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SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
113
20.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures include estimated fair values for financial instruments for which it is practicable to estimate fair
value. These estimates are made at a specific point in time based on relevant market data and information
about the financial instruments. These estimates do not reflect any premium or discount that could result
from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do
they attempt to estimate the value of anticipated future business related to the instruments. In addition, the
tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in any of these estimates.
Because no market exists for a significant portion of the Company’s financial instruments, fair value
estimates are based on judgments regarding current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the fair values presented. The following methods and assumptions
were used by the Company to estimate the fair value of its financial instruments at December 31, 2015 and
2014:
Cash and cash equivalents, and fed funds sold: For cash and cash equivalents and fed funds sold, the
carrying amount is estimated to be fair value.
Securities: The fair values of investment securities are determined by obtaining quoted prices on nationally
recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the
industry to value debt securities by relying on their relationship to other benchmark quoted securities when
quoted prices for specific securities are not readily available.
Loans and leases: For variable-rate loans and leases that re-price frequently with no significant change in
credit risk or interest rate spread, fair values are based on carrying values. Fair values for other loans and
leases are estimated by discounting projected cash flows at interest rates being offered at each reporting date
for loans and leases with similar terms, to borrowers of comparable creditworthiness.
Loans held for sale: Since loans designated by the Company as available-for-sale are typically sold shortly
after making the decision to sell them, realized gains or losses are usually recognized within the same period
and fluctuations in fair values are thus not relevant for reporting purposes. If available-for-sale loans stay
on our books for an extended period of time, the fair value of those loans is determined using quoted
secondary-market prices.
Cash surrender value of life insurance policies: The fair values are based on current cash surrender values
at each reporting date provided by the insurers.
Investment in limited partnerships: The fair values of our investments in limited partnerships are estimated
using quarterly indications of value provided by the general partner. The fair values of undisbursed capital
commitments are assumed to be the same as their book values.
Other investments: Included in other assets are certain long-term investments carried at cost, which
approximates estimated fair value, unless an impairment analysis indicates the need for adjustments.
Deposits: Fair values for non-maturity deposits are equal to the amount payable on demand at the reporting
date, which is the carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a
cash flow analysis, discounted at interest rates being offered at each reporting date by the Bank for
certificates with similar remaining maturities.
Short-term borrowings: The carrying amounts approximate fair values for federal funds purchased,
overnight FHLB advances, borrowings under repurchase agreements, and other short-term borrowings
maturing within ninety days of the reporting dates. Fair values of other short-term borrowings are estimated
by discounting projected cash flows at the Company’s current incremental borrowing rates for similar types
of borrowing arrangements.