15. OPERATING LEASES
The Company leases certain land and buildings for its bank branches and ATMs with lease terms expiring through 2045. In some instances, a lease may contain renewal options for periods ranging from five to fifteen years. All renewal options are likely to be exercised and therefore have been recognized as part of our right-of-use assets and lease liabilities in accordance with ASC 842, "Leases". Certain leases also contain variable payments that are primarily determined based on common area maintenance costs and Hawaii state tax rates. All leases are operating leases.
The Company has elected the short-term exemption, for leases with terms of 12 months or less. Such leases are excluded from the calculation of the ROU assets and lease liabilities and are not included on the Company's balance sheets. The Company has also elected to account for lease and non-lease components as a single lease component for all classes of underlying assets.
The most significant assumption in applying ASC 842 is the discount rate assumption. Because most of lease agreements do not specify an implicit interest rate, the Company estimates the discount rate using the collateralized borrowing rate it would pay for a loan with a similar term.
The following table presents total lease cost, cash flow information, weighted-average remaining lease term, and weighted-average discount rate for the periods presented:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (Dollars in thousands) | 2025 | | 2024 | | 2023 |
| Lease cost: | | | | | |
| Operating lease cost | $ | 5,174 | | | $ | 5,233 | | | $ | 5,108 | |
| Variable lease cost | 2,586 | | | 3,229 | | | 3,751 | |
| Less: sublease income | — | | | — | | | (34) | |
| Total lease cost | $ | 7,760 | | | 8,462 | | | 8,825 | |
| | | | | |
| Other information: | | | | | |
| Operating cash flows from operating leases | $ | (5,048) | | | $ | (5,073) | | | $ | (5,095) | |
| Weighted-average remaining lease term - operating leases | 9.22 years | | 10.25 years | | 10.64 years |
| Weighted-average discount rate - operating leases | 4.16 | % | | 4.07 | % | | 3.96 | % |
The following is a schedule of annual undiscounted cash flows for our operating leases and a reconciliation of those cash flows to the operating lease liabilities for the next five succeeding fiscal years and all years thereafter:
| | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | | | | |
| Year Ending December 31, | Undiscounted Cash Flows | | Lease Liability Expense | | Lease Liabilities |
| 2026 | $ | 4,920 | | | $ | 969 | | | $ | 3,951 | |
| 2027 | 4,143 | | | 828 | | | 3,315 | |
| 2028 | 3,314 | | | 711 | | | 2,603 | |
| 2029 | 2,894 | | | 612 | | | 2,282 | |
| 2030 | 2,921 | | | 516 | | | 2,405 | |
| Thereafter | 12,850 | | | 1,857 | | | 10,993 | |
| Total | $ | 31,042 | | | $ | 5,493 | | | $ | 25,549 | |
In 2025, as part of a strategic consolidation of the Company's operations center into its main headquarters, the Company terminated its lease for the operations center, which was originally scheduled to run through 2038. As a result of the lease termination, the Company recognized a reduction of the ROU asset of $4.7 million, a reduction of the ROU liability of $4.1 million, and a credit of $0.6 million to other operating expense.
In addition, the Company leases certain properties that it owns as lessor. All of these leases are operating leases. The following represents lease income related to these leases that was recognized for the periods presented:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (Dollars in thousands) | 2025 | | 2024 | | 2023 |
| Total rental income recognized | $ | 1,720 | | | $ | 2,059 | | | $ | 2,132 | |
Based on the Company's leases as lessor as of December 31, 2025, estimated lease payments for the next five succeeding fiscal years and all years thereafter are as follows:
| | | | | |
| (Dollars in thousands) | |
| Year Ending December 31, | |
| 2026 | $ | 1,320 | |
| 2027 | 1,268 | |
| 2028 | 858 | |
| 2029 | 698 | |
| 2030 | 547 | |
| Thereafter | 760 | |
| Total | $ | 5,451 | |
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