SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
66
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized
is the largest amount of tax benefit that is greater than 50% likely to be realized on examination. For tax
positions not meeting the “more likely than not” test, no tax benefit is recorded. We have determined that
as of December 31, 2014 all tax positions taken to date are highly certain and, accordingly, no accounting
adjustment has been made to the financial statements.
The Company recognizes interest and penalties related to uncertain tax positions as part of income tax
expense.
Salary Continuation Agreements and Directors’ Retirement Plan
The Company has entered into agreements to provide members of the Board of Directors and certain key
executives, or their designated beneficiaries, with annual benefits for up to fifteen years after retirement or
death. The Company accrues for these future benefits from the effective date of the plan until the
director’s or executive’s expected retirement date in a systematic and rational manner. At the
consolidated balance sheet date, the amount of accrued benefits equals the then present value of the
benefits expected to be provided to the director or employee, any beneficiaries, and covered dependents in
exchange for the director’s or employee’s services to that date.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive
income includes unrealized gains and losses on securities available for sale, net of an adjustment for the
effects of realized gains and losses and any applicable tax. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of other comprehensive income that historically
has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s
available for sale securities are included in other comprehensive income after adjusting for the effects of
realized gains and losses. Total comprehensive income and the components of accumulated other
comprehensive income (loss) are presented in the consolidated statements of comprehensive income.
Stock-Based Compensation
At December 31, 2014, the Company had one stock-based compensation plan, the Sierra Bancorp 2007
Stock Incentive Plan (the “2007 Plan”), which was adopted by the Company’s Board of Directors on
March 15, 2007 and approved by the Company’s shareholders on May 23, 2007. The 2007 Plan originally
covered 1,500,000 shares of the Company’s authorized but unissued common stock, subject to adjustment
for stock splits and dividends, and provides for the issuance of both “incentive” and “nonqualified” stock
options to salaried officers and employees, and of “nonqualified” stock options to non-employee directors.
The 2007 Plan also provides for the issuance of restricted stock awards to these same classes of eligible
participants. We have not issued, nor do we currently have plans to issue, restricted stock awards. The
2007 plan supersedes the Company’s 1998 Stock Option plan (“1998 Plan”) which was terminated. The
outstanding options issued under the 1998 Plan were not affected by this termination
.
Compensation cost and director’s expense is recognized for stock options issued to employees and
directors and is recognized over the required service period, generally defined as the vesting period. The
Company is using the Black-Scholes model to value stock options. The “multiple option” approach is
used to allocate the resulting valuation to actual expense for current period. Expected volatility is based
on historical volatility of the Company’s common stock. The Company uses historical data to estimate
option exercise and post-vesting termination behavior. The expected term of options granted is based on
historical data and represents the period of time that options granted are expected to be outstanding, which
takes into account that the options are not transferable. The risk-free interest rate for the expected term of
the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The fair value of
each option is estimated on the date of grant using the following assumptions:
