SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1.
THE BUSINESS OF SIERRA BANCORP
Sierra Bancorp (the “Company”) is a California corporation registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended, and is headquartered in Porterville, California. The
Company was incorporated in November 2000 and acquired all of the outstanding shares of Bank of the
Sierra (the “Bank”) in August 2001. The Company’s principal subsidiary is the Bank, and the Company
exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may
acquire or establish. The Company’s only other direct subsidiaries are Sierra Statutory Trust II, which was
formed in March 2004 solely to facilitate the issuance of capital trust pass-through securities, and Sierra
Capital Trust III, which was formed in June 2006 for the same purpose.
The Bank operates twenty-eight full service branch offices, an online branch, a real estate industries group,
an agricultural credit division, and an SBA lending unit. The Bank’s deposits are insured by the Federal
Deposit Insurance Corporation (FDIC) up to applicable legal limits. The Bank maintains a diversified loan
portfolio comprised of agricultural, commercial, consumer, real estate construction and mortgage loans.
Loans are made primarily within the market area of the South Central San Joaquin Valley of California,
specifically, Tulare, Fresno, Kern, Kings, and Madera counties, however, the Bank recently expanded into
the Southern California corridor stretching from Santa Paula to Santa Clarita in the counties of Ventura and
Los Angeles. These areas have diverse economies with principal industries being agriculture, real estate
and light manufacturing.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and the consolidated accounts
of its wholly-owned subsidiary, Bank of the Sierra. All significant intercompany balances and transactions
have been eliminated. Certain reclassifications have been made to prior years’ balances to conform to
classifications used in 2014. The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America (U.S. GAAP) and prevailing practices within
the banking industry.
In accordance with U.S. GAAP, the Company’s investments in Sierra Statutory Trust II and Sierra Capital
Trust III are not consolidated and are accounted for under the equity method and included in other assets on
the consolidated balance sheet. The subordinated debentures issued and guaranteed by the Company and
held by the trusts are reflected on the Company’s consolidated balance sheet.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions based on available information. These estimates and assumptions affect
the amounts reported in the financial statements and the disclosures provided, and actual results could
differ.
Material estimates that are particularly susceptible to significant changes in the near-term relate to the
determination of the allowance for loan and lease losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection with the determination of the
allowances for loan and lease losses and other real estate, management obtains independent appraisals for
significant properties, evaluates the overall loan portfolio characteristics and delinquencies and monitors
economic conditions.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and deposits with other
financial institutions with maturities fewer than 90 days, and federal funds sold. Net cash flows are
reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions,
and fed funds purchased and repurchase agreements.
