SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
65
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Foreclosed Assets
Foreclosed assets include real estate and other property acquired in full or partial settlement of loan
obligations. Upon acquisition, any excess of the recorded investment in the loan balance over the
appraised fair market value, net of estimated selling costs, is charged against the allowance for loan and
lease losses. A valuation allowance for losses on foreclosed assets is maintained to provide for temporary
declines in value. The allowance is established through a provision for losses on foreclosed assets which
is included in other non-interest expense. Subsequent gains or losses on sales or write-downs resulting
from permanent impairments are recorded in other non-interest income or expense as incurred. Operating
costs after acquisition are expensed.
Goodwill and Other Intangible Assets
The Company acquired Sierra National Bank in 2000. Goodwill resulting from business combinations
prior to January 1, 2009 represents the amount by which the purchase price exceeded the fair value of the
net assets.
The Company acquired Santa Clara Valley Bank in 2014. Goodwill resulting from business combinations
after January 1, 2009 is generally determined as the excess of the fair value of the consideration
transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net
assets acquired and liabilities assumed as of the acquisition date.
Goodwill and intangible assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if
events and circumstances exist which indicate that an impairment test should be performed. The
Company selected December 31, 2014 as the date to perform the annual impairment test for 2014.
Goodwill is the only intangible asset with an indefinite life on our balance sheet. There was no
impairment recognized for the years ended December 31, 2014, 2013, and 2012.
Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated
residual values. The Company’s other intangible assets consist solely of core deposit intangible assets
arising from the acquisition of Santa Clara Valley Bank, which are being amortized on a straight line basis
over eight years.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans
and commercial letters of credit, issued to meet customer financing needs. The face amount for these
items represents the exposure to loss, before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded. Details regarding these commitments and
financial instruments are discussed in detail in Note 12 to our consolidated financial statements.
Income Taxes
The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income
tax expense represents each entity’s proportionate share of the consolidated provision for income taxes.
Income tax expense is the total of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts
for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount
expected to be realized.
