Leases

12 Months Ended

Dec. 31, 2019

Leases

Leases

14. Leases

The Company, as lessee, is obligated under a number of noncancelable operating leases primarily for branch premises and related real estate. Terms of such leases extend for periods up to 44 years, many of which provide for periodic adjustment of rent payments based on changes in various economic indicators. Renewal options are included in the Company’s lease liabilities and related right-of-use assets to the extent that the Company is reasonably certain to exercise such options. For all of the Company’s short-term leases (i.e., leases with an initial term of 12 months or less), the Company recognizes lease expense on a straight-line basis over the lease term. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.

The Company’s branch premises leases typically require that the Company is responsible to pay for variable lease expense, primarily maintenance expense, as well as real property taxes, property insurance and sales taxes. Maintenance expense is paid to maintain common areas and covers costs including landscaping, cleaning and general maintenance. Such variable costs are typically re-evaluated by the landlord on an annual basis and are charged to the Company based on the portion of the total building premises that is occupied by the Company.

The Company subleases certain premises and real estate to third parties. The sublease portfolio consists of operating leases for space connected with three of the Company’s branch properties.

The components of the Company’s net lease expense for the year ended December 31, 2019 were as follows:

	Year Ended
(dollars in thousands)	December 31, 2019
Operating lease expense	$	9,158
Short-term lease expense		487
Variable lease expense		2,152
Finance lease expense:
Amortization of right-of-use assets		3
Interest on lease liabilities		2
Total finance lease expense		5
Less: Sublease income		(1,073)
Net lease expense	$	10,729

For the years ended December 31, 2018 and 2017, rental expense, net of sublease income, presented in accordance with Topic 840, Leases was as follows:

	Year Ended December 31,
(dollars in thousands)	2018		2017
Rental expense charged to occupancy	$	9,947	$	8,620
Less: Sublease income		903		1,342
Net rental expense charged to occupancy		9,044		7,278
Rental expense charged to equipment expense		3,679		285
Total	$	12,723	$	7,563

Other information related to the Company’s lease liabilities as of and for the year ended December 31, 2019 was as follows:

	Year Ended
(dollars in thousands)	December 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	8,802
Operating cash flows paid for finance leases	$	10
Financing cash flows paid for finance leases	$	10
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	1,401
Weighted Average Remaining Lease Term
Operating leases (years)		15.7
Finance leases (years)		2.5
Weighted Average Discount Rate
Operating leases		3.36	%
Finance leases		6.78	%

Operating lease right-of-use assets were $44.3 million and finance lease right-of-use assets were not material as of December 31, 2019. Operating lease right-of-use assets and finance lease right-of use assets were recorded as a component of other assets and premises and equipment, respectively, as of December 31, 2019. Operating lease liabilities were $44.4 million and finance lease liabilities were not material as of December 31, 2019. Operating lease liabilities and finance lease liabilities were recorded as a component of other liabilities and long-term borrowings, respectively, as of December 31, 2019.

The most significant assumption related to the Company’s application of Topic 842 was the discount rate assumption. As most of the Company’s lease agreements do not provide for an implicit interest rate, the Company used the collateralized interest rate that the Company would have to pay to borrow over a similar term to estimate the Company’s lease liability as of January 1, 2019.

The following table sets forth future minimum rental payments under noncancelable operating leases with terms in excess of one year as of December 31, 2019:

	Net Operating
	Lease
(dollars in thousands)	Payments
Year ending December 31:
2020	$	8,776
2021		8,084
2022		5,453
2023		2,964
2024		2,721
Thereafter		32,227
Total future minimum lease payments		60,225
Less: Imputed interest		(15,934)
Total	$	44,291

The following table presents future minimum rental payments under operating leases with terms in excess of one year as of December 31, 2018 presented in accordance with Topic 840, “Leases”:

	Operating		Less		Net Operating
	Lease		Sublease		Lease
(dollars in thousands)	Payments		Income		Payments
Year ending December 31:
2019	$	8,780	$	903	$	7,877
2020		8,668		903		7,765
2021		7,961		892		7,069
2022		5,101		—		5,101
2023		2,632		—		2,632
Thereafter		34,638		—		34,638
Total future minimum lease payments	$	67,780	$	2,698	$	65,082

The Company has several operating leases with related parties associated with its branch premises. The lease payments to related parties were $0.3 million for the year ended December 31, 2019. The future minimum rental payments due to related parties are $0.3 million (2020), $0.3 million (2021), $0.2 million (2022), $0.2 million (2023), $0.2 million (2024), and $7.3 million thereafter.

The Company, as lessor, rents office space in its headquarters office building as well as office space located primarily in Hawaii to third party lessees. The cost and accumulated depreciation related to leased properties were $288.8 million and $141.3 million, respectively, as of December 31, 2019, and $289.2 million and $133.7 million, respectively, as of December 31, 2018. Terms of such leases, including renewal options, may be extended for up to ten years, many of which provide for periodic adjustment of rent payments based on changes in consumer or other price indices. The Company recognizes lease income on a straight-line basis over the lease term. Non-lease components, primarily consisting of costs incurred by the Company for maintenance and utilities, are recognized as income in the period in which the payments are due.

The Company recognized operating lease income related to lease payments of $5.9 million for the year ended December 31, 2019. In addition, the Company recognized $5.3 million of lease income related to variable lease payments for the year ended December 31, 2019.

Certain of the Company’s leases are with related parties for the use of space at the Company’s headquarters office building. The rental income paid by the related parties for the year ended December 31, 2019 was $0.4 million. The future minimum rental income from related parties are $0.4 million (2020), $0.4 million (2021), $0.4 million (2022), $0.4 million (2023), $0.4 million (2024), and $0.8 million thereafter.

The following table sets forth future minimum rental income under noncancelable operating leases with terms in excess of one year as of December 31, 2019:

	Minimum
	Rental
(dollars in thousands)	Income
Year ending December 31:
2020	$	6,164
2021		6,152
2022		4,431
2023		3,506
2024		2,680
Thereafter		6,511
Total	$	29,444