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December 31, 2014
December 31, 2013
S ierra Bancorp
Total Capital to Total Risk-weighted Assets
18.44%
21.67%
Tier 1 Capital to Total Risk-weighted Assets
17.39%
20.39%
Tier 1 Leverage Ratio
12.99%
14.37%
Bank of the S ierra
Total Capital to Total Risk-weighted Assets
18.02%
21.35%
Tier 1 Capital to Total Risk-weighted Assets
17.01%
20.11%
Tier 1 Leverage Ratio
12.72%
14.18%
We estimate that the acquisition of SCVB reduced our total risk-based capital ratios by approximately 150 basis
points, with the remainder of the drop in 2014 resulting from organic growth in risk-adjusted assets and the
utilization of capital via stock repurchases. As of the end of 2014, 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. 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 calculations 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
institutions, 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 $243 million at December 31, 2014. An additional $161 million in credit is available from the Federal
Home Loan Bank if the Company pledges sufficient additional collateral and maintains the required amount of FHLB
stock. The Company is also eligible to borrow approximately $53 million at the Federal Reserve Discount Window,
if necessary, based on pledged assets at December 31, 2014. Furthermore, funds can be obtained by drawing down
the Company’s correspondent 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, 2014,
unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $394 million
of the Company’s investment balances, up from $325 million at December 31, 2013. 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. The FHLB letter of credit, which is
backed by loans that are pledged to the FHLB by the Company, totaled $88 million at December 31, 2014.
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 59% and 24%, respectively, at
December 31, 2014, as compared to internal policy guidelines of “less than 78%” and “greater than 3%.” Other
liquidity ratios reviewed periodically by management and the Board include net loans to total deposits and wholesale
