LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, Heartland adopted ASU No. 2016-02 "Leases" (Topic 842) and all subsequent ASUs that modified Topic 842. For Heartland, Topic 842 primarily affected the accounting treatment for operating lease agreements in which Heartland is the lessee.

Lessee Accounting

Substantially all of the leases in which Heartland is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2034. All of Heartland's leases are classified as operating leases, and therefore, were previously not recognized on the consolidated balance sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated balance sheet as a right-of-use ("ROU") asset and a corresponding lease liability.

Heartland elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated balance sheet. The table below presents Heartland's ROU assets and lease liabilities as of March 31, 2019, (in thousands):



Assets	Classification	March 31, 2019
Operating lease assets	Other assets	$	24,664
Total lease right-of-use assets		$	24,664

Liabilities
Operating lease liabilities	Accrued expenses and other liabilities	$	26,333
Total lease liabilities		$	26,333

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. Heartland’s lease agreements often include one or more options to renew at Heartland’s discretion. If at lease inception, Heartland considers the exercising of a renewal option to be reasonably certain, Heartland will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, Heartland utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. The variable lease cost primarily represents variable payments such as common area maintenance and utilities. The table below presents the lease costs and supplemental information as of March 31, 2019, in thousands:



	Three Months Ended March 31, 2019
Lease Cost
Operating lease cost	$	1,405
Variable lease cost	35
Total lease cost	$	1,440
Supplemental Information
Non-cash information on lease liabilities arising from obtaining ROU assets	$	1,209
Weighted-average remaining lease term (in years)
Operating leases	7.04
Weighted-average discount rate
Operating leases	3.00		%

As defined by Topic 842, future minimum payments for operating leases with initial or remaining terms of one year or more are presented in the table below as of March 31, 2019, in thousands:



Nine months ending December 31, 2019	$	3,859
Year ending December 31,
2020	5,174
2021	4,855
2022	3,351
2023	1,947
Thereafter	7,147
Total lease payments	$	26,333

As defined by Topic 840, Heartland's minimum future rental commitments at December 31, 2018, for all non-cancelable leases were as follows, in thousands:



2019	$	5,776
2020	5,493
2021	5,102
2022	3,241
2023	2,297
Thereafter	12,419
	$	34,328