In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Subsequently, amendments ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements were issued. ASC 842 established a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

ASC 842 was effective on January 1, 2019. The Company leases certain properties and equipment under operating leases that resulted in the recognition of ROU Lease Assets of $20,311 and Lease Liabilities of $22,795 on the Company’s Condensed Consolidated Balance Sheets. The one-time transition impact to retained earnings from measurement differences was approximately $1,093 as disclosed on the Company’s Condensed Consolidated Statements of Changes in Stockholders’ Equity.

ASC 842 provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception. The practical expedient pertaining to land easements was not applicable to the Company.

ASC 842 also requires certain accounting elections for ongoing application of ASC 842. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. ROU assets or lease liabilities are not to be recognized for short-term leases. However, since all real estate and equipment leases have terms greater than 12 months, no leases currently meet this exemption. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. However, since these non-lease items are subject to change, they are treated and disclosed as variable payments in the quantitative disclosures below.

The majority of the Company’s lessee leases are operating leases, and consist of leased real estate for branches and operations centers. Options to extend and renew leases are generally exercised under normal circumstances. Advance notification is required prior to termination, and any noticing period is often limited to the months prior to renewal. Variable payments generally consist of common area maintenance and taxes. Rent escalations are generally specified by a payment schedule, or are subject to a defined formula. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. Generally, leases do not include guaranteed residual values, but instead typically specify that the leased premises are to be returned in satisfactory condition with the Company liable for damages. The Company also has other operating leases for various equipment, including copiers, printers, and other small equipment. Equipment lease terms and conditions generally specify a fixed amount and term with options to renew. The Company’s equipment leases are typically not renewed, and existing leases are typically assumed from prior bank acquisitions.

For operating leases, the lease liability and ROU asset (before adjustments) are recorded at the present value of future lease payments. ASC 842 requires the use of the lease interest rate; however, this rate is typically not known. As an alternative, ASC 842 permits the use of an entity’s fully secured incremental borrowing rate. The Company is electing to utilize the FHLB Atlanta Fixed Rate Advance index, as it is the most actively used institution-specific collateralized borrowing source available to the Company.

The Company also holds a small number of finance leases assumed in connection to prior acquisitions. These leases are all real estate leases. Terms and conditions are similar to those real estate operating leases described above, but the lease terms are generally longer. Lease classifications from the acquired institution were retained, and were again retained as a result of the election of the package of practical expedients described above.

	Three-month periods ended
	March 31, 2020	March 31, 2019
Amortization of ROU Assets - Finance Leases	$55	$38
Interest on Lease Liabilities - Finance Leases	72	50
Operating Lease Cost (Cost resulting from lease payments)	2,141	1,287
Short-term Lease Cost	1	—
Variable Lease Cost (Cost excluded from lease payments)	296	235
Total Lease Cost	$2,565	$1,610
Finance Lease - Operating Cash Flows	65	57
Finance Lease - Financing Cash Flows	78	91
Operating Lease - Operating Cash Flows (Fixed Payments)	2,191	1,241
Operating Lease - Operating Cash Flows (Liability Reduction)	3,974	1,181
New ROU Assets - Operating Leases	4,749	21,351
Weighted Average Lease Term (Years) - Finance Leases	10.64	19.22
Weighted Average Lease Term (Years) - Operating Leases	6.59	7.65
Weighted Average Discount Rate - Finance Leases	5.83%	5.95%
Weighted Average Discount Rate - Operating Leases	3.25%	3.65%

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of March 31, 2020 is as follows:

		March 31, 2020
Operating lease payments due:
Within one year		$8,380
After one but within two years		7,165
After two but within three years		5,667
After three but within four years		4,823
After four years but within five years		3,932
After five years		9,401
Total undiscounted cash flows		39,368
Discount on cash flows		(4,200)
Total operating lease liabilities		$35,168

The following is a schedule of future minimum annual rentals under operating leases as of December 31, 2019:

		December 31, 2019
Operating lease payments due:
Within one year		$7,577
After one but within two years		6,693
After two but within three years		5,358
After three but within four years		4,419
After four years but within five years		3,723
After five years		11,410
Total undiscounted cash flows		39,180
Discount on cash flows		(4,695)
Total operating lease liabilities		$34,485

ASC 842 also impacted lessor accounting. ASC 842 changed the criteria in which a lessor lease is classified. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases.

Similar to the above lessee leases, the Company elected the ‘package of practical expedients,’ which allows the Company not to reassess the Company’s prior conclusions under ASC 842 about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception. Lastly, the practical expedient pertaining to land easements is not applicable to the Company.

While ASC 842 identifies common area building maintenance as a non-lease component of our real estate lease contracts, the Company elected to account for the Company’s real estate leases and associated common area maintenance service components as a single, combined operating lease component. Consequently, ASC 842’s changed guidance on contract components did not significantly affect financial reporting.

Substantially, all of the Company’s lessor leases are related to unused real estate office space owned by the Company. Most have defined terms, though some leases have gone month-to-month once the initial term has passed. The impact of subleases was not material. Income from operating leases are reported within Occupancy Expense as an offset to Non-interest Expense in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.

The Company is also the lessor on a few equipment direct finance leases (formerly known as capital leases) with three municipal entities. Interest income from these leases are tax exempt, and is reported within loan interest income. The lessee retains the title to all equipment in each of these finance leases. Each of these leases originated in 2018, and therefore the prior ASC 840 classification was not reassessed due to the election of the package of practical expedients.

	Three-month periods ended
	March 31, 2020	March 31, 2019
Operating Lease Income from Lease Payments	$476	$212
Direct Financing Lease Income	25	173
Total Lease Income	$501	$385

Net Investment in Direct Financing Leases	$1,167	$15,785
Unguaranteed Residual Assets	—	—
Deferred Selling Profit on Direct Financing Leases	—	—

Maturity Analysis of Operating Lease Receivables
0 - 12 Months	$2,089	$962
13 - 24 Months	1,609	551
25 - 36 Months	710	341
37 - 48 Months	124	166
48 - 60 Months	—	6
Over 60 Months	—	—

Maturity Analysis of Finance Lease Receivables
0 - 12 Months	$912	$1,392
13 - 24 Months	251	1,841
25 - 36 Months	—	1,618
37 - 48 Months	—	1,356
48 - 60 Months	—	1,355
Over 60 Months	—	12,543