10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2013

Commission file number:000-33063

SIERRA BANCORP

(Exact name of registrant as specified in its charter)

California	33-0937517
(State of incorporation)	(I.R.S. Employer Identification No.)

86 North Main Street, Porterville, California	93257
(Address of principal executive offices)	(Zip Code)

(559) 782-4900

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, No Par Value	The NASDAQ Stock Market LLC (NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yesþ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

¨ Yesþ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

þ Yes¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ¨	Accelerated filer þ
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨ Yesþ No

As of June 28, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $160 million, based on the closing price reported to the registrant on that date of $14.80 per share. Shares of Common Stock held by each officer and director and each person or control group owning more than ten percent of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates.This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of common stock of the registrant outstanding as of February 28, 2014 was 14,240,399.

Documents Incorporated by Reference:Portions of the definitive proxy statement for the 2014 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to SEC Regulation 14A are incorporated by reference in Part III, Items 10-14.

TABLE OF CONTENTS

	ITEM		PAGE
PART I			1
	Item 1.	Business	1
	Item 1A.	Risk Factors	14
	Item 1B.	Unresolved Staff Comments	23
	Item 2.	Properties	23
	Item 3.	Legal Proceedings	23
	Item 4.	Reserved	23
PART II			23
	Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	23
	Item 6.	Selected Financial Data	26
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	54
	Item 8.	Financial Statements and Supplementary Data	54
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	113
	Item 9A.	Controls and Procedures	113
	Item 9B.	Other Information	116
PART III			116
	Item 10.	Directors, Executive Officers and Corporate Governance	116
	Item 11.	Executive Compensation	116
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	116
	Item 13.	Certain Relationships and Related Transactions and Director Independence	116
	Item 14.	Principal Accounting Fees and Services	117
PART IV			118
	Item 15.	Exhibits and Financial Statement Schedules	118
SIGNATURES			120

PART I

Item 1. Business

General

The Company

Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws. The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”), and has been the Bank’s sole shareholder since August 2001. The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. At the present time, the Company’s only other direct subsidiaries are Sierra Statutory Trust II and Sierra Capital Trust III, which were formed in March 2004 and June 2006, respectively, solely to facilitate the issuance of capital trust pass-through securities (TRUPS). Pursuant to the Financial Accounting Standards Board’s (FASB’s) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the financial statements of the Company. References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.

At December 31, 2013, the Company had consolidated assets of $1.410 billion, gross loans of $803 million, deposits of $1.174 billion and shareholders’ equity of $182 million. The Company’s liabilities include $31 million in debt obligations due to Sierra Statutory Trust II and Sierra Capital Trust III, related to TRUPS issued by those entities.

The Bank

The Bank is a California state-chartered bank headquartered in Porterville, California, that offers a full range of retail and commercial banking services primarily to communities in the central and southern regions of the San Joaquin Valley. Our branch footprint stretches from Fresno on the north to Bakersfield on the south, and on the southern end extends east through the Tehachapi plateau and into the northwestern tip of the Mojave Desert. The Bank was incorporated in September 1977 and opened for business in January 1978, and in the ensuing years has grown to be the largest independent bank headquartered in the South San Joaquin Valley. Our growth has primarily been organic, but includes the acquisition of Sierra National Bank in 2000.

Our chief products and services are related to the business of lending money and accepting deposits. The Bank’s lending activities include real estate, commercial (including small business), agricultural, and consumer loans. The bulk of our real estate loans are secured by commercial or professional office properties which are predominantly owner-occupied. We also employ real estate lending specialists who are responsible for a complete line of construction loans for residential and commercial development, permanent mortgage loans, land acquisition and development loans, multifamily credit facilities, and agricultural mortgage loans. Secondary market services for residential mortgage loans are provided through the Bank’s affiliations with Freddie Mac, Fannie Mae and certain non-governmental institutions. As of December 31, 2013, the percentage of our total loan and lease portfolio for each of the principal types of credit we extend was as follows: (i) loans secured by real estate (71.9%); (ii) agricultural production loans (3.1%); (iii) commercial and industrial loans and leases (including SBA loans and direct finance leases) (12.9%); (iv) mortgage warehouse loans (9.1%); and (v) consumer loans (2.9%). Interest, fees, and loan sale income on real-estate secured loans, which is by far the largest segment of our portfolio, totaled $31.2 million in 2013 and $33.2 million in 2012, or approximately 48% of our net interest plus other income in both years.

In addition to loans, we offer a wide range of deposit products for individuals and businesses including checking accounts, savings accounts, money market demand accounts, time deposits, retirement accounts, and sweep accounts. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to maximum insurable amounts. We have also been in the Certificate of Deposit Account Registry Service (CDARS) network since its inception, and through CDARS are able to offer full FDIC insurance coverage on multi-million dollar deposits up to specified limits. We attract deposits from throughout our market area with direct-mail campaigns, a customer-oriented product mix, competitive pricing, convenient locations, drive-through banking, and a multitude of alternative delivery channels, and we strive to retain our deposit customers by providing a consistently high level of service. At December 31, 2013 we had 95,700 deposit accounts totaling $1.174 billion, compared to 92,700 deposit accounts totaling $1.174 billion at December 31, 2012. While there was no growth in aggregate deposit balances in 2013, we did experience a shift into lower-cost non-maturity deposits during the year.

1

We currently operate 25 full service branch offices throughout our geographic footprint. The Bank’s most recent branching activity involved the relocation of our Clovis branch to a larger facility in a more convenient location in the third quarter of 2012. The locations of the Bank’s offices are as follows:

Porterville:	Administrative Headquarters 86 North Main Street	Main Office 90 North Main Street	West Olive Branch 1498 West Olive Avenue
Bakersfield:	Bakersfield Ming Office 8500 Ming Avenue	Bakersfield Riverlakes Office 4060 Coffee Road	Bakersfield East Hills Office 2501 Mt. Vernon Avenue
California City:	California City Office 8031 California City Blvd.
Clovis:	Clovis Office 1835 East Shaw Avenue
Delano:	Delano Office 1126 Main Street
Dinuba:	Dinuba Office 401 East Tulare Street
Exeter:	Exeter Office 1103 West Visalia Road
Farmersville:	Farmersville Office 400 West Visalia Road
Fresno:	Fresno Shaw Office 636 East Shaw Avenue	Fresno Herndon Office 7029 N. Ingram Avenue	Fresno Sunnyside Office 5775 E. Kings Canyon Rd.
Hanford:	Hanford Office 427 West Lacey Boulevard
Lindsay:	Lindsay Office 142 South Mirage Avenue
Reedley:	Reedley Office 1095 W. Manning Street
Selma:	Selma Office 2446 McCall Avenue
Tehachapi:	Tehachapi Downtown Office 224 West “F” Street	Tehachapi Old Town Office 21000 Mission Street
Three Rivers:	Three Rivers Office 40884 Sierra Drive
Tulare:	Tulare Office 246 East Tulare Avenue	Tulare Prosperity Office 1430 E Prosperity Avenue
Visalia:	Visalia Mooney Office 2515 South Mooney Blvd.	Visalia Downtown Office 128 East Main Street

In addition to the full-service branch offices listed above the Bank has a real estate industries group, an agricultural credit division, and an SBA lending unit. We also have ATMs at all branch locations, and offsite ATMs at six different non-branch locations. Furthermore, the Bank is a member of the Allpoint network, which provides our customers with surcharge-free access to over 43,000 ATMs across the nation and another 12,000 ATMs in foreign countries, and our customers have access to electronic point-of-sale payment alternatives nationwide via the Pulse EFT network. To ensure that account access preferences are addressed for all customers, we also provide the following options: an internet branch which provides the ability to open deposit accounts and submit certain loan applications online; an online banking option with bill-pay and mobile banking capabilities; a customer service center that is accessible by toll-free telephone during business hours; and an automated telephone banking system that is usually accessible 24 hours a day, seven days a week. We offer a multitude of other banking products and services to complement and support our lending and deposit products, including remote deposit capture and automated payroll services for business customers. To provide non-deposit investment options we have a strategic alliance with Investment Centers of America, Inc. of Bismarck, North Dakota (ICA). Through this arrangement, registered and licensed representatives of ICA provide our customers with convenient access to annuities, insurance products, mutual funds, and a full range of investment products.

 

2

We have not engaged in any material research activities related to the development of new products or services during the last two fiscal years. However, our officers and employees are continually searching for ways to increase public convenience, enhance customer access to payment systems, and enable us to improve our competitive position. The cost to the Bank for these development, operations, and marketing activities cannot be calculated with any degree of certainty. We hold no patents or licenses (other than licenses required by appropriate bank regulatory agencies), franchises, or concessions. Our business has a modest seasonal component due to the heavy agricultural orientation of the Central Valley, but as our branches in more metropolitan areas have expanded we have become less reliant on the agriculture-related base. We are not dependent on a single customer or group of related customers for a material portion of our core deposits, nor is a material portion of our loans concentrated within a single industry or group of related industries. Our efforts to comply with government and regulatory mandates on consumer protection and privacy, anti-terrorism, and other initiatives have resulted in significant ongoing expense to the Bank, including staffing additions and costs associated with compliance-related software. However, as far as can be determined there has been no material effect upon our capital expenditures, earnings, or competitive position as a result of environmental regulation at the Federal, state, or local level.

Recent Accounting Pronouncements

Information on recent accounting pronouncements is contained in Note 2 to the consolidated financial statements.

Competition

The banking business in California in general, and specifically in many of our market areas, is highly competitive. The industry continues to consolidate, particularly with the relatively large number of FDIC-assisted takeovers of failed banks and other acquisitions of troubled banks in recent years. There are also many unregulated companies competing for business in our markets with financial products targeted at highly profitable customer segments. Many of those companies are able to compete across geographic boundaries and provide meaningful alternatives to nearly all significant banking services and products. These competitive trends are likely to continue.

With respect to commercial bank competitors, the business is dominated by a relatively small number of major banks that operate a large number of offices within our geographic footprint. Based on June 30, 2013 FDIC market share data for the combined four counties within which the Company operates, namely Tulare, Kern, Fresno, and Kings counties, the largest portion of deposits belongs to Wells Fargo Bank (22.1%), followed by Bank of America (16.9%). The next three institutions are multi-billion dollar institutions which have market share percentages between 6% and 7%. Bank of the Sierra ranks sixth on the 2013 market share list, with 5.1% of total deposits in the referenced four-county area. In Tulare County, however, where the Bank was originally formed, we rank first for deposit market share with 18.6% of total deposits and have the largest number of branch locations (12, including our online branch). The larger banks noted above have, among other advantages, the ability to finance wide-ranging advertising campaigns and to allocate their resources to regions of highest yield and demand. They can also offer certain services that we do not offer directly but may offer indirectly through correspondent institutions. By virtue of their greater total capitalization, those banks also have substantially higher lending limits. For customers whose needs exceed our legal lending limits, we typically arrange for the sale, or “participation,” of some of the balances to financial institutions that are not within our geographic footprint.

3

In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking institutions such as finance companies, leasing companies, insurance companies, brokerage firms, asset management groups, mortgage banking firms and internet-based companies. Technological innovations have lowered traditional barriers of entry and enabled many of these companies to offer services that previously were considered traditional banking products, and we have witnessed increased competition from companies that circumvent the banking system by facilitating payments via the internet, wireless devices, prepaid cards, and other means.

Strong competition for deposits and loans among financial institutions and non-banks alike affects interest rates and other terms on which financial products are offered to customers. Mergers between financial institutions have created additional pressures within the industry to remain competitive by streamlining operations, reducing expenses, and increasing revenues. Competition is also impacted by federal and state interstate banking laws which permit banking organizations to expand into other states. The relatively large California market has been particularly attractive to out-of-state institutions. Competitive conditions were further intensified in the year 2000 by the enactment of the Financial Modernization Act, which made it possible for full affiliations to occur between banks and securities firms, insurance companies, and other financial companies.

For years we have countered rising competition by offering a broad array of products with flexibility in structure and terms that cannot always be matched by our competitors. We also offer our customers community-oriented, personalized service, and rely on local promotional activity and personal contacts by our directors and employees. As noted above, layered onto our traditional personal-contact banking philosophy are technology-driven initiatives that improve customer access and convenience.

Employees

As of December 31, 2013 the Company had 314 full-time and 92 part-time employees. On a full-time equivalent basis staffing stood at 389 at December 31, 2013, down from 399 at December 31, 2012 due primarily to efficiencies being realized in our administrative departments.

Regulation and Supervision

Banks and bank holding companies are heavily regulated by federal and state laws and regulations. Most banking regulations are intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of shareholders. The following is a summary of certain statutes, regulations and regulatory guidance affecting the Company and the Bank. This summary is not intended to be a complete explanation of such statutes, regulations and guidance, all of which are subject to change in the future, nor does it fully address their effects and potential effects on the Company and the Bank.

Regulation of the Company Generally

The Company’s stock is traded on the NASDAQ Global Select Market under the symbol BSRR, and as such the Company is subject to NASDAQ rules and regulations including those related to corporate governance. The Company is also subject to the periodic reporting requirements of Section 13 of the Securities Exchange Act of 1934 (the “Exchange Act”) which requires the Company to file annual, quarterly and other current reports with the Securities and Exchange Commission (the “SEC”). The Company is subject to additional regulations including, but not limited to, the proxy and tender offer rules promulgated by the SEC under Sections 13 and 14 of the Exchange Act; the reporting requirements of directors, executive officers and principal shareholders regarding transactions in the Company’s common stock, and short swing profits rules promulgated by the SEC, under Section 16 of the Exchange Act; and certain additional reporting requirements for principal shareholders of the Company promulgated by the SEC under Section 13 of the Exchange Act. As a publicly traded company which had more than $75 million in public float as of June 28, 2013, the last business day of Company’s most recently completed second fiscal quarter, the Company is classified as an “accelerated filer” for purposes of its Exchange Act filing requirements.

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 and is registered as such with the Federal Reserve Board. A bank holding company is required to file with the Federal Reserve annual reports and other information regarding its business operations and those of its subsidiaries. It is also subject to periodic examination by the Federal Reserve and is required to obtain Federal Reserve approval before acquiring, directly or indirectly, ownership of the voting shares of any bank if, after such acquisition, it would directly or indirectly own or control more than 5% of the voting stock of that bank, unless it already owns a majority of the voting stock of that bank.

4

The Federal Reserve Board has determined by regulation certain activities in which a bank holding company may or may not conduct business. A bank holding company must engage, with certain exceptions, in the business of banking or managing or controlling banks or furnishing services to or performing services for its subsidiary banks. The principal exceptions to those prohibitions involve non-bank activities identified by statute, by Federal Reserve regulation, or by Federal Reserve order as activities so closely related to the business of banking or of managing or controlling banks as to be a proper incident thereto, including securities brokerage services, investment advisory services, fiduciary services, and management advisory and data processing services, among others. A bank holding company that also qualifies as and elects to become a “financial holding company” may engage in a broader range of activities that are financial in nature (and complementary to such activities), specifically non-bank activities identified by the Gramm-Leach-Bliley Act of 1999 or by Federal Reserve and Treasury regulation as financial in nature or incidental to a financial activity. Activities that are defined as financial in nature include securities underwriting, dealing, and market making, sponsoring mutual funds and investment companies, engaging in insurance underwriting and agency activities, and making merchant banking investments in non-financial companies. To become and remain a financial holding company, a bank holding company and its subsidiary banks must be well capitalized, well managed, and, except in limited circumstances, have at least a satisfactory rating under the Community Reinvestment Act. The Company has no current intention of becoming a financial holding company, but may do so at some point in the future if deemed appropriate in view of opportunities or circumstances at the time.

The Company and the Bank are deemed to be affiliates of each other within the meaning set forth in the Federal Reserve Act and are subject to Sections 23A and 23B of the Federal Reserve Act. The Federal Reserve Board has also issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and related interpretative guidance with respect to affiliate transactions.This means, for example, that there are limitations on loans by the Bank to affiliates, and that all affiliate transactions must satisfy certain requirements and otherwise be on terms and conditions at least as favorable to the Bank as would be available for non-affiliates. In addition, we must comply with the Federal Reserve Act and Regulation O issued by the Federal Reserve Board, which require that loans and extensions of credit to our executive officers, directors and principal shareholders, or any company controlled by any such persons, shall, among other conditions, be made on substantially the same terms and follow credit-underwriting procedures no less stringent than those prevailing at the time for comparable transactions with persons not related to the Bank.

Regulations and policies of the Federal Reserve Board require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. It is the Federal Reserve Board’s policy that a bank holding company should stand ready to use available resources to provide adequate capital funds to a subsidiary bank during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting a subsidiary bank. Under certain conditions, the Federal Reserve Board may conclude that certain actions of a bank holding company, such as a payment of a cash dividend, would constitute an unsafe and unsound banking practice. The Federal Reserve Board also has the authority to regulate the debt of bank holding companies, including the authority to impose interest rate ceilings and reserve requirements on such debt. Under certain circumstances, the Federal Reserve Board may require a bank holding company to file written notice and obtain its approval prior to purchasing or redeeming its equity securities, unless certain conditions are met.

Regulation of the Bank Generally

The Bank is a California state-chartered bank and is subject to regulation, supervision and regular examination by the California Department of Business Oversight (the “DBO”) and the FDIC. Its deposits are insured by the FDIC up to the maximum limits allowable by law. In addition, while the Bank is not a member of the Federal Reserve System, the Bank is subject to certain regulations of the Federal Reserve Board. These agencies govern and regulate most aspects of the Bank’s business including investments, loans, deposits and other borrowings, dividends, capital requirements, branching, and mergers and acquisitions, and they periodically examine the Bank and require the submission of periodic reports. Supervision, legal action and examination by the FDIC are generally intended to protect depositors and are not intended for the protection of shareholders.

5

The earnings and growth of the Bank are largely dependent on our ability to maintain a favorable differential, or “spread,” between our yield on interest-earning assets and the average rate paid on our deposits and other interest-bearing liabilities. As a result, the Bank’s performance is influenced by both domestic and foreign economic conditions, the monetary and fiscal policies of the government, and the policies and practices of regulatory agencies, including the Federal Reserve Board. The Federal Reserve Board implements national monetary policies (such as, for example, seeking to curb inflation and combat recession) by its open-market operations in United States government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements, by varying the discount rate applicable to borrowings by banks that participate in the Federal Reserve System, and through quantitative easing. The actions of the Federal Reserve Board in those areas influence the growth of bank loans, investments and deposits and also affect interest rates on loans and deposits. The nature and impact of any future changes in monetary policies cannot be predicted with any degree of certainty.

Capital Adequacy Requirements

The Company and the Bank are subject to the regulations of the Federal Reserve Board and the FDIC, respectively, governing capital adequacy. Each of the federal regulators has established risk-based and leverage capital guidelines for the banks and/or bank holding companies it regulates, which set total capital requirements and define capital in terms of Tier 1 capital and Tier 2 capital. Tier 1 capital is generally defined as the sum of core capital elements, less goodwill, accumulated other comprehensive income, disallowed deferred tax assets, and certain other deductions. The following items are defined as core capital elements: (i) common shareholders’ equity; (ii) qualifying non-cumulative perpetual preferred stock and related surplus (and, in the case of holding companies, senior perpetual preferred stock issued to the U.S. Treasury Department pursuant to the Troubled Asset Relief Program); (iii) minority interests in the equity accounts of consolidated subsidiaries; and (iv) “restricted” core capital elements (which include qualifying trust preferred securities) up to 25% of all core capital elements. Tier 2 capital includes the following supplemental capital elements: (i) allowance for loan and lease losses (but not more than 1.25% of an institution’s risk-weighted assets); (ii) perpetual preferred stock and related surplus not qualifying as core capital; (iii) hybrid capital instruments, perpetual debt and mandatory convertible debt instruments; and, (iv) term subordinated debt and intermediate-term preferred stock and related surplus. The maximum amount of Tier 2 capital is capped at 100% of Tier 1 capital.

The minimum required ratio of qualifying Tier 1 plus Tier 2 capital to total risk-weighted assets is 8% (Total Risk-Based Capital Ratio), and the minimum required ratio of Tier 1 capital to total risk-weighted assets is 4% (Tier 1 Risk-Based Capital Ratio). Risk-based capital ratios are calculated to provide a measure of capital adequacy which incorporates the degree of risk associated with a financial institution’s assets and off-balance sheet items, such as letters of credit and recourse arrangements. Under risk-based capital guidelines, the nominal dollar amounts of assets and credit-equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as cash on hand and certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as unsecured loans. As of December 31, 2013 and 2012, Bank-only Total Risk-Based Capital Ratios were 21.35% and 19.14%, respectively, and the Bank’s Tier 1 Risk-Based Capital Ratios were 20.11% and 17.88%, respectively. As of December 31, 2013 and 2012, the consolidated Company’s Total Risk-Based Capital Ratios were 21.67% and 19.36%, respectively, and its Tier 1 Risk-Based Capital Ratios were 20.39% and 18.11%, respectively.

The FDIC and the Federal Reserve Board have also established guidelines for a financial institution’s leverage ratio, defined as Tier 1 capital to adjusted total assets. Banks and bank holding companies that have received the highest rating of the five categories used by regulators to rate banks and are not anticipating or experiencing any significant growth must maintain a leverage ratio of at least 3%. All other institutions are typically required to maintain a leverage ratio of at least 4% to 5%; however, federal regulations also provide that financial institutions must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans, and federal regulators may set higher capital requirements when an institution’s particular circumstances warrant. Bank-only leverage ratios were 14.18% and 13.17% on December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the consolidated Company’s leverage ratios were 14.37% and 13.34%, respectively.

6

Risk-based capital requirements also take into account concentrations of credit (based on collateral or loan types) and the risks of “non-traditional” activities (those that have not customarily been part of the banking business). The regulations require institutions with high or inordinate levels of risk to operate with higher minimum capital standards, and authorize the regulators to review an institution’s risk management practices in assessing capital adequacy. Additionally, the regulatory Statements of Policy on risk-based capital include exposure to interest rate risk as a factor that the regulators will consider in evaluating a financial institution’s capital adequacy, although interest rate risk does not impact the calculation of risk-based capital ratios. Interest rate risk is the exposure of a bank’s current and future earnings and equity capital to changes in interest rates. While interest rate risk is inherent in a financial institution’s role as a financial intermediary, it introduces volatility to earnings and economic value.

In July 2013, the Federal Reserve and other federal banking agencies approved final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for all U.S. banks and bank holding companies with greater than $500 million in assets.Under these final rules, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank.The rules include a new common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0%, and a minimum leverage ratio of 4.0%.The final rules also require a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule.Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to executive management.The capital buffer requirement will be phased in over three years beginning in 2016, and will effectively raise the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis.

The final rules also increase the required capital for certain categories of assets, including higher-risk construction real estate loans, certain past-due or nonaccrual loans, and certain exposures related to securitizations.The final rules adopt the same risk weightings for residential mortgages that existed under previous risk-based capital rules.Similarly, the final rules permanently grandfather non-qualifying capital instruments (such as trust preferred securities and cumulative perpetual preferred stock) issued before May 19, 2010 for inclusion in the Tier 1 capital of banking organizations with total consolidated assets of less than $15 billion at December 31, 2009, subject to a limit of 25% of Tier 1 capital.As all of the Company’s trust preferred securities were issued prior to that date, they will continue to qualify as Tier 1 capital under the new rules.

These new minimum capital ratios will become effective for us on January 1, 2015, and the capital buffers will be fully phased in by January 1, 2019.Based on existing capital levels at December 31, 2013, the Company and the Bank would have met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were currently in effect.

For more information on the Company’s capital, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation – Capital Resources. Risk-based capital ratio requirements are discussed in greater detail in the following section.

Prompt Corrective Action Provisions

Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured financial institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The federal banking agencies have by regulation defined the following five capital categories: “well capitalized” (Total Risk-Based Capital Ratio of 10%; Tier 1 Risk-Based Capital Ratio of 6%; and Leverage Ratio of 5%); “adequately capitalized” (Total Risk-Based Capital Ratio of 8%; Tier 1 Risk-Based Capital Ratio of 4%; and Leverage Ratio of 4%, or 3% if the institution receives the highest rating from its primary regulator); “undercapitalized” (Total Risk-Based Capital Ratio of less than 8%; Tier 1 Risk-Based Capital Ratio of less than 4%; or Leverage Ratio of less than 4%, or 3% if the institution receives the highest rating from its primary regulator); “significantly undercapitalized” (Total Risk-Based Capital Ratio of less than 6%; Tier 1 Risk-Based Capital Ratio of less than 3%; or Leverage Ratio less than 3%); and “critically undercapitalized” (tangible equity to total assets less than 2%). A bank may be treated as though it were in the next lower capital category if, after notice and the opportunity for a hearing, the appropriate federal agency finds an unsafe or unsound condition or practice so warrants, but no bank may be treated as “critically undercapitalized” unless its actual capital ratio warrants such treatment. As of December 31, 2013 and 2012, both the Company and the Bank were deemed to be well capitalized for regulatory capital purposes.

7

At each successively lower capital category, an insured bank is subject to increased restrictions on its operations. For example, a bank is generally prohibited from paying management fees to any controlling persons or from making capital distributions if to do so would make the bank “undercapitalized.” Asset growth and branching restrictions apply to undercapitalized banks, which are required to submit written capital restoration plans meeting specified requirements (including a guarantee by the parent holding company, if any). “Significantly undercapitalized” banks are subject to broad regulatory authority, including among other things capital directives, forced mergers, restrictions on the rates of interest they may pay on deposits, restrictions on asset growth and activities, and prohibitions on paying bonuses or increasing compensation to senior executive officers without FDIC approval. Even more severe restrictions apply to “critically undercapitalized” banks. Most importantly, except under limited circumstances, not later than 90 days after an insured bank becomes critically undercapitalized the appropriate federal banking agency is required to appoint a conservator or receiver for the bank.

In addition to measures taken under the prompt corrective action provisions, insured banks may be subject to potential actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the issuance of cease and desist orders, termination of insurance of deposits (in the case of a bank), the imposition of civil money penalties, the issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders against “institution-affiliated” parties.

Safety and Soundness Standards

The federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository institutions. Those guidelines relate to internal controls, information systems, internal audit systems, loan underwriting and documentation, compensation and interest rate exposure. In general, the standards are designed to assist the federal banking agencies in identifying and addressing problems at insured depository institutions before capital becomes impaired. If an institution fails to meet the requisite standards, the appropriate federal banking agency may require the institution to submit a compliance plan and could institute enforcement proceedings if an acceptable compliance plan is not submitted or adhered to.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act financial reform legislation (Dodd-Frank) significantly revised and expanded the rulemaking, supervisory, and enforcement authority of the federal bank regulatory agencies. Dodd-Frank impacts many aspects of the financial industry and, in many cases, will impact larger and smaller financial institutions and community banks differently over time. Many of the following key provisions of Dodd-Frank are already effective or are in the proposed rule or implementation stage:

· a change to permanent status for the previously-implemented temporary increase in FDIC deposit insurance to $250,000;

· authorization for financial institutions to pay interest on business checking accounts, as a result of which the Company began to pay interest on a limited number of business checking accounts in August 2011;

· changes in an institution’s FDIC deposit insurance assessment base to its average consolidated total assets less average tangible equity, rather than its deposit base, as a result of which smaller banks are now paying proportionately less and larger banks proportionately more of aggregate insurance assessments;

· the requirement that interchange fees by debit card issuers be reasonable and proportional to the cost incurred, which does not apply directly to banks with less than $10 billion in assets but nonetheless affects smaller banks due to competitive factors;

· the creation of a Consumer Financial Protection Bureau within the Federal Reserve (discussed below) with centralized responsibility for consumer protection;

8

 

· provisions that affect corporate governance and executive compensation at most publicly-traded companies in the United States, including proxy access requirements for shareholders, non-binding shareholder votes on executive compensation, the establishment of an independent compensation committee, enhanced executive compensation disclosures and compensation claw-backs;

· the application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, and the elimination and phase-out of trust preferred securities from Tier 1 capital with certain exceptions (which exceptions currently enable the Company to continue to include trust preferred securities as Tier 1 capital);

· codification of the requirement that bank holding companies serve as a source of financial strength for their depository institution subsidiaries;

· expansion of restrictions on transactions with affiliates and insiders under Section 23A and 23B of the Federal Reserve Act, and limits for derivative transactions, repurchase agreements, and securities lending and borrowing transactions;

· the elimination of the remaining barriers to de novo interstate branching by banks; and

· enhanced regulation of financial markets, including the derivative and securitization markets.

The Dodd-Frank Act also amended the Bank Holding Company Act to require federal financial regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds).The statutory provision is commonly called the “Volcker Rule.”The Federal Reserve Board together with four other government agencies issued final rules implementing the Volcker Rule in December 2013, effective April 1, 2014, but institutions will have until July 21, 2015 to conform their activities and investments to the requirements of the Volcker Rule.We do not anticipate that the Volcker Rule will have a material effect on our operations, as we do not engage in any of the trading activities prohibited by the Volcker Rule, and we do not have any ownership interest in or relationship with any of the types of funds regulated by the Volcker Rule.

Because many of the regulations related to Dodd-Frank have not yet been issued or fully implemented, the statute’s ultimate effect on the financial services industry in general, and on the Company in particular, is uncertain at this time.However, certain provisions of Dodd-Frank will significantly impact, or already are affecting, our operations and expenses, including, for example, changes in FDIC assessments, the permitted payment of interest on demand deposits, and enhanced compliance requirements.Some of the rules and regulations promulgated or yet 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 new 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 (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 premium 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 became 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 than the recent levels.Any future increases in FDIC insurance premiums 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.

9

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 0.64 basis points of insured deposits for the fourth quarter of 2013. 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 institution 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 performance-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’s most recent rating is a “satisfactory” CRA assessment rating, assigned in August 2013.

Privacy and Data Security

The Gramm-Leach-Bliley Act, also known as the Financial Modernization Act of 1999 (the “Financial Modernization 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 Modernization 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 policies to consumers annually.

Overdrafts

The Electronic Funds Transfer Act, as implemented by the Federal Reserve’s Regulation E, governs transfers initiated through automated teller machines (ATMs), point-of-sale terminals, and other electronic banking services. Regulation E prohibits financial institutions from assessing an overdraft fee for paying ATM and one-time point-of-sale debit card transactions, unless the customer affirmatively opts in to the overdraft service for those types of transactions. The opt-in provision establishes requirements for clear disclosure of fees and terms of overdraft services for ATM and one-time debit card transactions. The rule does not apply to other types of transactions, such as check, automated clearinghouse (ACH) and recurring debit card transactions. Additionally, in November 2010, the FDIC issued its Overdraft Guidance on automated overdraft service programs to ensure that a bank mitigates the risks associated with offering automated overdraft payment programs and complies with all consumer protection laws and regulations. The procedural changes and fee adjustments necessitated by those regulatory changes resulted in lower overdraft income for the Company, and could have a further adverse impact on non-interest income in the future.

Predatory Lending

The term “predatory lending” is far-reaching and covers a potentially broad range of behavior. As such, it does not lend itself to a concise or comprehensive definition. Typically, predatory lending involves at least one, and perhaps all three, of the following elements: making unaffordable loans based on a borrower’s assets rather than on the borrower’s ability to repay an obligation, or asset-based lending; inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced, or loan flipping; and engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

10

Federal Reserve Board regulations aimed at curbing such lending significantly widened the pool of high-cost home-secured loans covered by the Home Ownership and Equity Protection Act of 1994, a federal law that requires extra disclosures and consumer protections to borrowers. In addition, the regulation bars loan flipping by the same lender or loan servicer within a year. Lenders also will be presumed to have violated the law which says loans shouldn’t be made to people unable to repay them, unless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid. The Company does not engage in predatory lending, and thus does not expect these rules or potential future regulations in this area to have any impact on its financial condition or results of operations.

Consumer Financial Protection and Other Consumer Laws and Regulations

Dodd-Frank created the Consumer Financial Protection Bureau (CFPB) as a new and independent unit within the Federal Reserve System. With certain exceptions, the CFPB has authority to regulate any person or entity that engages in offering or providing a “consumer financial product or service,” and it has rulemaking, examination, and enforcement powers over financial institutions. With respect to primary examination and enforcement authority of financial entities, however, the CFPB’s authority is limited to institutions with assets of $10 billion or more. Existing regulators retain this authority over institutions with assets of $10 billion or less, such as the Bank.

The powers of the CFPB currently include:

· the ability to prescribe consumer financial laws and rules that regulate all institutions that engage in offering or providing a consumer financial product or service;

· primary enforcement and exclusive supervision authority over insured institutions with assets of $10 billion or more with respect to federal consumer financial laws, including the right to obtain information about an institution’s activities and compliance systems and procedures and to detect and assess risks to consumers and markets;

· the ability to require reports from institutions with assets under $10 billion to support the CFPB in implementing federal consumer financial laws, supporting examination activities, and assessing and detecting risks to consumers and financial markets; and

· examination authority (limited to assessing compliance with federal consumer financial law) with respect to institutions with assets under $10 billion, such as the Bank, to the extent that a CFPB examiner may be included in the examinations performed by the institution’s primary regulator.

The CFPB officially commenced operations on July 21, 2011 and has engaged in numerous activities since then, including (i) investigating consumer complaints about credit cards and mortgages, (ii) launching a supervision program, (iii) conducting research for and developing mandatory financial product disclosures, and (iv) engaging in consumer financial protection rulemaking. The full extent of the CFPB’s authority and potential impact on the Bank is unclear at this time, and the Bank continues to monitor the CFPB’s activities on an ongoing basis.

The Bank is already subject to a variety of statutes and regulations designed to protect consumers, including the Fair Credit Reporting Act, Equal Credit Opportunity Act, and Truth-in-Lending Act. Interest and other charges collected or contracted for by the Bank are also subject to state usury laws and certain other federal laws concerning interest rates. The Bank’s loan operations are also subject to federal laws and regulations applicable to credit transactions. Together, these laws and regulations include provisions that:

· govern disclosures of credit terms to borrowers who are consumers;

· require financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligations in meeting the housing needs of the communities it serves;

· prohibit discrimination on the basis of race, creed, or other prohibited factors in extending credit;

· govern the use and provision of information to credit reporting agencies; and

· govern the manner in which consumer debts may be collected by collection agencies.

11

The Bank’s deposit operations are also subject to laws and regulations that:

· impose a duty to maintain the confidentiality of consumer financial records and prescribe procedures for complying with administrative subpoenas of financial records; and

· govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

The Emergency Economic Stabilization Act of 2008 and the Troubled Asset Relief Program

In response to the market turmoil and financial crises affecting the overall banking system and financial markets in the United States, the Emergency Economic Stabilization Act of 2008 (EESA) was enacted in October 2008. In February 2009, the American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”) was enacted, which among other things augmented certain provisions of the EESA. Under the EESA, the Treasury Department has authority to purchase up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions in the Troubled Asset Relief Program (the “TARP”). The purpose of the TARP was to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase lending to customers and to each other.

The Treasury Department allocated $250 billion in TARP-authorized funds to the TARP Capital Purchase Program, which was developed to purchase senior preferred stock from qualifying financial institutions in order to strengthen their capital and liquidity positions and encourage them to increase lending to creditworthy borrowers. Qualifying financial institutions could be approved to issue preferred stock to the Treasury Department in amounts not less than 1% of their risk-weighted assets and not more than the lesser of $25 billion or 3% of risk-weighted assets. After evaluating the strategic advantages and operating restrictions inherent in issuing preferred shares to the U.S. government, Sierra Bancorp elected not to participate in the capital purchase element of TARP. The EESA also established a Temporary Liquidity Guarantee Program (TLGP) that gave the FDIC the ability to provide a guarantee for newly-issued senior unsecured debt and non-interest bearing transaction deposit accounts at eligible insured institutions. The transaction account guarantee program was initially scheduled to continue through December 31, 2010, but the Dodd-Frank Act extended full deposit insurance coverage for non-interest bearing transaction accounts through December 31, 2012, and all financial institutions were required to participate.

Interstate Banking and Branching

The Riegle Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Banking Act”) regulates the interstate activities of banks and bank holding companies and establishes a framework for nationwide interstate banking and branching. Since 1995, adequately capitalized and managed bank holding companies have been permitted to acquire banks located in any state, subject to two exceptions: first, any state may still prohibit bank holding companies from acquiring a bank which is less than five years old; and second, no interstate acquisition can be consummated by a bank holding company if the acquirer would control more than 10% of the deposits held by insured depository institutions nationwide or 30% or more of the deposits held by insured depository institutions in any state in which the target bank has branches. In 1995, California enacted legislation to implement important provisions of the Interstate Banking Act and to repeal California’s previous interstate banking laws, which were largely preempted by the Interstate Banking Act. A bank may establish and operate de novo branches in any state in which the bank does not maintain a branch if that state has enacted legislation to expressly permit all out-of-state banks to establish branches in that state. However, California law expressly prohibits an out-of-state bank which does not already have a California branch office from (i) purchasing a branch office of a California bank (as opposed to purchasing the entire bank) and thereby establishing a California branch office, or (ii) establishing a de novo branch in California. It appears that the Interstate Banking Act and related California laws have contributed to the accelerated consolidation of the banking industry and increased competition, with many large out-of-state banks having entered the California market as a result of this legislation.

12

USA Patriot Act of 2001 

The impact of the USA Patriot Act of 2001 (the “Patriot Act”) on financial institutions of all kinds has been significant and wide ranging. The Patriot Act substantially enhanced existing anti-money laundering and financial transparency laws, and required certain regulatory authorities to adopt rules that promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. Under the Patriot Act, financial institutions are subject to prohibitions regarding specified financial transactions and account relationships, as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. The Patriot Act also requires all financial institutions to establish anti-money laundering programs. The Bank expanded its Bank Secrecy Act compliance staff and intensified due diligence procedures concerning the opening of new accounts to fulfill the anti-money laundering requirements of the Patriot Act, and also implemented systems and procedures to identify suspicious banking activity and report any such activity to the Financial Crimes Enforcement Network.

Sarbanes-Oxley Act of 2002

The Company is subject to the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. Among other things, Sarbanes-Oxley mandates chief executive and chief financial officer certifications of periodic financial reports, additional financial disclosures concerning off-balance sheet items, and accelerated share transaction reporting for executive officers, directors and 10% shareholders. In addition, Sarbanes-Oxley increased penalties for non-compliance with the Exchange Act. SEC rules promulgated pursuant to Sarbanes-Oxley impose obligations and restrictions on auditors and audit committees intended to enhance their independence from management, and include extensive additional disclosure, corporate governance and other related rules.

Commercial Real Estate Lending Concentrations

In December 2006, the federal bank regulatory agencies released Guidance on Concentrations in Commercial Real Estate (CRE) Lending, Sound Risk Management Practices (the “Guidance”). The Guidance, which was issued in response to the agencies’ concern that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market, reinforced existing regulations and guidelines for real estate lending and loan portfolio management. Highlights of the Guidance include the following:

· The Guidance reminds institutions that strong risk management practices and appropriate levels of capital are important elements of a sound CRE lending program.

· The Guidance applies to national banks and state chartered banks, and is also broadly applicable to bank holding companies. For purposes of the Guidance, CRE loans include loans for land development and construction, other land loans, and loans secured by multifamily and nonfarm residential properties. The definition also extends to loans to real estate investment trusts and unsecured loans to developers if their performance is closely linked to the performance of the general CRE market.

· The agencies recognize that banks serve a vital role in their communities by supplying credit for business and real estate development, therefore the Guidance is not intended to limit banks’ CRE lending. Instead, the Guidance encourages institutions to identify and monitor credit concentrations, establish internal concentration limits, and report concentrations to management and the board of directors on a periodic basis.

· The agencies recognize that different types of CRE lending present different levels of risk, and therefore, institutions are encouraged to segment their CRE portfolios to acknowledge these distinctions. However, the CRE portfolio should not be divided into multiple sections simply to avoid the appearance of risk concentration.

· Institutions should address the following key elements in establishing a risk management framework for identifying, monitoring, and controlling CRE risk: (1) board of directors and management oversight; (2) portfolio management; (3) management information systems; (4) market analysis; (5) credit underwriting standards; (6) portfolio stress testing and sensitivity analysis; and (7) credit review function.

· As part of the ongoing supervisory monitoring processes, the agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds specified supervisory criteria, may be identified for further supervisory analysis.

The Bank believes that the Guidance is applicable to it, as it has a relatively high level concentration in CRE loans. The Bank and its board of directors have discussed the Guidance and believe that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are sufficient to address the Guidance.

13

Allowance for Loan and Lease Losses

In December 2006, the federal bank regulatory agencies released an Interagency Policy Statement on the Allowance for Loan and Lease Losses (ALLL), which revises and replaces the banking agencies’ 1993 policy statement on the ALLL. The revised statement was issued to ensure consistency with generally accepted accounting principles (GAAP) and more recent supervisory guidance, and it extended the scope to include credit unions. Highlights of the revised statement include the following:

· the revised statement emphasizes that the ALLL represents one of the most significant estimates in an institution’s financial statements and regulatory reports, and that an assessment of the appropriateness of the ALLL is critical to an institution’s safety and soundness;

· each institution has a responsibility to develop, maintain, and document a comprehensive, systematic, and consistently applied process for determining the amounts of the ALLL;

· each institution must maintain an ALLL that is sufficient to cover estimated credit losses on individual impaired loans as well as estimated credit losses inherent in the remainder of the portfolio; and

· the revised statement clarifies previous guidance on the ALLL with regard to: (1) responsibilities of the board of directors, management, and bank examiners; (2) factors to be considered in the estimation of ALLL; and (3) objectives and elements of an effective loan review system.

In December 2012, the FASB issued a proposed accounting standards update on “Financial Instruments–Credit Losses” with the goal of eliminating the overstatement of assets caused by a delayed recognition of credit losses associated with loans and other financial instruments. Final standards have not yet been issued and no effective date for the guidance has been suggested. However, if ultimately implemented as proposed, the guidance would require us to modify the methodology we use to determine our allowance for loan and lease losses from the current “incurred loss” model to a new “expected credit loss” model that considers more forward-looking information. That change could potentially necessitate a significant increase in our allowance for loan and lease losses, which could have a negative impact our profitability if our loan loss provision needs to be increased accordingly.

Other Pending and Proposed Legislation

Other legislative and regulatory initiatives which could affect the Company, the Bank and the banking industry in general are pending, and additional initiatives may be proposed or introduced before the United States Congress, the California legislature and other governmental bodies in the future. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Bank to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.

Item 1A. RISK FACTORS

You should carefully consider the following risk factors and all other information contained in this Annual Report before making investment decisions concerning the Company’s common stock. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not presently known to the Company or that the Company currently believes are immaterial may also adversely impact the Company’s business. If any of the events described in the following risk factors occur, the Company’s business, results of operations and financial condition could be materially adversely affected. In addition, the trading price of the Company’s common stock could decline due to any of the events described in these risks.

14

Risks Relating to the Bank and to the Business of Banking in General

Our business has been and may continue to be adversely affected by volatile conditions in the financial markets and unfavorable economic conditions generally. From December 2007 through June 2009, the U.S. economy was officially in recession. Business activity across a wide range of industries and regions in the U.S. was greatly reduced during the recession and in the ensuing years, and remains at subdued levels in many parts of the Country today. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing a number of institutions to fail or to require government intervention to avoid failure.

As a result of the adverse financial and economic conditions in recent years, many lending institutions, including our Company, experienced significant declines in the performance of their loans, particularly construction, development and land loans, and unsecured commercial and consumer loans.Our nonperforming assets and credit costs (primarily our loan loss provision, net OREO costs, legal expense, and appraisal costs) have been at elevated levels since the beginning of the recession in 2007.While we experienced significant improvement in nonperforming assets during 2013, they still totaled $45.6 million, or 5.62% of total loans plus foreclosed assets at the end of 2013, relative to only $689,000, or 0.08% of total loans and foreclosed assets at the end of 2006.California’s San Joaquin Valley, where the Company is headquartered and has most of its branch locations, was particularly hard hit by the recession.Unemployment levels have always been relatively high in the San Joaquin Valley, including Tulare County which is our geographic center, but recessionary conditions pushed unemployment rates to exceptionally high levels.The unemployment rate for Tulare County reached a high of 19.2% during the most recent economic cycle, in March 2010.It was 13.4% for December 2013, reflecting a downward trend relative to 15.9% in December 2012, 17.2% in December 2011 and 18.0% in December 2010, but it is still well above the 8.3% aggregate unemployment rate reported for California in December 2013. In addition, as discussed below in connection with challenges to the agricultural industry, if the current drought in California continues it could have a significant negative impact on unemployment rates in our market areas.

There are indications of improving economic conditions, and the real estate sector appears to have stabilized in many of our local markets. However unemployment remains high, as noted above, and many local governments and businesses are still experiencing difficulties due to relatively low consumer and business confidence, reduced consumer spending, and a drop in tax revenues. Additional adverse market developments could further depress consumer confidence levels and payment patterns, which could cause real estate values to resume their unfavorable trends and lead to additional loan delinquencies and increased default rates.

If business and economic conditions deteriorate, the ensuing economic weakness could have one or more of the following undesirable effects on our business:

· a lack of demand for loans, or other products and services offered by us;

· a decline in the value of our loans or other assets secured by residential or commercial real estate;

· a decrease in deposit balances due to increased pressure on the liquidity of our customers;

· an impairment of our investment securities; or

· an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us, which in turn could result in a higher level of nonperforming assets, net charge-offs and provision for credit losses.

Challenges in the agricultural industry could have an adverse effect on our customers and their ability to make payments to us, particularly in view of the current drought in California.While the Company’s nonperforming assets are currently comprised mainly of other real estate owned and loans secured by land, lots, and commercial/residential real estate, the drivers behind high levels of nonperforming assets in previous economic cycles include difficulties experienced by the agricultural industry in our market areas.This is due to the fact that a considerable portion of our borrowers are involved in, or are impacted to some extent by, the agricultural industry.While a great number of our borrowers are not directly involved in agriculture, they would likely be impacted by difficulties in the agricultural industry since many jobs in the San Joaquin Valley are ancillary to the regular production, processing, marketing and sales of agricultural commodities.

15

The markets for agricultural products can be adversely impacted by increased supply from overseas competition, a drop in consumer demand, and numerous other factors.The ripple effect of any resulting drop in commodity prices could lower borrower income and depress collateral values.Weather patterns are also of critical importance to row crop, tree fruit, and citrus production.A degenerative cycle of weather has the potential to adversely affect agricultural industries as well as consumer purchasing power, and could lead to further unemployment throughout the San Joaquin Valley.Another looming issue that could have a major impact on the agricultural industry involves water availability and distribution rights.The state of California is currently experiencing the worst drought in recorded history.While recent storms have mitigated the potential adverse impact to a slight extent, it is impossible to predict at present how long the drought may last.If the amount of water available to agriculture becomes increasingly scarce due to drought and/or diversion to other uses, farmers may not be able to continue to produce agricultural products at a reasonable profit, which has the potential to force many out of business.Such conditions have affected and may continue to adversely affect our borrowers and, by extension, our business, and if general agricultural conditions decline our level of nonperforming assets could increase.

Concentrations of real estate loans have negatively impacted our performance in the past, and could subject us further risks in the event of another real estate recession or natural disaster.Our loan portfolio is heavily concentrated in real estate loans, particularly commercial real estate.At December 31, 2013, 72% of our loan portfolio consisted of real estate loans, and a sizeable portion of the remaining loan portfolio has real estate collateral as a secondary source of repayment or as an abundance of caution.Real estate loans on commercial buildings represented approximately 51% of all real estate loans, while construction/development and land loans were 5%, loans secured by residential properties accounted for 26%, and loans secured by farmland were 19% of real estate loans.The Company’s $45.6 million balance of nonperforming assets at December 31, 2013 also includes nonperforming real estate loans totaling $33.3 million, and $8.2 million in foreclosed assets comprised primarily of other real estate owned (OREO).

The Central Valley residential real estate market experienced significant deflation in property values during 2008 and 2009, and foreclosures occurred at relatively high rates during and after the recession. While residential real estate values in our market areas currently appear to be stabilized or slightly increasing, if they were to slide further, and/or if this weakness impacted commercial real estate values, the Company could experience additional migration into nonperforming assets. An increase in nonperforming assets could have a material adverse effect on our financial condition and results of operations by reducing our income and increasing our expenses. Deterioration in real estate values might also further reduce the amount of loans the Company makes to businesses in the construction and real estate industry, which could negatively impact our organic growth prospects. Similarly, the occurrence of a natural disaster like those California has experienced in the past, including earthquakes, brush fires, and flooding, could impair the value of the collateral we hold for real estate secured loans and negatively impact our results of operations.

In addition, banking regulators give commercial real estate loans extremely close scrutiny due to risks relating to the cyclical nature of the real estate market and related risks for lenders with high concentrations of such loans. The regulators have required banks with relatively high levels of CRE loans to implement enhanced underwriting standards, internal controls, risk management policies and portfolio stress testing, which has resulted in higher allowances for possible loan losses. Expectations for higher capital levels have also materialized. Any required increase in our allowance for loan losses could adversely affect our net income, and any requirement that we maintain higher capital levels could adversely impact financial performance measures such as earnings per share.

Our concentration of commercial real estate, construction and land development, and commercial and industrial loans exposes us to increased lending risks. Commercial real estate, construction and land development, and commercial and industrial loans and leases (including agricultural production loans but not including SBA-guaranteed loans), comprised approximately 64% of our total loan portfolio as of December 31, 2013, and expose the Company to a greater risk of loss than residential real estate and consumer loans, which comprised a smaller percentage of the total loan portfolio. Commercial real estate and land development loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential loans. Consequently, an adverse development with respect to one commercial loan or one credit relationship exposes us to a greater risk of loss compared to an adverse development with respect to one residential mortgage loan.

16

Repayment of our commercial loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2013, we had $187 million or 23% of total loans in commercial loans and leases (including agricultural production loans but not including SBA-guaranteed loans). Commercial lending involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default. Our commercial loans are primarily made based on the cash flows of the borrowers and secondarily on any underlying collateral provided by the borrowers. A borrower’s cash flows may be unpredictable, and collateral securing those loans may fluctuate in value. Although commercial loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use, among other things.

Nonperforming assets adversely affect our results of operations and financial condition, and can take significant time to resolve. Unless economic and market conditions improve further our nonperforming loans could remain at relatively high levels, which will continue to negatively impact earnings and could have a substantial adverse impact if conditions deteriorate. We do not record interest income on non-accrual loans, thereby adversely affecting our level of interest income. Furthermore, when we receive collateral through foreclosures and similar proceedings, we are required to record the collateral at its fair market value less estimated selling costs, which may result in write-downs or losses. Additionally, our non-interest expense has been relatively high due to the costs of reappraising adversely classified assets, write-downs on foreclosed assets when reappraisals reflect lower values, operating costs related to foreclosed assets, legal and other costs associated with loan collections, and various other expenses that would not typically be incurred in a more normal operating environment. A relatively high level of nonperforming assets also increases our risk profile and may impact the capital levels our regulators believe is appropriate in light of such risks. We utilize various techniques such as loan sales, workouts and restructurings to manage our problem assets. Deterioration in the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect our business, results of operations and financial condition. In addition, the resolution of nonperforming assets requires a significant commitment of time from management and staff, which can be detrimental to their performance of other responsibilities. There can be no assurance that we will avoid further increases in nonperforming loans in the future.

We may experience loan and lease losses in excess of our allowance for such losses. We endeavor to limit the risk that borrowers might fail to repay; nevertheless, losses can and do occur. We maintain an allowance for estimated loan and lease losses in our accounting records, based on estimates of:

· historical experience with our loans;

· evaluation of economic conditions;

· regular reviews of the quality, mix and size of the overall loan portfolio;

· a detailed cash flow analysis for nonperforming loans;

· regular reviews of delinquencies; and

· the quality of the collateral underlying our loans.

We maintain our allowance for loan and lease losses at a level that we believe is adequate to absorb specifically identified probable losses as well as any other losses inherent in our loan portfolio at a given date. While we strive to carefully monitor credit quality and to identify loans that may become nonperforming, at any given time there are loans in the portfolio that could result in losses but have not been identified as nonperforming or potential problem loans. We cannot be sure that we will identify deteriorating loans before they become nonperforming assets, or that we will be able to limit losses on those loans that have been so identified. Changes in economic, operating and other conditions which are beyond our control, including interest rate fluctuations, deteriorating values in underlying collateral, and changes in the financial condition of borrowers, may lead to an increase in our estimate of probable losses or cause actual loan losses to exceed our current allowance. In addition, the FDIC and the DBO, as part of their supervisory functions, periodically review our allowance for loan and lease losses. Such agencies may require us to increase our provision for loan and lease losses or to recognize further losses based on their judgment, which may be different from that of our management. Any such increase in the allowance required by the FDIC or the DBO could also hurt our business.

17

Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the collateral. In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and an error in fact or judgment could adversely affect the reliability of an appraisal. In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease. As a result of any of these factors the value of collateral backing a loan may be less than supposed, and if a default occurs we may not recover the entire outstanding balance of the loan.

Our expenses could increase as a result of increases in FDIC insurance premiums. The FDIC, absent extraordinary circumstances, must establish and implement a plan to restore the deposit insurance reserve ratio to 1.35% of estimated insured deposits or the comparable percentage of the assessment base at any time the reserve ratio falls below that level. Bank failures during and after the recent recession depleted the deposit insurance fund balance, which was in a negative position from the end of 2009 through the first quarter of 2011. The balance had increased to $40.8 billion with a resulting reserve ratio of 0.68% as of September 30, 2013. The FDIC currently has until September 30, 2020 to bring the reserve ratio back to the statutory minimum. As noted above under “Regulation and Supervision – Deposit Insurance”, the FDIC has implemented a restoration plan that adopted a new assessment base and established new assessment rates starting with the second quarter of 2011. The FDIC also imposed a special assessment in 2009, and required the prepayment of three years of estimated FDIC insurance premiums at the end of 2009. It is generally expected that assessment rates will remain relatively high in the near term due to the significant cost of bank failures over the past few years. Any further premium increases or special assessments could have a material adverse effect on our financial condition and results of operations.

We may not be able to continue to attract and retain banking customers, and our efforts to compete may reduce our profitability.The banking business in our current and intended future market areas is highly competitive with respect to virtually all products and services, which may limit our ability to attract and retain banking customers.In California generally, and in our service areas specifically, branches of major banks dominate the commercial banking industry.Such banks have substantially greater lending limits than we have, offer certain services we cannot offer directly, and often operate with economies of scale that result in relatively low operating costs.We also compete with numerous financial and quasi-financial institutions for deposits and loans, including providers of financial services over the internet.Recent technology advances and other changes have allowed parties to effectuate financial transactions that previously required the involvement of banks.For example, consumers can maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks.The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.The loss of these revenue streams and access to lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

In addition, with the large number of bank failures in the past few years customers have been more concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with their bank is fully insured. Decreases in deposits may adversely affect our funding costs and net income. Ultimately, competition can and does increase our cost of funds, reduce loan yields and drive down our net interest margin, thereby reducing profitability. It can also make it more difficult for us to continue to increase the size of our loan portfolio and deposit base, and could cause us to rely more heavily on wholesale borrowings which are generally more expensive than deposits.

If we are not able to successfully keep pace with technological changes affecting the industry, our business could be hurt. The financial services industry is constantly undergoing technological change, with the frequent introduction of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better service clients and reduce costs. Our future success depends, in part, upon our ability to respond to the needs of our clients by using technology to provide desired products and services and create additional operating efficiencies. Some of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. Failure to successfully keep pace with technological change in the financial services industry could have a material adverse impact on our business and, in turn, on our financial condition and results of operations.

18

 

Confidential customer information transmitted through our online banking service is vulnerable to security breaches and computer viruses, which could expose us to litigation and adversely affect our reputation and ability to generate deposits.We provide our customers the ability to bank online. The secure transmission of confidential information over the Internet is a critical element of online banking.Our network or those of our customers could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security problems.We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.To the extent that our activities or those of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, litigation and other possible liabilities.Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems, and could adversely affect our reputation and our ability to generate deposits.

If our information systems were to experience a system failure, our business and reputation could suffer.We rely heavily on communications and information systems to conduct our business.The computer systems and network infrastructure we use could be vulnerable to unforeseen problems.Our operations are dependent upon our ability to minimize service disruptions by protecting our computer equipment, systems, and network infrastructure from physical damage due to fire, power loss, telecommunications failure or a similar catastrophic event.We have protective measures in place to prevent or limit the effect of the failure or interruption of our information systems, and will continue to upgrade our security technology and update procedures to help prevent such damage.However, if such failures or interruptions were to occur, they could result in damage to our reputation, a loss of customers, increased regulatory scrutiny, or possible exposure to financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

We are subject to a variety of operational risks, including reputational risk, legal risk, compliance risk, the risk of fraud or theft by employees or outsiders, and the risk of clerical or record-keeping errors, which may adversely affect our business and results of operations. If personal, non-public, confidential or proprietary customer information in our possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss. This could occur, for example, if information was erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully remediated. Our necessary dependence upon automated systems to record and process transactions and our large transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems could result in losses that are difficult to detect. We also may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses or electrical or telecommunications outages, or natural disasters, disease pandemics or other damage to property or physical assets) which may give rise to disruption of service to customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that our (or our vendors’) business continuity and data security systems prove to be inadequate. The occurrence of any of these risks could result in a diminished ability to operate our business (for example, by requiring us to expend significant resources to correct the defect), as well as potential liability to clients, reputational damage and regulatory intervention, which could adversely affect our business, financial condition and results of operations, perhaps materially.

19

Previously enacted and potential future financial regulatory reforms could have a significant impact on our business, financial condition and results of operations. The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in July 2010. Dodd-Frank is having a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in Dodd-Frank will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of Dodd-Frank will be implemented, the full extent to which they will impact our operations is unclear. The changes resulting from Dodd-Frank may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. In particular, the potential impact of Dodd-Frank on our operations and activities, both currently and prospectively, include, among others:

· an increase in our cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;

· the limitation of our ability to expand consumer product and service offerings due to more stringent consumer protection laws and regulations;

· a material negative impact on our cost of funds when market interest rates increase, pursuant to the authorization for financial institutions to pay interest on business checking accounts;

· a potential reduction in fee income, due to limits on interchange fees applicable to larger institutions which could ultimately lead to a competitive-driven reduction in the fees we charge; and

· a potential increase in competition due to the elimination of remaining barriers to de novo interstate branching.

Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act, which may negatively impact results of operations and financial condition. We cannot predict whether there will be additional laws or reforms that would affect the U.S. financial system or financial institutions, when such changes may be adopted, how such changes may be interpreted and enforced or how such changes may affect us. However, the costs of complying with any additional laws or regulations could have a material adverse effect on our financial condition and results of operations.

We may be adversely affected by the soundness of other financial institutions. Our ability to engage in routine funding transactions could be adversely affected by the actions and liquidity of other financial institutions. Financial institutions are often interconnected as a result of trading, clearing, counterparty, or other business relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. Even if the transactions are collateralized, credit risk could exist if the collateral held by us cannot be liquidated at prices sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could adversely affect our business, financial condition or results of operations.

Changes in interest rates could adversely affect our profitability, business and prospects. Net interest income, and therefore earnings, can be adversely affected by differences or changes in the interest rates on, or the re-pricing frequency of, our interest-bearing liabilities and interest-earning assets. In addition, fluctuations in interest rates can affect the demand of customers for products and services, and an increase in the general level of interest rates may adversely affect the ability of certain borrowers to make variable-rate loan payments. Accordingly, changes in market interest rates could materially and adversely affect the Company’s asset quality, loan origination volume, financial condition, results of operations, and cash flows. This interest rate risk can arise from Federal Reserve Board monetary policies, as well as other economic, regulatory and competitive factors that are beyond our control.

We depend on our executive officers and key personnel to implement our business strategy, and could be harmed by the loss of their services. We believe that our continued growth and success depends in large part upon the skills of our management team and other key personnel. The competition for qualified personnel in the financial services industry is intense, and the loss of key personnel or an inability to continue to attract, retain or motivate key personnel could adversely affect our business. If we are not able to retain our existing key personnel or attract additional qualified personnel, our business operations would be hurt. None of our executive officers have employment agreements.

The value of the securities in our investment portfolio may be negatively affected by disruptions in securities markets. The market for some of the investment securities held in our portfolio has experienced volatility and disruption in recent years. These market conditions may have a detrimental effect on the value of our securities, such as reduced valuations because of the perception of heightened credit risks or due to illiquid markets for certain securities. There can be no assurance that the declines in market value associated with these disruptions will not result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our results of operations and capital levels.

20

We are exposed to the risk of environmental liabilities with respect to properties to which we obtain title. Approximately 72% of our loan portfolio at December 31, 2013 consisted of real estate loans. In the normal course of business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business and prospects.

Risks Related to our Common Stock

You may not be able to sell your shares at the times and in the amounts you want if the price of our stock fluctuated significantly or the trading market for our stock is not active.The trading price of our common stock could be impacted by a number of factors, many of which are outside our control. Although our stock has been listed on NASDAQ for many years, trading in our stock does not consistently occur in high volumes and cannot always be characterized as an active trading market.A limited trading market for our common stock may exaggerate fluctuations in the value of our common stock, leading to price volatility in excess of that which would occur in a more active trading market.In addition, the stock market in general is subject to fluctuations that affect the share prices and trading volumes of many companies, and these broad market fluctuations could adversely affect the market price of our common stock.Factors that could affect our common stock price in the future include but are not necessarily limited to the following: 

· actual or anticipated fluctuations in our reported operating results and financial condition;

· changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;

· failure to meet analysts’ revenue or earnings estimates;

· speculation in the press or investment community;

· strategic actions by us or our competitors, such as acquisitions or restructurings;

· actions by shareholders;

· sales of our equity or equity-related securities, or the perception that such sales may occur;

· fluctuations in the trading volume of our common stock;

· fluctuations in the stock prices, trading volumes, and operating results of our competitors;

· general market conditions and, in particular, market conditions for the financial services industry;

· proposed or adopted regulatory changes or developments;

· regulatory action against us;

· anticipated or pending investigations, proceedings, or litigation that involve or affect us; and

· domestic and international economic factors unrelated to our performance.

The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility in recent years. As a result, the market price of our common stock has been, and could continue to be, volatile. The capital and credit markets have also experienced volatility and disruption over the past several years, at times reaching unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to the issuers’ underlying financial strength.

We may pursue additional capital in the future, which may not be available on acceptable terms or at all, could dilute the holders of our outstanding common stock, and may adversely affect the market price of our common stock. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at the time, which are outside of our control, and our financial performance. We cannot provide any assurance that such capital will be available to us on acceptable terms or at all. Any such capital raising alternatives could dilute the holders of our outstanding common stock, and may adversely affect the market price of our common stock and our performance measures such as earnings per share.

21

The Company relies heavily on the payment of dividends from the Bank. Other than $1.3 million in cash available at the holding company level at December 31, 2013, the Company’s ability to meet debt service requirements and to pay dividends depends on the Bank’s ability to pay dividends to the Company, as the Company has no other source of significant income. However, the Bank is subject to regulations limiting the amount of dividends it may pay. For example, the payment of dividends by the Bank is affected by the requirement to maintain adequate capital pursuant to the capital adequacy guidelines issued by the Federal Deposit Insurance Corporation. If (i) any capital ratio requirements are increased; (ii) the total risk-weighted assets of the Bank increase significantly; and/or (iii) the Bank’s income declines significantly, the Bank’s Board of Directors may decide or be required to retain a greater portion of the Bank’s earnings to achieve and maintain the required capital or asset ratios. This would reduce the amount of funds available for the payment of dividends by the Bank to the Company. Further, one or more of the Bank’s regulators could prohibit the Bank from paying dividends if, in their view, such payments would constitute unsafe or unsound banking practices. The Bank’s ability to pay dividends to the Company is also limited by the California Financial Code. Whether dividends are paid and their frequency and amount will also depend on the financial condition and performance of the Bank, and the discretion of the Bank’s Board of Directors. Information concerning the Company’s dividend policy and historical dividend practices is set forth in Item 5 below under “Dividends.” However, no assurance can be given that our future performance will justify the payment of dividends in any particular year.

Your investment may be diluted because of our ability to offer stock to others, and from the exercise of stock options. The shares of our common stock do not have preemptive rights. This means that you may not be entitled to buy additional shares if shares are offered to others in the future. We are authorized to issue 24,000,000 shares of common stock, and as of December 31, 2013 we had 14,217,199 shares of our common stock outstanding. Except for certain limitations imposed by NASDAQ, nothing restricts our ability to offer additional shares of stock for fair value to others in the future. Any issuances of common stock would dilute our shareholders’ ownership interests and may dilute the per share book value of our common stock. In addition, when our directors and officers exercise in-the-money stock options your ownership in the Company is diluted. As of December 31, 2013, there were outstanding options to purchase an aggregate of 746,430 shares of our common stock with an average exercise price of $14.65 per share. At the same date there were an additional 780,920 shares available for grant under our 2007 Stock Incentive Plan.

Shares of our preferred stock issued in the future could have dilutive and other effects on our common stock. Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, none of which is presently outstanding. Although our Board of Directors has no present intent to authorize the issuance of shares of preferred stock, such shares could be authorized in the future. If such shares of preferred stock are made convertible into shares of common stock, there could be a dilutive effect on the shares of common stock then outstanding. In addition, shares of preferred stock may be provided a preference over holders of common stock upon our liquidation or with respect to the payment of dividends, in respect of voting rights or in the redemption of our common stock. The rights, preferences, privileges and restrictions applicable to any series or preferred stock would be determined by resolution of our Board of Directors.

The holders of our debentures have rights that are senior to those of our shareholders. In 2004 we issued $15,464,000 of junior subordinated debt securities due March 17, 2034, and in 2006 we issued an additional $15,464,000 of junior subordinated debt securities due September 23, 2036 in order to supplement regulatory capital. These junior subordinated debt securities are senior to the shares of our common stock. As a result, we must make interest payments on the debentures before any dividends can be paid on our common stock, and in the event of our bankruptcy, dissolution or liquidation, the holders of the debt securities must be paid in full before any distributions may be made to the holders of our common stock. In addition, we have the right to defer interest payments on the junior subordinated debt securities for up to five years, during which time no dividends may be paid to holders of our common stock. In the event that the Bank is unable to pay dividends to us, then we may be unable to pay the amounts due to the holders of the junior subordinated debt securities and, thus, we would be unable to declare and pay any dividends on our common stock.

22

Provisions in our articles of incorporation could delay or prevent changes in control of our corporation or our management. Our articles of incorporation contain provisions for staggered terms of office for members of the board of directors; no cumulative voting in the election of directors; and the requirement that our board of directors consider the potential social and economic effects on our employees, depositors, customers and the communities we serve as well as certain other factors, when evaluating a possible tender offer, merger or other acquisition of the Company. These provisions make it more difficult for another company to acquire us, which could cause our shareholders to lose an opportunity to be paid a premium for their shares in an acquisition transaction, and reduce the current and future market price of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2. Properties

The Company’s administrative headquarters is in a 37,000 square foot, three-story office building located at 86 North Main Street, Porterville, California, and our main office consists of a one-story brick building located at 90 N. Main Street, Porterville, California, adjacent to our administrative headquarters. Both of those buildings reside on unencumbered property owned by the Company. The Company also owns unencumbered property on which 14 of our other offices are located, namely the following branches: Porterville West Olive, Bakersfield Ming, California City, Dinuba, Exeter, Farmersville, Fresno Shaw, Hanford, Lindsay, Tehachapi Downtown, Tehachapi Old Town, Three Rivers, Tulare, and Visalia Mooney. The remaining branches, as well as our technology center in Porterville and our six remote ATM locations, are leased from unrelated parties. While limited branch expansion is planned, management believes that existing back-office facilities are adequate to accommodate the Company’s operations for the immediately foreseeable future.

Item 3. Legal Proceedings

From time to time the Company is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel to the Company as to the current status of these claims or proceedings to which the Company is a party, management is of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse affect on the financial condition of the Company.

Item 4. RESERVED

PART II

Item 5. Market for REGISTRANT’S Common Equity, Related Shareholder Matters AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)Market Information

Sierra Bancorp’s Common Stock trades on the NASDAQ Global Select Market under the symbol BSRR, and the CUSIP number for our stock is #82620P102. Trading in the Company’s Common Stock has not consistently occurred in high volumes, and such trading activity cannot always be characterized as constituting an active trading market. The following table summarizes trades of the Company’s Common Stock, setting forth the approximate high and low sales prices and volume of trading for the periods indicated, based upon information provided by public sources.

23

	Sale Price of the Company’s				Approximate
Calendar	Common Stock (per share)				Trading Volume
Quarter Ended	High		Low		In Shares
March 31, 2012	$	10.21	$	8.73	1,472,347
June 30, 2012	$	10.20	$	8.42	1,302,810
September 30, 2012	$	13.00	$	9.35	1,218,617
December 31, 2012	$	12.72	$	9.80	1,437,301
March 31, 2013	$	13.35	$	11.45	1,115,428
June 30, 2013	$	14.93	$	12.01	1,365,473
September 30, 2013	$	17.04	$	13.74	1,375,776
December 31, 2013	$	19.89	$	15.77	1,274,075

(b)Holders

As of January 31, 2014 there were approximately 3,781 shareholders of the Company’s Common Stock.Per our stock transfer agent there were 541 registered holders of record, and per Broadridge, an investor communication company, there were approximately 3,240 beneficial holders with shares being held under a street name on that date, including “objecting beneficial owners” whose names and addresses are unavailable.

(c)Dividends

The Company paid cash dividends totaling $3.7 million, or $0.26 per share in 2013, and $3.4 million, or $0.24 per share in 2012. This represents 28% of annual net earnings for dividends paid in 2013 and 41% in 2012. The Company’s general dividend policy is to pay cash dividends within the range of typical peer payout ratios, provided that such payments do not adversely affect the Company’s financial condition and are not overly restrictive to its growth capacity. However, at a time when many of our peers elected to suspend dividend payments, the Company’s Board concluded that we should maintain the payment of a certain level of dividend as long as our core operating performance remains adequate and policy or regulatory restrictions do not preclude such payments, without regard to peer payout ratios. While we have paid a consistent level of quarterly dividends in the past few years, no assurance can be given that our financial performance in any given year will justify the continued payment of a certain level of cash dividend, or any cash dividend at all.

As a bank holding company that currently has no significant assets other than its equity interest in the Bank, the Company’s ability to declare dividends depends upon cash on hand as supplemented by dividends from the Bank.The Bank’s dividend practices in turn depend upon the Bank’s earnings, financial position, regulatory standing, current and anticipated capital requirements, and other factors deemed relevant by the Bank’s Board of Directors.The power of the Bank’s Board of Directors to declare cash dividends is also subject to statutory and regulatory restrictions.Under California banking law, the Bank may declare dividends in an amount not exceeding the lesser of its retained earnings or its net income for the last three years (reduced by dividends paid during such period) or, with the prior approval of the California Commissioner of Business Oversight, in an amount not exceeding the greatest of (i) the retained earnings of the Bank, (ii) the net income of the Bank for its last fiscal year, or (iii) the net income of the Bank for its current fiscal year.The payment of any cash dividends by the Bank will depend not only upon the Bank’s earnings during a specified period, but also on the Bank meeting certain regulatory capital requirements.

