Old National adopted FASB Topic 842 as of January 1, 2019. See Note 2 to the consolidated financial statements regarding transition guidance related to the new standard.

Old National determines if an arrangement is or contains a lease at contract inception. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in our consolidated balance sheet at March 31, 2019. Finance leases are included in premises and equipment and other borrowings in our consolidated balance sheets at March 31, 2019 and 2018, and December 31, 2018.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use the implicit lease rate when readily determinable. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment.

Old National has operating and finance leases for land, office space, banking centers, and equipment. These leases are generally for periods of 10 to 20 years with various renewal options. We include certain renewal options in the measurement of our right-of-use assets and lease liabilities if they are reasonably certain to be exercised. Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit and loss in accordance with Topic 842. Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.

We have made a policy election to exclude the recognition requirements of Topic 842 to all classes of leases with original terms of 12 months or less. Instead, the short-term lease payments are recognized in profit or loss on a straight-line basis over the lease term.

Old National has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since

they are generally able to be segregated. For certain equipment leases, Old National accounts for the lease and non-lease components as a single lease component using the practical expedient available for that class of assets. Additionally, for certain equipment leases, Old National applies a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities.

	Three Months Ended
(dollars in thousands)	March 31, 2019
Operating lease cost	$	4,402
Finance lease cost:
Amortization of right-of-use assets		158
Interest on lease liabilities		81
Short-term lease cost		1
Sub-lease income		(179	)
Total	$	4,463

Lease expense for operating leases for the three months ended March 31, 2018 was $4.4 million.

(dollars in thousands)	March 31, 2019
Operating Leases
Operating lease right-of-use assets	$	109,916
Operating lease liabilities		114,040

Finance Leases
Premises and equipment, net		7,335
Other borrowings		7,432

Weighted-Average Remaining Lease Term
Operating leases	11.0 years
Finance leases	12.1 years

Weighted-Average Discount Rate
Operating leases		3.45	%
Finance leases		4.48	%

	Three Months Ended
(dollars in thousands)	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,436
Operating cash flows from finance leases		81
Financing cash flows from finance leases		111

Right-of-use assets obtained in exchange for lease obligations:
Operating leases		117,739
Finance leases		7,542

The following table presents a maturity analysis of the Company’s lease liability by lease classification at March 31, 2019:

	Operating			Finance
(dollars in thousands)	Leases			Leases
2019	$	13,094		$	573
2020		16,764			768
2021		15,690			772
2022		14,131			778
2023		9,674			791
Thereafter		68,974			6,030
Total undiscounted lease payments		138,327			9,712
Less amounts representing interest		(24,287	)		(2,280	)
Lease liability	$	114,040		$	7,432

Old National leases certain office space and buildings to unrelated parties in exchange for consideration. All of these tenant leases are classified as operating leases. The following table presents a maturity analysis of the Company’s tenant leases at March 31, 2019:

	Tenant
(dollars in thousands)	Leases
2019	$	1,457
2020		1,473
2021		1,200
2022		831
2023		690
Thereafter		2,538
Total undiscounted lease payments	$	8,189