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SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
60
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, an SBA lending unit, and one loan production office. 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 2015. 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.