The Company’s ability to pay dividends is also limited by state law.The California General Corporation Law allows a California corporation to pay dividends if the company’s retained earnings equal at least the amount of the proposed dividend.If a California corporation does not have sufficient retained earnings available for the proposed dividend, it may still pay a dividend to its shareholders if immediately after the dividend the sum of the company’s assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred taxes, deferred income and other deferred liabilities) and the current assets of the company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least equal to 125% of its current liabilities.In addition, during any period in which the Company has deferred payment of interest otherwise due and payable on its subordinated debt securities, it may not make any dividends or distributions with respect to its capital stock (see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources”).

24

(d)Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2013 with respect to options outstanding and available under our 2007 Stock Incentive Plan and the now-terminated 1998 Stock Option Plan, which are our only equity compensation plans other than an employee benefit plan meeting the qualification requirements of Section 401(a) of the Internal Revenue Code:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options	Weighted-Average Exercise Price of Outstanding Options		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders	746,430	$	14.65	780,920

(e)Performance Graph

Below is a five-year performance graph comparing the cumulative total return on the Company’s common stock to the cumulative total returns of the NASDAQ Composite Index (a broad equity market index), the SNL Bank Index, and the SNL $1 billion to $5 billion Bank Index (the latter two qualifying as peer bank indices), assuming a $100 investment on December 31, 2008 and reinvestment of dividends:

	Period Ending
Index	12/31/08	12/31/09	12/31/10	12/31/11	12/31/12	12/31/13
Sierra Bancorp	100.00	37.68	54.11	45.38	60.37	86.49
NASDAQ Composite	100.00	145.36	171.74	170.38	200.63	281.22
SNL Bank $1B-$5B	100.00	71.68	81.25	74.10	91.37	132.87
SNL Bank	100.00	98.97	110.90	85.88	115.90	159.12

Source : SNL Financial LC, Charlottesville, VA

25

(f)Stock Repurchases

The Company’s current stock repurchase plan became effective July 1, 2003 and has no expiration date.The plan was effectively dormant from April 2008 until January 2013, at which time the Company’s Board decided to reactivate the stock repurchase plan and increase the number of shares authorized and available for repurchase to a total of 700,000 shares.The reactivation does not provide assurance that a specific quantity of shares will be repurchased, however, and the Company has ultimate discretion with regard to potential share repurchases based upon market conditions and any other relevant considerations.There were no stock repurchases during 2013, so the number of shares available for repurchase as of December 31, 2013 remains at 700,000.

Item 6.Selected Financial Data

The following table presents selected historical financial information concerning the Company, which should be read in conjunction with our audited consolidated financial statements, including the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere herein.The selected financial data as of December 31, 2013 and 2012, and for each of the years in the three year period ended December 31, 2013, is derived from our audited consolidated financial statements and related notes which are included in this Annual Report.The selected financial data presented for earlier years is derived from our audited financial statements which are not included in this Annual Report.Throughout this Annual Report, information is for the consolidated Company unless otherwise stated.

26

Selected Financial Data

(dollars in thousands, except per share data)

	As of and for the years ended December 31,
	2013			2012			2011			2010			2009
Income Statement Summary
Interest income	$	51,785		$	54,902		$	58,614		$	63,831		$	70,146
Interest expense		3,221			4,321			5,657			7,649			12,177
Net interest income before provision for loan losses		48,564			50,581			52,957			56,182			57,969
Provision for loan losses		4,350			14,210			12,000			16,680			21,574
Non-interest income		17,063			18,126			14,992			19,265			17,279
Non-interest expense		44,815			46,656			47,605			51,638			44,138
Income before provision for income taxes		16,462			7,841			8,344			7,129			9,536
Provision (benefit) for income taxes		3,093			(344)			564			(234)			608
Net Income		13,369			8,185			7,780			7,363			8,928
Balance Sheet Summary
Total loans, net		793,087			867,078			740,929			783,601			859,875
Allowance for loan losses		(11,677)			(13,873)			(17,283)			(21,138)			(23,715)
Securities available for sale		425,044			380,188			406,471			331,730			278,168
Cash and due from banks		78,006			61,818			63,036			42,435			66,234
Federal funds sold		-			-			-			210			-
Foreclosed Assets		8,185			19,754			15,364			20,691			25,654
Premises and equipment, net		20,393			21,830			20,721			20,190			20,069
Total Interest-Earning assets		1,255,055			1,279,932			1,185,647			1,137,805			1,194,700
Total Assets		1,410,249			1,437,903			1,335,405			1,286,571			1,335,549
Total Interest-Bearing liabilities		845,084			895,434			852,308			860,944			953,156
Total Deposits		1,174,179			1,174,034			1,086,268			1,052,274			1,125,432
Total Liabilities		1,228,575			1,264,011			116,841			1,126,974			1,201,069
Total Shareholders' Equity		181,674			173,892			168,564			159,597			134,480
Per Share Data
Net Income Per Basic Share		0.94			0.58			0.55			0.61			0.86
Net Income Per Diluted Share		0.94			0.58			0.55			0.60			0.86
Book Value		12.78			12.33			11.95			11.42			11.57
Cash Dividends		0.26			0.24			0.24			0.24			0.40
Weighted Average Common Shares Outstanding Basic		14,155,927			14,103,805			14,036,667			12,109,717			10,343,502
Weighted Average Common Shares Outstanding Diluted		14,290,150			14,120,313			14,085,201			12,192,345			10,415,084
Key Operating Ratios:
Performance Ratios:
Return on Average Equity (1)		7.56	%		4.74	%		4.73	%		5.16	%		7.56	%
Return on Average Assets (2)		0.96	%		0.59	%		0.59	%		0.56	%		0.68	%
Net Interest Spread (tax-equivalent) (3)		3.90	%		4.08	%		4.41	%		4.72	%		4.74	%
Net Interest Margin (tax-equivalent)		4.02	%		4.22	%		4.59	%		4.89	%		5.00	%
Dividend Payout Ratio (4)		27.52	%		41.35	%		43.29	%		39.86	%		46.76	%
Equity to Assets Ratio (5)		12.72	%		12.51	%		12.37	%		10.82	%		9.03	%
Efficiency Ratio (tax-equivalent)		66.63	%		66.81	%		67.83	%		67.25	%		57.69	%
Net Loans to Total Deposits at Period End		67.54	%		73.85	%		68.21	%		74.47	%		76.40	%
Asset Quality Ratios:
Non-Performing Loans to Total Loans		4.66	%		6.03	%		7.41	%		5.71	%		5.31	%
Non-Performing Assets to Total Loans and Other Real Estate Owned		5.62	%		8.10	%		9.25	%		8.07	%		7.98	%
Net Charge-offs (recoveries) to Average Loans		0.81	%		2.23	%		2.06	%		2.26	%		1.40	%
Allowance for Loan Losses to Net Loans at Period End		1.47	%		1.60	%		2.33	%		2.70	%		2.76	%
Allowance for Loan Losses to Non-Performing Loans		31.21	%		26.13	%		30.80	%		46.00	%		50.49	%
Capital Ratios:
Tier 1 Capital to Adjusted Total Assets		14.37	%		13.34	%		14.11	%		13.84	%		11.91	%
Tier 1 Capital to Total Risk-weighted Assets		20.39	%		18.11	%		20.46	%		19.06	%		15.41	%
Total Capital to Total Risk-weighted Assets		21.67	%		19.36	%		21.72	%		20.33	%		16.67	%

⁽¹⁾ Net income divided by average shareholders' equity.

⁽²⁾ Net income divided by average total assets.

⁽³⁾ Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

⁽⁴⁾ Total dividends paid divided by net income.

⁽⁵⁾ Average equity divided by average total assets.

27

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion presents Management’s analysis of the Company’s financial condition as of December 31, 2013 and December 31, 2012, and the results of operations for each of the years in the three-year period ended December 31, 2013.The discussion should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes related thereto presented elsewhere in this Form 10-K Annual Report (see Item 8 below).

Statements contained in this report or incorporated by reference that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, including the Company’s expectations, intentions, beliefs, or strategies regarding the future.All forward-looking statements concerning economic conditions, growth rates, income, expenses, or other values which are included in this document are based on information available to the Company on the date noted, and the Company assumes no obligation to update any such forward-looking statements.It is important to note that the Company’s actual results could materially differ from those in such forward-looking statements.Risk factors that could cause actual results to differ materially from those in forward-looking statements include but are not limited to those outlined previously in Item 1A.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States.The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances.Actual results may differ from those estimates under divergent conditions.

Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on the Company’s stated results of operations.In Management’s opinion, the Company’s critical accounting policies deal with the following areas:the establishment of the Company’s allowance for loan and lease losses, as explained in detail in Note 2 to the consolidated financial statements and in the “Provision for Loan Losses” and “Allowance for Loan and Lease Losses” sections of this discussion and analysis; the valuation of impaired loans and foreclosed assets, as discussed in Note 2 to the consolidated financial statements; income taxes and deferred tax assets and liabilities, especially with regard to the ability of the Company to recover deferred tax assets as discussed in the “Provision for Income Taxes” and “Other Assets” sections of this discussion and analysis; and goodwill, which is evaluated annually for impairment based on the fair value of the Company and for which it has been determined that no impairment exists, as discussed in Note 2 to the consolidated financial statements and in the “Other Assets” section of this discussion and analysis.Critical accounting areas are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate the most recent expectations with regard to those areas.

Summary of Performance

A relatively weak or contracting economy has contributed to relatively high credit costs, diminished lending activity, and associated earnings pressures at the Company for the past six years.Industry-wide regulatory pressures on certain components of non-interest income have exacerbated the negative impact of the economy on our financial performance.There were signs of positive progress in 2013, however, as the Company’s credit costs started to trend down as a result of the strengthening economy and rising real estate values.Certain regions of California, including Kern County, have shown relatively strong economic improvement, but the recovery has been slower to take hold in Tulare, Fresno, and Kings Counties. The Company recognized net income of $13.369 million in 2013, relative to $8.185 million in 2012 and $7.780 million in 2011.This represents year-over-year increases for both 2013 and 2012, but net income is still well below levels achieved in pre-recession years.Net income per diluted share was $0.94 in 2013, as compared to $0.58 for 2012 and $0.55 in 2011.The Company’s return on average assets and return on average equity were 0.96% and 7.56%, respectively, in 2013, as compared to 0.59% and 4.74%, respectively, in 2012, and 0.59% and 4.73%, respectively, for 2011.

28

The following are some of the major factors impacting the Company’s results of operations for the years presented in the consolidated financial statements:

· Our loan loss provision totaled $4.350 million in 2013, $14.210 million in 2012, and $12.000 million in 2011.Our loan loss provision in recent years has been much higher than in pre-recession years, due to the establishment of specific reserves for impaired loans that have migrated into impaired status, the replenishment of reserves subsequent to loan charge-offs, and the buildup of general reserves for performing loans due to higher historical loss factors.The reduction of $9.860 million in the loan loss provision in 2013 had the single largest impact on our improvement in net income, and was enabled by a lower level of impaired loans and declining general reserves for non-impaired loans consistent with lower loan balances and improved credit quality.

· Net interest income has been declining, falling by 4% in 2013 relative to 2012 and 4% in 2012 relative to 2011 due to net interest margin compression.Negative factors affecting the Company’s net interest margin in recent years include competitive pressures on loan yields, a shift from higher yielding loan categories to lower-yielding loan types, and relatively large increases in lower-yielding investment balances and balances held at the Federal Reserve Bank.

· Non-interest income fell by $1.063 million, or 6%, in 2013 relative to 2012, but increased by $3.134 million, or 21%, in 2012 over 2011.The largest impact on non-interest income came from non-recurring gains on the sale of investment securities totaling $1.762 million in 2012 and $1.660 million in 2011, and a $1.370 impairment charge taken on equity investment securities in 2011.Some of the variability in non-interest income also arose from non-recurring adjustments that lowered costs associated with tax credit investments in 2012.

· Operating expense, which has been elevated relative to pre-recession years due primarily to OREO costs and other credit-related expenses, reflects favorable trends in 2013 and 2012.The drop of $1.841 million, or 4%, in total operating expense in 2013 is mainly due to lower net costs on foreclosed assets, partially offset by higher salaries and benefits.The drop of $949,000, or 2%, in 2012 is also due in large part to declining credit costs (including net foreclosed asset costs and lending-related legal expense).

· The Company had a tax provision of $3.093 million in 2013, a tax benefit of $344,000 in 2012, and a tax provision of $564,000 in 2011.The higher tax provisioning rate in 2013 is due to an increase in taxable income relative to the Company’s available tax credits, while the tax benefit in 2012 was primarily the result of lower taxable income relative to the Company’s available tax credits.

The Company’s assets totaled $1.410 billion at December 31, 2013, relative to total assets of $1.438 billion at December 31, 2012.Total liabilities were $1.229 billion at the end of 2013 compared to $1.264 billion at the end of 2012, and shareholders’ equity totaled $182 million at December 31, 2013 relative to $174 million at December 31, 2012. The following summarizes key balance sheet changes during 2013:

· Total assets dropped by $28 million, or 2%.The decline in total assets resulted from lower loan balances and a reduction in foreclosed assets, partially offset by increases in investment securities, balances due from the Federal Reserve Bank, and cash.

· Gross loans and leases were down $77 million, or 9%, for the year.Loan volume was largely impacted by a $97 million decline in mortgage warehouse loans resulting from lower credit line utilization, and a $16 million reduction in nonperforming loans.The Company experienced relatively strong growth in agricultural loans and commercial real estate loans, however.

· Nonperforming assets ended 2013 at $46 million, representing a reduction of $27 million, or 37%, for the year and putting us well below our peak balance of $80 million reported at September 30, 2009.The net decline during 2013 is comprised of a $16 million reduction in loans on non-accrual status and a $12 million reduction in foreclosed assets.The Company’s ratio of nonperforming assets to loans plus foreclosed assets fell to 5.62% at December 31, 2013, from 8.10% at December 31, 2012.

· Our allowance for loan and lease losses totaled $11.7 million as of December 31, 2013, a decline of $2.2 million, or 16%, relative to year-end 2012.The drop during 2013 was due to lower specific reserves consistent with the reduction in impaired loans, and a reduction in general reserves consistent with lower loan balances and improvement in asset quality.The allowance fell to 1.45% of total loans at December 31, 2013 from 1.58% of total loans at December 31, 2012.Pursuant to management’s detailed analysis, the allowance as of the end of 2013 is expected to be sufficient to cover specifically identified probable losses on impaired loans and leases, as well as probable incurred losses inherent in the remaining loan portfolio.

29

· Deposits reflect the same total at December 31, 2013 as at December 31, 2012, despite fairly significant changes in the composition of deposits.Core non-maturity deposits were up $42 million, or 5%, but growth in non-maturity deposits was offset by the maturity of a $5 million brokered time deposit and the runoff of $37 million in customer time deposits.Much of the time deposit runoff resulted from the intentional non-renewal of deposits under the management our Treasury Department, due to our abundant liquidity position.

· Total capital increased by $8 million, or 4%, to $182 million at December 31, 2013.Risk-based capital ratios increased, as well, due to a higher level of capital and a drop in risk-adjusted assets.At December 31, 2013, the consolidated Company’s Total Risk-Based Capital Ratio was 21.67%, its Tier One Risk-Based Capital Ratio was 20.39%, and its Tier One Leverage Ratio was 14.37%.

Results of Operations

Net income was $13.369 million in 2013, an increase of $5.184 million, or 63%, relative to 2012.The Company earns income from two primary sources.The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money.The second is non-interest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as bank-owned life insurance.The majority of the Company’s non-interest expenses are operating costs that relate to providing a full range of banking services to our customers.

Net Interest Income and Net Interest Margin

Net interest income was $48.564 million in 2013, compared to $50.581 million in 2012 and $52.957 million in 2011.This represents declines of 4% in both 2013 and 2012.The level of net interest income depends on several factors in combination, including but not necessarily limited to growth in earning assets, yields on earning assets, the cost of interest-bearing liabilities, the volume of earning assets relative to interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities.Net interest income can also be impacted by the reversal of interest for loans placed on non-accrual status during the reporting period, and by the recovery of interest on loans that have been on non-accrual and are either sold or returned to accrual status.

The following Distribution, Rate and Yield table shows, for each of the past three years, the average balance of each significant balance sheet category and the interest income or interest expense associated with each applicable category.The table also displays the calculated yields on each major component of the Company’s investment and loan portfolios, the average rates paid on each key segment of the Company’s interest-bearing liabilities, and our net interest margin for the noted periods.

30

Distribution, Rate & Yield	Year Ended December 31,
(dollars in thousands, except per share data)	2013						2012						2011
	Average		Income/		Average		Average		Income/		Average		Average		Income/		Average
	Balance(1)		Expense		Rate/Yield(2)		Balance(1)		Expense		Rate/Yield(2)		Balance(1)		Expense		Rate/Yield(2)
Assets
Investments:
Federal funds sold/Due from banks	$	40,522	$	102	0.25	%	$	26,558	$	70	0.26	%	$	25,930	$	68	0.26	%
Taxable		309,944		4,899	1.58	%		335,553		6,280	1.87	%		319,635		8,732	2.73	%
Non-taxable		86,591		2,737	4.86	%		77,646		2,703	5.36	%		73,108		2,834	5.96	%
Equity		2,211		17	0.77	%		1,755		84	4.79	%		1,508		21	1.39	%
Total Investments		439,268		7,755	2.10	%		441,512		9,137	2.40	%		420,181		11,655	3.14	%
Loans and Leases:(3)
Agricultural		24,922		1,011	4.06	%		17,231		760	4.41	%		13,847		648	4.68	%
Commercial		188,970		9,677	5.12	%		171,344		9,157	5.34	%		104,293		6,224	5.97	%
Real Estate		517,580		31,064	6.00	%		525,594		32,981	6.27	%		553,063		35,970	6.50	%
Consumer		24,422		2,121	8.68	%		30,307		2,638	8.70	%		39,928		3,731	9.34	%
Direct Financing Leases		2,915		157	5.39	%		4,233		229	5.41	%		6,723		386	5.74	%
Other		45,724		-	0.00	%		40,624		-	0.00	%		50,047		-	0.00	%
Total Loans and Leases		804,533		44,030	5.47	%		789,333		45,765	5.80	%		767,901		46,959	6.12	%
Total Interest Earning Assets (4)		1,243,801		51,785	4.28	%		1,230,845		54,902	4.57	%		1,188,082		58,614	5.06	%
Other Earning Assets		6,099						6,579						7,735
Non-Earning Assets		139,953						142,887						133,733
Total Assets	$	1,389,853					$	1,380,311					$	1,329,550
Liabilities and Shareholders' Equity
Interest Bearing Deposits:
Demand Deposits	$	83,757	$	281	0.34	%	$	69,281	$	257	0.37	%	$	24,707	$	137	0.55	%
NOW		195,689		359	0.18	%		194,249		556	0.29	%		179,253		860	0.48	%
Savings Accounts		133,019		285	0.21	%		107,672		241	0.22	%		85,568		203	0.24	%
Money Market		71,339		94	0.13	%		78,775		127	0.16	%		132,208		506	0.38	%
CDAR's		13,785		36	0.26	%		17,999		52	0.29	%		36,335		199	0.55	%
Certificates of Deposit<$100,000		89,604		420	0.47	%		106,403		619	0.58	%		142,753		1,001	0.70	%
Certificates of Deposit≥$100,000		211,541		823	0.39	%		223,611		1,154	0.52	%		204,185		1,223	0.60	%
Brokered Deposits		11,233		157	1.40	%		15,000		202	1.35	%		12,986		176	1.36	%
Total Interest Bearing Deposits		809,967		2,455	0.30	%		812,990		3,208	0.39	%		817,995		4,305	0.53	%
Borrowed Funds:
Federal Funds Purchased		2		-	0.00	%		-		-	0.00	%		4		-	0.19	%
Repurchase Agreements		2,876		13	0.45	%		3,441		21	0.61	%		2,371		16	0.67	%
Short Term Borrowings		3,497		6	0.17	%		15,234		37	0.24	%		5,637		39	0.69	%
Long Term Borrowings		1,041		33	3.17	%		6,967		281	4.03	%		15,000		569	3.79	%
TRUPS		30,928		714	2.31	%		30,928		774	2.50	%		30,928		728	2.35	%
Total Borrowed Funds		38,344		766	2.00	%		56,570		1,113	1.97	%		53,940		1,352	2.51	%
Total Interest Bearing Liabilities		848,311		3,221	0.38	%		869,560		4,321	0.50	%		871,935		5,657	0.65	%
Non-interest Bearing Demand Deposits		348,579						319,501						276,363
Other Liabilities		16,184						18,551						16,744
Shareholders' Equity		176,779						172,699						164,508
Total Liabilities and Shareholders' Equity	$	1,389,853					$	1,380,311					$	1,329,550
Interest Income/Interest Earning Assets					4.28	%					4.57	%					5.06	%
Interest Expense/Interest Earning Assets					0.26	%					0.35	%					0.47	%
Net Interest Income and Margin(5)			$	48,564	4.02	%			$	50,581	4.22	%			$	52,957	4.59	%

⁽¹⁾ Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs.

⁽²⁾ Yields and net interest margin have been computed on a tax equivalent basis.

⁽³⁾ Loans are gross of the allowance for possible loan losses. Net loan fees have been included in the calculation of interest income. Net loan Fees were $(10,967), $5,476 and $(635,719) for the years ended December 31, 2013, 2012, and 2011 respectively.

⁽⁴⁾ Non-accrual loans have been included in total loans for purposes of total interest earning assets.

⁽⁵⁾ Net interest margin represents net interest income as a percentage of average interest-earning assets (tax-equivalent).

The Volume and Rate Variances table below sets forth the dollar difference in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities for the comparative periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates.Volume variances are equal to the increase or decrease in average balance multiplied by prior period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances.Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance, and have been allocated to the rate variance.The fact that 2013 had one less day than 2012, which was a leap year, contributed to the decline in net interest income in 2013 (the $133,000 unfavorable variance attributable to one less day impacted both rate and volume variances in the table below).

31

Volume & Rate Variances	Years Ended December 31,
(dollars in thousands)	2013 over 2012						2012 over 2011
	Increase(decrease) due to						Increase(decrease) due to
	Volume		Rate		Net		Volume		Rate		Net
Assets:
Investments:
Federal funds sold / Due from time	$	37	$	(5)	$	32	$	2	$	0	$	2
Taxable		(479)		(902)		(1,381)		435		(2,887)		(2,452)
Non-taxable(1)		311		(277)		34		176		(307)		(131)
Equity		22		(89)		(67)		3		60		63
Total Investments		(109)		(1,273)		(1,382)		616		(3,134)		(2,518)
Loans and Leases:
Agricultural		339		(88)		251		158		(46)		112
Commercial		942		(422)		520		4,001		(1,068)		2,933
Real Estate		(503)		(1,414)		(1,917)		(1,787)		(1,202)		(2,989)
Consumer		(512)		(5)		(517)		(899)		(194)		(1,093)
Direct Financing Leases		(71)		(1)		(72)		(143)		(14)		(157)
Other		-		-		-		-		-		-
Total Loans and Leases		194		(1,929)		(1,735)		1,330		(2,524)		(1,194)
Total Interest Earning Assets	$	85	$	(3,202)	$	(3,117)	$	1,946	$	(5,658)	$	(3,712)
Liabilities
Interest Bearing Deposits:
Demand	$	54	$	(30)	$	24	$	247	$	(127)	$	120
NOW		4		(201)		(197)		72		(376)		(304)
Savings Accounts		57		(13)		44		52		(14)		38
Money Market		(12)		(21)		(33)		(205)		(174)		(379)
CDAR's		(12)		(4)		(16)		(100)		(47)		(147)
Certificates of Deposit < $100,000		(98)		(101)		(199)		(255)		(127)		(382)
Certificates of Deposit ≥ $100,000		(62)		(269)		(331)		116		(185)		(69)
Brokered Deposits		(51)		6		(45)		27		(1)		26
Total Interest Bearing Deposits		(120)		(633)		(753)		(46)		(1,051)		(1,097)
Borrowed Funds:
Federal Funds Purchased		-		-		-		-		-		-
Repurchase Agreements		(3)		(5)		(8)		7		(2)		5
Short Term Borrowings		(29)		(2)		(31)		66		(68)		(2)
Long Term Borrowings		(239)		(9)		(248)		(305)		17		(288)
TRUPS		-		(60)		(60)		-		46		46
Total Borrowed Funds		(271)		(76)		(347)		(232)		(7)		(239)
Total Interest Bearing Liabilities		(391)		(709)		(1,100)		(278)		(1,058)		(1,336)
Net Interest Income	$	476	$	(2,493)	$	(2,017)	$	2,224	$	(4,600)	$	(2,376)

⁽¹⁾ Yields on tax exempt income have not been computed on a tax equivalent basis.

The volume variance for 2013 relative to 2012 was a favorable $476,000, primarily due to growth of $13 million in average interest-earning assets that was enhanced by relatively strong growth in the average balances of lower-cost customer deposits. A shift within loans from higher-yielding real estate and consumer loans into lower-yielding commercial and agricultural loans partially offset some of the favorable dynamics impacting our volume variance for the comparative periods, as did a volume shift within average investment balances, from higher-yielding bonds into lower-yielding balances held at the Federal Reserve Bank (FRB).

32

The impact of interest rate changes resulted in a $2.493 million unfavorable rate variance in net interest income for 2013 relative to 2012. Our weighted average yield on interest-earning assets fell 29 basis points due to lower loan rates stemming from intense competition for quality loans, and lower investment yields resulting from the runoff of higher-yielding bonds and an increase in relatively low-yielding FRB balances. By comparison, our weighted average cost of interest-bearing liabilities was just 12 basis points lower. The negative rate variance is exacerbated by our sizeable net interest position, which is the difference between interest-earning assets and interest-bearing liabilities. Our average net interest position for 2012, the base period for the rate variance calculation, was $361 million, meaning that the yield decrease for interest-earning assets was applied to a much higher balance than the rate decrease for interest-bearing liabilities and had a greater impact on net interest income. Partially alleviating the negative pressures on our rate variance for the quarterly comparison were $233,000 in net interest recoveries plus a $97,000 prepayment penalty received in 2013, relative to $276,000 in net interest reversals in 2012.

The Company’s net interest margin, which is tax-equivalent net interest income as a percentage of average interest-earning assets, is affected by the same factors discussed above relative to rate and volume variances. Our net interest margin was 4.02% in 2013, a decline of 20 basis points relative to 2012. The principal adverse factors impacting our net interest margin in 2013 include competitive pressures on loan yields and an increase in low-yielding average balances at the FRB. Partially offsetting the negative developments were a shift in average balances from non-deposit borrowings and higher-cost time deposits into lower-cost non-maturity deposits, an increase in the average balance of non-interest bearing demand deposits, and net interest recoveries in 2013 relative to net interest reversals in 2012.

Net interest income declined in 2012 relative to 2011 due to a drop of 37 basis points in our net interest margin, with the margin decline partially offset by a $43 million increase in average interest-earning assets. The principle negative factors impacting our net interest margin in 2012 include relatively strong growth in lower-yielding investment balances, a shift from higher yielding loan categories to lower-yielding loan types, lower loan yields resulting from increased competition, and more net interest reversals. Having a favorable effect on our net interest margin were a relatively large increase in the average balance of non-interest bearing demand deposits, a shift in average interest-bearing deposit balances from higher-cost deposits into lower-cost deposit categories, and a drop in deposit rates.

Provision for Loan and Lease Losses

Credit risk is inherent in the business of making loans. The Company sets aside an allowance for loan and lease losses, a contra-asset account, through periodic charges to earnings which are reflected in the income statement as the provision for loan and lease losses. Economic challenges have contributed to higher loan loss provisions for the past several years than in prior periods of strong economic growth, due to the negative impact of recessionary conditions on many of our borrowers and the resulting credit challenges in our loan portfolio. The Company’s loan loss provision totaled $4.350 million in 2013, $14.210 million in 2012, and $12.000 million in 2011. The provision reflects a decrease of $9.860 million, or 69%, in 2013 relative to 2012, but increased by $2.210 million, or 18%, in 2012 relative to 2011. For the past few years our loan loss provision has been utilized to establish specific reserves for impaired loans that have migrated into impaired status, enhance specific reserves on other impaired collateral-dependent loans that might have experienced deterioration in the value of underlying collateral, replenish reserves subsequent to loan charge-offs, and build general reserves for performing loans due to higher historical loss factors. The reduction in 2013 was enabled by a lower level of impaired loans, and declining general reserves for non-impaired loans consistent with lower loan balances and improved credit quality.

The Company’s loan loss provisions have been sufficient to maintain an allowance for loan and lease losses at a level that, in management’s judgment, is adequate to absorb probable loan losses related to specifically-identified impaired loans, as well as probable incurred losses in the remaining loan portfolio.When available information confirms that specific loans and leases, or portions thereof, are uncollectible, those amounts are immediately charged off against the allowance.Net loans charged off in 2013 totaled $6.546 million, relative to $17.620 million in 2012 and $15.855 million in 2011.The Company’s loan loss provision was lower than loan charge-offs for all three years, since many of the charge-offs were taken against previously-established specific reserves and did not directly result in the need for reserve replenishment via the loan loss provision.

The Company’s policies for monitoring the adequacy of the allowance and determining loan amounts that should be charged off, and other detailed information with regard to changes in the allowance, are discussed below under “Allowance for Loan and Lease Losses.” The process utilized to establish an appropriate allowance for loan and lease losses can result in a high degree of variability in the Company’s loan loss provision, and consequently in our net earnings.

33

Non-interest Revenue and Operating Expense

The table below sets forth the major components of the Company’s non-interest revenue and operating expense, along with relevant ratios, for the years indicated:

	Year Ended December 31,
	2013		% of Total		2012		% of Total		2011		% of Total
NON-INTEREST REVENUE:
Service charges on deposit accounts	$	9,022	52.87	%	$	9,676	53.38	%	$	9,543	63.65	%
Credit card fees		462	2.71	%		390	2.15	%		411	2.74	%
Checkcard fees		3,749	21.97	%		2,787	15.38	%		2,519	16.80	%
Other service charges and fees		2,372	13.90	%		2,060	11.36	%		1,949	13.00	%
Bank owned life insurance income		1,787	10.47	%		1,420	7.83	%		934	6.23	%
Gains on sale of loans		129	0.76	%		183	1.01	%		139	0.93	%
Gain on sales investment securities		6	0.04	%		1,762	9.72	%		1,660	11.07	%
Other-than-temporary impairment losses
on equity securities		-	0.00	%		-	0.00	%		(1,370)	-9.14	%
(Loss) on tax credit investment		(1,063)	-6.23	%		(395)	-2.18	%		(885)	-5.90	%
Other		599	3.51	%		243	1.35	%		92	0.62	%
Total non-interest revenue		17,063	100.00	%		18,126	100.00	%		14,992	100.00	%
As a % of average interest-earning assets			1.37	%			1.47	%			1.26	%
OTHER OPERATING EXPENSES:
Salaries and employee benefits		21,920	48.91	%		20,734	44.44	%		20,669	43.42	%
Occupancy costs
Furniture and equipment		1,964	4.38	%		2,061	4.42	%		2,366	4.97	%
Premises		4,310	9.62	%		4,320	9.26	%		4,392	9.23	%
Advertising and marketing costs		1,960	4.37	%		1,771	3.80	%		2,051	4.31	%
Data processing costs		1,987	4.43	%		1,807	3.87	%		1,523	3.20	%
Deposit services costs		1,980	4.42	%		2,266	4.86	%		2,516	5.29	%
Loan services costs
Loan processing		999	2.23	%		1,035	2.22	%		1,082	2.27	%
Foreclosed Assets		1,529	3.41	%		4,914	10.53	%		5,226	10.98	%
Other operating costs
Telephone and data communications		1,613	3.60	%		1,549	3.32	%		1,291	2.71	%
Postage and mail		713	1.59	%		718	1.54	%		576	1.21	%
Other		682	1.52	%		765	1.64	%		886	1.86	%
Professional services costs
Legal and accounting		1,688	3.77	%		1,252	2.68	%		1,719	3.61	%
Other professional services costs		2,455	5.48	%		2,202	4.72	%		2,222	4.67	%
Stationery and supply costs		657	1.47	%		738	1.58	%		705	1.48	%
Sundry & tellers		358	0.80	%		524	1.12	%		381	0.79	%
Total other operating expense	$	44,815	100.00	%	$	46,656	100.00	%	$	47,605	100.00	%
As a % of average interest-earning assets			3.60	%			3.79	%			4.01	%
Net non-interest income as a % of average
interest-earning assets			-2.23	%			-2.32	%			-2.75	%
Efficiency ratio (1)			66.63	%			66.81	%			67.83	%

⁽¹⁾ Tax Equivalent

34

The Company’s results reflect a decline in total non-interest income of $1.063 million, or 6%, in 2013 relative to 2012, and an increase of $3.134 million, or 21%, for 2012 over 2011. While the primary reasons for these fluctuations are discussed in greater detail below, several items of a non-recurring nature have had a significant impact on non-interest income over the past few years. For 2013 those items include $397,000 in life insurance proceeds received in the fourth quarter, and a $100,000 non-recurring signing incentive received in conjunction with our merchant processing vendor conversion in the first quarter. In 2012, non-recurring items include gains on the sale of investments totaling $1.762 million, accrual adjustments to costs associated with tax credit investments and other limited partnership investments, and life insurance proceeds totaling $87,000. In 2011, non-recurring items include a $1.660 million gain on the sale of investment securities and a $1.370 million other-than-temporary impairment charge on equity investment securities. Variability in income on BOLI associated with deferred compensation plans also contributed to the year-to-year changes in total non-interest income. Furthermore, there were significant fluctuations within non-interest income due in large part to fees that are reflected in other service charges, commissions and fees in 2013 but which were included with service charges on deposits in 2012.

The principal component of non-interest revenue, namely service charges on deposit accounts, declined by $654,000, or 7%, in 2013 relative to 2012. Deposit service charges fell in 2013 as the result of certain debit card interchange fees that were included with service charges on deposits in 2012 but which were reclassified to other service charges in 2013; without the reclassification, deposit service charges would have increased slightly due to higher levels of overdraft income and other fees. Deposit service charges increased by $133,000, or 1%, in 2012 over 2011, since a drop in overdraft and returned item charges was more than offset by increases in other deposit-related income. The Company’s ratio of service charge income to average transaction account balances was 1.4% in 2013, down from 1.7% in 2012 and 2.0% in 2011.

The next line item under other operating income is credit card fees, which consist primarily of credit card interchange fees. Despite the sale of all credit card balances in 2007, we still receive a portion of the interchange and interest income from credit cards issued in our name. Credit card fees increased by $72,000, or 18%, in 2013 over 2012, but declined by $21,000, or 5%, in 2012 relative to 2011.

Checkcard fees, which represent interchange fees from electronic funds transactions (EFT), increased by $962,000, or 35%, in 2013 over 2012, and also increased by $268,000, or 11%, in 2012 over 2011. The increase in 2013 includes the impact of the aforementioned reclassification of debit card interchange fees, and both 2013 and 2012 were favorably impacted by fees earned on cards issued on new retail deposit accounts as well as increased usage per card. The rising popularity of point-of-sale transactions leads us to believe that the upward trend in the number of such transactions will likely continue, although that will not necessarily translate into higher fees since interchange rates could decline.

Other service charges and fees also constitute a relatively large portion of non-interest income, with the principal components consisting of ATM fees from transactions not associated with deposit customers (also referred to as foreign ATM fees), dividends on restricted stock, currency order fees, and other fees for merchant services. Other service charges, commissions, and fees increased by $312,000, or 15%, in 2013 over 2012, and by $111,000, or 6%, in 2012 over 2011. The increase in 2013 was primarily in dividends received on restricted stock, while the increase in 2012 came from relatively small increases in numerous categories.

