ASU 2016-02, “Leases (Topic 842),” became effective for Trustmark on January 1, 2019. Trustmark adopted FASB ASC Topic 842 utilizing the modified-retrospective transition approach prescribed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. Trustmark did not elect the package of practical expedients, which includes reassessing whether any expired or existing contracts are or contain leases, reassessing the lease classification and reassessing initial direct costs. Also, Trustmark did not elect to adopt the hindsight practical expedient therefore maintaining the lease terms previously determined under FASB ASC Topic 840, “Leases”. Trustmark made an accounting policy election to not recognize short-term leases (12 months or less) on the balance sheet. Trustmark accounts for the lease and nonlease components separately as such amounts are readily determinable.

Once Trustmark identifies and determines certain contracts are leases according to FASB ASC Topic 842, Trustmark classifies it as an operating or a finance lease and recognizes a right-of-use asset and a lease liability at the lease commencement date. The lease liability represents the present value of the lease payments that remain unpaid as of the commencement date and the right-of-use asset is the initial lease liability recognized for the lease plus any lease payments made to the lessor at or before the commencement date as well as any initial direct costs less any lease incentives received.

Trustmark’s finance leases consist of building and equipment leases. Trustmark recognizes interest expense based on the discount rate of the lease as interest expense in other interest expense and recognizes depreciation expense on a straight-line basis over the lease term as noninterest expense in net occupancy – premises for building leases and in equipment expense for equipment leases. Trustmark amortizes the right-of-use asset over the life of the lease term on a straight-line basis. Trustmark’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term. Trustmark records its finance lease right-of-use assets in premises and equipment, net and its finance lease liabilities in other borrowings.

Trustmark’s operating leases primarily consist of building and land leases. Trustmark recognizes lease rent expense on a straight-line basis over the term of the lease contract and records it as noninterest expense in net occupancy – premises for building and land leases and in equipment expense for equipment leases. Trustmark’s amortization of the right-of-use asset is the difference between the straight-line lease expense and the interest expense recognized on the lease liability during the period. Trustmark’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term.

Trustmark’s leases typically have one or more renewal options included in the lease contract. Due to the nature of Trustmark’s leases, for leases with renewal options available, Trustmark considers the first renewal option as reasonably certain to renew and is therefore included in the measurement of the right-of-use assets and lease liabilities.

In order to calculate its right-of-use assets and lease liabilities, FASB ASC Topic 842 requires Trustmark to use the rate of interest implicit in the lease when readily determinable. If the rate implicit in the lease is not readily determinable, Trustmark is required to use its incremental borrowing rate, which is the rate of interest Trustmark would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. Trustmark was able to determine the implicit interest rate for its equipment leases and used that rate as its discount rate. Since the implicit interest rate for most of its building and land leases were not readily determinable, Trustmark used its incremental borrowing rate.

Trustmark’s short-term leases primarily include automated teller machines. For short-term leases, Trustmark recognizes lease expense on a straight-line basis over the lease term. As previously stated, Trustmark has elected not to include short-term leases on its balance sheet.

The table below details the components of net lease cost for the periods presented ($ in thousands):

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Finance leases
Amortization of right-of-use assets	$	520		$	1,665
Interest on lease liabilities		75			236
Operating lease cost		1,303			3,892
Short-term lease cost		85			288
Variable lease cost		349			1,039
Sublease income		(81	)		(250	)
Net lease cost	$	2,251		$	6,870

The table below details the cash payments included in the measurement of lease liabilities during the period presented ($ in thousands):

	Nine Months Ended September 30, 2019
Finance leases
Operating cash flows included in other activities, net	$	779
Financing cash flows included in payments under finance lease obligations		1,509
Operating leases
Operating cash flows (fixed payments) included in other activities, net		3,759
Operating cash flows (liability reduction) included in other activities, net		2,850

The table below details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at September 30, 2019 ($ in thousands):

	September 30, 2019
Finance lease right-of-use assets, net of accumulated depreciation	$	9,823
Finance lease liabilities		9,975
Operating lease right-of-use assets		33,180
Operating lease liabilities		34,319

Weighted-average lease term
Finance leases	8.66 years
Operating leases	9.32 years

Weighted-average discount rate
Finance leases		2.99	%
Operating leases		3.57	%

At September 30, 2019, future minimum rental commitments under finance and operating leases were as follows ($ in thousands):

	Finance Leases			Operating Leases
2019 (excluding the nine months ended September 30, 2019)	$	525		$	1,255
2020		1,970			5,019
2021		1,615			4,680
2022		1,556			4,215
2023		871			4,178
Thereafter		5,024			21,262
Total minimum lease payments		11,561			40,609
Less imputed interest		(1,586	)		(6,290	)
Lease liabilities	$	9,975		$	34,319

In accordance with the modified-retrospective transition approach for adopting FASB ASC Topic 842, Trustmark did not restate the prior period unaudited consolidated financial statements and all prior period amounts and disclosures are presented under FASB ASC Topic 840. At December 31, 2018, future minimum rental commitments under non-cancellable operating leases were as follows ($ in thousands):

2019	$	8,680
2020		8,063
2021		7,274
2022		6,680
2023		5,788
Thereafter		29,673
Total	$	66,158