65 / 146
49
December 31, 2015 December 31, 2014
S ierra Bancorp
Common Equity Tier 1 Capital to Risk-Weighted Assets
13.98%
n/a
Tier 1 Capital to Risk-weighted Assets
16.17%
17.39%
Total Capital to Risk-weighted Assets
17.01%
18.44%
Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio")
12.14%
12.99%
Bank of the S ierra
Common Equity Tier 1 Capital to Risk-Weighted Assets
16.01%
n/a
Tier 1 Capital to Risk-weighted Assets
16.01%
17.01%
Total Capital to Risk-weighted Assets
16.84%
18.02%
Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio")
12.00%
12.72%
The drop in ratios 2015 is primarily the result of growth in risk-adjusted assets and the utilization of capital via stock
repurchases. Despite declining ratios, as of the end of 2015 the Company and the Bank were both classified as “well
capitalized,” the highest rating of the categories defined under the Bank Holding Company Act and the Federal Deposit
Insurance Corporation Improvement Act of 1991, and its regulatory capital ratios were well above the median for peer
financial institutions. We do not foresee any circumstances that would cause the Company or the Bank to be less than
well capitalized, although no assurance can be given that this will not occur. For additional details on risk-based and
leverage capital guidelines, requirements, and calculations and for a summary of changes to risk-based capital calcula-
tions which were recently approved by federal banking regulators, see “Item 1, Business – Supervision and Regulation
– Capital Adequacy Requirements” and “Item 1, Business – Supervision and Regulation – Prompt Corrective Action
Provisions” herein.
Liquidity and Market Risk Management
Liquidity
Liquidity refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other
obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by
Management on a monthly basis, with various scenarios applied to assess our ability to meet liquidity needs under
adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely
indicators and are not measures of actual liquidity, they are closely monitored and we are focused on maintaining
adequate liquidity resources to draw upon should unexpected needs arise.
The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or
liability repayments. To meet short-term needs, the Company can borrow overnight funds from other financial institu-
tions, draw advances via Federal Home Loan Bank lines of credit, or solicit brokered deposits if deposits are not
immediately obtainable from local sources. Availability on lines of credit from correspondent banks and the FHLB
totaled $231 million at December 31, 2015. An additional $179 million in credit is available from the FHLB if the
Company pledges sufficient additional collateral and maintains the required amount of FHLB stock. The Company is
also eligible to borrow approximately $63 million at the Federal Reserve Discount Window, if necessary, based on
pledged assets at December 31, 2015. Furthermore, funds can be obtained by drawing down the Company’s corre-
spondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets. In addition,
the Company can raise immediate cash for temporary needs by selling under agreement to repurchase those investments
in its portfolio which are not pledged as collateral. As of December 31, 2015, unpledged debt securities plus pledged
securities in excess of current pledging requirements comprised $383 million of the Company’s investment balances,
down slightly from $394 million at December 31, 2014. Other forms of balance sheet liquidity include but are not
necessarily limited to any outstanding fed funds sold and vault cash. The Company has a higher level of actual balance
sheet liquidity than might otherwise be the case, since we utilize a letter of credit from the FHLB rather than investment
securities for certain pledging requirements. That letter of credit, which is backed by loans that are pledged to the
FHLB by the Company, totaled $97 million at December 31, 2015. Management is of the opinion that available
investments and other potentially liquid assets, along with the standby funding sources it has arranged, are more than
sufficient to meet the Company’s current and anticipated short-term liquidity needs.
The Company’s net loans to assets and available investments to assets ratios were 63% and 22%, respectively, at
December 31, 2015, as compared to internal policy guidelines of “less than 78%” and “greater than 3%.” Other liquidity