Bank-owned life insurance income increased by $367,000, or 26%, in 2013 over 2012, and by $486,000, or 52%, in 2012 over 2011, mainly from increases in income on BOLI associated with deferred compensation plans. The Company owns and derives income from two basic types of BOLI: “general account” and “separate account.” At December 31, 2013, the Company had $35.3 million invested in single-premium general account BOLI, which generates income that is used to help offset expenses associated with executive salary continuation plans, director retirement plans and certain other employee benefits. General account BOLI income is typically fairly consistent with interest credit rates that do not change frequently, but rate reductions have led to slightly reduced income levels in recent periods. A $5 million incremental investment in BOLI at the end of the third quarter of 2011 supplemented our general account BOLI income, and contributed to the overall increase in BOLI income in 2012. In addition to general account BOLI, the Company had $4.2 million invested in separate account BOLI at December 31, 2013, the earnings on which help offset deferred compensation accruals for certain directors and senior officers. Deferred compensation accounts have returns pegged to participant-directed investment allocations, and are thus subject to gains or losses which often contribute to significant fluctuations in income from period to period. There was a gain on separate account BOLI totaling $770,000 in 2013 relative to a gain of $339,000 in 2012, for an increase in separate account BOLI income of $431,000 for the comparative years. The comparison of 2012 over 2011 also reflects an absolute increase of $431,000 in separate account BOLI income, due to the $339,000 gain in 2012 relative to a loss of $92,000 in 2011. As noted, gains and losses on separate account BOLI are related to expense accruals or reversals associated with participant gains and losses on deferred compensation balances, thus their impact on taxable income tends to be neutral.

35

Gains on loan sales dropped by $54,000, or 30%, in 2013 relative to 2012, but increased by $44,000 or 32%, in 2012 over 2011. Loan sale income tends to fluctuate with changes in mortgage lending activity. In 2013 we realized only $6,000 in gains on the sale of investments, but investment gains totaled $1.762 million in 2012 and $1.660 million in 2011. The net gain on investments for 2012 was due primarily to gains realized in the fourth quarter, subsequent to the sale of approximately $49 million in mortgage-backed and municipal securities to provide additional liquidity for loan growth. The net gain in 2011 came from the sale of $43 million in select mortgage-backed securities, the proceeds of which were used to retire short-term debt and enable the non-renewal of certain higher-cost time deposits. The sale of securities in both 2012 and 2011 helped us reduce potential volatility and improve the overall quality of the bonds held in our investment portfolio, but contributed to a lower yield on investments. In 2011 we also recorded a $1.370 million other-than-temporary impairment (OTTI) charge against equity investment securities, offsetting much of the income boost provided by the gain on the sale of investments.

The next line item reflects pass-through losses associated with our investments in low-income housing tax credit funds and other limited partnership investments. Those costs, which are netted out of revenue, increased by $668,000, or 169%, in 2013 over 2012, but reflect a drop of $490,000, or 55%, in 2012 relative to 2011. The sizeable increase in 2013 and the large reduction in 2012 are primarily the result of cumulative accrual adjustments in 2012 that are not expected to be repeated in future years.

Other non-interest income includes gains and losses on the disposition of assets (other than foreclosed assets), life insurance proceeds, and rental income generated by the Company’s alliance with Investment Centers of America (ICA). Other non-interest income improved by $356,000, or 147%, in 2013 over 2012, and also reflects an increase of $151,000, or 164%, in 2012 relative to 2011. Life insurance proceeds totaled $397,000 in 2013 and $87,000 in 2012, contributing to the increases in other non-interest income in both years.

Total operating expense, or non-interest expense, declined $1.841 million, or 4%, in 2013 relative to 2012 and was down by $949,000, or 2%, in 2012 relative to 2011. The drop in 2013 was primarily due to lower net costs associated with foreclosed assets, partially offset by higher compensation costs, while the reduction in 2012 resulted from favorable variances in numerous expense categories. Non-interest expense includes the following non-recurring items and expenses related to ongoing credit issues: Net OREO expense of $1.529 million in 2013, $4.914 million in 2012, and $5.226 million in 2011; a $75,000 non-recurring expense offset in 2012 in conjunction with the renewal of our contract for debit transaction processing; vendor credits in the amount of $181,000 received in 2011, for prior-year overcharges on processing software; and a non-recurring accrual of $240,000 in 2011 for potential expenses related to leases. Total non-interest expense declined to 3.60% of average earnings assets for 2013, from 3.79% in 2012 and 4.01% in 2011.

The largest component of operating expense, namely salaries and employee benefits, was up by $1.186 million, or 6%, in 2013 over 2012, but increased by only $65,000, or less than 1%, in 2012 over 2011. A higher accrual for officer bonuses contributed $399,000 to the increase in 2013; both 2012 and 2011 reflect reduced bonus accruals to adjust for Company, branch, and individual performance relative to internal targets. Additional components of compensation expense that can experience significant variability and are typically difficult to predict include salaries associated with successful loan originations, which are accounted for in accordance with FASB guidelines on the recognition and measurement of non-refundable fees and origination costs for lending activities, and accruals associated with employee deferred compensation plans. Loan origination salaries that were deferred from current expense for recognition over the life of the related loans totaled $2.804 million in 2013, $2.745 million in 2012, and $2.586 million in 2011, with the fluctuations due to variability in successful loan origination activity. Employee deferred compensation expense accruals totaled $451,000 in 2013, relative to $188,000 in 2012 and $17,000 in 2011. As noted above in our discussion of BOLI income, employee deferred compensation plan accruals are related to separate account BOLI income and losses, as are directors deferred compensation accruals that are included in “other professional services,” and the net income impact of all income/expense accruals related to deferred compensation is usually minimal. Salaries and benefits have been further impacted by normal annual salary adjustments, strategic staff additions in recent years to help position the Company for future growth opportunities, and rising health insurance costs. Salaries and benefits increased to 48.91% of total operating expense in 2013, from 44.44% in 2012 and 43.42% in 2011. The increase in the ratio is the result of a declining level of total operating expense in addition to the rising level of salaries and benefits. The number of full-time equivalent staff employed by the Company totaled 389 at the end of 2013, 399 at the end of 2012, and 383 at the end of 2011.

36

Total rent and occupancy costs, including furniture and equipment expense, dropped by $107,000, or 2%, in 2013 relative to 2012, and by $377,000, or 6%, in 2012 relative to 2011. Both 2013 and 2012 were favorably impacted by lower depreciation expense on furniture and equipment, and the drop in 2012 was further impacted by lower costs resulting from the purchase of our headquarters office building at the end of 2011.

Advertising and marketing costs were up by $189,000, or 11%, in 2013 over 2012, but declined by $280,000, or 14%, in 2012 relative to 2011. The increase in 2013 was due to the enhancement of our direct-mail marketing campaign for deposits and an increase in image advertising, as well as certain expenses incurred in the fourth quarter of 2013 in connection with our rebranding initiative slated for early 2014. The drop in 2012 was due mainly to a reduction in costs associated with our direct-mail campaign, as well as lower television and print advertising costs.

Data processing costs increased by $180,000, or 10%, in 2013 over 2012, and by $284,000, or 19%, in 2012 over 2011. Costs were up in 2013 primarily as the result of installing software that should facilitate more efficient loan origination and processing, including loan document imaging. The increase in 2012 was due in large part to $181,000 in non-recurring vendor credits which were received in the first quarter of 2011 for prior-year overcharges on processing software, as well as higher internet banking costs.

Deposit services costs dropped by $286,000, or 13%, in 2013, and by $250,000, or 10%, in 2012. The drop in 2013 is due to lower electronic banking costs, lower costs associated with debit card processing, and smaller reductions in a few other areas. The decline for 2012 was due in part to a $75,000 non-recurring expense offset in conjunction with the renewal of our contract for debit card transaction processing, as well as lower operating costs associated with online deposit products, debit card processing and other miscellaneous deposit cost categories.

Loan services costs, which include net expenses associated with foreclosed assets, credit card costs, and other loan processing costs, were reduced by $3.421 million, or 58%, in 2013 relative to 2012, and by $359,000, or 6%, in 2012 relative to 2011. Much of the variability in loan costs in recent years has been driven by net expenses on foreclosed assets, comprised of write-downs taken subsequent to re-appraisals, OREO operating expense (including property taxes), and losses on the sale of foreclosed assets, net of rental income on OREO properties and gains on the sale of foreclosed assets. Net foreclosed asset expenses have been trending down due primarily to the fact that OREO write-downs have been declining as real estate values have stabilized. In 2013 we also saw significant reductions in OREO operating expense due to declining levels of OREO, and fewer losses on the sale of OREO.

The “other operating costs” category includes telecommunications expense, postage, and other miscellaneous costs. Telecommunications expense increased by $64,000, or 4%, in 2013, and by $258,000, or 20%, in 2012, due to higher average rates increases as well as costs associated with the addition and enhancement of data circuits. Postage expense was about the same in 2013 as in 2012, but increased by $142,000, or 25%, in 2012 over 2011 primarily due to additional mailings for compliance disclosures relating to deposit account overdrafts. Other miscellaneous costs fell by $83,000, or 11%, in 2013, and by $121,000, or 14%, in 2012. The drop in 2013 was due to lower depreciation on operating leases, partially offset by higher recruiting and training costs. The decrease in 2012 also includes lower depreciation on operating leases, as well as a reduction in fees paid for FHLB letters of credit.

Legal and accounting costs increased by $436,000, or 35%, in 2013 over 2012, but declined by $467,000, or 27%, in 2012 relative to 2011. The increase in 2013 resulted primarily from an increase in legal costs associated with loan collections and higher loan review costs, while the reduction in 2012 was mainly from lower legal costs for loan collections.

37

Other professional services costs include FDIC assessments and other regulatory costs, directors’ costs, certain insurance costs, and certain recruiting costs among other things. This category increased by $253,000, or 11%, in 2013 over 2012, but was substantially the same in 2012 as in 2011. For 2013, the increase was centered in directors deferred compensation expense, which totaled $482,000 in 2013 relative to $187,000 in 2012. In 2012, a $215,000 increase in accruals for directors’ deferred compensation was effectively offset by a lower accrual for regulatory assessments. As with deferred compensation accruals for employees, directors’ deferred fee accruals are related to separate account BOLI income and losses, and the net income impact of all income/expense accruals related to deferred compensation is usually minimal.

Stationery and supply costs were reduced by $81,000, or 11%, in 2013, but increased $33,000, or 5%, in 2012. The reduction in 2013 was due primarily to a change in vendors, and would have been even greater if not for the write-off of certain stationery and supplies that will become obsolete when our rebranding initiative is completed in the first quarter of 2014. Sundry and teller costs were reduced by $166,000, or 32%, in 2013, but increased by $143,000, or 38%, in 2012 due to a surge in debit card fraud. Our debit card processor implemented additional fraud detection and prevention capabilities in late 2012, which helped reduce the level of subsequent losses.

The Company’s tax-equivalent overhead efficiency ratio fell slightly, to 66.63% in 2013 from 66.81% in 2012. The overhead efficiency ratio represents total non-interest expense divided by the sum of fully tax-equivalent net interest and non-interest income, with the provision for loan losses, investment gains/losses, and other extraordinary gains/losses excluded from the equation.

Income Taxes

The Company sets aside its provision for income taxes on a monthly basis. As indicated in Note 9 in the Notes to Consolidated Financial Statements, the amount of such provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income (pre-tax book income adjusted for permanent differences between book and taxable income), and then subtracting available tax credits. Permanent differences include but are not limited to tax-exempt interest income, BOLI income, California Enterprise Zone deductions, and certain book expenses that are not allowed as tax deductions. Tax-exempt interest income is generated primarily by the Company’s investments in state, county and municipal bonds, which provided $2.737 million in federal tax-exempt income in 2013, $2.703 million 2012, and $2.834 million in 2011. Tax credits, including California state tax employment credits as well as those generated by our investments in low-income housing tax credit funds, are applied as a direct reduction to our tax liability for both book and tax purposes. The Company had a total of $7.7 million invested in low-income housing tax credit funds as of December 31, 2013. Those investments, which are included in other assets rather than in our investment portfolio, have generated substantial tax credits over the past few years, with about $1.3 million in credits available for the 2013 tax year and $1.4 million in tax credits utilized in 2012. The credits are dependent upon the occupancy level of the housing projects and income of the tenants, and cannot be projected with complete certainty. Furthermore, our capacity to utilize them will continue to depend on our ability to generate sufficient pre-tax income. Because we have not invested in additional tax credit funds for the past few years, the level of low-income housing tax credits available for future years will taper off until they are substantially utilized by the end of 2018. This means that even if taxable income stayed at the same level through 2018, our tax accrual rate would gradually increase.

Our tax accrual rate is currently very sensitive to changes in pretax income, because of the relatively high portion of the Company’s pretax income that consists of tax-exempt income and the level of tax credits available in relation to our pre-credit tax liability as calculated for book purposes. The Company had a tax provision of $3.093 million, or 19% of pre-tax income in 2013, a tax benefit of $344,000 in 2012, and a tax provision of $564,000, or 7% of pre-tax income in 2011. The higher income tax provisioning rate in 2013 is due to an increase in taxable income relative to the Company’s available tax credits, while the negative provision in 2012 was primarily the result of lower taxable income relative to the Company’s available tax credits. As noted above, BOLI income increased in 2013 and 2012 which favorably impacted our tax provision, but tax-exempt interest income on municipal securities was not materially different in the comparative years. Effective January 1, 2014, changes in California tax law eliminated certain state income tax credits and deductions, and we expect our tax accrual rate to increase as a result.

38

In addition to permanent differences, some income and expense items are recognized in different years for tax purposes than when applying generally accepted accounting principles, leading to timing differences between the Company’s actual tax liability and the amount accrued for this liability based on book income. These temporary differences comprise the “deferred” portion of the Company’s tax expense, which is accumulated on the Company’s books as a deferred tax asset or deferred tax liability until such time as it reverses. At the end of 2013, the Company had a net deferred tax asset of $12.3 million.

Financial Condition

Assets totaled $1.410 billion at the end of 2013, reflecting a drop of $28 million, or 2%, for the year due to net contraction in gross loan balances and a reduction in foreclosed assets, partially offset by growth in investment securities, balances due from the Federal Reserve Bank, and cash. Loan volume was primarily impacted by a drop in mortgage warehouse loans resulting from lower credit line utilization, although the Company did experience considerable growth in commercial real estate loans and agricultural loans. Total nonperforming assets have been trending down, and our allowance for loan and lease losses was also reduced in 2013 due to lower general reserves consistent with the drop in loan balances and improvement in asset quality, and lower specific reserves consistent with the reduction in impaired loans. Total deposits were unchanged at the end of 2013 relative to the end of 2012, since an increase in core non-maturity deposits was offset by a drop in time deposits. Non-deposit borrowings were also reduced during 2013.

We have maintained a very strong capital position throughout the recession and in the ensuing years, due to our registered direct offering in 2010 and private placement in 2009 combined with positive net income. Furthermore, our liquidity position has remained strong for the past few years due to growth in customer deposits and the runoff of a large volume of wholesale-sourced brokered deposits and other borrowings, in addition to a substantial increase in unpledged investments. Our robust capital position and access to liquidity resources position us well to take advantage of potential growth opportunities, although no assurance can be provided in that regard.

Significant changes in the relative size of balance sheet components in 2013 include net loans and leases, which declined to 56% of total assets at the end of 2013 from 60% at the end of 2012, and investment securities, which increased to 30% of total assets at the end of 2013 from 26% at the end of 2012. On the liability side, non-maturity deposits increased to 74% of total deposits at the end of 2012 from 70% at the end of 2012, while customer time deposits (including CDARS) fell to 25% of total deposits at December 31, 2013 from 29% at December 31, 2012. The major components of the Company’s balance sheet are individually analyzed below, along with information on off-balance sheet activities and exposure.

Loan and Lease Portfolio

The Company’s loan and lease portfolio represents the single largest portion of invested assets, substantially greater than the investment portfolio or any other asset category, and the quality and diversification of the loan and lease portfolio are important considerations when reviewing the Company’s financial condition. The Company is not involved with chemicals or toxins that might have an adverse effect on the environment, thus its primary exposure to environmental legislation is through its lending activities. The Company’s lending procedures include steps to identify and monitor this exposure in an effort to avoid any related loss or liability. The Selected Financial Data table in Item 6 above reflects the amount of loans and leases outstanding at December 31^st for each year from 2009 through 2013, net of deferred fees and origination costs and the allowance for loan and lease losses. The Loan and Lease Distribution table that follows sets forth by loan type the Company’s gross loans and leases outstanding, and the percentage distribution in each category at the dates indicated. The balances for each loan type include nonperforming loans, if any, but do not reflect any deferred or unamortized loan origination, extension, or commitment fees, or deferred loan origination costs. Although not reflected in the loan totals below and not currently comprising a material part of our lending activities, the Company occasionally originates and sells, or participates out portions of, loans to non-affiliated investors.

39

Loan and Lease Distribution
(dollars in thousands)
	As of December 31,
	2013			2012			2011			2010			2009
Real Estate:
1-4 family residential construction	$	1,720		$	3,174		$	8,488		$	13,866		$	16,587
Other Construction/Land		25,531			28,002			40,060			52,047			100,289
1-4 family - closed-end		87,024			99,917			104,953			105,459			117,115
Equity Lines		53,723			61,463			66,497			70,783			69,701
Multi-family residential		8,485			5,960			8,179			10,962			8,164
Commercial RE- owner occupied		186,012			182,614			183,070			187,970			188,592
Commercial RE- non-owner occupied		106,840			92,808			105,843			120,500			105,682
Farmland		108,504			71,851			60,142			61,293			61,098
Total Real Estate		577,839			545,789			577,232			622,880			667,228
Agricultural		25,180			22,482			17,078			13,457			10,136
Commercial and Industrial		85,331			87,572			71,184			81,996			104,971
Mortgage Warehouse Lines		73,425			170,324			28,224			12,772			12,452
Small Business Administration Loans		14,905			20,523			21,006			18,616			18,626
Direct finance leases		3,026			4,233			6,743			10,234			15,394
Consumer loans		23,536			28,872			36,124			45,585			55,799
Total Loans and Leases	$	803,242		$	879,795		$	757,591		$	805,540		$	884,606
Percentage of Total Loans and Leases
Real Estate:
1-4 family residential construction		0.21	%		0.35	%		1.12	%		1.72	%		1.88	%
Other Construction/land		3.18	%		3.18	%		5.29	%		6.46	%		11.34	%
1-4 family - closed-end		10.83	%		11.36	%		13.85	%		13.09	%		13.24	%
Equity Lines		6.69	%		6.99	%		8.78	%		8.79	%		7.88	%
Multi-family residential		1.06	%		0.68	%		1.08	%		1.36	%		0.92	%
Commercial RE- owner occupied		23.16	%		20.76	%		24.16	%		23.33	%		21.32	%
Commercial RE- non-owner occupied		13.30	%		10.55	%		13.97	%		14.96	%		11.94	%
Farmland		13.51	%		8.17	%		7.94	%		7.61	%		6.91	%
Total Real Estate		71.94	%		62.04	%		76.19	%		77.32	%		75.43	%
Agricultural		3.13	%		2.56	%		2.25	%		1.67	%		1.15	%
Commercial and Industrial		10.62	%		9.95	%		9.40	%		10.18	%		11.87	%
Mortgage Warehouse Lines		9.14	%		19.36	%		3.73	%		1.59	%		1.41	%
Small Business Administration Loans		1.86	%		2.33	%		2.77	%		2.31	%		2.11	%
Direct finance leases		0.38	%		0.48	%		0.89	%		1.27	%		1.74	%
Consumer loans		2.93	%		3.28	%		4.77	%		5.66	%		6.29	%
		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%

The Company’s gross loans and leases reflect a downward trend from 2009 through 2011 due to reductions associated with the resolution of impaired loans and runoff in the normal course of business, but loans experienced a significant increase in 2012 due to growth in balances outstanding on mortgage warehouse lines.The surge in growth in 2012 is the result of our implementation of software to automate the mortgage warehouse lending process and provide additional internal controls, the subsequent addition of new mortgage warehouse customers, and market opportunities created by an increase in refinancing activity.Gross loan balances fell once again in 2013, dropping by $77 million, or 9%, and ending the year with a balance of $803 million.Mortgage warehouse lines were down $97 million, or 57%, because utilization on lines dropped to 26% at December 31, 2013 from close to 80% at December 31, 2012.As a percentage of total loans, mortgage warehouse balances fell to 9.14% at December 31, 2013 from 19.36% at December 31, 2012.To help counteract the drop in mortgage warehouse loans, we continue to add new mortgage warehouse customers and have encouraged current customers to increase credit line utilization.However, mortgage lending activity has historically been subject to significant fluctuations, so no assurance can be provided with regard to our ability to maintain or grow mortgage warehouse balances.In addition to the drop in mortgage warehouse lending we experienced contraction in construction and land loans, residential real estate loans (including equity lines), commercial loans and leases, SBA loans, and consumer loans due to weak loan demand, stringent underwriting standards, and intense competition.

The Company has strengthened lending efforts in other areas to help mitigate the volatility in mortgage warehouse balances, and in 2013 those efforts led to significant growth in commercial real estate (CRE) loans, which increased more than $17 million, or 6%, agricultural production loans, which were up $3 million, or 12%, and real estate loans secured by farmland, which increased by $37 million, or 51%. Because of this growth, CRE loans increased to 36.46% of total loans at December 31, 2013 from 31.31% at December 31, 2012, and farmland loans increased to 13.51% of total loans at December 31, 2013 from 8.17% at December 31, 2012.

40

Loan and Lease Maturities

The following table shows the maturity distribution for total loans and leases outstanding as of December 31, 2013, including non-accruing loans, grouped by remaining scheduled principal payments.

Loans and Lease Maturity

(dollars in thousands)

	As of December 31, 2013
			Three								Floating
	Three		months to								rate: due		Fixed rate:
	months or		twelve		One to five		Over five				after one		due after
	less		months		years		years		Total		year		one year
Agricultural	$	5,536	$	7,019	$	10,464	$	2,161	$	25,180	$	8,987	$	3,638
Commercial and Industrial (1)		77,645		28,521		26,925		40,570		173,661		15,447		52,048
Real Estate		32,639		27,189		79,000		439,011		577,839		272,199		245,812
Consumer Loans		1,265		1,046		7,935		13,290		23,536		1,563		19,662
Direct Financing Leases		13		8		361		2,644		3,026		-		3,005
Total	$	117,098	$	63,783	$	124,685	$	497,676	$	803,242	$	298,196	$	324,165

⁽¹⁾ Includes Small Business Administration Loans

For a comprehensive discussion of the Company’s liquidity position, balance sheet re-pricing characteristics, and sensitivity to interest rates changes, refer to the “Liquidity and Market Risk” section of this discussion and analysis.

Off-Balance Sheet Arrangements

The Company makes commitments to extend credit to its customers in the normal course of business, as long as there are no violations of conditions established in contractual arrangements. The effect on the Company’s revenues, expenses, cash flows and liquidity from unused portions of commitments to provide credit cannot be reasonably predicted, because there is no certainty that lines of credit will ever be fully utilized. Unused commitments to extend credit totaled $421 million at December 31, 2013, as compared to $225 million at December 31, 2012. The increase during 2013 was primarily due to an increase in undisbursed commitments on mortgage warehouse lines, resulting from decreased line utilization and newly committed lines. Unused commitments represented 52% of gross loans and leases outstanding at December 31, 2013 and 26% at December 31, 2012. In addition to unused loan commitments, the Company had undrawn letters of credit totaling $17 million at December 31, 2013 and $15 million at December 31, 2012. These collective off-balance sheet obligations represent potential credit risk to the Company, and a $269,000 reserve for unfunded commitments is reflected as a liability in our consolidated balance sheet at December 31, 2013. For more information regarding the Company’s off-balance sheet arrangements, see Note 11 to the consolidated financial statements in Item 8 herein.

Contractual Obligations

At the end of 2013, the Company had contractual obligations for the following payments, by type and period due:

Contractual Obligations
(dollars in thousands)	Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Long-term debt obligations	$	30,928	$	-	$	-	$	-	$	30,928
Operating lease obligations		8,615		1,036		1,788		1,452		4,339
Other long-term obligations		962		-		-		-		962
Total	$	40,505	$	1,036	$	1,788	$	1,452	$	36,229

41

Nonperforming Assets

Nonperforming assets (NPAs) are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets, including mobile homes and other real estate owned (OREO).OREO consists of properties acquired by foreclosure or similar means, which the Company is offering or will offer for sale.Nonperforming loans and leases result when reasonable doubt exists with regard to the Company’s ability to collect all principal and interest on a loan or lease.At that point, we stop accruing interest on the loan or lease in question, and reverse any previously-recognized interest to the extent that it is uncollected or associated with interest-reserve loans.Any asset for which principal or interest has been in default for a period of 90 days or more is also placed on non-accrual status, even if interest is still being received, unless the asset is well-secured and in the process of collection.If the Company grants a concession to a borrower in financial difficulty, the loan falls into the category of a troubled debt restructuring (TDR).TDR loans may be classified as either nonperforming or performing depending on their accrual status.

The following table presents five-year comparative data for the Company’s nonperforming loans by type, foreclosed assets, and performing TDRs.

Nonperforming Assets and Performing TDRs

(dollars in thousands)

	As of December 31,
	2013			2012			2011			2010			2009
Real Estate:
1-4 family residential construction	$	-		$	153		$	2,244		$	4,057		$	1,223
Other Construction/Land		5,528			11,163			4,083			6,185			18,005
1-4 family - closed-end		13,168			15,381			7,605			4,894			4,790
Equity Lines		778			1,026			1,309			1,239			626
Multi-family residential		-			-			2,941			-			236
Commercial RE- owner occupied		5,516			5,314			7,086			7,412			3,964
Commercial RE- non-owner occupied		8,058			11,642			13,958			14,704			8,650
Farmland		282			1,933			6,919			405			429
TOTAL REAL ESTATE		33,330			46,612			46,145			38,896			37,923
Agricultural		470			664			-			-			-
Commercial and Industrial		685			2,386			3,778			2,005			3,559
Small Business Administration Loans		1,937			2,159			3,452			3,440			3,683
Direct finance leases		-			135			591			501			1,053
Consumer loans		992			1,138			2,144			1,112			756
TOTAL NONPERFORMING LOANS (1)	$	37,414		$	53,094		$	56,110		$	45,954		$	46,974
Foreclosed assets		8,185			19,754			15,364			20,691			25,654
Total nonperforming assets	$	45,599		$	72,848		$	71,474		$	66,645		$	72,628
Performing TDRs (1)	$	15,239		$	18,652		$	36,058		$	12,465		$	28,024
Nonperforming loans as a % of total gross loans      and leases		4.66	%		6.03	%		7.41	%		5.70	%		5.31	%
Nonperforming assets as a % of total gross loans      and leases and foreclosed assets		5.62	%		8.10	%		9.25	%		8.07	%		7.98	%

 

⁽¹⁾ Performing TDRs are not included in nonperforming loans above, nor are they included in the numerators used to calculate the ratios disclosed in this table.

At the end of 2006, prior to the recession, NPAs totaled less than $1 million and comprised only 0.08% of total loans and leases plus foreclosed assets. They subsequently escalated to as high as $80 million, or close to 9% of total loans and leases plus foreclosed assets at September 30, 2009, due to deterioration in economic conditions and the associated negative impact on our borrowers. During 2013, total NPAs declined by $27.2 million, or 37%, falling to 6% of gross loans and leases plus foreclosed assets. Nonperforming loans comprised $15.7 million of the drop in NPAs in 2013, and foreclosed assets were reduced by $11.6 million.

Non-accruing loan balances secured by real estate comprised $33.3 million of total nonperforming loans at December 31, 2013, and reflect a net reduction of $13.3 million, or 28%, during the year. Gross additions to nonperforming real estate loans totaled $7.7 million in 2013. Partially offsetting the impact of real estate loans placed on non-accrual status during the year were net pay-downs on nonperforming real estate loans of $13.9 million, charge-offs totaling $3.0 million, and $4.1 million in transfers to OREO. Nonperforming commercial and SBA loans declined by a combined $1.9 million, or 42%, during 2013, ending the period at $2.6 million. Gross additions to nonperforming commercial and SBA loans totaled $1.5 million in 2013, but additions were more than offset by net pay-downs of $2.1 million and the charge-off of $1.2 million in nonperforming commercial loan balances. Nonperforming consumer loans, which are largely unsecured, declined by $146,000, or 13%, to a total of $992,000 at December 31, 2013, due to charge-offs and pay-downs during the year.

42

The balance of nonperforming loans at December 31, 2013 includes $22.3 million in TDRs and other loans that were paying as agreed under modified terms or forbearance agreements but were still classified as nonperforming. As shown in the table, we also had $15.2 million in loans classified as performing TDRs for which we were still accruing interest at December 31, 2013, a reduction of $3.4 million, or 18%, relative to the $18.7 million TDR balance at December 31, 2012. Notes 2 and 4 in the Notes to Consolidated Financial Statements provide a more comprehensive disclosure of TDR balances and activity within recent periods.

As noted above, foreclosed assets were reduced by $11.6 million, or 59%, in 2013, due to OREO sold or written down to current fair values during the year, net of the migration of $4.1 million in nonperforming real estate loans into OREO. At December 31, 2013 foreclosed assets had an aggregate carrying value of $8.2 million, comprised of 33 properties classified as OREO and five mobile homes. Our OREO at year-end 2013 consisted of two residential properties totaling $629,000 and 11 commercial buildings with a combined book balance of $4.7 million, with the remainder primarily consisting of vacant lots or land. At the end of 2012 foreclosed assets totaled $19.8 million, comprised of 69 properties in OREO and three mobile homes. All foreclosed assets are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value.

An action plan is in place for each of our non-accruing loans and foreclosed assets and they are all being actively managed or marketed. Collection efforts are continuously pursued for all nonperforming loans, but no assurance can be provided that they will be resolved in a timely manner or that nonperforming balances will not increase further.

Allowance for Loan and Lease Losses

Our allowance for loan and lease losses, a contra-asset, is established through a provision for loan and lease losses. It is maintained at a level that is adequate to absorb specifically identified probable losses on impaired loans and leases, as well as probable incurred losses inherent in the remaining loan portfolio. When available information confirms that specific loans and leases, or portions thereof, are uncollectible, those amounts are immediately charged off against the allowance. Recoveries are generally recorded only when cash payments are received subsequent to the charge off. Note 2 in the Notes to Consolidated Financial Statements provides a more comprehensive discussion of the accounting guidance we conform to and the methodology we use to determine an appropriate allowance for loan and lease losses.

At December 31, 2013 our allowance for loan and lease losses was $11.7 million, or 1.45% of gross loans and leases, a 16% decline from the $13.9 million allowance at December 31, 2012 which was 1.58% of gross loans and leases. The Company’s total allowance increased to 31.21% of nonperforming loans at December 31, 2013, from 26.13% at December 31, 2012. The $2.2 million reduction in the allowance in 2013 was due to lower specific reserves consistent with the drop in impaired loans, and a reduction in general reserves consistent with lower loan balances and improvement in asset quality. In addition to our allowance for loan and lease losses, a $269,000 allowance for potential losses inherent in unused commitments is included in other liabilities as of December 31, 2013.

43

The table that follows summarizes the activity in the allowance for loan and lease losses for the periods indicated:

Allowance for Loan and Lease Losses
(dollars in thousands)
	As of and for the years ended December 31,
	2013			2012			2011			2010			2009
Balances:
Average gross loans and leases outstanding     during period	$	804,533		$	789,333		$	767,901		$	851,292		$	926,326
Gross loans and leases held for investment	$	803,242		$	879,795		$	757,591		$	804,626		$	884,230
Allowance for Loan and Lease Losses:
Balance at beginning of period	$	13,873		$	17,283		$	21,138		$	23,715		$	15,094
Provision charged to expense		4,350			14,210			12,000			16,680			21,574
Charge-offs
Real Estate:
1-4 family residential construction		-			46			1,389			1,706			536
Other Construction/Land		625			1,994			1,807			4,579			2,599
1-4 Family - closed-end		454			1,763			795			1,400			1,649
Equity Lines		1,131			1,234			1,776			596			695
Multi-family residential		-			1,262			-			97			-
Commercial RE- owner occupied		933			2,117			1,306			946			26
Commercial RE - non-owner occupied		523			2,522			3,027			1,358			-
Farmland		539			170			496			27			-
TOTAL REAL ESTATE		4,205			11,108			10,596			10,709			5,505
Agricultural		473			634			-			-			524
Commercial and Industrial		1,268			3,517			3,407			4,998			3,508
Mortgage Warehouse Lines		-			-			-			-			-
Small Business Administration Loans		294			753			148			293			143
Direct Finance Leases		106			198			82			646			97
Consumer Loans		1,917			2,568			2,754			3,691			4,622
Consumer Credit Cards		-			-			-			-			5
Total		8,263			18,778			16,987			20,337			14,404
Recoveries
Real Estate:
1-4 family residential construction		-			7			133			25			270
Other Construction/Land		174			61			38			13			242
1-4 Family - closed-end		58			40			23			41			10
Equity Lines		118			21			4			41			2
Multi-family residential		36			-			-			-			-
Commercial RE- owner occupied		60			104			71			-			-
Commercial RE - non-owner occupied		172			12			148			-			-
Farmland		-			57			1			-			-
TOTAL REAL ESTATE		618			302			418			120			524
Agricultural		-			-			-			-			-
Commercial and Industrial		747			483			323			462			474
Mortgage Warehouse Lines		-			-			-			-			-
Small Business Administration Loans		37			95			71			63			75
Direct Finance Leases		18			-			57			159			103
Consumer Loans		297			276			263			274			262
Consumer Credit Cards		-			2			-			2			13
Total		1,717			1,158			1,132			1,080			1,451
Net loan charge offs (recoveries)		6,546			17,620			15,855			19,257			12,953
Balance	$	11,677		$	13,873		$	17,283		$	21,138		$	23,715
RATIOS
Net Loan and Lease Charge-offs to Average Loans and     Leases		0.81	%		2.23	%		2.06	%		2.26	%		1.40	%
Allowance for Loan and Lease Losses to     Gross Loans and Leases at End of Period		1.45	%		1.58	%		2.28	%		2.63	%		2.68	%
Allowance for Loan Losses to     Non-Performing Loans		31.21	%		26.13	%		30.80	%		46.00	%		50.49	%
Net Loan and Lease Charge-offs to Allowance     for Loan Losses at End of Period		56.06	%		127.01	%		91.74	%		91.10	%		54.62	%
Net Loan Charge-offs to     Provision for Loan and Lease Losses		150.48	%		124.00	%		132.13	%		115.45	%		60.04	%

44

As shown in the table immediately above, the Company’s provision for loan and lease losses was decreased by $9.860 million, or 69%, in 2013 relative to 2012. The dollar volume of net loan charge-offs also declined by $11.074 million, or 63%. Gross real estate loan charge-offs of $4.205 million in 2013 were partially comprised of write-downs on impaired collateral-dependent loans against previously-established specific reserves, and including those write-downs we have taken a cumulative total of $3.287 million in write-downs on collateral-dependent loans still on our books at December 31, 2013. Since our allowance for loan and lease losses is maintained at a level to cover probable losses on specifically identified loans as well as probable incurred losses in the remaining loan portfolio, any shortfall in the allowance created by loan charge-offs is covered by the end of each reporting period. Additional details on our provision for loan and lease losses and its relationship to actual charge-offs is contained above in the “Provision for Loan and Lease Losses” section.

