Commercial Bancgroup, Inc. Leases Disclosure

Note 15. Leases

 

A lease is defined as a contract, or part of a contract, that covers the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2022 the Company adopted ASU No. 2016-02 Leases (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

 

Lessee accounting:

 

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2059. Substantially all leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset and a corresponding lease liability. The Company elected to use the optional transition method, which allowed for a modified retrospective method of adoption without restating comparable periods. The Company also elected the relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs. The Company also applied the exemption for short-term leases with a term of less than one year and therefore does not recognize a lease liability or right-of-use asset on the balance sheet but instead recognizes lease payments as an expense over the lease term as appropriate.

 

The following table represents the consolidated balance sheets classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated balance sheets.

 

		Classification on		December 31,				December 31,
Lease		consolidated balance sheet		2025				2024
Operating lease
ROU asset		Other assets		$	1,410,315			$	1,530,735
Operating lease
liability		Other liabilities		$	1,352,837			$	1,541,545

The calculated amounts of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate was determinable, the Company utilized this rate at lease inception. For operating leases existing prior to January 1, 2023, the rate for the remaining lease term as of January 1, 2023 was used.

 

		2025				2024
Weighted-average remaining lease term for operating			19.74 years				19.73 years
Weighted-average discount rate for operating leases			3.25	%			3.25	%

 

Future undiscounted lease payments for operating leases with initial or remaining terms of one year or more as of December 31, 2025, were as follows:

 

		Operating
		leases
2026		$	149,629
2027			149,264
2028			148,629
2029			148,629
2030			148,629
Thereafter			1,193,335
Total undisclosed lease payments			1,938,115
Amounts representing imputed interest			585,278
Net lease liabilities		$	1,352,837

  

Total lease expense for 2025 and 2024 was approximately $167,000 and $264,000, respectively.