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SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
100
12.
COMMITMENTS AND CONTINGENCIES
(Continued)
The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):
2015
2014
Fixed-rate commitments to extend credit
82,668
$
83,416
$
Variable-rate commitments to extend credit
272,222
$
283,493
$
Standby letters of credit
16,654
$
14,389
$
December 31,
Commitments to extend credit consist primarily of the unused or unfunded portions of the following: home
equity lines of credit; commercial real estate construction loans, where disbursements are made over the
course of construction; commercial revolving lines of credit; mortgage warehouse lines of credit; unsecured
personal lines of credit; and formalized (disclosed) deposit account overdraft lines. Commitments generally
have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future
cash requirements. Commitments to extend credit are made at both fixed and
variable rates of interest as stated in the table above. Standby letters of credit are generally unsecured and
are issued by the Company to guarantee the performance of a customer to a third party, while commercial
letters of credit represent the Company’s commitment to pay a third party on behalf of a customer upon
fulfillment of contractual requirements. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loans to customers.
Concentration in Real Estate Lending
At December 31, 2015, in management’s judgment, a concentration of loans existed in real estate related
loans. At that date, approximately 69% of the Company’s loans were real estate related. Balances secured
by commercial buildings and construction and development loans represented 56% of all real estate loans,
while loans secured by non-construction residential properties accounted for 27%, and loans secured by
farmland were 17% of real estate loans. Although management believes the loans within these
concentrations have no more than the normal risk of collectability, a further decline in the performance of
the economy in general or a further decline in real estate values in the Company’s primary market areas, in
particular, could have an adverse impact on collectability.
Concentration by Geographic Location
The Company grants commercial, real estate mortgage, real estate construction and consumer loans to
customers primarily in the South Central San Joaquin Valley of California, specifically Tulare, Fresno,
Kern, Kings and Madera counties and the Southern California corridor between Santa Paula and Santa
Clarita in the counties of Ventura and Los Angeles. The ability of a substantial portion of the Company’s
customers to honor their contracts is dependent on the economy in these areas. Although the Company’s
loan portfolio is diversified, there is a relationship in those regions between the local agricultural economy
and the economic performance of loans made to non-agricultural customers.
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 consolidated financial position or results of operations of the Company.