8
to be promulgated under Dodd-Frank will apply directly only to institutions much larger than ours, but could
indirectly impact smaller banks, either due to competitive influences or because certain required practices for larger
institutions may subsequently become expected “best practices” for smaller institutions. We expect that we may need
to devote even more management attention and resources to evaluate and make any changes necessary to comply
with statutory and regulatory requirements under Dodd-Frank.
Deposit Insurance
The Bank’s deposits are insured up to maximum applicable limits under the Federal Deposit Insurance Act, and the
Bank is subject to deposit insurance assessments to maintain the FDIC’s Deposit Insurance Fund (the “DIF”). In
October 2010, the FDIC adopted a revised restoration plan to ensure that the DIF’s designated reserve ratio (“DRR”)
reaches 1.35% of insured deposits by September 30, 2020, the deadline mandated by the Dodd-Frank Act. However,
financial institutions like Bank of the Sierra with assets of less than $10 billion are exempted from the cost of this
increase. Furthermore, the restoration plan proposed an increase in the DRR to 2% of estimated insured deposits as a
long-term goal for the fund. The FDIC also proposed future assessment rate reductions in lieu of dividends, when the
DRR reaches 1.5% or greater.
As noted above, the Dodd-Frank Act provided for a permanent increase in FDIC deposit insurance per depositor from
$100,000 to $250,000 retroactive to January 1, 2008. Furthermore, the FDIC redefined its deposit insurance pre-
mium assessment base from an institution’s total domestic deposits to its total assets less tangible equity, effective in
the second quarter of 2011. The changes to the assessment base necessitated changes to assessment rates, which be-
came effective April 1, 2011. The revised assessment rates are lower than prior rates but the assessment base is
larger, so approximately the same amount of assessment revenue is being collected by the FDIC. We are generally
unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional
bank or financial institution failures or if the FDIC otherwise determines, we may be required to pay even higher
FDIC premiums, which may have a material adverse effect on our earnings and could have a material adverse effect
on the value of, or market for, our common stock.
In addition to DIF assessments, banks must pay quarterly assessments that are applied to the retirement of Financing
Corporation bonds issued in the 1980’s to assist in the recovery of the savings and loan industry. The assessment
amount fluctuates, but was 0.62 basis points of insured deposits for the fourth quarter of 2014. Those assessments
will continue until the Financing Corporation bonds mature in 2019.
Community Reinvestment Act
The Bank is subject to certain requirements and reporting obligations involving Community Reinvestment Act
(“CRA”) activities. The CRA generally requires federal banking agencies to evaluate the record of a financial insti-
tution in meeting the credit needs of its local communities, including low and moderate income neighborhoods. The
CRA further requires the agencies to consider a financial institution’s efforts in meeting its community credit needs
when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of
holding companies. In measuring a bank’s compliance with its CRA obligations, the regulators utilize a perfor-
mance-based evaluation system under which CRA ratings are determined by the bank’s actual lending, service, and
investment performance, rather than on the extent to which the institution conducts needs assessments, documents
community outreach activities or complies with other procedural requirements. In connection with its assessment of
CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial
noncompliance.” The Bank most recently received a “satisfactory” CRA assessment rating in August 2013.
Privacy and Data Security
The Gramm-Leach-Bliley Act, also known as the Financial Modernization Act of 1999 (the “Financial Moderniza-
tion Act”), imposed requirements on financial institutions with respect to consumer privacy. Financial institutions,
however, are required to comply with state law if it is more protective of consumer privacy than the Financial Mod-
ernization Act. The Financial Modernization Act generally prohibits disclosure of consumer information to non-
affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such
disclosure. The statute also directed federal regulators, including the Federal Reserve and the FDIC, to establish
standards for the security of consumer information, and requires financial institutions to disclose their privacy poli-
cies to consumers annually.
