11.	COMMITMENTS AND CONTINGENCIES

Leases

The Company leases

three

lending offices,

three

branch offices,

two

administrative offices and

two

standalone ATM locations. Two of the branch office leases have options to renew. The exercise of lease renewal options is at our sole discretion; therefore, are

not

included in our Right of Use (ROU) assets and lease liabilities as they are

not

reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term. We have elected the practical expedient to exclude short-term leases from our ROU assets and lease liabilities. The

two

branch leases and

two

of the lending office leases are classified as operating leases while the remaining leases are all short-term leases. The Company adopted ASU

No.

2016

January 1, 2019

and recorded

$565,000

in ROU assets and lease liabilities on adoption.

As our leases do

not

provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company’s weighted average incremental borrowing rate used in the calculation of the right-of-use assets and lease liabilities was estimated at

5%.

The following table presents a maturity analysis of the operating lease liability at

December 31, 2019

	Maturities of
	Lease Liabilities
Year ended December 31, 2020	$	188,000
Year ended December 31, 2021		88,000
Year ended December 31, 2022		59,000
		335,000
Less: Present value discount		(18,000	)
Lease Liability December 31, 2019	$	317,000

The weighted-average remaining lease term is

2.1

years.

Total lease costs for the year ended

December 31, 2019

was

$465,000

consisting of

$308,000

related to operating leases,

$114,000

related to short-term leases and variable lease expense of

$43,000.

Including variable lease expense, total rent expense for the years ended

December 31, 2018

and

2017,

prior to the adoption of ASU

2016

02,

were

$379,000

and

$348,000,

respectively. Cash paid on operating leases was

$308,000

for the year ended

December 31, 2019

The following table presents future minimum rental payments under leases with terms in excess of

one

year as of

December 31, 2018

presented in accordance with ASC Topic

840,

“Leases”

Year Ending December 31,
2019	$	248,000
2020		163,000
2021		63,000
2022		59,000
2023		-
	$	533,000

Rental expense included in occupancy and equipment expense totaled

$422,000,

$340,000

and

$308,000

for the years ended

December 31, 2019,

2018

and

2017

, respectively.

Financial Instruments With Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the consolidated balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and letters of credit as it does for loans included on the consolidated balance sheet.

The following financial instruments represent off-balance-sheet credit risk:

	December 31,
	2019		2018
Commitments to extend credit	$	111,352,000	$	126,885,000
Letters of credit	$	126,000	$	417,000

Commitments to extend credit are agreements to lend to a customer as long as there is

violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and

may

require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but

may

include accounts receivable, crops, inventory, equipment, income-producing commercial properties, farm land and residential properties.

Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a

third

party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The fair value of the liability related to these letters of credit, which represents the fees received for issuing the guarantees, was

not

significant at

December 31, 2019

and

2018

. The Company recognizes these fees as revenues over the term of the commitment or when the commitment is used.

December 31, 2019

, consumer loan commitments represent approximately

of total commitments and are generally unsecured. Commercial and agricultural loan commitments represent approximately

44%

of total commitments and are generally secured by various assets of the borrower. Real estate loan commitments, including consumer home equity lines of credit, represent the remaining

47%

of total commitments and are generally secured by property with a loan-to-value ratio

not

to exceed

80%.

In addition, the majority of the Company’s commitments have variable interest rates.

Concentrations of Credit Risk

The Company grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to customers throughout Plumas, Nevada, Placer, Lassen, Sierra, Shasta and Modoc counties in California and Washoe county in Northern Nevada. Although the Company has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate. A continued substantial decline in the economy in general, or a continued decline in real estate values in the Company’s primary market areas in particular, could have an adverse impact on the collectability of these loans. However, personal and business income represents the primary source of repayment for a majority of these loans.

Contingencies

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will

not

materially affect the financial position or results of operations of the Company.