Provided below is a summary of the allocation of the allowance for loan and lease losses for specific loan categories at the dates indicated. The allocation presented should not be viewed as an indication that charges to the allowance will be incurred in these amounts or proportions, or that the portion of the allowance allocated to a particular loan category represents the total amount available for charge-offs that may occur within that category.

Allocation of Allowance for Loan and Lease Losses

(dollars in thousands)

	As of December 31,
	2013				2012				2011					2010				2009
	Amount		%Total (1)  Loans		Amount		%Total (1)  Loans		Amount		%Total (1)  Loans		Amount		%Total (1)  Loans		Amount		%Total (1)  Loans
Agricultural	$	978	3.13	%	$	258	2.56	%	$	19	2.25	%	$	62	1.67	%	$	10	1.12	%
Commercial and    Industrial (2)		3,783	21.62	%		3,302	31.64	%		6,085	15.89	%		7,653	14.09	%		7,006	15.32	%
Real Estate		5,544	71.94	%		8,034	62.04	%		8,260	76.19	%		10,143	77.30	%		12,348	75.38	%
Consumer Loans		1,117	2.93	%		2,114	3.28	%		2,608	4.77	%		2,996	5.67	%		3,752	6.45	%
Direct Financing Leases		4	0.38	%		165	0.48	%		311	0.90	%		284	1.27	%		599	1.73	%
Unallocated		251	0.00	%		-	0.00	%		-	0.00	%		-	0.00	%		-	0.00	%
Total	$	11,677	100.00	%	$	13,873	100.00	%	$	17,283	100.00	%	$	21,138	100.00	%	$	23,715	100.00	%

⁽¹⁾ Represents percentage of loans in category to total loans

⁽²⁾ Includes Small Business Administration loans

The Company’s allowance for loan and lease losses at December 31, 2013 represents management’s best estimate of probable losses in the loan portfolio as of that date, but no assurance can be given that the Company will not experience substantial losses relative to the size of the allowance. Furthermore, fluctuations in credit quality, changes in economic conditions, updated accounting or regulatory requirements, and/or other factors could induce us to augment or reduce the allowance. For example, in December 2012 the FASB issued a proposed accounting standards update on “Financial Instruments–Credit Losses,” with the goal of eliminating the overstatement of assets caused by a delayed recognition of credit losses associated with loans (and other financial instruments). Final standards have not yet been issued and no effective date for the guidance has been suggested. However, if ultimately implemented as proposed, the guidance would require us to modify the methodology we use to determine our allowance for loan and lease losses from the current “incurred loss” model to a new “expected credit loss” model that considers more forward-looking information. That change could potentially necessitate the enhancement of our allowance for loan and lease losses, which would negatively impact our profitability if our loan loss provision needs to be increased.

Investments

The Company’s investments consist of debt and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in our Federal Reserve Bank account, and overnight fed funds sold. Surplus FRB balances and fed funds sold to correspondent banks represent the investment of temporary excess liquidity. The Company’s investments serve several purposes: 1) they provide liquidity to even out cash flows from the loan and deposit activities of customers; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with maturity and interest rate characteristics that can be changed more readily than the loan portfolio, to better match changes in the deposit base and other funding sources of the Company; 4) they are an alternative interest-earning use of funds when loan demand is light; and 5) they can provide partially tax exempt income. Aggregate investments totaled $452 million, or 32% of total assets at December 31, 2013, compared to $400 million, or 28% of total assets at December 31, 2012.

45

We had no fed funds sold at December 31, 2013 or 2012. Interest-bearing balances held at other banks, consisting primarily of excess balance sheet liquidity placed in our Federal Reserve Bank account, totaled $27 million at December 31, 2013 and $20 million at December 31, 2012. The book balance of our investment portfolio was $425 million at December 31, 2013 relative to $380 million at December 31, 2012. The Company carries investments on its books at their fair market values. Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.

The following Investment Portfolio table reflects the amortized cost and fair market values for each primary category of investments for the past three years.

Investment Portfolio-Available for Sale

(dollars in thousands)

	As of December 31,
	2013				2012				2011
	Amortized  Cost		Fair Market  Value		Amortized Cost		Fair Market Value		Amortized  Cost		Fair Market Value
US Government Agencies	$	5,395	$	5,304	$	2,987	$	2,973	$	2,008	$	2,026
Mortgage-backed securities		320,223		320,721		298,806		301,389		328,751		331,758
State and political subdivisions		97,361		96,563		70,736		73,986		67,851		71,340
Equity securities		1,336		2,456		1,336		1,840		1,336		1,347
Total investment securities	$	424,315	$	425,044	$	373,865	$	380,188	$	399,946	$	406,471

The net unrealized gain on our investment portfolio, or the difference between the fair market value and amortized cost, was $729,000 at December 31, 2013, down from a net unrealized gain of $6.323 million at December 31, 2012 due to lower market values resulting from an increase in longer-term interest rates in 2013. The rate increase had a sizeable negative impact on the carrying values of our mortgage-backed securities and municipal bonds, in particular. The value of U.S. Government agency securities increased by $2 million, or 78%, during 2013, due to new bonds purchased primarily for pledging purposes. Mortgage-backed securities increased by $19 million, or 6%, since bond purchases exceeded prepayments and the drop in market value. New purchases also pushed the balance of municipal bonds up by $23 million, or 31%, despite their declining market value, as the Company has taken advantage of relative value in that sector. It should be noted that all newly purchased municipal bonds have strong underlying ratings, and all municipal bonds in our portfolio are evaluated quarterly for potential impairment. No equity securities were bought or sold during 2013, although the market value of our equity securities increased by $616,000, or 33%, as a result of higher stock prices.

Investment securities pledged as collateral for FHLB borrowings, repurchase agreements, public deposits and for other purposes as required or permitted by law totaled $164 million at December 31, 2013 and $179 million at December 31, 2012, leaving $258 million in unpledged debt securities at December 31, 2013 and $200 million at December 31, 2012. Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if necessary, totaled $67 million at December 31, 2013 and $79 million at December 31, 2012.

The investment maturities table below summarizes contractual maturities for the Company’s investment securities and their weighted average yields at December 31, 2013. The actual timing of principal payments may differ from remaining contractual maturities, because obligors may have the right to prepay certain obligations.

46

Maturity and Yield of Available for Sale Investment Portfolio

(dollars in thousands)

	December 31, 2013
	Within One Year				After One But Within  Five Years				After Five Years  But Within Ten Years				After Ten Years				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
US Government agencies	$	-	-		$	3,391	2.05	%	$	1,913	1.14	%	$	-	-		$	5,304	1.72	%
Mortgage-backed securities		5,314	1.92	%		291,251	2.08	%		24,156	2.47	%		-	-			320,721	2.11	%
State and political subdivisions		2,316	5.73	%		13,178	5.74	%		33,332	5.23	%		47,737	4.10	%		96,563	4.75	%
Other equity securities		-	-			-	-			-	-			2,456	32.53	%		2,456	32.53	%
Total Investment Securities	$	7,630			$	307,820			$	59,401			$	50,193			$	425,044

Cash and Due from Banks

Cash on hand and non-interest bearing balances due from correspondent banks totaled $51 million at the end of 2013 and $42 million at the end of 2012, comprising 4% of total assets at December 31, 2013 and 3% at December 31, 2012. The actual balance of cash and due from banks at any given time depends on the timing of collection of outstanding cash items (checks), among other things, and is subject to significant fluctuation in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to and borrowings from correspondent banks, including the Federal Reserve Bank and the Federal Home Loan Bank. Should a large “short” overnight position persist for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits. If a “long” position is prevalent, the Company will let brokered deposits or other wholesale borrowings roll off as they mature, or might invest excess liquidity in higher-yielding, longer-term bonds.

Because of frequent balance fluctuations, a more accurate gauge of cash management efficiency is the average balance for the period. Our $38 million average for non-earning cash and due from banks in 2013 was slightly higher than the $37 million average for 2012, due in part to extra cash kept on hand to accommodate greater day-to-day cash fluctuations.

Premises and Equipment

Premises and equipment are stated on our books at cost, less accumulated depreciation and amortization. The cost of furniture and equipment is expensed as depreciation over the estimated useful life of the related assets, and leasehold improvements are amortized over the term of the related lease or the estimated useful life of the improvements, whichever is shorter. The following premises and equipment table reflects the original cost, accumulated depreciation and amortization, and net book value of fixed assets by major category, for the years noted:

Premises and Equipment

(dollars in thousands)

	As of December 31,
	2013						2012						2011
	Cost		Accumulated  Depreciation  and  Ammortization		Net Book  Value		Cost		Accumulated  Depreciation  and  Ammortization		Net Book  Value		Cost		Accumulated  Depreciation  and  Ammortization		Net Book  Value
Land	$	2,607	$	-	$	2,607	$	2,607	$	-	$	2,607	$	2,607	$	-	$	2,607
Buildings		15,818		7,689		8,129		15,720		7,259		8,461		16,662		6,843		9,819
Leasehold improvements		10,536		4,226		6,310		10,496		3,652		6,844		8,723		3,066		5,657
Construction in progress		5		-		5		4		-		4		12		-		12
Furniture and equipment		17,829		14,487		3,342		20,476		16,562		3,914		22,092		19,466		2,626
Total	$	46,795	$	26,402	$	20,393	$	49,303	$	27,473	$	21,830	$	50,096	$	29,375	$	20,721

47

 

Net premises and equipment decreased by $1.4 million, or 7%, in 2013, due mainly to an increase in accumulated depreciation; no material capital expenditures were made in 2013. The net book value of the Company’s aggregate premises and equipment was 1.4% of total assets at December 31, 2013, and 1.5% at December 31, 2012. Depreciation and amortization included in occupancy and equipment expense was $2.1 million for the year ended December 31, 2013, as compared to $2.3 million in 2012. Depreciation on equipment leased to others is reflected in other operating costs.

Other Assets

The Company’s goodwill, shown as a separate line item on the balance sheet, totaled $5.5 million at December 31, 2013 and 2012. It consists solely of goodwill that was generated in connection with our acquisition of Sierra National Bank in 2000. The Company’s goodwill is evaluated annually for potential impairment. Because the estimated fair value of the Company exceeded its book value (including goodwill) as of the measurement date and no impairment was indicated, no further testing was deemed necessary and it was determined that goodwill is not impaired.

The line item for “other assets” on the Company’s balance sheet totaled $79.9 million at December 31, 2013, relative to $81.5 million at December 31, 2012. At year-end 2013, other assets included as its largest components $39.4 million in bank-owned life insurance (see discussion of BOLI in “Non-Interest Revenue and Operating Expense” section above), a $7.7 million investment in low-income housing tax credit funds, a $5.9 million investment in restricted stock, a $1.5 million investment in a small business investment corporation, a net deferred tax asset of $12.3 million, current prepaid income taxes totaling $2.8 million, and accrued interest receivable totaling $5.0 million. Restricted stock is comprised primarily of Federal Home Loan Bank of San Francisco (FHLB) stock held in conjunction with our FHLB borrowings, and is not deemed to be marketable or liquid. Our net deferred tax asset is evaluated as of every reporting date pursuant to FASB guidance, and we have determined that no impairment exists.

Deposits

Another key balance sheet component impacting the Company’s net interest margin is our deposits. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity deposits, which include demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates paid on deposits by deposit type for the past three fiscal years is contained in the Distribution, Rate, and Yield table located in the previous section under Results of Operations–Net Interest Income and Net Interest Margin. A distribution of the Company’s deposits at December 31^st for each year from 2009 through 2013, showing the balance and percentage of total deposits by type, is presented in the following table:

48

Deposit Distribution

(dollars in thousands)

	Year Ended December 31,
	2013			2012			2011			2010			2009
Interest Bearing Demand Deposits	$	82,408		$	84,655		$	68,777		$	-		$	-
Non-interest Bearing Demand Deposits		365,997			352,597			300,045			251,908			233,204
NOW		200,313			196,771			187,155			184,360			151,821
Savings		144,162			118,547			91,376			74,682			62,279
Money Market		73,132			71,222			76,396			156,170			165,097
CDAR's < $100,000		437			791			943			1,614			12,937
CDAR's ≥ $100,000		12,919			14,274			17,119			31,652			129,194
Customer Time deposit < $100,000		79,261			101,893			106,610			164,223			147,390
Customer Time deposits ≥ $100,000		205,550			218,284			222,847			187,665			195,510
Brokered Deposits		10,000			15,000			15,000			-			28,000
Total Deposits	$	1,174,179		$	1,174,034		$	1,086,268		$	1,052,274		$	1,125,432
Percentage of Total Deposits
Interest Bearing Demand Deposits		7.02	%		7.21	%		6.33	%		0.00	%		0.00	%
Non-interest Bearing Demand Deposits		31.17	%		30.03	%		27.62	%		23.94	%		20.72	%
NOW		17.05	%		16.76	%		17.23	%		17.52	%		13.49	%
Savings		12.28	%		10.10	%		8.41	%		7.10	%		5.53	%
Money Market		6.23	%		6.07	%		7.03	%		14.84	%		14.67	%
CDAR's < $100,000		0.04	%		0.07	%		0.09	%		0.15	%		1.15	%
CDAR's ≥ $100,000		1.10	%		1.22	%		1.58	%		3.01	%		11.48	%
Customer Time deposit < $100,000		6.75	%		8.68	%		9.81	%		15.61	%		13.10	%
Customer Time deposits ≥ $100,000		17.51	%		18.58	%		20.52	%		17.83	%		17.37	%
Brokered Deposits		0.85	%		1.28	%		1.38	%		0.00	%		2.49	%
Total		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%

Furthermore, the scheduled maturity distribution of the Company’s time deposits at the end of 2013 was as follows:

Deposit Maturity Distribution
(dollars in thousands)	As of December 31, 2013
	Three months or less		Three to six months		Six to twelve months		One to three years		Over three years		Total
CDAR's	$	10,043	$	1,347	$	1,966	$	-	$	-	$	13,356
Time Certificates of Deposit < $100,000		52,562		15,361		12,287		7,693		1,358		89,261
Other Time Deposits ≥ $100,000		164,661		21,810		16,932		1,763		384		205,550
Total	$	227,266	$	38,518	$	31,185	$	9,456	$	1,742	$	308,167

Total deposit balances reflect the same total at December 31, 2013 as at December 31, 2012 despite fairly significant changes in the composition of those deposits.Our deposit mix improved during the year due to growth in core non-maturity deposits, which were up $42 million, or 5%, and increased to 74% of total deposits at the end of 2013 from 70% at the end of 2012.Savings deposits grew by $26 million, or 22%, non-interest bearing demand deposits increased $13 million, or 4%, NOW account balances increased $4 million, or 2%, and money market balances were also up $2 million, or 3%.The only non-maturity deposit category to show a drop for the year is interest-bearing demand deposits, which were down $2 million, or 3%.Management is of the opinion that a relatively high level of core non-maturity deposits is one of the Company’s key strengths and we continue to focus energy toward deposit account retention and growth, although no assurance can be provided with regard to growth or runoff potential.

49

The balance of customer time deposits under $100,000 fell by $23 million, or 22%, during 2013, due mainly to the non-renewal of time deposits under the management of our Treasury Department, and customer time deposits over $100,000 also declined by $13 million, or 6%. CDAR’s deposits, which also represent time deposits that are primarily sourced from customers in our market areas, were down $2 million, or 11%, for the year, and the outstanding balance of wholesale-sourced brokered deposits was reduced by $5 million.

Other Borrowings

The Company’s non-deposit borrowings may, at any given time, include any combination of overnight borrowings from other banks (fed funds purchased), borrowings from the Federal Home Loan Bank, advances from the Federal Reserve Bank, securities sold under agreement to repurchase, and junior subordinated debentures. The Company uses short-term FHLB advances and fed funds purchased on uncommitted lines from correspondent banks to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line is committed, but the amount of available credit is dependent on the level of pledged collateral.

We reduced aggregate non-deposit borrowings by $37 million, or 50%, in 2013, through the maturity of $5 million in longer-term FHLB advances and the elimination of $37 million in overnight FHLB borrowings, partially offset by a $5 million increase in repurchase agreement balances.Repurchase agreements, which totaled close to $6 million at December 31, 2013, represent “sweep accounts” where commercial deposit balances above a specified threshold are transferred at the close of each business day into non-deposit accounts secured by investment securities.We had no fed funds purchased on our books at December 31, 2013 or December 31, 2012.The Company had junior subordinated debentures totaling $31 million at December 31, 2013 and December 31, 2012, which represents long-term borrowings from trust subsidiaries formed specifically to issue trust preferred securities.

The details of the Company’s short-term borrowings for the years 2013, 2012, and 2011 are presented in the table below:

Short-term Borrowings
(dollars in thousands)	Year Ended December 31,
	2013			2012			2011
Repurchase Agreements
Balance at December 31	$	5,974		$	1,419		$	3,037
Average amount outstanding		2,876			3,441			2,371
Maximum amount outstanding at any month end		5,974			7,630			5,789
Average interest rate for the year		0.45	%		0.61	%		0.67	%
Fed funds purchased
Balance at December 31	$	-		$	-		$	-
Average amount outstanding		2			-			4
Maximum amount outstanding at any month end		-			-			35
Average interest rate for the year		N/A			N/A			0.19	%
FHLB advances
Balance at December 31	$	-		$	36,650		$	17,120
Average amount outstanding		3,497			15,234			5,637
Maximum amount outstanding at any month end		58,500			66,520			33,000
Average interest rate for the year		0.17	%		0.24	%		0.69	%

 

50

Capital Resources

At December 31, 2013, the Company had total shareholders’ equity of $181.7 million, comprised of common stock, additional paid-in capital, retained earnings, and accumulated other comprehensive income. Total shareholders’ equity at the end of 2012 was $173.9 million. The $7.8 million increase in shareholders’ equity during 2013 was due in large part to an increase in retained earnings resulting from the addition of $13.4 million in net earnings less $3.7 million in dividends paid. The increase in retained earnings was partially offset by a $3.3 million drop in accumulated other comprehensive income, which represents the decline in the unrealized gain on our investment securities net of the tax effect. The changes in common stock and additional paid-in capital are related to the exercise of stock options and the expensing of unvested options.

The Company uses a variety of measures to evaluate its capital adequacy, including risk-based capital and leverage ratios that are calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to help ensure that they meet or surpass established internal and external guidelines. The following table sets forth the Company’s and the Bank’s regulatory capital ratios as of the dates indicated.

	December 31, 2013		December 31, 2012
Sierra Bancorp
Total Capital to Total Risk-weighted Assets	21.67	%	19.36	%
Tier 1 Capital to Total Risk-weighted Assets	20.39	%	18.11	%
Tier 1 Leverage Ratio	14.37	%	13.34	%
Bank of the Sierra
Total Capital to Total Risk-weighted Assets	21.35	%	19.14	%
Tier 1 Capital to Total Risk-weighted Assets	20.11	%	17.88	%
Tier 1 Leverage Ratio	14.18	%	13.17	%

As of the end of 2013, 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 (FDICIA) 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 simulate our ability to meet liquidity needs under adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis, and while those ratios are merely indicators and are not measures of actual liquidity, they are monitored closely 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 against FHLB lines of credit, or solicit brokered deposits if deposits are not immediately obtainable from local sources. Availability on lines of credit from correspondent banks, including the FHLB, totaled $212 million at December 31, 2013, which is net of any outstanding borrowings and/or FHLB letters of credit. An additional $194 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 $51 million at the Federal Reserve Discount Window, if necessary, based on pledged assets at December 31, 2013. 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, 2013, unpledged debt securities, plus pledged securities in excess of current pledging requirements, comprised $325 million of the Company’s investment portfolio balances, up from $279 million at December 31, 2012. 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 specific loans that are pledged to the FHLB by the Company, totaled $78 million at December 31, 2013. 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.

51

The Company’s net loans to assets and available investments to assets ratios were 56% and 23%, respectively, at December 31, 2013, 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 funding to total assets (including ratios and sub-limits for the various components comprising wholesale funding), which were well within policy guidelines at December 31, 2013. Strong growth in core deposits and relatively high levels of potentially liquid investments have had a positive impact on our liquidity position in recent periods, although no assurance can be provided that our liquidity will continue at current robust levels.

Interest Rate Risk Management

Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios. To identify areas of potential exposure to interest rate changes, we perform an earnings simulation analysis on a monthly basis and calculate our market value of portfolio equity under varying interest rate scenarios at least once every quarter.

We use commercially-available modeling software to simulate the effects of potential interest rate changes on our net interest income. The model imports relevant information for financial instruments on our balance sheet and incorporates management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios, consisting of key rate and yield curve projections, are then applied in order to calculate the expected effect of a given interest rate change on projected interest income and interest expense. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).

We use eight standard interest rate scenarios in conducting our simulations: “stable,” upward shocks of 100, 200, 300 and 400 basis points, and downward shocks of 100, 200, and 300 basis points. Pursuant to policy guidelines, we typically attempt to limit the projected 12-month decline in net interest income relative to the stable rate scenario to no more than 5% for a 100 basis point (b.p.) shock, 10% for a 200 b.p. shock, 15% for a 300 b.p. shock, and 20% for a 400 b.p. shock in interest rates. As of December 31, 2013 the Company had the following estimated net interest income sensitivity profile, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:

Immediate Change in Rate
	-300 b.p.			-200 b.p.			-100 b.p.			+100 b.p.			+200 b.p.			+300 b.p.			+400 b.p.
Change in Net Int. Inc.      (in $000’s)	$	-16,995		$	-11,660		$	-5,582		$	+2,091		$	+3,592		$	+4,808		$	+5,507
% Change		-34.75	%		-23.84	%		-11.41	%		+4.28	%		+7.35	%		+9.83	%		+11.26	%

Our current simulations indicate that the Company has an asset-sensitive profile, meaning that net interest income increases in rising interest rate scenarios but a drop in interest rates could have a negative impact. We have seen this profile steepen over the past couple of years as the Company has benefited from an increasing proportion of lower-cost non-maturity deposits, but that steepening has been partially counteracted in recent periods by a disproportionate increase in fixed-rate assets.

52

If there were an immediate and sustained downward adjustment of 100 basis points in interest rates, all else being equal, net interest income over the next twelve months would likely be around $5.582 million lower than in a stable interest rate scenario, a negative variance of 11.41%. The unfavorable variance increases when rates drop 200 or 300 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while some variable-rate loan yields continue to drop. This effect is exacerbated by the fact that prepayments on fixed-rate loans and mortgage-backed securities tend to increase as rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures. While we view declining interest rates as highly unlikely, the potential percentage reduction in net interest income exceeds our internal policy guidelines in declining interest rate scenarios and we will continue to monitor our interest rate risk profile and take corrective action as deemed appropriate.

Net interest income would likely improve by $2.091 million, or 4.28%, if interest rates were to increase by 100 basis points relative to a stable interest rate scenario, with the favorable variance expanding the higher interest rates rise. The initial increase in rising rate scenarios will likely be limited to some extent by the fact that many of our variable-rate loans are currently at rate floors and there will be a re-pricing lag while variable rates are increasing to floored levels, but the Company still appears to be well-positioned to benefit from the eventuality of an upward shift in the yield curve.

The economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed. This variance is essentially a gauge of longer-term exposure to interest rate risk that is measured by modeling changes in the Company’s economic value of equity (EVE), which is derived by subtracting the projected fair value of liabilities from the fair value of assets. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at projected replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios. An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change substantially over time as the characteristics of the Company’s balance sheet evolve and as interest rate and yield curve assumptions are updated.

The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and management’s best estimates. We have found that model results are highly sensitive to changes in assumed decay rates for non-maturity deposits, in particular. The table below shows estimated changes in the Company’s EVE as of December 31, 2013, under different interest rate scenarios relative to a base case of current interest rates:

Immediate Change in Rate
	-300 b.p.			-200 b.p.			-100 b.p.			+100 b.p.			+200 b.p.			+300 b.p.
Change in EVE (in $000’s)	$	-65,906		$	-79,122		$	-34,115		$	+41,268		$	+59,196		$	+71,323
% Change		-19.45	%		-23.34	%		-10.07	%		+12.18	%		+17.47	%		+21.04	%

The table shows that our EVE will generally deteriorate in declining rate scenarios but will benefit from rising rates. While still negative relative to the base case, we see a favorable swing in EVE as interest rates drop more than 200 basis points. This is due to the relative durations of our fixed-rate assets and fixed-rate liabilities, combined with the optionality inherent in our balance sheet. As noted previously, however, management is of the opinion that the probability of a significant rate decline is low.

53

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The information concerning quantitative and qualitative disclosures of market risk called for by Item 305 of Regulation S-K is included as part of Item 7 above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management”.

Item 8. Financial Statements and Supplementary Data

The following financial statements and independent auditors’ reports listed below are included herein:

		Page
I.	Independent Auditor’s Report from Vavrinek, Trine, Day & Co., LLP	55
II.	Consolidated Balance Sheets – December 31, 2013 and 2012	56
III.	Consolidated Statements of Income – Years Ended
	December 31, 2013, 2012, and 2011	57
IV.	Consolidated Statements of Comprehensive Income – Years Ended
	December 31, 2013, 2012, and 2011	58
V.	Consolidated Statements of Changes in Shareholders’ Equity – Years Ended
	December 31, 2013, 2012, and 2011	59
VI.	Consolidated Statements of Cash Flows – Years Ended
	December 31, 2013, 2012, and 2011	60
VII.	Notes to Consolidated Financial Statements	61

54

Report of Independent Registered Public Accounting Firm

Board of Directors

Sierra Bancorp and Subsidiary

Porterville, California

We have audited the accompanying consolidated balance sheets of Sierra Bancorp and Subsidiary (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sierra Bancorp and Subsidiary as of December 31, 2013 and 2012, and the results of its operations, changes in its shareholders' equity, and its cash flows for each of the years in the three year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2014 expressed an unqualified opinion thereon.

/s/ Vavrinek, Trine, Day & Co., LLP

Rancho Cucamonga, California

March 13, 2014

55

SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 2013 and 2012

(dollars in thousands)

	2013			2012
ASSETS
Cash and due from banks	$	51,342	$	42,079
Interest-bearing deposits in banks		26,664		19,739
Cash and cash equivalents		78,006		61,818
Investment securities available-for-sale		425,044		380,188
Loans held-for-sale		105		210
Loans and leases:
Gross loans and leases		803,242		879,795
Allowance for loan and lease losses		(11,677)		(13,873)
Deferred loan and lease fees, net		1,522		1,156
Net Loans and Leases		793,087		867,078
Premises and equipment, net		20,393		21,830
Operating leases, net		-		12
Foreclosed assets		8,185		19,754
Goodwill		5,544		5,544
Other assets		79,885		81,469
Total Assets	$	1,410,249	$	1,437,903
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing	$	365,997	$	352,597
Interest bearing		808,182		821,437
Total Deposits		1,174,179		1,174,034
Federal funds purchased and repurchase agreements		5,974		1,419
Short-term borrowings		-		36,650
Long-term borrowings		-		5,000
Subordinated debentures		30,928		30,928
Other liabilities		17,494		15,980
Total liabilities		1,228,575		1,264,011
Commitments and contingencies (Note 11)
Shareholders' equity
Serial Preferred stock, no par value; 10,000,000 shares authorized; none issued
Common stock, no par value; 24,000,000 shares authorized; 14,217,199 and 14,106,959     shares issued and outstanding in 2013 and 2012 resectively		65,780		64,384
Additional paid in capital		2,648		2,660
Retained earnings		112,817		103,128
Accumulated other comprehensive income, net of taxes of $300 in 2013 and $2,602 in     2012		429		3,720
Total shareholders' equity		181,674		173,892
Total liabilities and shareholders' equity	$	1,410,249	$	1,437,903

The accompanying notes are an integral part of these consolidated financial statements.

56

 

SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands, except per share data)

		2013		2012		2011
Interest income:
Interest and fees on loans and leases	$	44,030	$	45,765	$	46,959
Interest on investment securities:
Taxable		4,916		6,364		8,753
Exempt from federal tax		2,737		2,703		2,834
Interest on Federal funds sold and interest-bearing deposits		102		70		68
Total interest income		51,785		54,902		58,614
Interest expense:
Interest on deposits		2,455		3,208		4,305
Interest on short-term borrowings		19		58		55
Interest on long-term borrowings		33		281		569
Interest on subordinated debentures		714		774		728
Total interest expense		3,221		4,321		5,657
Net Interest Income		48,564		50,581		52,957
Provision for loan and lease losses		4,350		14,210		12,000
Net Interest Income after Provision for Loan and lease losses		44,214		36,371		40,957
Non-interest revenue:
Service charges on deposit accounts		9,022		9,676		9,543
Gain on sale of loans		129		183		139
Credit card fees		462		390		411
Checkcard fees		3,749		2,787		2,519
Gains on sales and calls of investment securities available-for-sale		6		1,762		1,660
Other-than-temporary impairment losses on equity securities		-		-		(1,370)
Increase in cash surrender value of life insurance		1,787		1,420		934
Other income		1,908		1,908		1,156
Total non-interest revenue		17,063		18,126		14,992
Other operating expense:
Salaries and employee benefits		21,920		20,734		20,669
Occupancy and equipment expense		6,274		6,381		6,758
Other		16,621		19,541		20,178
Total non-interest expense		44,815		46,656		47,605
Income before income taxes		16,462		7,841		8,344
Provision for income taxes		3,093		(344)		564
Net Income	$	13,369	$	8,185	$	7,780
Earnings per share:
Basic	$	0.94	$	0.58	$	0.55
Diluted	$	0.94	$	0.58	$	0.55

The accompanying notes are an integral part of these consolidated financial statements.

57

 

SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands)

	2013		2012		2011
Net (loss) income	$	13,369	$	8,185	$	7,780
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding (losses) gains arising during period		(5,588)		1,560		5,266
Less: reclassification adjustment for gains included in net income		(6)		(1,762)		(1,660)
Plus: reclassification adjustment or other-than-temporary impairment          losses (credit portion)		-		-		1,370
Other comprehensive (loss) income, before tax		(5,594)		(202)		4,976
Income tax benefit (expense) related to items of other comprehensive     income, net of tax		2,303		74		(2,026)
Other comprehensive (loss) income		(3,291)		(128)		2,950
Comprehensive income	$	10,078	$	8,057	$	10,730

The accompanying notes are an integral part of these consolidated financial statements.

58

 

SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Years Ended December 31, 2013

(dollars in thousands, except per share data)

				Additional				Accumulated Other
	Common Stock			Paid In		Retained		Comprehensive		Shareholders'
	Shares	Amount		Capital		Earnings		Income		Equity
Balance, January 1, 2011	13,976,741	$	63,477	$	1,652	$	93,570	$	898	$	159,597
Net Income							7,780				7,780
Net change in unrealized gain on     investment securities available- for-     sale, net of tax									2,950		2,950
Reversal of Cumulative effect of     change in accounting principle     (EITF 06-4)							191				191
Issuance of Common stock			(23)								(23)
Exercise of stock options and related     tax benefit	124,868		867		109						976
Stock compensation costs					460						460
Cash dividends - $.24 per share							(3,367)				(3,367)
Balance, December 31, 2011	14,101,609		64,321		2,221		98,174		3,848		168,564
Net Income							8,185				8,185
Net change in unrealized gain on     investment securities available- for-     sale, net of tax									(128)		(128)
Reversal of Cumulative effect of     change in accounting principle     (EITF 06-4)							154				154
Exercise of stock options and related     tax benefit	5,350		63		(48)						15
Stock compensation costs					487						487
Cash dividends - $.24 per share							(3,385)				(3,385)
Balance, December 31, 2012	14,106,959		64,384		2,660		103,128		3,720		173,892
Net Income							13,369				13,369
Net change in unrealized gain on     investment securities available- for-     sale, net of tax									(3,291)		(3,291)
Exercise of stock options and related     tax benefit	110,240		1,396		(280)						1,116
Stock compensation costs					268						268
Cash dividends - $.26 per share							(3,680)				(3,680)
Balance, December 31, 2013	14,217,199	$	65,780	$	2,648	$	112,817	$	429	$	181,674

The accompanying notes are an integral part of these consolidated financial statements

59

 

SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2013, 2012, and 2011

(dollars in thousands)

	2013		2012		2011
Cash flows from operating activities:
Net income	$	13,369	$	8,185	$	7,780
Adjustments to reconcile net income to net cash provided by operating     activities:
Gain on investment of securities		(6)	$	(1,762)	$	(1,660)
Other-than-temporary impairment loss		-		-		1,370
Gain on sales of loans		(129)		(183)		(139)
(Gain) loss on disposal of fixed assets		(15)		30		25
Loss on sale of foreclosed assets		223		864		451
Writedown of foreclosed assets		730		3,173		4,184
Share-based compensation expense		268		487		460
Provision for loan losses		4,350		14,210		12,000
Depreciation and amortization		2,131		2,437		2,695
Net amortization on securities premiums and discounts		8,177		8,500		5,874
Decrease (increase) in unearned net loan fees		366		(535)		(509)
Increase in cash surrender value of life insurance policies		(1,417)		(350)		(934)
Proceeds from sales of loans		5,459		8,191		7,210
Originations of Loans Held For Sale		(5,225)		(6,864)		(7,511)
Decrease in interest receivable and other assets		2,225		610		2,354
Increase in other liabilities		1,514		1,646		666
Net decrease in FHLB stock, at cost		438		670		1,321
Deferred income tax provision (benefit)		2,360		(564)		(881)
Excess tax benefit from equity based compensation		(280)		(48)		(109)
Net cash provided by operating activities		34,538		38,697		34,647
Cash flows from investing activities:
Maturities of securities available for sale		1,724		1,120		7,107
Proceeds from sales/calls of securities available for sale		4,135		63,776		46,872
Purchases of securities available for sale		(160,251)		(150,305)		(205,500)
Principal paydowns on securities available for sale		95,772		104,752		76,171
Decrease (increase) in loans receivable, net		64,868		(163,789)		24,661
Purchases of premises and equipment, net		(667)		(3,411)		(2,734)
Proceeds from sales of foreclosed assets		15,023		15,538		7,212
Purchase of bank owned life insurance		-		-		(5,132)
Net cash provided by (used in) investing activities		20,604		(132,319)		(51,343)
Cash flows from financing activities:
Increase in deposits		145		87,766		33,994
(Decrease) increase in borrowed funds		(41,650)		9,530		2,470
Increase (decrease) in Repurchase Agreements		4,555		(1,618)		3,037
Cash dividends paid		(3,680)		(3,385)		(3,367)
Issuance of Common Stock		-		-		(23)
Stock options exercised		1,396		63		867
Excess tax provision from equity based compensation		280		48		109
Net cash (used in) provided by financing activities		(38,954)		92,404		37,087
Increase (decrease) in cash and due from banks		16,188		(1,218)		20,391
Cash and cash equivalents, beginning of year		61,818		63,036		42,645
Cash and cash equivalents, end of year	$	78,006	$	61,818	$	63,036
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	3,340	$	4,531	$	5,492
Income taxes	$	-	$	-	$	1,643
Non-cash investing activities
Real estate acquired through foreclosure	$	4,990	$	23,965	$	6,520
Change in unrealized net (losses) gains on
Investment securities available-for-sale	$	(5,594)	$	(202)	$	4,976

The accompanying notes are an integral part of these consolidated financial statements

60

       

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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-five 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.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 2013.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.These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from these estimates.

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 Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold, and interest bearing deposits in banks.

61

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment Securities

Investments are classified into the following categories:

· Securities available-for-sale, reported at fair value, with unrealized gains and losses excluded from earnings and reflected, net of tax, as a separate component of shareholders’ equity in accumulated other comprehensive income.

· Securities held-to-maturity, which the Company has the intent and has the ability to hold to maturity, are carried at cost, adjusted for amortization of premiums and the accretion of discounts.

Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances.All transfers between categories are accounted for at fair value. Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are currently classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. Potential credit impairment is also a consideration. If it is determined that OTTI exists on a security, the entire difference between amortized cost and fair value is recognized as a charge through earnings. 

Loans and Leases (Financing Receivables)

Our credit quality classifications of Loans and Leases include Pass, Special Mention, Substandard and Impaired. These classifications are defined in Note 4 (Loans and Leases) to our consolidated financial statements.

Loans and leases are reported at the principal amounts outstanding, adjusted for unearned income, deferred loan origination fees and costs, purchase premiums and discounts, write-downs, and the allowance for loan and lease losses.Loan and lease origination fees, net of certain deferred origination costs, and purchase premiums and discounts are recognized as an adjustment to yield of the related loans and leases over the contractual life of the loan using both the effective interest and straight line methods.

Interest income for all performing loans, regardless of classification (Pass, Special Mention, Substandard and Impaired), is recognized on an accrual basis, with interest accrued daily. Costs associated with successful loan originations are netted from loan origination fees, with the net amount (net deferred loan fees) amortized over the contractual life of the loan in interest income. If a loan has scheduled periodic payments, the amortization of the net deferred loan fee is calculated using the effective interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight line basis over the contractual life of the loan. Fees received for loan commitments are recognized as interest income over the term of the commitment. When loans are repaid, any remaining unamortized balances of deferred fees and costs are accounted for through interest income.

62

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Generally, the Company places a loans or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process. When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed. For loans with an interest reserve, i.e., where loan proceeds are advanced to the borrower to make interest payments, all interest recognized from the inception of the loan is reversed when the loan is placed on non-accrual. Once a loan is on non-accrual status subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. Generally, loans and leases are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Impaired loans are classified as either nonaccrual or accrual, depending on individual circumstances regarding the collectability of interest and principal according to the contractual terms.

Loans Modified in a Troubled Debt Restructuring

Loans are considered to have been modified in a troubled debt restructuring (“TDR”) when due to a borrower’s financial difficulties the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status. TDRs may be removed from TDR designation in the calendar year following the restructuring, if the loan is in compliance with all modified terms and is yielding a market rate of interest.

A TDR is generally considered to be in default when it appears likely that the customer will not be able to repay all principal and interest pursuant to the terms of the restructured agreement.

63

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan and Lease Losses 

The allowance for loan and lease losses is maintained at a level which, in management’s judgment, is adequate to absorb loan and lease losses inherent in the loan and lease portfolio.The allowance for loan and lease losses is increased by a provision for loan and lease losses, which is charged to expense, and reduced by principal charge-offs, net of recoveries.The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, changes in its risk profile, credit concentrations, historical trends, and economic conditions.This evaluation also considers the balance of impaired loans and leases.A loan or lease is impaired when it is probable that the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan or lease agreement.The impairment on certain individually identified loans or leases is measured based on the present value of expected future cash flows discounted at the original effective interest rate of the loan or lease. As a practical expedient, impairment may be measured based on the loan’s or lease’s observable market price or the fair value of collateral if the loan or lease is collateral dependent.The amount of impairment, if any, is recorded through the provision for loan and lease losses and is added to the allowance for loan and lease losses, with any changes over time recognized as additional bad debt expense in our provision for loan losses. Impaired loans with homogenous characteristics, such as one-to-four family residential mortgages and consumer installment loans, may be subjected to a collective evaluation for impairment, considering delinquency and repossession statistics, historical loss experience, and other factors.

General reserves cover non-impaired loans and are based on historical net loss rates for each portfolio segment by call report code, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience.Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in international, national, regional, and local economic and business conditions and developments; changes in nature and volume of the portfolio; changes in the experience, ability and depth of lending management and staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in quality of the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit; and the effect of the other external factors such as competition and legal and regulatory requirements.

Most of the Company’s business activity is with customers located within the South Central Valley of California, therefore the Company’s exposure to credit risk is significantly affected by changes in the economy in that region. The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for loan losses. Portfolio segments identified by the Company include Direct Financing leases, Agricultural, Commercial and Industrial, Real Estate, Small Business Administration, and Consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer related loans; and credit scores, debt-to-income ratios, collateral type and loan-to-value ratios for consumer related loans.

Though management believes the allowance for loan and lease losses to be adequate, ultimate losses may vary from their estimates.However, estimates are reviewed periodically, and as adjustments become necessary they are reported in earnings during the periods they become known.In addition, the FDIC and the California Department of Business Oversight, as an integral part of their examination processes, review the allowance for loan and lease losses.These agencies may require additions to the allowance for loan and lease losses based on their judgment about information available at the time of their examinations.

64

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reserve for Off-Balance Sheet Commitments

In addition to the exposure to credit loss from outstanding loans, the Company is also exposed to credit loss from certain off-balance sheet commitments such as unused commitments from revolving lines of credit, mortgage warehouse lines of credit, unused commitments on construction loans and commercial and standby letters of credit.Because the available funds have not yet been disbursed on these commitments the estimated losses are not included in the calculation of ALLL.The reserve for off-balance sheet commitments is an estimated loss contingency which is included in other liabilities on the Consolidated Balance Sheets.The adjustments to the reserve for off-balance sheet commitments are reported as a noninterest expense.This reserve is for estimated losses that could occur when the Company is contractually obligated to make a payment under these instruments and must seek repayment from a party that may not be as financially sound in the current period as it was when the commitment was originally made.

Sale and Servicing of Loans

The Company periodically originates loans intended to be sold on the secondary market.These loans are recorded as “held for sale” and reported at the lower of cost or fair value in the Consolidated Balance Sheets.  The loan’s cost basis includes unearned deferred fees and costs, and premiums and discounts. These loans are generally held between 30 to 90 days from their origination date.Loans held for sale by the Company currently consist entirely of residential real estate loans.  Loans classified as held for sale are disclosed in Note 4 of these Consolidated Financial Statements.

Gains and losses on sales of loans are recognized at the time of sale and are calculated based on the difference between the selling price and the allocated book value of loans sold.Book value allocations are determined in accordance with U.S. GAAP.Any inherent risk of loss on loans sold is transferred to the buyer at the date of sale.

The Company has issued various representations and warranties associated with the sale of loans.These representations and warranties may require the Company to repurchase loans with underwriting deficiencies as defined per the applicable sales agreements and certain past due loans within 90 days of the sale.The Company did not experience losses during the years ended December 31, 2013, 2012 or 2011 regarding these representations and warranties.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation.Depreciation is computed using the straight-line method over the estimated useful lives of the assets.The useful lives of premises are estimated to be thirty years.The useful lives of furniture, fixtures and equipment are estimated to be three to twenty years.  Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter.When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.The cost of maintenance and repairs is charged to expense as incurred.

Impairment of long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets which indicate long-lived assets may be impaired.

65

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreclosed Assets

Foreclosed assets include real estate and other property acquired in full or partial settlement of loan obligations.When property is acquired, any excess of the recorded investment in the loan balance and accrued interest income over the appraised fair market value of the property, net of estimated selling costs, is charged against the allowance for loan and lease losses.A valuation allowance for losses on foreclosed assets is maintained to provide for temporary declines in value.The allowance is established through a provision for losses on foreclosed assets which is included in other non-interest expense.Subsequent gains or losses on sales or write-downs resulting from permanent impairments are recorded in other non-interest income or expense as incurred.

Goodwill

The Company acquired Sierra National Bank in 2000, and the acquisition was accounted for using the purchase method of accounting.The goodwill resulting from this transaction represents the amount by which the purchase price exceeded the fair value of the net assets. In accordance with U.S. GAAP the Company evaluates goodwill periodically for impairment.There was no impairment recognized for the years ended December 31, 2013, 2012, and 2011.

Income Taxes

The Company files its income taxes on a consolidated basis with its subsidiary.The allocation of income tax expense represents each entity’s proportionate share of the consolidated provision for income taxes.

Income taxes are accounted for using the asset and liability method.Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date.A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

The Company adopted guidance issued by the FASB accounting for income taxes, effective January 1, 2007, which clarifies the accounting and disclosure for uncertainty in tax positions as defined.This guidance seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.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, 2013 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.

66

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income

Comprehensive income consists of net income and the net change in unrealized gains 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 investment 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, 2013, 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 is for 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.

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:

	Years Ended December 31,
	2013 (a)	2012		2011
Dividend yield	N/A	2.35	%	2.27	%
Expected Volatility	N/A	56.71	%	52.92	%
Risk-free interest rate	N/A	0.43	%	1.06	%
Expected option life	N/A	5.5 years		6.8 years

^(a) No stock options were issued in 2013.

67

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, with the goal of improving the reporting of reclassifications out of accumulated other comprehensive income.ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income, by component.In addition, if the amount reclassified is required under U.S. Generally Accepted Accounting Principles (GAAP) to be reclassified to net income in its entirety in the same reporting period, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income.For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts.For public entities, this update became effective prospectively for reporting periods beginning after December 15, 2012.We adopted ASU 2013-02 commencing with our report on Form 10-Q filed for the first quarter of 2013.

68

       

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The amortized cost and estimated fair value of investment securities available-for-sale are as follows (dollars in thousands):

	December 31, 2013
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
US Government Agencies	$	5,395	$	18	$	(109)	$	5,304
Mortgage-backed securities		320,223		3,269		(2,771)		320,721
State and political subdivisions		97,361		1,723		(2,521)		96,563
Equity securities		1,336		1,120		-		2,456
Total investment securities	$	424,315	$	6,130	$	(5,401)	$	425,044

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
US Government Agencies	$	2,987	$	3	$	(17)	$	2,973
Mortgage-backed securites		298,806		3,547		(964)		301,389
State and political subdivisions		70,736		3,430		(180)		73,986
Equity securities		1,336		508		(4)		1,840
Total investment securities	$	373,865	$	7,488	$	(1,165)	$	380,188

For the years ended December 31, 2013, 2012, and 2011, proceeds from sales of securities available-for-sale were $700 thousand, $56.4 million, and $45.7 million, respectively. Gains and losses on the sale of investment securities are recorded on the trade date and are determined using the specific identification method.

Gross gains and losses from the sales and calls of investment securities for the years ended were as follows (dollars in thousands):

	December 31,
	2013		2012		2011
Gross Gains on Sales and Calls of Investment Securities	$	6	$	2,059	$	1,666
Gross Losses on Sales and Calls of Investment Securities		-		(297)		(6)
Net Gains on Sales and Calls of Investment Securities	$	6	$	1,762	$	1,660

69

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

3.INVESTMENT SECURITIES AVAILABLE-FOR-SALE (Continued)

At December 31, 2013 and 2012, the Company had 197 and 89 securities with unrealized gross losses, respectively.Information pertaining to these securities aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (dollars in thousands):

	December 31, 2013
	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
US Government Agencies	$	(92)	$	1,913	$	(17)	$	1,920
Mortgage-backed securities		(642)		21,747		(2,129)		124,317
State and political subdivisions		(461)		6,799		(2,060)		38,083
Equity securities		-		-		-		-
Total	$	(1,195)	$	30,459	$	(4,206)	$	164,320

	December 31, 2012
	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
US Government Agencies	$	(17)	$	1,996	$	-	$	-
Mortgage-backed securities		(903)		106,799		(61)		6,965
State and political subdivisions		(180)		9,324		-		-
Equity securities		(4)		242		-		-
Total	$	(1,104)	$	118,361	$	(61)	$	6,965

The Company has reviewed all sectors and securities in the investment portfolio for impairment.During the year ended December 31, 2013, the Company realized slight gains and no losses from the sale of three debt securities which were sold to improve the credit quality of the portfolio by minimizing securities on our Municipal Bond Watch List. During the year ended December 31, 2012 the Company realized losses through earnings from the sale of 22 debt securities for $297,000. The securities were sold with 129 other debt securities for which $2,059,000 in gains were realized, as a part of a liquidity strategy to fund new loan growth.

The Company has concluded as of December 31, 2013 that all remaining securities, currently in an unrealized loss position, are not other-than-temporarily-impaired. This assessment was based on the following factors: 1) the Company has the ability to hold the security, 2) the Company does not intend to sell the security, 3) the Company does not anticipate it will be required to sell the security before recovery, 4) and the Company expects to eventually recover the entire amortized cost basis of the security.

70

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

3.INVESTMENT SECURITIES AVAILABLE-FOR-SALE (Continued)

The amortized cost and estimated fair value of investment securities available-for-sale at December 31, 2013 by contractual maturity are shown below.Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without penalties.

	Amortized Cost		Fair Value
	(dollars in thousands)
Maturing within one year	$	2,294	$	2,316
Maturing after one year through five years		241,396		242,493
Maturing after five years through ten years		59,572		59,402
Maturing after ten years		49,674		47,737
Investment securities not due at a single maturity date:
U.S Government agencies collateralized by mortgage obligations		70,043		70,640
Other securities		1,336		2,456
	$	424,315	$	425,044

Investment securities available-for-sale with amortized costs totaling $162,393,000 and estimated fair values totaling $164,390,000 were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2013. (see Note 8)

Investment securities available-for-sale with amortized costs totaling $174,930,000 and estimated fair values totaling $178,550,000 were pledged to secure public deposits, other contractual obligations and short-term borrowing arrangements at December 31, 2012. (see Note 8)

71

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES

The composition of the loan and lease portfolio is as follows (dollars in thousands):

	December 31,
	2013		2012
Real estate:
Secured by residential, commercial and professional office properties,
including construction and development	$	318,383	$	303,424
Secured by residential properties		150,952		170,514
Secured by farm land		108,504		71,851
Total Real Estate Loans		577,839		545,789
Agricultural		25,180		22,482
Commercial and industrial		158,756		257,896
Small Business Administration loans		14,905		20,523
Direct Financing leases		3,026		4,233
Consumer		23,536		28,872
Total Loans		803,242		879,795
Deferred loan and lease origination cost, net		1,522		1,156
Allowance for loan and lease losses		(11,677)		(13,873)
Loans, net	$	793,087	$	867,078

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications:

Pass – Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position and some future date.

Substandard – Loans classified as substandard are those loans with clear and well-defined weaknesses such as a highly leveraged position, unfavorable financial operating results and/or trends, or uncertain repayment sources or poor financial condition, which may jeopardize ultimate recoverability of the debt.

Impaired – A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Additionally, all loans classified as troubled debt restructurings are considered impaired.

72

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Credit quality classifications as of December 31, 2013 were as follows (dollars in thousands):

			Special
	Pass		Mention		Substandard		Impaired		Total
Real Estate:
1-4 family residential construction	$	1,720	$	-	$	-	$	-	$	1,720
Other Construction/Land		18,243		334		203		6,751		25,531
1-4 family - closed-end		67,051		1,305		770		17,898		87,024
Equity Lines		51,019		254		1,429		1,021		53,723
Multi-family residential		8,059		426		-		-		8,485
Commercial real estate owner occupied		158,155		17,033		3,261		7,563		186,012
Commercial real estate Non-owner occupied		89,475		3,630		240		13,495		106,840
Farmland		105,623		1,780		819		282		108,504
Total Real Estate		499,345		24,762		6,722		47,010		577,839
Agricultural		24,178		532		-		470		25,180
Commercial and Industrial		153,125		2,520		416		2,695		158,756
Small Business Administration loans		10,498		838		820		2,749		14,905
Direct finance leases		3,026		-		-		-		3,026
Consumer loans		19,387		478		208		3,463		23,536
Total Gross Loans and Leases	$	709,559	$	29,130	$	8,166	$	56,387	$	803,242

73

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Credit quality classifications as of December 31, 2012 were as follows (dollars in thousands):

			Special
	Pass		Mention		Substandard		Impaired		Total
Real Estate:
1-4 family residential construction	$	1,599	$	1,333	$	89	$	153	$	3,174
Other Construction/Land		13,270		952		1,132		12,648		28,002
1-4 family - closed-end		73,002		2,484		1,209		23,222		99,917
Equity Lines		58,161		95		1,949		1,258		61,463
Multi-family residential		5,351		609		-		-		5,960
Commercial real estate owner occupied		144,207		22,895		6,562		8,950		182,614
Commercial real estate Non-owner occupied		67,407		6,864		568		17,969		92,808
Farmland		64,176		2,216		3,526		1,933		71,851
Total Real Estate		427,173		37,448		15,035		66,133		545,789
Agricultural		21,333		462		24		663		22,482
Commercial and Industrial		247,375		5,020		1,845		3,656		257,896
Small Business Administration loans		15,002		1,551		743		3,227		20,523
Direct finance leases		4,076		22		-		135		4,233
Consumer loans		23,881		445		198		4,348		28,872
Total Gross Loans and Leases	$	738,840	$	44,948	$	17,845	$	78,162	$	879,795

74

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

A summary of the transactions in the allowance for loan and lease losses follows (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Balance, beginning of year	$	13,873	$	17,283	$	21,138
Provision for loan and lease losses		4,350		14,210		12,000
Losses charged to allowance		(8,263)		(18,778)		(16,987)
Recoveries		1,717		1,158		1,132
Balance, end of year	$	11,677	$	13,873	$	17,283

Loans may or may not be collateralized, and collection efforts are continuously pursued. Loans or leases may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Loans and leases are charged off when they are deemed to be uncollectible, while recoveries are generally recorded only when cash payments are received subsequent to the charge-off.

The following table presents the activity in the allowance for loan losses for the year 2013 and the recorded investment in loans and impairment method as of December 31, 2013 by portfolio segment (dollars in thousands):

					Commercial				Direct
					and		Small Business		Finance
	Real Estate		Agricultural		Industrial		Administration		Leases		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning of year	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Charge-offs		(4,205)		(473)		(1,268)		(294)		(106)		(1,917)		-		(8,263)
Recoveries		618		-		747		37		18		297		-		1,717
Provision		1,097		1,193		633		626		(73)		623		251		4,350
End of year	$	5,544	$	978	$	2,168	$	1,615	$	4	$	1,117	$	251	$	11,677
Reserves:
Specific	$	2,867	$	126	$	655	$	1,270	$	-	$	431	$	-	$	5,349
General		2,677		852		1,513		345		4		686		251		6,328
	$	5,544	$	978	$	2,168	$	1,615	$	4	$	1,117	$	251	$	11,677
Loans evaluated for      impairment:
Individually	$	47,010	$	470	$	2,695	$	2,749	$	-	$	3,463	$	-	$	56,387
Collectively		530,829		24,710		156,061		12,156		3,026		20,073		-		746,855
	$	577,839	$	25,180	$	158,756	$	14,905	$	3,026	$	23,536	$	-	$	803,242

75

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

The following table presents the activity in the allowance for loan losses for the year 2012 and the recorded investment in loans and impairment method as of December 31, 2012 by portfolio segment (dollars in thousands):

 

					Commercial				Direct
					and		Small Business		Finance
	Real Estate		Agricultural		Industrial		Administration		Leases		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning of year	$	8,260	$	19	$	4,638	$	1,447	$	311	$	2,608	$	-	$	17,283
Charge-offs		(11,108)		(634)		(3,517)		(753)		(198)		(2,568)		-		(18,778)
Recoveries		302		-		483		95		-		278		-		1,158
Provision		10,580		873		452		457		52		1,796		-		14,210
End of year	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Reserves:
Specific	$	4,180	$	28	$	934	$	1,038	$	67	$	878	$	-	$	7,125
General		3,854		230		1,122		208		98		1,236		-		6,748
	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Loans evaluated for      impairment:
Individually	$	66,133	$	663	$	3,656	$	3,227	$	135	$	4,348	$	-	$	78,162
Collectively		479,656		21,819		254,240		17,296		4,098		24,524		-		801,633
	$	545,789	$	22,482	$	257,896	$	20,523	$	4,233	$	28,872	$	-	$	879,795

76

 

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Past due and nonaccrual loans as of December 31, 2013 were as follows (dollars in thousands):

	30-59 Days		60-89 Days		90 Days Or						Total Financing		Non-Accrual
	Past Due		Past Due		More Past Due(1)		Total Past Due		Current		Receivables		Loans(2)
Real Estate:
1-4 family residential     construction	$	-	$	-	$	-	$	-	$	1,720	$	1,720	$	-
Other Construction/Land		294		-		116		410		25,121		25,531		5,528
1-4 family - closed-end		2,181		300		171		2,652		84,372		87,024		13,168
Equity Lines		98		-		288		386		53,337		53,723		778
Multi-family residential		-		-		-		-		8,485		8,485		-
Commercial real estate     owner occupied		1,917		144		2,011		4,072		181,940		186,012		5,516
Commercial real estate     Non-owner occupied		-		-		7,667		7,667		99,173		106,840		8,058
Farmland		331		-		-		331		108,173		108,504		282
Total Real Estate      Loans		4,821		444		10,253		15,518		562,321		577,839		33,330
Agricultural		892		327		125		1,344		23,836		25,180		470
Commercial and Industrial		342		78		24		444		158,312		158,756		685
Small Business     Administration Loans		976		509		1,274		2,759		12,146		14,905		1,937
Direct finance leases		-		-		-		-		3,026		3,026		-
Consumer loans		181		-		-		181		23,355		23,536		992
Total Gross Loans and Leases	$	7,212	$	1,358	$	11,676	$	20,246	$	782,996	$	803,242	$	37,414

⁽¹⁾ As of December 31, 2013 there were no loans over 90 days past due and still accruing.

⁽²⁾ Included in Total Financing Receivables

 

77

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Past due and nonaccrual loans as of December 31, 2012 were as follows (dollars in thousands):

	30-59 Days		60-89 Days		90 Days Or More						Total Financing		Non-Accrual
	Past Due		Past Due		Past Due(1)		Total Past Due		Current		Receivables		Loans(2)
Real Estate:
1-4 family residential     construction	$	-	$	-	$	153	$	153	$	3,021	$	3,174	$	153
Other Construction/Land		374		211		-		585		27,417		28,002		11,163
1-4 family - closed-end		1,335		88		376		1,799		98,117		99,916		15,381
Equity Lines		473		40		66		579		60,885		61,464		1,026
Multi-family residential		177		-		-		177		5,783		5,960		-
Commercial real estate     owner occupied		1,372		813		1,289		3,474		179,140		182,614		5,314
Commercial real estate     Non-owner occupied		7,831		-		1,499		9,330		83,478		92,808		11,642
Farmland		231		-		1,679		1,910		69,941		71,851		1,933
Total Real Estate      Loans		11,793		1,152		5,062		18,007		527,782		545,789		46,612
Agricultural		24		157		506		687		21,795		22,482		664
Commercial and Industrial		1,419		518		7		1,944		255,952		257,896		2,386
Small Business     Administration Loans		905		-		1,574		2,479		18,044		20,523		2,159
Direct finance leases		-		34		123		157		4,076		4,233		135
Consumer loans		238		189		87		514		28,358		28,872		1,138
Total Gross Loans and Leases	$	14,379	$	2,050	$	7,359	$	23,788	$	856,007	$	879,795	$	53,094

⁽¹⁾ As of December 31, 2012 there were no loans over 90 days past due and still accruing.

 ⁽²⁾ Included in Total Financing Receivables

Generally, the Company places a loan or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process.  When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed.  Subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required.

The following is a summary of information pertaining to impaired and non-accrual loans (dollars in thousands):

	Years Ended December 31,
	2013		2012
Impaired loans without a valuation allowance	$	25,722	$	14,292
Impaired loans with a valuation allowance		30,665		63,870
Total impaired loans (1)	$	56,387	$	78,162
Valuation allowance related to impaired loans	$	5,349	$	7,125
Total non-accrual loans	$	37,414	$	53,094
Total loans past-due ninety days or more and still accruing	$	-	$	-

⁽¹⁾ Principal balance only

78

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Individually impaired loans as of December 31, 2013 were as follows (dollars in thousands):

	Year Emded December 31, 2013
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance(1)		Investment(2)		Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		2,972		2,972		502		3,000		98
1-4 Family - closed-end		13,522		13,522		1,324		13,630		260
Equity Lines		528		528		123		530		13
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		2,047		2,047		217		2,069		135
Commercial real estate- non-owner occupied		3,715		3,715		701		3,813		238
Farmland		-		-		-		-		-
Total Real Estate		22,784		22,784		2,867		23,042		744
Agricultural		125		125		126		131		-
Commercial and Industrial		1,870		1,857		655		2,009		85
Small Business Administration		2,710		2,488		1,270		2,487		46
Direct finance leases		-		-		-		-		-
Consumer loans		3,411		3,411		431		3,591		172
		30,900		30,665		5,349		31,260		1,047
With no Related Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		4,176		3,779		-		3,885		-
1-4 Family - closed-end		4,655		4,376		-		4,687		1
Equity Lines		565		493		-		493		-
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		7,436		5,516		-		5,568		-
Commercial real estate- non-owner occupied		10,077		9,780		-		9,820		115
Farmland		282		282		-		290		-
Total Real Estate		27,191		24,226		-		24,743		116
Agricultural		345		345		-		837		-
Commercial and Industrial		891		838		-		1,346		57
Small Business Administration		358		261		-		261		-
Direct finance leases		-		-		-		-		-
Consumer loans		241		52		-		77		-
		29,026		25,722		-		27,264		173
Total	$	59,926	$	56,387	$	5,349	$	58,524	$	1,220

⁽¹⁾Contractual principal balance due from customer.

⁽²⁾Principal balance on Company's books, less any direct charge offs.

⁽³⁾Interest income is recognized on performing balances on a regular accrual basis.

79

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Individually impaired loans as of December 31, 2012 were as follows (dollars in thousands):

	Year Ended December 31, 2012
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance(1)		Investment(2)		Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real Estate:
1-4 family residential construction	$	153	$	153	$	23	$	91	$	-
Other Construction/Land		10,313		10,313		1,244		10,755		86
1-4 Family - closed-end		19,218		18,910		955		19,024		401
Equity Lines		1,142		1,142		163		1,144		9
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		5,846		5,585		563		5,666		126
Commercial real estate- non-owner occupied		18,539		17,579		1,230		18,079		481
Farmland		254		254		2		259		-
Total Real Estate		55,465		53,936		4,180		55,018		1,103
Agricultural		28		28		28		28		-
Commercial and Industrial		2,955		2,920		934		3,100		51
Small Business Administration		2,704		2,507		1,038		2,507		53
Direct finance leases		135		135		67		135		-
Consumer loans		4,349		4,344		878		4,493		183
		65,636		63,870		7,125		65,281		1,390
With no Related Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		2,335		2,335		-		2,346		-
1-4 Family - closed-end		4,312		4,312		-		4,491		-
Equity Lines		116		116		-		155		1
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		4,298		3,365		-		3,540		-
Commercial real estate- non-owner occupied		390		390		-		421		3
Farmland		1,679		1,679		-		1,686		-
Total Real Estate		13,130		12,197		-		12,639		4
Agricultural		1,008		635		-		1,017		-
Commercial and Industrial		735		736		-		740		-
Small Business Administration		1,008		720		-		720		-
Direct finance leases		-		-		-		-		-
Consumer loans		4		4		-		7		-
		15,885		14,292		-		15,123		4
Total	$	81,521	$	78,162	$	7,125	$	80,404	$	1,394

⁽¹⁾Contractual principal balance due from customer.

⁽²⁾Principal balance on Company's books, less any direct charge offs.

⁽³⁾Interest income is recognized on performing balances on a regular accrual basis.

80

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Included in loans above are troubled debt restructurings that were classified as impaired. The Company had $3,714,000 and $3,427,000 in commercial loans, $32,960,000 and $40,639,000 in real estate secured loans and $3,250,000 and $3,976,000 in consumer loans, which were modified as troubled debt restructurings and consequently classified as impaired at December 31, 2013 and 2012, respectively.

Additional commitments to existing customers with restructured loans totaled $250,000 and $195,000 at December 31, 2013 and 2012 respectively.

Interest income recognized on impaired loans was $1,220,000, $1,394,000, and $1,214,000 for the years ended December 31, 2013, 2012 and 2011 respectively. There was no interest income recognized on a cash basis on impaired loans for the years ended December 31, 2013, 2012 and 2011 respectively.

The following is a summary of interest income from non-accrual loans in the portfolio at year-end that was not recognized (dollars in thousands):

	Years Ended December 31,
	2013		2012		2011
Interest that would have been recorded under the      loans’ original terms	$	3,209	$	4,084	$	4,353
Less gross interest recorded		304		2,088		1,328
Foregone interest	$	2,905	$	1,996	$	3,025

Certain loans have been pledged to secure short-term borrowing arrangements (see Note 8). These loans totaled $413,369,000 and $392,644,000 at December 31, 2013 and 2012, respectively.

Salaries and employee benefits totaling $2,804,000, $2,745,000, and $2,586,000, have been deferred as loan and lease origination costs to be amortized over the estimated lives of the related loans and leases for the years ended December 31, 2013, 2012 and 2011, respectively.

81

         

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

During the periods ended December 31, 2013 and 2012, the terms of certain loans were modified as troubled debt restructurings. Types of modifications applied to these loans, include a reduction of the stated interest rate, a modification of term, an agreement to collect only interest rather than principal and interest for a specified period, or any combination thereof.

The following table presents troubled debt restructurings by type of modification during the period ending December 31, 2013 (dollars in thousands):

													Rate, Term
									Rate &		Term &		& Interest
	Rate		Term		Interest Only		Rate & Term		Interest Only		Interest Only		Only
	Modification		Modification		Modification		Modification		Modification		Modification		Modification		Total
Troubled Debt Restructurings
Real Estate:
Other Construction/Land	$	-	$	416	$	-	$	-	$	-	$	-	$	-	$	416
1-4 family - closed-end		-		3,338		-		238		-		-		102		3,678
Equity Lines		-		-		40		-		-		-		-		40
Commercial real estate    owner occupied		-		-		-		557		-		-		-		557
Commercial real estate    Non-owner occupied		-		-		-		-		-		-		-		-
Total Real Estate     Loans		-		3,754		40		795		-		-		102		4,691
Agricultural		-		-		-		-		-		-		-		-
Commercial and Industrial		-		1,563		-		308		-		-		-		1,871
Consumer Loans		-		469		-		-		-		-		92		561
Small Business
Administration loans		-		-		-		-		-		-		-		-
	$	-	$	5,786	$	40	$	1,103	$	-	$	-	$	194	$	7,123

82

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

The following table presents troubled debt restructurings by type of modification during the period ending December 31, 2012 (dollars in thousands):

													Rate, Term
									Rate &		Term &		& Interest
	Rate		Term		Interest Only		Rate & Term		Interest Only		Interest Only		Only
	Modification		Modification		Modification		Modification		Modification		Modification		Modification		Total
Troubled Debt Restructurings
Real Estate:
Other Construction/Land	$	-	$	458	$	-	$	375	$	-	$	-	$	-	$	833
1-4 family - closed-end		-		313		-		200		-		222		616		1,351
Equity Lines		-		29		-		-		-		-		-		29
Commercial real estate    owner occupied		-		1,006		-		1,184		-		-		-		2,190
Commercial real estate    Non-owner occupied		-		330		-		60		-		-		-		390
Total Real Estate     Loans		-		2,136		-		1,819		-		222		616		4,793
Agricultural		-		-		-		-		-		-		-		-
Commercial and Industrial		-		625		2		658		-		-		-		1,285
Consumer Loans		-		1,328		-		269		-		-		117		1,714
Small Business
Administration loans		-		200		-		475		-		-		-		675
	$	-	$	4,289	$	2	$	3,221	$	-	$	222	$	733	$	8,467

83

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2013 (dollars in thousands):

		Pre-		Post-
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Reserve
	Loans	Investment		Investment		Difference(1)
Real Estate:
Other Construction/Land	2	$	418	$	416	$	38
1-4 family - closed-end	8		3,679		3,678		20
Equity Lines	1		40		40		40
Commercial real estate owner occupied	1		557		557		-
Commercial real estate non-owner occupied	0		-		-		-
Total Real Estate Loans			4,694		4,691		98
Agricultural	0		-		-		-
Commercial and Industrial	8		1,858		1,871		257
Consumer Loans	13		561		561		54
Small Business Administration loans	0		-		-		-
		$	7,113	$	7,123	$	409

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Subsequent Defaults
	Number of Loans		Recorded  Investment		Charge-Offs
Real Estate:
Other Construction/Land	2	$	162	$	47
1-4 family - closed-end	2		779		133
Equity Lines	0		-		-
Commercial real estate- owner occupied	1		308		245
Commercial real estate- non owner occupied	0		-		-
Total Real Estate Loans			1,249		425
Agricultural	0		-		-
Commercial and Industrial	7		374		373
Consumer Loans	7		181		132
Small Business Administration Loans	2		194		-
		$	1,998	$	930

84

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2012 (dollars in thousands):

		Pre-		Post-
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Reserve
	Loans	Investment		Investment		Difference(1)
Real Estate:
Other Construction/Land	10	$	835	$	833	$	48
1-4 family - closed-end	11		1,365		1,351		101
Equity Lines	1		29		29		13
Commercial real estate owner occupied	6		1,857		2,190		(45)
Commercial real estate non-owner      occupied	3		390		390		6
Total Real Estate Loans			4,476		4,793		123
Agricultural	0		-		-		-
Commercial and Industrial	20		1,295		1,285		109
Consumer Loans	37		1,723		1,714		21
Small Business Administration loans	2		668		675		8
		$	8,162	$	8,467	$	261

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Subsequent Defaults
		Recorded
	Number of Loans	Investment		Charge-Offs
Real Estate:
Other Construction/Land	0	$	-	$	-
1-4 family - closed-end	1		222		-
Equity Lines	0		-		-
Commercial real estate- owner occupied	1		332		-
Commercial real estate- non owner occupied	0		-		-
Total Real Estate Loans			554		-
Agricultural	0		-		-
Commercial and Industrial	1		66		66
Consumer Loans	2		115		-
Small Business Administration Loans	0		-		-
		$	735	$	66

In the tables above, the TDRs that subsequently defaulted increased the allowance for loan and lease losses by $660,000 and $31,000 for the years ended December 31, 2013 and 2012. Charge offs resulting from the above defaults were $155,000 and $66,000 respectively. The total allowance for loan and lease losses specifically allocated to the balances that were classified as TDRs during the year ended December 31, 2013 and 2012 is $3,321,000 and $1,079,000, respectively.

85

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND LEASES (Continued)

Interest income for all performing loans, regardless of class (Pass, Special Mention, Substandard and Impaired), is recognized on an accrual basis, with interest accrued daily. Costs associated with successful loan originations are netted from loan origination fees, with the net amount (net deferred loan fees) amortized over the contractual life of the loan in interest income. If a loan has scheduled periodic payments, the amortization of the net deferred loan fee is calculated using the effective interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight line basis over the contractual life of the loan. Fees received for loan commitments are recognized as interest income over the term of the commitment. When loans are repaid, any remaining unamortized balances of deferred fees and costs are accounted for through interest income.

Loan Servicing

The Company originates mortgage loans for sale to investors. During the years ended December 31, 2013, 2012, and 2011, all mortgage loans that were sold by the Company were sold without retention of related servicing.  The Company’s servicing portfolio at December 31, 2013, 2012 and 2011 totaled $1,585,000, $2,596,000 and $506,000, respectively. At December 31, 2013, loans were principally serviced for one investor.

86

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

5. PREMISES AND EQUIPMENT

Premises and equipment at cost consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Land	$	2,607	$	2,607
Buildings and improvements		15,818		15,720
Furniture, fixtures and equipment		17,829		20,476
Leasehold improvements		10,536		10,496
		46,790		49,299
Less accumulated depreciation and amortization		26,402		27,473
Construction in progress		5		4
	$	20,393	$	21,830

Depreciation and amortization included in occupancy and equipment expense totaled $2,119,000, $2,289,000, and $2,505,000, for the years ended December 31, 2013, 2012 and 2011, respectively.

