| Total lease Costs (2) | 1,767 | 103 | ||||||
(1) Right of Use Asset Included in Premises and equipment on the consolidated balance sheet
(2) Included in Occupancy and equipment costs on the consolidated statements of income
The following table represents the maturity of the Company's operating lease liabilities as of December 31, 2024:
| (Dollars in thousands) | ||||
| Maturity Analysis | ||||
| 2025 | 1,590 | |||
| 2026 | 1,622 | |||
| 2027 | 1,657 | |||
| 2028 | 1,692 | |||
| 2029 | 1,679 | |||
| Thereafter | 16,788 | |||
| Total | 25,028 | |||
| Less: Present value discount | (10,024 | ) | ||
| (3) | $ | 15,004 |
(3) Included in Other Liabilities on the consolidated balance sheet
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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.