QNB adopted FASB issued ASU 2016-02, Leases (Topic 842) effective January 1, 2019. This new standard on accounting for leases introduced a lessee model that brings most leases on the balance sheet but recognizes expenses in the income statement similar to how items are recorded today. The new standard eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The ASU also eliminates the current real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. All entities will classify leases to determine how to recognize the related revenue and expense and this classification will affect amounts that lessors record on the balance sheet.

QNB applied the new standards to all new contracts initiated on or after the effective date; and, for contracts which have remaining obligations as of the effective date. There was no adjustment needed to the opening balance of QNB’s retained earnings account at January 1, 2019. The discount rates used in determining the initial value of measuring the right of use assets were based on the FHLB Amortizing Fixed Loan Rate for the remaining term of each lease at December 31, 2018. These rates ranged from 2.82% to 3.46%. QNB typically enters into lease agreements with an initial term of 5 to 10 years and subsequent additional optional terms in increments of 5 years. The lease agreements also contain termination options. None of the leases contain purchase options and none transfer the ownership of the leased asset. QNB has renewed one operating lease and entered into one finance lease that will both begin during the second quarter of 2019. QNB also entered into a finance lease that it anticipates will begin during the third quarter of 2019.

The right-of-use assets under the finance and operating leases are included within “Premises and equipment, net,” operating lease liabilities are included with “Other liabilities,” and finance lease liabilities are separately disclosed on the Consolidated Balance Sheets. All operating lease costs and the amortization of the right-of-use finance lease are included in non-interest expense within “Net occupancy” and the interest on finance lease liabilities is separately disclosed on the Consolidated Statements of Income. The following table summarized the quantitative attributes of QNB’s operating and finance leases.

For the three months ended	March 31, 2019

Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	96
Interest on lease liabilities		1
Finance lease cost		97
Operating lease cost		28
Total lease cost	$	125

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	(1	)
Operating cashflows from operating leases		(27	)
Financing cash flows from finance liabilities		(106	)
Total cash paid for amounts included in the measurement of lease liabilities	$	(134	)

At implementation of new accounting guidance:
Right-of-use assets recorded for finance lease liabilities	$	1,700
Right-of-use assets recorded for operating lease liabilities		304

Right-of-use assets obtained in exchange for new finance lease liabilities	$	-
Right-of-use assets obtained in exchange for new operating lease liabilities		-

Weighted average remaining lease terms:
Finance leases	9.2 years
Operating leases	3.9 years

Weighted average discount rates:
Finance leases		3.30	%
Operating leases		2.93	%

A maturity analysis of the operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total operating or finance lease liability is as follows:

	Operating Leases			Finance Leases
April 2019 thru March 2020	$	76		$	367
April 2020 thru March 2021	72			238
April 2021 thru March 2022	75			188
April 2022 thru March 2023	74			190
April 2023 thru March 2024	0			193
April 2024 and thereafter	0			1047
Total undiscounted cashflows	297			2223
Total discount on cashflows		(19	)		(345	)
Total lease liabilities	$	278		$	1,878

On June 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new guidance requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

The new guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. QNB is evaluating the impact of this new standard on its consolidated financial statements.