LEASES

12 Months Ended

Dec. 31, 2020

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.

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 2031. 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 ASU 2016-02

"Leases" (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 December 31, 2020 and December 31, 2019, in thousands:


		As of December 31,
	Classification	2020		2019
Operating lease right-of-use assets	Other assets	$	21,557	$	23,200
Operating lease liabilities	Accrued expenses and other liabilities	$	25,337	$	24,617

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. 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 December 31, 2020 and December 31, 2019, in thousands:


		As of December 31,
Lease Cost	Income Statement Category	2020		2019
Operating lease cost	Occupancy expense	$	6,071	$	6,031
Variable lease cost	Occupancy expense	72		145

Total lease cost		$	6,143	$	6,176
Supplemental Information
Noncash reduction of ROU assets	Occupancy expense	$	1,037	$	1,771
Noncash reduction lease liabilities	Occupancy expense	$	389	$	1,789

Supplemental balance sheet information		As of December 31, 2020
Weighted-average remaining operating lease term (in years)		5.91

Weighted-average discount rate for operating leases		2.85				%

Included in the noncash reduction of ROU assets in 2020 are expenses related to lease modifications and ROU acceleration related to lease abandonments.

Heartland recorded an impairment on one lease in 2020, and the impairment of $360,000 was recorded in gain/loss on sales/valuations of assets, net.

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


Year ending December 31,
2021	$	6,890
2022	5,690
2023	4,035
2024	2,334
2025	2,195
Thereafter	6,427
Total lease payments	$	27,571
Less interest	(2,234)
Present value of lease liabilities	$	25,337