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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