Leases

12 Months Ended

Dec. 31, 2021

Leases

Leases

13. 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 42 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 years ended December 31, 2021, 2020 and 2019 were as follows:

	Year Ended December 31,
(dollars in thousands)	2021		2020		2019
Operating lease expense	$	9,432	$	9,169	$	9,158
Short-term lease expense		246		397		487
Variable lease expense		2,204		2,353		2,152
Finance lease expense:
Amortization of right-of-use assets		3		3		3
Interest on lease liabilities		—		1		2
Total finance lease expense		3		4		5
Less: Sublease income		(744)		(1,222)		(1,073)
Net lease expense	$	11,141	$	10,701	$	10,729

Other information related to the Company’s lease liabilities as of and for the years ended December 31, 2021, 2020 and 2019 were as follows:

	Year Ended December 31,
(dollars in thousands)	2021			2020			2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	7,981		$	8,848		$	8,802
Operating cash flows paid for finance leases	$	—		$	—		$	10
Financing cash flows paid for finance leases	$	10		$	10		$	10
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	31,792		$	3,796		$	1,401
Weighted Average Remaining Lease Term
Operating leases (years)		22.8			16.1			15.7
Finance leases (years)		0.5			1.5			2.5
Weighted Average Discount Rate
Operating leases		3.01	%		3.17	%		3.36	%
Finance leases		6.78	%		6.78	%		6.78	%

Operating lease right-of-use assets were $64.2 million and $40.2 million as of December 31, 2021 and 2020, respectively, and were recorded as a component of other assets. Finance lease right-of-use assets were nil and not material as of December 31, 2021 and 2020, respectively, and were recorded as a component of premises and equipment as of December 31, 2020. Operating lease liabilities were $65.8 million and $40.6 million as of December 31, 2021 and 2020, respectively, and were recorded as a component of other liabilities. Finance lease liabilities were nil and not material as of December 31, 2021 and 2020, respectively, and were recorded as a component of long-term borrowings as of December 31, 2020.

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 liabilities.

The following table sets forth future minimum rental payments under noncancelable operating leases with terms in excess of one year as of December 31, 2021:

	Net Operating
	Lease
(dollars in thousands)	Payments
Year ending December 31:
2022	$	7,755
2023		5,104
2024		4,883
2025		4,250
2026		3,849
Thereafter		68,996
Total future minimum lease payments		94,837
Less: Imputed interest		(29,033)
Total	$	65,804

The Company had several operating leases with related parties associated with its branch premises. The lease payments to related parties were nil for both the years ended December 31, 2021 and 2020. The lease payments to related parties were $0.3 million for the year ended December 31, 2019.

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 $304.3 million and $158.2 million, respectively, as of December 31, 2021, and $304.3 million and $150.0 million, respectively, as of December 31, 2020. Terms of such leases, including renewal options, may be extended for up to nine 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 $6.4 million, $6.3 million and $5.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. In addition, the Company recognized $6.1 million, $5.6 million and $5.3 million of lease income related to variable lease payments for the years ended December 31, 2021, 2020 and 2019, respectively.

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 years ended December 31, 2021, 2020 and 2019 was nil, $0.4 million and $0.4 million, respectively. There are no future minimum rental income from related parties.

The following table sets forth future minimum rental income under noncancelable operating leases with terms in excess of one year as of December 31, 2021:

	Minimum
	Rental
(dollars in thousands)	Income
Year ending December 31:
2022	$	5,535
2023		4,572
2024		3,746
2025		3,126
2026		2,368
Thereafter		2,758
Total	$	22,105