6. OTHER ASSETS

Other assets consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Accrued interest receivable	$	4,990	$	5,095
Deferred tax assets		12,286		11,995
Prepaid taxes		2,787		3,775
Investment in limited partnerships		9,204		10,316
Federal Home Loan Bank stock, at cost		5,581		6,019
Cash surrender value of officer life insurance policies		39,424		38,007
Other		5,613		6,262
	$	79,885	$	81,469

The Company has invested in limited partnerships that operate qualified affordable housing projects to receive tax benefits in the form of tax deductions from operating losses and tax credits. The Company accounts for these investments under the cost method and management analyzes these investments annually for potential impairment. The Company has no remaining capital commitments to these partnerships at December 31, 2013.

The Company holds certain equity investments that are not readily marketable securities and thus are classified as “other assets” on the Company’s balance sheet. These include investments in Pacific Coast Bankers Bancshares, California Economic Development Lending Initiative, and the Federal Home Loan Bank (“FHLB”).

The largest of these is the Company’s $5,581,000 investment in FHLB stock, carried at cost. Quarterly, the FHLB evaluates and adjusts the Company’s minimum stock requirement based on the Company’s borrowing activity and membership requirements.  Any stock deemed in excess is automatically repurchased by the FHLB at cost.

87

 

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

7. DEPOSITS

Interest-bearing deposits consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Interest Bearing Demand Deposits	$	82,408	$	84,655
NOW		200,313		196,771
Savings		144,162		118,547
Money Market		73,132		71,222
CDAR's, Under $100,000		437		791
CDAR's, $100,000 or more		12,919		14,274
Time, Under $100,000		79,261		101,893
Time, $100,000 or more		205,550		218,284
Brokered Deposits		10,000		15,000
	$	808,182	$	821,437

Aggregate annual maturities of time deposits are as follows (dollars in thousands):

Year Ending December 31,
2014	$	296,969
2015		8,467
2016		989
2017		833
2018		290
Thereafter		619
	$	308,167

Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Interest Bearing Demand Deposits	$	281	$	257	$	137
NOW		359		556		860
Savings		285		241		203
Money Market		94		127		506
CDAR's, Under $100,000		-		2		5
CDAR's, $100,000 or more		36		50		194
Time, Under $100,000		420		619		1,001
Time, $100,000 or more		823		1,154		1,223
Brokered Deposits		157		202		176
	$	2,455	$	3,208	$	4,305

88

       

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

8. OTHER BORROWING ARRANGEMENTS

Short-term borrowings consisted of the following (dollars in thousands):

	2013				2012
	Amount		Fixed Rate		Amount		Fixed Rate
As of December 31:
Repurchase agreements	$	5,974	..44	%	$	1,419	..60	%
Overnight Federal Home Loan
Bank advances		-	-			36,650	..26	%
Federal Home Loan Bank advances		-	-			-	-
	$	5,974			$	38,069

The Company had unsecured lines of credit with its correspondent banks which, in the aggregate, amounted to $70,000,000 and $55,000,000 at December 31, 2013 and 2012, respectively, at interest rates which vary with market conditions.There was $0 outstanding under these lines of credit at December 31, 2013 and December 31, 2012, respectively.

At December 31, 2013, the Company had remaining borrowing capacity with the Federal Home Loan Bank of $93,380,000 secured by government agencies and whole loan collateral.

89

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

9. INCOME TAXES

The provision for income taxes follows (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Federal:
Current	$	563	$	220	$	627
Deferred		1,842		(647)		(706)
		2,405		(427)		(79)
State:
Current		170		-		818
Deferred		518		83		(175)
		688		83		643
	$	3,093	$	(344)	$	564

The components of the net deferred tax asset, included in other assets, are as follows (dollars in thousands):

	December 31,
	2013		2012
Deferred tax assets:
Allowance for loan losses	$	5,669	$	6,594
Foreclosed Assets		1,779		4,461
Deferred compensation		4,112		3,627
Accrued reserves		594		502
Non Accrual Loans		1,211		865
Other than temporary impairment charge		576		576
Credit Carryforward		3,089		2,273
Other		153		185
Total deferred tax assets		17,183		19,083
Deferred tax liabilities:
Premises and equipment		(589)		(552)
Deferred loan costs		(2,254)		(2,152)
Unrealized gain on securities available-for-sale		(299)		(2,602)
Other		(1,755)		(1,782)
Total deferred tax liabilities		(4,897)		(7,088)
Net deferred tax assets	$	12,286	$	11,995

90

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

9. INCOME TAXES (Continued)

The expense for income taxes differs from amounts computed by applying the statutory Federal income tax rates to income before income taxes.The significant items comprising these differences consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013			2012			2011
Income tax expense at Federal statutory rate	$	5,597		$	2,666		$	2,837
Increase (decrease) resulting from:
State franchise tax expense, net of      Federal tax effect		414			-			540
Tax exempt income		(920)			(1,388)			(1,330)
Affordable housing tax credits		(1,257)			(1,639)			(1,605)
Other		(741)			17			122
	$	3,093		$	(344)		$	564
Effective tax rate		18.8	%		(4.4)	%		6.8	%

The Company is subject to federal income tax and income tax of the state of California.Our federal income tax returns for the years ended December 31, 2010, 2011 and 2012 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2009, 2010, 2011 and 2012 are open to audit by the state authorities.

There were no recorded interest or penalties related to uncertain tax positions as part of income tax for the years ended December 31, 2013, 2012, and 2011, respectively.We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months.

10.SUBORDINATED DEBENTURES

Sierra Statutory Trust II (“Trust II”) and Sierra Capital Trust III (“Trust III”), (collectively, the “Trusts”) were formed by the Company for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company.For financial reporting purposes, the Trusts are not consolidated and the Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures”) held by the Trusts and issued and guaranteed by the Company are reflected in the Company’s consolidated balance sheet in accordance with provisions of ASC Topic 810.Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to twenty-five percent of the Company’s Tier 1 capital on a pro forma basis.At December 31, 2013, $30,000,000 of the Company’s trust preferred securities qualified as Tier 1 capital.

During the first quarter of 2004, Sierra Statutory Trust II issued 15,000 Floating Rate Capital Trust Pass-Through Securities (TRUPS II), with a liquidation value of $1,000 per security, for gross proceeds of $15,000,000.The entire proceeds of the issuance were invested by Trust II in $15,464,000 of Subordinated Debentures issued by the Company, with identical maturity, re-pricing and payment terms as the TRUPS II.The Subordinated Debentures, purchased by Trust II, represent the sole assets of the Trust II.Those Subordinated Debentures mature on March 17, 2034, bear a current interest rate of 2.99% (based on 3-month LIBOR plus 2.75%), with re-pricing and payments due quarterly.

91

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

10.SUBORDINATED DEBENTURES (Continued)

Those Subordinated Debentures are currently redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 17^th, June 17^th, September 17^th, or December 17^th.The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture.

The TRUPS II are subject to mandatory redemption to the extent of any early redemption of the related Subordinated Debentures and upon maturity of the Subordinated Debentures on March 17, 2034.

Trust II has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the Subordinated Debentures.The TRUPS II issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended.The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS II.

During the second quarter of 2006, Sierra Capital Trust III issued 15,000 Floating Rate Capital Trust Pass-Through Securities (TRUPS III), with a liquidation value of $1,000 per security, for gross proceeds of $15,000,000.The entire proceeds of the issuance were invested by Trust III in $15,464,000 of Subordinated Debentures issued by the Company, with identical maturity, repricing and payment terms as the TRUPS III.The Subordinated Debentures, purchased by Trust III, represent the sole assets of the Trust III.Those Subordinated Debentures mature on September 23, 2036, bear a current interest rate of 1.65% (based on 3-month LIBOR plus 1.40%), with repricing and payments due quarterly.

Those Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 23^rd, June 23^rd, September 23^rd, or December 23^rd.The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture.The TRUPS III are subject to mandatory redemption to the extent of any early redemption of the related Subordinated Debentures and upon maturity of the Subordinated Debentures on September 23, 2036.

Trust III has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the Subordinated Debentures.The TRUPS III issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended.The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS III.

92

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

11. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain of its branch facilities under non-cancelable operating leases. Rental expense included in occupancy and equipment expense totaled $1,001,000, $1,011,000 and $1,167,000 and for the years ended December 31, 2013, 2012 and 2011, respectively.

Future minimum lease payments on non-cancelable operating leases are as follows:

Year Ending December 31,
2014	$	1,036,000
2015		996,000
2016		792,000
2017		783,000
2018		669,000
Thereafter		4,339,000
	$	8,615,000

The Company has options to renew its branch facilities after the initial leases expire. The renewal options range from one to ten years and are not included in the payments reflected above.

Letter of Credit

The Company holds two letters of credit with the Federal Home Loan Bank of San Francisco totaling $78,000,000. A $70,000,000 letter of credit is pledged to secure public deposits at December 31, 2013 and an $8,000,000 standby letter of credit was obtained on behalf of one of our customers to guarantee financial performance. Should the standby letter of credit be drawn upon, the customer would reimburse the Company from an existing line of credit.

Federal Reserve Requirements

Banks are required to maintain reserves with the Federal Reserve Bank equal to a specified percentage of their reservable deposits less vault cash. The reserve balances maintained at the Federal Reserve Bank at December 31, 2013 and 2012 were $41,761,000 and $38,962,000, respectively.

Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments consist of commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and letters of credit as it does for loans included on the balance sheet.

93

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

11. COMMITMENTS AND CONTINGENCIES (Continued)

The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

	Years Ended December 31,
	2013		2012
Fixed-rate commitments to extend credit	$	64,148	$	53,550
Variable-rate commitments to extend credit	$	356,559	$	171,850
Standby letters of credit	$	8,703	$	6,690
Commercial and similar letters of credit	$	8,070	$	8,539

Commitments to extend credit consist primarily of the unused or unfunded portions of the following:home equity lines of credit; commercial real estate construction loans, where disbursements are made over the course of construction; commercial revolving lines of credit; mortgage warehouse lines of credit; unsecured personal lines of credit; and formalized (disclosed) deposit account overdraft lines.Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.Commitments to extend credit are made at both fixed and variable rates of interest as stated in the table above.Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party, while commercial letters of credit represent the Company’s commitment to pay a third party on behalf of a customer upon fulfillment of contractual requirements.The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

Concentration in Real Estate Lending

At December 31, 2013, in management’s judgment, a concentration of loans existed in real estate related loans. At that date, approximately 72% of the Company’s loans were real estate related. Balances secured by commercial buildings and construction and development loans represented 55% of all real estate loans, while loans secured by non-construction residential properties accounted for 26%, and loans secured by farmland were 19% of real estate loans. Although management believes the loans within these concentrations have no more than the normal risk of collectability, a further decline in the performance of the economy in general or a further decline in real estate values in the Company’s primary market areas, in particular, could have an adverse impact on collectability.

Concentration by Geographic Location

The Company grants commercial, real estate mortgage, real estate construction and consumer loans to customers primarily in the South Central San Joaquin Valley of California, specifically Tulare, Fresno, Kern, Kings and Madera counties. The ability of a substantial portion of the Company’s customers to honor their contracts is dependent on the economy in these areas. Although the Company’s loan portfolio is diversified, there is a relationship in this region between the local agricultural economy and the economic performance of loans made to non-agricultural customers.

Contingencies

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or results of operations of the Company.

94

 

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

12. SHAREHOLDERS’ EQUITY

Share Repurchase Plan

At December 31, 2013, the Company had a stock repurchase plan which has no expiration date. During the year ended December 31, 2013, the Company did not repurchase any shares.  The total number of shares available for repurchase at December 31, 2013 was 700,000. Repurchases are generally made in the open market at market prices.

Earnings Per Share

A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:

	For the Years Ended December 31,
	2013		2012		2011
Basic Earnings Per Share
Net income (dollars in thousands)	$	13,369	$	8,185	$	7,780
Weighted average shares outstanding		14,155,927		14,103,805		14,036,667
Basic earnings per share	$	0.94	$	0.58	$	0.55
Diluted Earnings Per Share
Net income (dollars in thousands)	$	13,369	$	8,185	$	7,780
Weighted average shares outstanding		14,155,927		14,103,805		14,036,667
Effect of dilutive stock options		134,223		16,508		48,534
Weighted average shares outstanding		14,290,150		14,120,313		14,085,201
Diluted earnings per share	$	0.94	$	0.58	$	0.55

Stock Options

In June 1998, Bank of the Sierra adopted the 1998 Stock Option Plan (the “1998 Plan”) for which shares were reserved for issuance to employees and directors under incentive and non-statutory agreements. The 1998 Plan was assumed by the Company effective August 10, 2001. Effective May 23, 2007, the 1998 Plan was terminated and no further options may be granted thereunder, but options granted under the 1998 Plan which were outstanding as of the termination date were not affected by this termination. As of December 31, 2013, options granted under the 1998 Plan covering 143,550 shares were still outstanding.

On March 15, 2007 the Board of Directors approved and adopted the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which was approved by the Company’s shareholders on May 23, 2007. The 2007 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors, of the Company and its subsidiaries. The 2007 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants, which awards may be granted on such terms and conditions as are established by the Board of Directors or the Compensation Committee in its discretion.  We have not issued, nor do we currently have plans to issue, restricted stock awards.

95

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

12. SHAREHOLDERS’ EQUITY (Continued)

The maximum number of shares subject to issuance under the 2007 Plan was originally 1,500,000 shares of the Company’s authorized but unissued common stock, covering both restricted stock awards and stock options.  The number subject to issuance under the 2007 Plan had declined to 780,920 at December 31, 2013, due to stock options already granted under the plan net of any canceled options that were returned to the pool available for issuance.

All options granted under the 2007 Plan have been or will be granted at an exercise price of not less than 100% of the fair market value of the stock on the date of grant, exercisable in installments as provided in individual stock option agreements. In the event of a “Change in Control” as defined in the 2007 Plan, all outstanding options shall become exercisable in full (subject to certain notification requirements), and shall terminate if not exercised within a specified period of time unless such options are assumed by the successor corporation or substitute options are granted. Options also terminate in the event an optionee ceases to be employed by or to serve as a director of the Company or its subsidiaries, and the vested portion thereof must be exercised within 30 days after such cessation of employment or service.

A summary of the Company’s stock option activity, including options from the 1998 Plan, follows (shares in thousands, except exercise price):

	2013					2012			2011
		Weighted					Weighted			Weighted
		Average		Aggregate			Average			Average
		Exercise		Intrinsic			Exercise			Exercise
	Shares	Price		Value (1)		Shares	Price		Shares	Price
Outstanding, beginning of     year	927	$	14.16			810	$	14.97	835	$	14.24
Exercised	(111)	$	9.87			(5)	$	9.45	(125)	$	6.72
Granted	-	$	-			189	$	10.21	186	$	10.58
Canceled	(70)	$	15.75			(67)	$	13.08	(86)	$	10.43
Outstanding, end of year	746	$	14.65	$	2,961	927	$	14.16	810	$	14.97
Exercisable, end of     year (2)	542	$	16.30	$	583	599	$	16.07	504	$	17.15

⁽¹⁾The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2013. This amount changes based on changes in the market value of the Company's stock.

⁽²⁾The weighted average remaining contractual life of stock options outstanding and exercisable on December 31, 2013 was 6.0 years and 7.1 years, respectively.

Information related to stock options during each year follows:

	2013		2012		2011
Weighted-average grant-date fair value per share	$	-	$	3.86	$	3.79
Total intrinsic value of stock options exercised	$	605,000	$	9,000	$	465,000
Total fair value of stock options vested	$	583,000	$	517,000	$	-

Cash received from the exercise of 110,240 shares was $1,088,000 for the period ended December 31, 2013 with a related tax benefit of $147,000.

96

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

12. SHAREHOLDERS’ EQUITY (Continued)

The Company is using the Black-Scholes model to value stock options. In accordance with U.S. GAAP, charges of $268,000, $487,000 and $460,000 are reflected in the Company’s income statements for the years ended December 31, 2013, 2012 and 2011, respectively, as pre-tax compensation and directors’ expense related to stock options. The related tax benefit of these options is $110,000, $200,000 and $189,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Unamortized compensation expense associated with unvested stock options outstanding at December 31, 2013 was $280,000, which will be recognized over the next 3.8 years.

13. REGULATORY MATTERS

The Company and the Bank are subject to certain regulatory requirements administered by the Board of Governors of the Federal Reserve System and the FDIC. Failure to meet these minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. Management believes that the Company and the Bank met all of their capital adequacy requirements as of December 31, 2013 and 2012. In addition, as of December 31, 2013 and 2012, notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and leverage capital ratios as set forth below (dollars in thousands):

	Years Ended December 31,
	2013				2012
	Capital				Capital
	Amount		Ratio		Amount		Ratio
Leverage Ratio
Sierra Bancorp and subsidiary	$	198,216	14.37	%	$	186,783	13.34	%
Minimum requirement for "Well-Capitalized" institutions		68,969	5.0	%		69,993	5.0	%
Minimum regulatory requirement		55,175	4.0	%		55,994	4.0	%
Bank of the Sierra	$	195,001	14.18	%	$	184,024	13.17	%
Minimum requirement for "Well-Capitalized" institutions		68,765	5.0	%		69,866	5.0	%
Minimum regulatory requirement		55,012	4.0	%		55,893	4.0	%

97

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

13. REGULATORY MATTERS (Continued)

	Years Ended Decmber 31,
	2013				2012
	Capital				Capital
	Amount		Ratio		Amount		Ratio
Tier 1 Risk-Based Capital Ratio
Sierra Bancorp and subsidiary	$	198,225	20.39	%	$	183,783	18.11	%
Minimum requirement for "Well-Capitalized" institutions		58,330	6.0	%		61,878	6.0	%
Minimum regulatory requirement		38,887	4.0	%		41,252	4.0	%
Bank of the Sierra	$	195,001	20.11	%	$	184,024	17.88	%
Minimum requirement for "Well-Capitalized" institutions		58,174	6.0	%		61,737	6.0	%
Minimum regulatory requirement		38,783	4.0	%		41,158	4.0	%
Total Risk-Based Capital Ratio
Sierra Bancorp and subsidiary	$	210,669	21.67	%	$	199,700	19.36	%
Minimum requirement for "Well-Capitalized" institutions		97,217	10.0	%		103,131	10.0	%
Minimum regulatory requirement		77,773	8.0	%		82,504	8.0	%
Bank of the Sierra	$	206,960	21.35	%	$	196,912	19.14	%
Minimum requirement for "Well-Capitalized" institutions		96,957	10.0	%		102,895	10.0	%
Minimum regulatory requirement		77,565	8.0	%		82,316	8.0	%

Under current rules of the Federal Reserve Board, qualified trust preferred securities are one of several “restricted” core capital elements which may be included in Tier 1 capital in an aggregate amount limited to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits generally may be included in Tier 2 capital. Since the Company had less than $15 billion in assets at December 31, 2013, under the Dodd-Frank Act the Company will be able to continue to include its existing trust preferred securities in Tier 1 Capital to the extent permitted by FRB guidelines.

Dividend Restrictions

The Company’s ability to pay cash dividends is dependent on dividends paid to it by the Bank, and is also limited by state corporation law. The California General Corporation Law allows a California corporation to pay dividends if the Company’s retained earnings equal at least the amount of the proposed dividend. If the Company does not have sufficient retained earnings available for the proposed dividend, it may still pay a dividend to its shareholders if immediately after giving effect to the dividend the sum of the company’s assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred taxes, deferred income and other deferred liabilities) and the current assets of the company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least equal to 125% of its current liabilities.

Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the Department of Business Oversight, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year. As of December 31, 2013, the maximum amount available for dividend distribution under this restriction was approximately $29,854,000.

98

     

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

14. BENEFIT PLANS

Salary Continuation Agreements, Directors’ Retirement and Officer Supplemental Life Insurance Plans

The Company has entered into salary continuation agreements with its executive officers, and has established retirement plans for qualifying members of the Board of Directors. The plans provide for annual benefits for up to fifteen years after retirement or death. The benefit obligation under these plans totaled $4,952,000 and $4,747,000 and was fully accrued for the years ended December 31, 2013 and 2012, respectively. The expense recognized under these arrangements totaled $288,000 and $292,000, and $403,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Salary continuation benefits paid to former directors or executives of the Company or their beneficiaries totaled $83,000 for each of the years ended December 31, 2013, 2012 and 2011. The Company also provides benefits to former executives of Sierra National Bank under salary continuation plans that were in effect at the time Sierra National Bank was merged into Bank of the Sierra. The benefit obligation under these plans totaled $89,000, $145,000 and $197,000, and was fully accrued for the years ended December 31, 2013, 2012, and 2011, respectively. Benefits paid to former executives of SNB under this plan totaled $67,000, for each of the years ended December 31, 2013, 2012, and 2011, respectively. Certain officers of the Company have supplemental life insurance policies with death benefits available to the officers’ beneficiaries.

In connection with these plans the Company has purchased, or acquired through the merger, single premium life insurance policies with cash surrender values totaling $35,250,000 and $34,762,000 at December 31, 2013 and 2012, respectively. On the consolidated balance sheet, the cash surrender values are included in other assets.

Officer and Director Deferred Compensation Plan

The Company has established a deferred compensation plan for certain members of the management group and a deferred fee plan for directors for the purpose of providing the opportunity for participants to defer compensation. The Company bears the costs for the plan’s administration and the interest earned on participant deferrals. The related administrative expense was not material for the years ended December 31, 2013, 2012 and 2011. In connection with this plan, life insurance policies with cash surrender values totaling $4,174,000 and $3,245,000 at December 31, 2013 and 2012, respectively, are included on the consolidated balance sheet in other assets.

401(k) Savings Plan

The 401(k) savings plan (the “Plan”) allows participants to defer, on a pre-tax basis, up to 15% of their salary (subject to Internal Revenue Service limitations) and accumulate tax-deferred earnings as a retirement fund. The Bank may make a discretionary contribution to match a specified percentage of the first 6% of the participants’ contributions annually. The amount of the matching contribution was 60% for the year ended December 31, 2013 and 50% for each of the years ended December 31, 2012 and 2011. The matching contribution is discretionary, vests over a period of five years from the participants’ hire date, and is subject to the approval of the Board of Directors. The Company contributed $360,000, $302,000 and $304,000 to the Plan in 2013, 2012 and 2011, respectively.

99

 

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

15. NON-INTEREST REVENUE

The major grouping of non-interest revenue on the consolidated income statements includes several specific items:service charges on deposit accounts, gains on the sale of loans, credit card fees, check card fees, the net gain (loss) on sales and calls of investment securities available for sale, and the net increase (decrease) in the cash surrender value of life insurance.

Non-interest revenue also includes one general category of “other income” of which the following are major components (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Included in other income:
Loss on limited partnerships	$	(1,063)	$	(395)	$	(885)
Dividends on Equity Investments		356		67		26
Rental income on leases		46		102		173
Other		2,569		2,134		1,842
Total other non-interest revenue	$	1,908	$	1,908	$	1,156

16. OTHER OPERATING EXPENSE

Other expense consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Professional fees	$	4,143	$	3,454	$	3,941
Data processing		1,987		1,807		1,523
Advertising and promotion		1,960		1,771		2,051
Deposit services		1,980		2,266		2,516
Stationery and supplies		657		738		705
Telephone and data communication		1,613		1,549		1,291
Loan and credit card processing		1,327		419		1,082
Foreclosed assets expense		1,202		4,914		5,226
Postage		713		718		576
Other		1,039		1,905		1,267
Total other non-interest expense	$	16,621	$	19,541	$	20,178

100

 

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

17. RELATED PARTY TRANSACTIONS

During the normal course of business, the Bank enters into loans with related parties, including executive officers and directors. These loans are made with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Balance, beginning of year	$	629	$	2,471	$	3,465
Disbursements		543		625		773
Amounts repaid		(606)		(2,467)		(1,767)
Decreased		-		-		-
Balance, end of year	$	566	$	629	$	2,471
Undisbursed commitments to related parties	$	460	$	330	$	472

Deposits from related parties held by the Bank at December 31, 2013 and 2012 amounted to $7,523,000 and $9,012,000, respectively.

101

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

18. FAIR VALUE

Fair value is defined by U.S. GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.U.S. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.The standard describes three levels of inputs that may be used to measure fair value:

§ Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

§ Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

§ Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would use in pricing an asset or liability.

102

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

18. FAIR VALUE (Continued)

The Company used the following methods and significant assumptions to estimate fair values for each category of financial asset noted below:

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities.

Collateral-dependent impaired loans:A specific loss allowance is created for collateral dependent impaired loans, representing the difference between the face value of the loan and its current appraised value less estimated disposition costs.

Foreclosed assets:Repossessed real estate (OREO) and other assets are carried at the lower of cost or fair value.Fair value is the appraised value less expected selling costs for OREO and some other assets such as mobile homes, and for all other assets fair value is represented by the estimated sales proceeds as determined using reasonably available sources.Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals.Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation of expected cash flows and the timing of resolution.If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance.

103

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

18. FAIR VALUE (Continued)

Assets and liabilities measured at fair value on a recurring basis, including financial liabilities for which the Company has elected the fair value option, are summarized below (dollars in thousands):

	Fair Value Measurements at December 31, 2013, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss)
Investment Securities
US Government Agencies	$	-	$	5,304	$	-	$	5,304	$	-
Mortgage-backed securities		-		320,721		-		320,721		-
State and political subdivisions		-		96,563		-		96,563		-
Equity securities		2,456		-		-		2,456		-
Total available-for-sale securities	$	2,456	$	422,588	$	-	$	425,044	$	-

	Fair Value Measurements at December 31, 2012, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss)
Investment Securities
US Government Agencies	$	-	$	2,973	$	-	$	2,973	$	-
Mortgage-backed securities		-		301,389		-		301,389		-
State and political subdivisions		-		73,986		-		73,986		-
Equity securities		1,809		31		-		1,840		-
Total available-for-sale securities	$	1,809	$	378,379	$	-	$	380,188	$	-

104

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

18. FAIR VALUE (Continued)

Assets and liabilities measured at fair market value on a non-recurring basis are summarized below (dollars in thousands):

	Year Ended December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Collateral Dependent Impaired Loans	$	-	$	14,705	$	-	$	14,705
Foreclosed Assets	$	-	$	8,185	$	-	$	8,185

	Year Ended December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Collateral Dependent Impaired Loans	$	-	$	27,449	$	-	$	27,449
Foreclosed Assets	$	-	$	19,754	$	-	$	19,754

105

 

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Disclosures include estimated fair values for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments at December 31, 2013 and 2012:

Cash and cash equivalents, and fed funds sold: For cash and cash equivalents and fed funds sold, the carrying amount is estimated to be fair value.

Investment securities:The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities when quoted prices for specific securities are not readily available.

Loans and leases:For variable-rate loans and leases that re-price frequently with no significant change in credit risk or interest rate spread, fair values are based on carrying values.Fair values for other loans and leases are estimated by discounting projected cash flows at interest rates being offered at each reporting date for loans and leases with similar terms, to borrowers of comparable creditworthiness.

Loans held for sale:Since loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and fluctuations in fair values are thus not relevant for reporting purposes.If available-for-sale loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices.

Cash surrender value of life insurance policies:The fair values are based on current cash surrender values at each reporting date provided by the insurers.

Investment in limited partnerships:The fair values of our investments in limited partnerships are estimated using quarterly indications of value provided by the general partner.The fair values of undisbursed capital commitments are assumed to be the same as their book values.

Other investments:Included in other assets are certain long-term investments carried at cost, which approximates estimated fair value, unless an impairment analysis indicates the need for adjustments.

Deposits:Fair values for non-maturity deposits are equal to the amount payable on demand at the reporting date, which is the carrying amount.Fair values for fixed-rate certificates of deposit are estimated using a cash flow analysis, discounted at interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities.

Short-term borrowings:The carrying amounts approximate fair values for federal funds purchased, overnight FHLB advances, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days of the reporting dates.Fair values of other short-term borrowings are estimated by discounting projected cash flows at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

106

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Long-term borrowings:The fair values of the Company’s long-term borrowings are estimated using projected cash flows discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated debentures:The fair values of subordinated debentures are determined based on the current market value for like instruments of a similar maturity and structure.

Commitments to extend credit and letters of credit:If funded, the carrying amounts for currently unused commitments would approximate fair values for the newly created financial assets at the funding date.However, because of the high degree of uncertainty with regard to whether or not those commitments will ultimately be funded, fair values for loan commitments and letters of credit in their current undisbursed state cannot reasonably be estimated, and only notional values are disclosed in the table below.

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

	Year Ended December 31, 2013
			Estimated Fair Value
			Quoted Prices in				Significant
			Active Markets for		Significant		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	78,006	$	78,006	$	-	$	-	$	78,006
Investment securities available for sale		425,044		2,456		422,588		-		425,044
Loans and leases held for investment		778,382		-		797,383		-		797,383
Collateral dependent impaired loans		14,705		-		14,705		-		14,705
Loans held-for-sale		105		105		-		-		105
Cash surrender value of life insurance     policies		39,424		-		39,424		-		39,424
Other Investments		5,932		-		5,932		-		5,932
Investment in Limited Partnership		9,204		-		9,204		-		9,204
Accrued interest receivable		4,990		-		4,990		-		4,990
Financial Liabilities:
Deposits:
Noninterest-bearing	$	365,997	$	365,997	$	-	$	-	$	365,997
Interest-bearing		808,182		-		808,182		-		808,182
Fed Funds Purchased and
Repurchase Agreements		5,974		-		5,974		-		5,974
Short-term borrowings		-		-		-		-		-
Long-term borrowings		-		-		-		-		-
Subordinated debentures		30,928		-		11,175		-		11,175
Limited partnership capital commitment		962		-		962		-		962
Accrued Interest Payable		186		-		186		-		186
	Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit	$	420,707
Standby letters of credit		8,703
Commercial lines of credit		8,070

107

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

	Year Ended December 31, 2012
			Estimated Fair Value
			Quoted Prices in				Significant
			Active Markets for		Significant		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	61,818	$	61,818	$	-	$	-	$	61,818
Investment securities available for sale		380,188		1,809		378,379		-		380,188
Loans and leases held for investment		839,629		-		873,309		-		873,309
Collateral dependent impaired loans		27,449		-		27,449		-		27,449
Loans held-for-sale		210		210		-		-		210
Cash surrender value of life insurance     policies		38,007		-		38,007		-		38,007
Other Investments		6,370		-		6,370		-		6,370
Investment in Limited Partnership		10,316		-		10,316		-		10,316
Accrued interest receivable		5,095		-		5,095		-		5,095
Financial Liabilities:
Deposits:
Noninterest-bearing	$	352,597	$	352,597	$	-	$	-	$	352,597
Interest-bearing		821,437		-		821,911		-		821,911
Fed Funds Purchased and
Repurchase Agreements		1,419		-		1,419		-		1,419
Short-term borrowings		36,650		-		36,650		-		36,650
Long-term borrowings		5,000		-		5,038		-		5,038
Subordinated debentures		30,928		-		12,141		-		12,141
Limited partnership capital commitment		962		-		962		-		962
Accrued Interest Payable		304		-		304		-		304
		Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit		225,400
Standby letters of credit		6,690
Commercial lines of credit		8,539

108

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

20.PARENT ONLY CONDENSED FINANCIAL STATEMENTS

BALANCE SHEETS

Years Ended December 31, 2013 and 2012

(dollars in thousands)

	2013		2012
ASSETS
Cash and due from banks	$	1,337	$	1,712
Investments in bank subsidiary		208,326		200,497
Investment in Trust subsidiaries		928		928
Investment in other securities		2,421		1,809
Other assets		310		263
Total Assets	$	213,322	$	205,209
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other liabilities	$	720	$	389
Subordinated debentures		30,928		30,928
Total liabilities		31,648		31,317
Shareholders' equity:
Common stock		68,428		67,044
Retained Earnings		112,817		103,128
Accumulated other comprehensive income, net of taxes		429		3,720
Total shareholders' equity		181,674		173,892
Total liabilities and shareholders' equity	$	213,322	$	205,209

109

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

20. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)

STATEMENTS OF INCOME

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands)

	2013		2012		2011
Income:
Other-than-temporary impairment losses on equity securities	$	-	$	-	$	(1,370)
Dividend from Subsidiary		3,000		-		-
Other operating income		16		10		21
Total Income		3,016		10		(1,349)
Expense
Salaries and employee benefits		349		254		206
Other expenses		1,313		1,365		1,388
Total expenses		1,662		1,619		1,594
Income (loss) before income taxes		1,354		(1,609)		(2,943)
Income tax benefit		(803)		(663)		(1,212)
Income (loss) before equity in undistributed income of subsidiary		2,157		(946)		(1,731)
Equity in undistributed income of subsidiary		11,212		9,131		9,511
Net income	$	13,369	$	8,185	$	7,780

110

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

20. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)

STATEMENTS OF CASH FLOWS

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands)

	2013		2012		2011
Cash flows from operating activities:
Net Income	$	13,369	$	8,185	$	7,780
Adjustments to reconcile net income to net cash provided by     operating activities:
Undistributed net income of subsidiary		(11,212)		(9,131)		(9,511)
Other-than-temporary impairment loss		-		-		1,370
(Increase) decrease in other assets		(75)		583		(140)
Increase in other liabilities		106		50		73
Tax benefit (provision) from equity based compensation		29		(36)		109
Net provided for (used in) operating activities		2,217		(349)		(319)
Cash flows from financing activities:
Expense from the issuance of common stock		-		-		(23)
Stock options exercised		1,088		51		867
Dividends paid		(3,680)		(3,385)		(3,368)
Net cash used in by financing activities		(2,592)		(3,334)		(2,524)
Net decrease in cash and cash equivalents		(375)		(3,683)		(2,843)
Cash and cash equivalents, beginning of year		1,712		5,395		8,238
Cash and cash equivalents, end of year	$	1,337	$	1,712	$	5,395

111

 

SIERRA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

21. CONDENSED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth the Company’s results of operations for the four quarters of 2013 and 2012 and is unaudited. In management’s opinion, the results of operations reflect all adjustments (which include only recurring adjustments) necessary to present fairly the condensed results for such periods.

	2013 Quarter Ended
	December 31,		September 30,		June 30,		March 31,
Interest income	$	13,188	$	12,791	$	13,090	$	12,716
Interest expense		743		790		815		873
Net interest income		12,445		12,001		12,275		11,843
Provision for loan and lease losses		1,500		800		450		1,600
Non-interest income		4,607		4,319		4,022		4,115
Non-interest expense		10,788		11,490		10,717		11,820
Net income before taxes		4,764		4,030		5,130		2,538
Provision for taxes		895		663		1,331		204
Net income	$	3,869	$	3,367	$	3,799	$	2,334
Diluted earnings per share	$	0.27	$	..23	$	..27	$	..16
Cash dividend per share	$	0.07	$	..07	$	..06	$	..06

	2012 Quarter Ended
	December 31,		September 30,		June 30,		March 31,
Interest income	$	13,389	$	14,192	$	13,612	$	13,709
Interest expense		973		1,063		1,064		1,221
Net interest income		12,416		13,129		12,548		12,488
Provision for loan and lease losses		3,600		4,700		3,160		2,750
Non-interest income		5,521		4,381		4,121		4,103
Non-interest expense		12,637		11,496		10,482		12,041
Net income before taxes		1,700		1,314		3,027		1,800
Provision for taxes		(398)		(321)		454		(79)
Net income	$	2,098	$	1,635	$	2,573	$	1,879
Diluted earnings per share	$	..15	$	..12	$	..18	$	..13
Cash dividend per share	$	..06	$	..06	$	..06	$	..06

112

Item 9. Changes in and Disagreements with Accountants on Accounting And Financial Disclosure

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13(a)–15(e) as of the end of the period covered by this report (the “Evaluation Date”) have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this annual report was being prepared.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for the preparation, integrity, and reliability of the consolidated financial statements and related financial information contained in this annual report. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and, as such, include some amounts that are based on judgments and estimates of management.

