Leases

12 Months Ended

Dec. 31, 2023

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 40 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, 2023, 2022 and 2021 were as follows:

	Year Ended December 31,
(dollars in thousands)	2023		2022		2021
Operating lease expense	$	8,167	$	8,883	$	9,432
Short-term lease expense		26		26		246
Variable lease expense		2,112		2,135		2,204
Finance lease expense:
Amortization of right-of-use assets		—		1		3
Total finance lease expense		—		1		3
Less: Sublease income		(649)		(637)		(744)
Net lease expense	$	9,656	$	10,408	$	11,141

Other information related to the Company’s lease liabilities as of and for the years ended December 31, 2023, 2022 and 2021 were as follows:

	Year Ended December 31,
(dollars in thousands)	2023			2022			2021
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	7,636		$	8,418		$	7,981
Financing cash flows paid for finance leases	$	—		$	—		$	10
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	4,775		$	4,676		$	31,792
Weighted Average Remaining Lease Term
Operating leases (years)		21.3			22.2			22.8
Finance leases (years)		—			—			0.5
Weighted Average Discount Rate
Operating leases		3.11	%		2.98	%		3.01	%
Finance leases		—	%		—	%		6.78	%

Operating lease right-of-use assets were $61.3 million and $62.8 million as of December 31, 2023 and 2022, respectively, and were recorded as a component of other assets. Operating lease liabilities were $63.8 million and $64.8 million as of December 31, 2023 and 2022, respectively, and were recorded as a component of other liabilities.

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, 2023:

	Net Operating
	Lease
(dollars in thousands)	Payments
Year ending December 31:
2024	$	8,009
2025		5,636
2026		5,149
2027		4,520
2028		3,931
Thereafter		62,557
Total future minimum lease payments		89,802
Less: Imputed interest		(25,970)
Total	$	63,832

The Company did not have any operating leases with related parties. As such, there were no lease payments to related parties for each of the years ended December 31, 2023, 2022 and 2021.

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. 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 $6.2 million, $6.1 million and $6.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. In addition, the Company recognized $6.3 million, $6.5 million and $6.1 million of lease income related to variable lease payments for the years ended December 31, 2023, 2022 and 2021, respectively.

Certain of the Company’s leases were with related parties for the use of space at the Company’s headquarters office building. There was no rental income paid by the related parties for the years ended December 31, 2023 and 2022. Rental income paid by related parties was nil for the year ended December 31, 2021. 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, 2023:

	Minimum
	Rental
(dollars in thousands)	Income
Year ending December 31:
2024	$	5,963
2025		5,267
2026		4,446
2027		2,882
2028		1,914
Thereafter		3,715
Total	$	24,187