Management has established and is responsible for maintaining effective internal control over financial reporting. The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time. The system contains monitoring mechanisms, and actions are taken to correct deficiencies identified.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. This assessment was based on criteria for effective internal control over financial reporting described in “Internal Control - Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2013.

113

Management is responsible for compliance with the federal and state laws and regulations concerning dividend restrictions and federal laws and regulations concerning loans to insiders designated by the FDIC as safety and soundness laws and regulations. Management assessed compliance by the Company’s insured financial institution, Bank of the Sierra, with the designated laws and regulations relating to safety and soundness. Based on this assessment, management believes that Bank of the Sierra complied, in all significant respects, with the designated laws and regulations related to safety and soundness for the year ended December 31, 2013.

Our assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by Vavrinek, Trine, Day & Co., LLP, an independent registered public accounting firm, as stated in their report appearing below.

Changes in Internal Control

There were no significant changes in the Company’s internal control over financial reporting or in other factors in the fourth quarter of 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

114

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Sierra Bancorp and Subsidiary

Porterville, California

We have audited Sierra Bancorp and Subsidiary’s (the Company’s) internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in conformity with U.S. generally accepted accounting principles. Because management’s assessment and our audit were conducted to also meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management’s assessment and our audit of the Company’s internal control over financial reporting included controls over the preparation of financial statements in accordance with instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C). A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheets of the Company as of December 31, 2013 and 2012, and the related consolidated statements of operations, shareholders’ equity and comprehensive income and cash flows for each of the years in the three year period ended December 31, 2013, and our report dated March 13, 2014 expressed an unqualified opinion on those financial statements.

/s/ Vavrinek, Trine, Day & Co., LLP

Rancho Cucamonga, California

March 13, 2014

115

ITEM 9B. OTHER INFORMATION.

None.

PART III

Item 10.Directors, Executive Officers AND CORPORATE GOVERNANCE

The information required to be furnished pursuant to this item with respect to Directors and Executive Officers of the Company will be set forth under the caption “Election of Directors” in the Company’s proxy statement for the 2014 Annual Meeting of Shareholders (the “Proxy Statement”), which the Company will file with the SEC within 120 days after the close of the Company’s 2013 fiscal year in accordance with SEC Regulation 14A under the Securities Exchange Act of 1934. Such information is hereby incorporated by reference.

The information required to be furnished pursuant to this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement, and is incorporated herein by reference.

The information required to be furnished pursuant to this item with respect to the Company’s Code of Ethics and corporate governance matters will be set forth under the caption “Corporate Governance” in the Proxy Statement, and is incorporated herein by reference.

Item 11. Executive Compensation

The information required to be furnished pursuant to this item will be set forth under the captions “Executive Officer and Director Compensation” and “Compensation Discussion and Analysis” in the Proxy Statement, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management AND RELATED SHAREHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

The information required by Item 12 with respect to securities authorized for issuance under equity compensation plans is set forth under “Item 5 – Market for Registrant’s Common Equity and Issuer Repurchases of Equity Securities” above.

Other Information Concerning Security Ownership of Certain Beneficial Owners and Management

The remainder of the information required by Item 12 will be set forth under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Election of Directors” in the Proxy Statement, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions AND DIRECTOR INDEPENDENCE

The information required to be furnished pursuant to this item will be set forth under the captions “Related Party Transactions” and “Corporate Governance – Director Independence” in the Proxy Statement, and is incorporated herein by reference.

116

Item 14. PRINCIPAL ACCOUNTING FEES and SERVICES

The information required to be furnished pursuant to this item will be set forth under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm – Fees” in the Proxy Statement, and is incorporated herein by reference.

117

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)Exhibits

Exhibit #	Description
3.1	Restated Articles of Incorporation of Sierra Bancorp (1)
3.2	Amended and Restated By-laws of Sierra Bancorp (2)
10.1	1998 Stock Option Plan (3)
10.2	Salary Continuation Agreement for Kenneth R. Taylor (4)
10.3	Salary Continuation Agreement for James C. Holly (4)
10.4	Salary Continuation Agreement and Split Dollar Agreement for James F. Gardunio (5)
10.5	Split Dollar Agreement for Kenneth R. Taylor (6)
10.6	Split Dollar Agreement and Amendment thereto for James C. Holly (6)
10.7	Director Retirement Agreement and Split dollar Agreement for Vincent Jurkovich (6)
10.8	Director Retirement Agreement and Split dollar Agreement for Robert Fields (6)
10.9	Director Retirement Agreement and Split dollar Agreement for Gordon Woods (6)
10.10	Director Retirement Agreement and Split dollar Agreement for Morris Tharp (6)
10.11	Director Retirement Agreement and Split dollar Agreement for Albert Berra (6)
10.12	401 Plus Non-Qualified Deferred Compensation Plan (6)
10.13	Indenture dated as of March 17, 2004 between U.S. Bank N.A., as Trustee, and Sierra Bancorp, as Issuer (7)
10.14	Amended and Restated Declaration of Trust of Sierra Statutory Trust II, dated as of March 17, 2004 (7)
10.15	Guarantee Agreement between Sierra Bancorp and U.S. Bank National Association dated as of March 17, 2004 (7)
10.16	Indenture dated as of June 15, 2006 between Wilmington Trust Co., as Trustee, and Sierra Bancorp, as Issuer (8)
10.17	Amended and Restated Declaration of Trust of Sierra Capital Trust III, dated as of June 15, 2006 (8)
10.18	Guarantee Agreement between Sierra Bancorp and Wilmington Trust Company dated as of June 15, 2006 (8)
10.19	2007 Stock Incentive Plan (9)
10.20	Sample Retirement Agreement Entered into with Each Non-Employee Director Effective January 1, 2007 (10)
10.21	Salary Continuation Agreement for Kevin J. McPhaill (10)
10.22	First Amendment to the Salary Continuation Agreement for Kenneth R. Taylor (10)
10.23	Second Amendment to the Salary Continuation Agreement for Kenneth R. Taylor
11	Statement of Computation of Per Share Earnings (11)
21	Subsidiaries of Sierra Bancorp (12)
23	Consent of Vavrinek, Trine, Day & Co., LLP
31.1	Certification of Chief Executive Officer (Section 302 Certification)
31.2	Certification of Chief Financial Officer (Section 302 Certification)
32	Certification of Periodic Financial Report (Section 906 Certification)

(1) Filed as Exhibit 3.1 to the Form 10-Q filed with the SEC on August 7, 2009 and incorporated herein by reference.

(2) Filed as an Exhibit to the Form 8-K filed with the SEC on February 21, 2007 and incorporated herein by reference.

(3) Filed as an Exhibit to the Registration Statement of Sierra Bancorp on Form S-4 filed with the Securities and Exchange Commission (SEC) (Registration No. 333-53178) on January 4, 2001 and incorporated herein by reference.

(4) Filed as Exhibits 10.5 and 10.7 to the Form 10-Q filed with the SEC on May 15, 2003 and incorporated herein by reference.

(5) Filed as an Exhibit to the Form 8-K filed with the SEC on August 11, 2005 and incorporated herein by reference.

(6) Filed as Exhibits 10.10, 10.12, and 10.15 through 10.20 to the Form 10-K filed with the SEC on March 15, 2006 and incorporated herein by reference.

(7) Filed as Exhibits 10.9 through 10.11 to the Form 10-Q filed with the SEC on May 14, 2004 and incorporated herein by reference.

(8) Filed as Exhibits 10.26 through 10.28 to the Form 10-Q filed with the SEC on August 9, 2006 and incorporated herein by reference.

(9) Filed as Exhibit 10.20 to the Form 10-K filed with the SEC on March 15, 2007 and incorporated herein by reference.

(10) Filed as an Exhibit to the Form 8-K filed with the SEC on January 8, 2007 and incorporated herein by reference.

(11) Computation of earnings per share is incorporated by reference to Note 6 of the Financial Statements included herein.

(12) Filed as Exhibit 21 to the Form 10-K filed with the SEC on March 15, 2007 and incorporated herein by reference

118

(b)Financial Statement Schedules

Schedules to the financial statements are omitted because the required information is not applicable or because the required information is presented in the Company’s Consolidated Financial Statements or related notes.

119

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:March 13, 2014	SIERRA BANCORP,
	a California corporation
	By:	/s/ James C. Holly
		James C. Holly
		Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Kenneth R. Taylor
		Kenneth R. Taylor
		Executive Vice President &
		Chief Financial Officer
		(Principal Financial and Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Albert L. Berra	Director	March 13, 2014
Albert L. Berra
/s/ Robert L. Fields	Director	March 13, 2014
Robert L. Fields
/s/ James C. Holly	Chief Executive Officer & Director	March 13, 2014
James C. Holly	(Principal Executive Officer)
/s/ Vincent L. Jurkovich	Director	March 13, 2014
Vincent L. Jurkovich
/s/ Lynda B. Scearcy	Director	March 13, 2014
Lynda B. Scearcy
/s/ Morris A. Tharp	Chairman of the Board	March 13, 2014
Morris A. Tharp
/s/ Gordon T. Woods	Director	March 13, 2014
Gordon T. Woods
/s/ Kenneth R. Taylor	Executive Vice President &	March 13, 2014
Kenneth R. Taylor	Chief Financial Officer (Principal Financial and Principal Accounting Officer)

120

EX-10.23

Exhibit 10.23

SECOND AMENDMENT

to the

BANK OF THE SIERRA

SALARY CONTINUATION AGREEMENT

for

KENNETH TAYLOR

THIS SECOND AMENDMENT is entered into this 2^nd day of January, 2014, by and between BANK OF THE SIERRA, a state-chartered commercial bank located in PORTERVILLE, CALIFORNIA (the “Bank”), and KENNETH TAYLOR (the “Executive”).

WHEREAS, the Bank and the Executive executed the Bank of the Sierra Salary Continuation Agreement on October 1, 2002, which was subsequently amended on December 22, 2006; and

WHEREAS, Article 7 of the Agreement provides that the Agreement may be amended upon mutual consent of the Bank and the Executive; and

WHEREAS, the purpose of this SECOND AMENDMENT is to waive the requirement that the Executive remain employed until age 65, and instead require that Executive remain employed until December 31, 2019, and that any voluntary termination of employment prior to that date will result in forfeiture of all benefits.

NOW, THEREFORE, pursuant to Article 7 of the Agreement, it is mutually agreed by and between the Bank and the Executive as follows:

1. Section 1.7 of the Agreement shall be amended to remove the words “means the Executive attaining 65 years of age” and to replace them with the words “means the Executive has remained employed by the Bank until December 31, 2019.”

This Amendment supersedes any prior amendment on the same subject. To the extent any paragraph, term, or provision of the Agreement is not specifically amended herein, or in any other amendment thereto, such paragraph, term, or provision shall remain in full force and effect as set forth in the Agreement.

IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date indicated above.

EXECUTIVE:	BANK:
	BANK OF THE SIERRA
/s/ Kenneth Taylor	By	/s/ James Holly
Kenneth Taylor		James Holly
	Title	Chief Executive Officer

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-74616 and No. 333-146214 on Form S-8, of our report dated March 13, 2014 on our audits of the consolidated financial statements of Sierra Bancorp and Subsidiary and the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K.

/s/ Vavrinek, Trine, Day & Co., LLP

Rancho Cucamonga, California

March 13, 2014

EX-31.1

Exhibit 31.1 – Certification of Chief Executive Officer (Section 302 Certification)

I, James C. Holly, certify that:

1.  I have reviewed the 2013 Annual Report on Form 10-K (Annual Report) of Sierra Bancorp (the “Registrant”);

2.  Based on my knowledge, the Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Annual Report;

3.  Based on my knowledge, the financial statements, and other financial information included in the Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the Annual Report;

4.  The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Annual Report is being prepared;

(b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)      Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in the Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Annual Report based on such evaluation; and

(d)      Disclosed in the Annual Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.  The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:March 13, 2014

/s/ James C. Holly

     James C. Holly

     Chief Executive Officer

EX-31.2

Exhibit 31.2 – Certification of Chief Financial Officer (Section 302 Certification)

I, Kenneth R. Taylor, certify that:

1.  I have reviewed the 2013 Annual Report on Form 10-K (Annual Report) of Sierra Bancorp (the “Registrant”);

2.  Based on my knowledge, the Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Annual Report;

3.  Based on my knowledge, the financial statements, and other financial information included in the Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the Annual Report;

4.  The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Annual Report is being prepared;

(b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)      Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in the Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Annual Report based on such evaluation; and

(d)      Disclosed in the Annual Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.  The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:March 13, 2014

/s/ Kenneth R. Taylor

    Kenneth R. Taylor

    Executive Vice President &

    Chief Financial Officer

EX-32

Exhibit 32 – Certification of Periodic Financial Report

James C. Holly and Kenneth R. Taylor hereby certify as follows:

1.  They are the Chief Executive Officer and Chief Financial Officer, respectively, of Sierra Bancorp.

2.  The Form 10-K of Sierra Bancorp for the year ended December 31, 2013 complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and the information contained in the report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Sierra Bancorp.

March 13, 2014	/s/ James C. Holly
Date	James C. Holly
	Chief Executive Officer
March 13, 2014	/s/Kenneth R. Taylor
Date	Kenneth R. Taylor
	Executive Vice President &
	Chief Financial Officer

XML

COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

Future minimum lease payments on non-cancelable operating leases are as follows:

Year Ending December 31,
2014	$	1,036,000
2015		996,000
2016		792,000
2017		783,000
2018		669,000
Thereafter		4,339,000
	$	8,615,000

Financial Instruments Representing Off-Balance-Sheet Credit Risk

The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

	Years Ended December 31,
	2013		2012
Fixed-rate commitments to extend credit	$	64,148	$	53,550
Variable-rate commitments to extend credit	$	356,559	$	171,850
Standby letters of credit	$	8,703	$	6,690
Commercial and similar letters of credit	$	8,070	$	8,539

XML

Gross Gains and Losses from the Sales and Calls of Investment Securities (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Gross Gains And Losses From The Sales And Calls Of Investment Securities [Line Items]
Gross Gains on Sales and Calls of Investment Securities	$ 6	$ 2,059	$ 1,666
Gross Losses on Sales and Calls of Investment Securities	0	(297)	(6)
Net Gains on Sales and Calls of Investment Securities	$ 6	$ 1,762	$ 1,660

XML

CONDENSED QUARTERLY RESULTS OF OPERATIONS (Tables)

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

Schedule Of Results Of Operations Activities Disclosure

The following table sets forth the Company’s results of operations for the four quarters of 2013 and 2012 and is unaudited. In management’s opinion, the results of operations reflect all adjustments (which include only recurring adjustments) necessary to present fairly the condensed results for such periods.

	2013 Quarter Ended
	December 31,		September 30,		June 30,		March 31,
Interest income	$	13,188	$	12,791	$	13,090	$	12,716
Interest expense		743		790		815		873
Net interest income		12,445		12,001		12,275		11,843
Provision for loan and lease losses		1,500		800		450		1,600
Non-interest income		4,607		4,319		4,022		4,115
Non-interest expense		10,788		11,490		10,717		11,820
Net income before taxes		4,764		4,030		5,130		2,538
Provision for taxes		895		663		1,331		204
Net income	$	3,869	$	3,367	$	3,799	$	2,334
Diluted earnings per share	$	0.27	$	.23	$	.27	$	.16
Cash dividend per share	$	0.07	$	.07	$	.06	$	.06

	2012 Quarter Ended
	December 31,		September 30,		June 30,		March 31,
Interest income	$	13,389	$	14,192	$	13,612	$	13,709
Interest expense		973		1,063		1,064		1,221
Net interest income		12,416		13,129		12,548		12,488
Provision for loan and lease losses		3,600		4,700		3,160		2,750
Non-interest income		5,521		4,381		4,121		4,103
Non-interest expense		12,637		11,496		10,482		12,041
Net income before taxes		1,700		1,314		3,027		1,800
Provision for taxes		(398)		(321)		454		(79)
Net income	$	2,098	$	1,635	$	2,573	$	1,879
Diluted earnings per share	$	.15	$	.12	$	.18	$	.13
Cash dividend per share	$	.06	$	.06	$	.06	$	.06

XML

Other Assets - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Other Assets [Line Items]
Federal Home Loan Bank stock, at cost	$ 5,581	$ 6,019

XML

Investment Securities with Unrealized Gross Losses (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	$ (1,195)	$ (1,104)
Fair Value, Less Than Twelve Months	30,459	118,361
Gross Unrealized Losses, Over Twelve Months	(4,206)	(61)
Fair Value, Over Twelve Months	164,320	6,965
U.S. Government agencies
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	(92)	(17)
Fair Value, Less Than Twelve Months	1,913	1,996
Gross Unrealized Losses, Over Twelve Months	(17)	0
Fair Value, Over Twelve Months	1,920	0
Mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	(642)	(903)
Fair Value, Less Than Twelve Months	21,747	106,799
Gross Unrealized Losses, Over Twelve Months	(2,129)	(61)
Fair Value, Over Twelve Months	124,317	6,965
State and political subdivisions
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	(461)	(180)
Fair Value, Less Than Twelve Months	6,799	9,324
Gross Unrealized Losses, Over Twelve Months	(2,060)	0
Fair Value, Over Twelve Months	38,083	0
Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	0	(4)
Fair Value, Less Than Twelve Months	0	242
Gross Unrealized Losses, Over Twelve Months	0	0
Fair Value, Over Twelve Months	$ 0	$ 0

XML

Components of the Net Deferred Tax Asset, included in Other Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Deferred tax assets:
Allowance for loan losses	$ 5,669	$ 6,594
Foreclosed Assets	1,779	4,461
Deferred compensation	4,112	3,627
Accrued reserves	594	502
Non Accrual Loans	1,211	865
Other than temporary impairment charge	576	576
Credit Carryforward	3,089	2,273
Other	153	185
Total deferred tax assets	17,183	19,083
Deferred tax liabilities:
Premises and equipment	(589)	(552)
Deferred loan costs	(2,254)	(2,152)
Unrealized gain on securities available-for-sale	(299)	(2,602)
Other	(1,755)	(1,782)
Total deferred tax liabilities	(4,897)	(7,088)
Net deferred tax assets	$ 12,286	$ 11,995

XML

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Investments, All Other Investments [Abstract]

Estimated Fair Values for Financial Instruments

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

	Year Ended December 31, 2013
			Estimated Fair Value
			Quoted Prices in				Significant
			Active Markets for		Significant		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	78,006	$	78,006	$	-	$	-	$	78,006
Investment securities available for sale		425,044		2,456		422,588		-		425,044
Loans and leases held for investment		778,382		-		797,383		-		797,383
Collateral dependent impaired loans		14,705		-		14,705		-		14,705
Loans held-for-sale		105		105		-		-		105
Cash surrender value of life insurance     policies		39,424		-		39,424		-		39,424
Other Investments		5,932		-		5,932		-		5,932
Investment in Limited Partnership		9,204		-		9,204		-		9,204
Accrued interest receivable		4,990		-		4,990		-		4,990
Financial Liabilities:
Deposits:
Noninterest-bearing	$	365,997	$	365,997	$	-	$	-	$	365,997
Interest-bearing		808,182		-		808,182		-		808,182
Fed Funds Purchased and
Repurchase Agreements		5,974		-		5,974		-		5,974
Short-term borrowings		-		-		-		-		-
Long-term borrowings		-		-		-		-		-
Subordinated debentures		30,928		-		11,175		-		11,175
Limited partnership capital commitment		962		-		962		-		962
Accrued Interest Payable		186		-		186		-		186

	Year Ended December 31, 2012
			Estimated Fair Value
			Quoted Prices in				Significant
			Active Markets for		Significant		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	61,818	$	61,818	$	-	$	-	$	61,818
Investment securities available for sale		380,188		1,809		378,379		-		380,188
Loans and leases held for investment		839,629		-		873,309		-		873,309
Collateral dependent impaired loans		27,449		-		27,449		-		27,449
Loans held-for-sale		210		210		-		-		210
Cash surrender value of life insurance     policies		38,007		-		38,007		-		38,007
Other Investments		6,370		-		6,370		-		6,370
Investment in Limited Partnership		10,316		-		10,316		-		10,316
Accrued interest receivable		5,095		-		5,095		-		5,095
Financial Liabilities:
Deposits:
Noninterest-bearing	$	352,597	$	352,597	$	-	$	-	$	352,597
Interest-bearing		821,437		-		821,911		-		821,911
Fed Funds Purchased and
Repurchase Agreements		1,419		-		1,419		-		1,419
Short-term borrowings		36,650		-		36,650		-		36,650
Long-term borrowings		5,000		-		5,038		-		5,038
Subordinated debentures		30,928		-		12,141		-		12,141
Limited partnership capital commitment		962		-		962		-		962
Accrued Interest Payable		304		-		304		-		304

Off-Balance-Sheet Financial Instruments, Notional Amount

	Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit	$		420,707
Standby letters of credit			8,703
Commercial lines of credit			8,070
		Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit		225,400
Standby letters of credit		6,690
Commercial lines of credit		8,539

XML

LOANS AND LEASES (Tables)

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Schedule of Participating Mortgage Loans

The composition of the loan and lease portfolio is as follows (dollars in thousands):

	December 31,
	2013		2012
Real estate:
Secured by residential, commercial and professional office properties,
including construction and development	$	318,383	$	303,424
Secured by residential properties		150,952		170,514
Secured by farm land		108,504		71,851
Total Real Estate Loans		577,839		545,789
Agricultural		25,180		22,482
Commercial and industrial		158,756		257,896
Small Business Administration loans		14,905		20,523
Direct Financing leases		3,026		4,233
Consumer		23,536		28,872
Total Loans		803,242		879,795
Deferred loan and lease origination cost, net		1,522		1,156
Allowance for loan and lease losses		(11,677)		(13,873)
Loans, net	$	793,087	$	867,078

Credit Quality Classifications for Loan Balances

Credit quality classifications as of December 31, 2013 were as follows (dollars in thousands):

			Special
	Pass		Mention		Substandard		Impaired		Total
Real Estate:
1-4 family residential construction	$	1,720	$	-	$	-	$	-	$	1,720
Other Construction/Land		18,243		334		203		6,751		25,531
1-4 family - closed-end		67,051		1,305		770		17,898		87,024
Equity Lines		51,019		254		1,429		1,021		53,723
Multi-family residential		8,059		426		-		-		8,485
Commercial real estate owner occupied		158,155		17,033		3,261		7,563		186,012
Commercial real estate Non-owner occupied		89,475		3,630		240		13,495		106,840
Farmland		105,623		1,780		819		282		108,504
Total Real Estate		499,345		24,762		6,722		47,010		577,839
Agricultural		24,178		532		-		470		25,180
Commercial and Industrial		153,125		2,520		416		2,695		158,756
Small Business Administration loans		10,498		838		820		2,749		14,905
Direct finance leases		3,026		-		-		-		3,026
Consumer loans		19,387		478		208		3,463		23,536
Total Gross Loans and Leases	$	709,559	$	29,130	$	8,166	$	56,387	$	803,242

Credit quality classifications as of December 31, 2012 were as follows (dollars in thousands):

			Special
	Pass		Mention		Substandard		Impaired		Total
Real Estate:
1-4 family residential construction	$	1,599	$	1,333	$	89	$	153	$	3,174
Other Construction/Land		13,270		952		1,132		12,648		28,002
1-4 family - closed-end		73,002		2,484		1,209		23,222		99,917
Equity Lines		58,161		95		1,949		1,258		61,463
Multi-family residential		5,351		609		-		-		5,960
Commercial real estate owner occupied		144,207		22,895		6,562		8,950		182,614
Commercial real estate Non-owner occupied		67,407		6,864		568		17,969		92,808
Farmland		64,176		2,216		3,526		1,933		71,851
Total Real Estate		427,173		37,448		15,035		66,133		545,789
Agricultural		21,333		462		24		663		22,482
Commercial and Industrial		247,375		5,020		1,845		3,656		257,896
Small Business Administration loans		15,002		1,551		743		3,227		20,523
Direct finance leases		4,076		22		-		135		4,233
Consumer loans		23,881		445		198		4,348		28,872
Total Gross Loans and Leases	$	738,840	$	44,948	$	17,845	$	78,162	$	879,795

Schedule of Credit Losses Related to Financing Receivables, Noncurrent

A summary of the transactions in the allowance for loan and lease losses follows (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Balance, beginning of year	$	13,873	$	17,283	$	21,138
Provision for loan and lease losses		4,350		14,210		12,000
Losses charged to allowance		(8,263)		(18,778)		(16,987)
Recoveries		1,717		1,158		1,132
Balance, end of year	$	11,677	$	13,873	$	17,283

Allowance for Credit Losses and Recorded Investment in Financing Receivables

The following table presents the activity in the allowance for loan losses for the year 2013 and the recorded investment in loans and impairment method as of December 31, 2013 by portfolio segment (dollars in thousands):

					Commercial				Direct
					and		Small Business		Finance
	Real Estate		Agricultural		Industrial		Administration		Leases		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning of year	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Charge-offs		(4,205)		(473)		(1,268)		(294)		(106)		(1,917)		-		(8,263)
Recoveries		618		-		747		37		18		297		-		1,717
Provision		1,097		1,193		633		626		(73)		623		251		4,350
End of year	$	5,544	$	978	$	2,168	$	1,615	$	4	$	1,117	$	251	$	11,677
Reserves:
Specific	$	2,867	$	126	$	655	$	1,270	$	-	$	431	$	-	$	5,349
General		2,677		852		1,513		345		4		686		251		6,328
	$	5,544	$	978	$	2,168	$	1,615	$	4	$	1,117	$	251	$	11,677
Loans evaluated for      impairment:
Individually	$	47,010	$	470	$	2,695	$	2,749	$	-	$	3,463	$	-	$	56,387
Collectively		530,829		24,710		156,061		12,156		3,026		20,073		-		746,855
	$	577,839	$	25,180	$	158,756	$	14,905	$	3,026	$	23,536	$	-	$	803,242

The following table presents the activity in the allowance for loan losses for the year 2012 and the recorded investment in loans and impairment method as of December 31, 2012 by portfolio segment (dollars in thousands):

 

					Commercial				Direct
					and		Small Business		Finance
	Real Estate		Agricultural		Industrial		Administration		Leases		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning of year	$	8,260	$	19	$	4,638	$	1,447	$	311	$	2,608	$	-	$	17,283
Charge-offs		(11,108)		(634)		(3,517)		(753)		(198)		(2,568)		-		(18,778)
Recoveries		302		-		483		95		-		278		-		1,158
Provision		10,580		873		452		457		52		1,796		-		14,210
End of year	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Reserves:
Specific	$	4,180	$	28	$	934	$	1,038	$	67	$	878	$	-	$	7,125
General		3,854		230		1,122		208		98		1,236		-		6,748
	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Loans evaluated for      impairment:
Individually	$	66,133	$	663	$	3,656	$	3,227	$	135	$	4,348	$	-	$	78,162
Collectively		479,656		21,819		254,240		17,296		4,098		24,524		-		801,633
	$	545,789	$	22,482	$	257,896	$	20,523	$	4,233	$	28,872	$	-	$	879,795

Aging of Loan Balances by Number of Days Past Due

Past due and nonaccrual loans as of December 31, 2013 were as follows (dollars in thousands):

	30-59 Days		60-89 Days		90 Days Or						Total Financing		Non-Accrual
	Past Due		Past Due		More Past Due(1)		Total Past Due		Current		Receivables		Loans(2)
Real Estate:
1-4 family residential     construction	$	-	$	-	$	-	$	-	$	1,720	$	1,720	$	-
Other Construction/Land		294		-		116		410		25,121		25,531		5,528
1-4 family - closed-end		2,181		300		171		2,652		84,372		87,024		13,168
Equity Lines		98		-		288		386		53,337		53,723		778
Multi-family residential		-		-		-		-		8,485		8,485		-
Commercial real estate     owner occupied		1,917		144		2,011		4,072		181,940		186,012		5,516
Commercial real estate     Non-owner occupied		-		-		7,667		7,667		99,173		106,840		8,058
Farmland		331		-		-		331		108,173		108,504		282
Total Real Estate      Loans		4,821		444		10,253		15,518		562,321		577,839		33,330
Agricultural		892		327		125		1,344		23,836		25,180		470
Commercial and Industrial		342		78		24		444		158,312		158,756		685
Small Business     Administration Loans		976		509		1,274		2,759		12,146		14,905		1,937
Direct finance leases		-		-		-		-		3,026		3,026		-
Consumer loans		181		-		-		181		23,355		23,536		992
Total Gross Loans and Leases	$	7,212	$	1,358	$	11,676	$	20,246	$	782,996	$	803,242	$	37,414

⁽¹⁾ As of December 31, 2013 there were no loans over 90 days past due and still accruing.

⁽²⁾ Included in Total Financing Receivables

Past due and nonaccrual loans as of December 31, 2012 were as follows (dollars in thousands):

	30-59 Days		60-89 Days		90 Days Or More						Total Financing		Non-Accrual
	Past Due		Past Due		Past Due(1)		Total Past Due		Current		Receivables		Loans(2)
Real Estate:
1-4 family residential     construction	$	-	$	-	$	153	$	153	$	3,021	$	3,174	$	153
Other Construction/Land		374		211		-		585		27,417		28,002		11,163
1-4 family - closed-end		1,335		88		376		1,799		98,117		99,916		15,381
Equity Lines		473		40		66		579		60,885		61,464		1,026
Multi-family residential		177		-		-		177		5,783		5,960		-
Commercial real estate     owner occupied		1,372		813		1,289		3,474		179,140		182,614		5,314
Commercial real estate     Non-owner occupied		7,831		-		1,499		9,330		83,478		92,808		11,642
Farmland		231		-		1,679		1,910		69,941		71,851		1,933
Total Real Estate      Loans		11,793		1,152		5,062		18,007		527,782		545,789		46,612
Agricultural		24		157		506		687		21,795		22,482		664
Commercial and Industrial		1,419		518		7		1,944		255,952		257,896		2,386
Small Business     Administration Loans		905		-		1,574		2,479		18,044		20,523		2,159
Direct finance leases		-		34		123		157		4,076		4,233		135
Consumer loans		238		189		87		514		28,358		28,872		1,138
Total Gross Loans and Leases	$	14,379	$	2,050	$	7,359	$	23,788	$	856,007	$	879,795	$	53,094

⁽¹⁾ As of December 31, 2012 there were no loans over 90 days past due and still accruing.

 ⁽²⁾ Included in Total Financing Receivables

Impaired Loans, Condensed Information Impaired Loans

The following is a summary of information pertaining to impaired and non-accrual loans (dollars in thousands):

	Years Ended December 31,
	2013		2012
Impaired loans without a valuation allowance	$	25,722	$	14,292
Impaired loans with a valuation allowance		30,665		63,870
Total impaired loans (1)	$	56,387	$	78,162
Valuation allowance related to impaired loans	$	5,349	$	7,125
Total non-accrual loans	$	37,414	$	53,094
Total loans past-due ninety days or more and still accruing	$	-	$	-

⁽¹⁾ Principal balance only

Impaired Loans

Individually impaired loans as of December 31, 2013 were as follows (dollars in thousands):

	Year Emded December 31, 2013
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance(1)		Investment(2)		Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		2,972		2,972		502		3,000		98
1-4 Family - closed-end		13,522		13,522		1,324		13,630		260
Equity Lines		528		528		123		530		13
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		2,047		2,047		217		2,069		135
Commercial real estate- non-owner occupied		3,715		3,715		701		3,813		238
Farmland		-		-		-		-		-
Total Real Estate		22,784		22,784		2,867		23,042		744
Agricultural		125		125		126		131		-
Commercial and Industrial		1,870		1,857		655		2,009		85
Small Business Administration		2,710		2,488		1,270		2,487		46
Direct finance leases		-		-		-		-		-
Consumer loans		3,411		3,411		431		3,591		172
		30,900		30,665		5,349		31,260		1,047
With no Related Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		4,176		3,779		-		3,885		-
1-4 Family - closed-end		4,655		4,376		-		4,687		1
Equity Lines		565		493		-		493		-
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		7,436		5,516		-		5,568		-
Commercial real estate- non-owner occupied		10,077		9,780		-		9,820		115
Farmland		282		282		-		290		-
Total Real Estate		27,191		24,226		-		24,743		116
Agricultural		345		345		-		837		-
Commercial and Industrial		891		838		-		1,346		57
Small Business Administration		358		261		-		261		-
Direct finance leases		-		-		-		-		-
Consumer loans		241		52		-		77		-
		29,026		25,722		-		27,264		173
Total	$	59,926	$	56,387	$	5,349	$	58,524	$	1,220

⁽¹⁾Contractual principal balance due from customer.

⁽²⁾Principal balance on Company's books, less any direct charge offs.

⁽³⁾Interest income is recognized on performing balances on a regular accrual basis.

Individually impaired loans as of December 31, 2012 were as follows (dollars in thousands):

	Year Ended December 31, 2012
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance(1)		Investment(2)		Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real Estate:
1-4 family residential construction	$	153	$	153	$	23	$	91	$	-
Other Construction/Land		10,313		10,313		1,244		10,755		86
1-4 Family - closed-end		19,218		18,910		955		19,024		401
Equity Lines		1,142		1,142		163		1,144		9
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		5,846		5,585		563		5,666		126
Commercial real estate- non-owner occupied		18,539		17,579		1,230		18,079		481
Farmland		254		254		2		259		-
Total Real Estate		55,465		53,936		4,180		55,018		1,103
Agricultural		28		28		28		28		-
Commercial and Industrial		2,955		2,920		934		3,100		51
Small Business Administration		2,704		2,507		1,038		2,507		53
Direct finance leases		135		135		67		135		-
Consumer loans		4,349		4,344		878		4,493		183
		65,636		63,870		7,125		65,281		1,390
With no Related Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		2,335		2,335		-		2,346		-
1-4 Family - closed-end		4,312		4,312		-		4,491		-
Equity Lines		116		116		-		155		1
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		4,298		3,365		-		3,540		-
Commercial real estate- non-owner occupied		390		390		-		421		3
Farmland		1,679		1,679		-		1,686		-
Total Real Estate		13,130		12,197		-		12,639		4
Agricultural		1,008		635		-		1,017		-
Commercial and Industrial		735		736		-		740		-
Small Business Administration		1,008		720		-		720		-
Direct finance leases		-		-		-		-		-
Consumer loans		4		4		-		7		-
		15,885		14,292		-		15,123		4
Total	$	81,521	$	78,162	$	7,125	$	80,404	$	1,394

⁽¹⁾Contractual principal balance due from customer.

⁽²⁾Principal balance on Company's books, less any direct charge offs.

⁽³⁾Interest income is recognized on performing balances on a regular accrual basis.

Schedule Of Loans and Leases Receivable Impaired Interest Income and Lost From Nonaccrual Loans

The following is a summary of interest income from non-accrual loans in the portfolio at year-end that was not recognized (dollars in thousands):

	Years Ended December 31,
	2013		2012		2011
Interest that would have been recorded under the      loans’ original terms	$	3,209	$	4,084	$	4,353
Less gross interest recorded		304		2,088		1,328
Foregone interest	$	2,905	$	1,996	$	3,025

Troubled Debt Restructurings, by Type of Loan Modification

The following table presents troubled debt restructurings by type of modification during the period ending December 31, 2013 (dollars in thousands):

													Rate, Term
									Rate &		Term &		& Interest
	Rate		Term		Interest Only		Rate & Term		Interest Only		Interest Only		Only
	Modification		Modification		Modification		Modification		Modification		Modification		Modification		Total
Troubled Debt Restructurings
Real Estate:
Other Construction/Land	$	-	$	416	$	-	$	-	$	-	$	-	$	-	$	416
1-4 family - closed-end		-		3,338		-		238		-		-		102		3,678
Equity Lines		-		-		40		-		-		-		-		40
Commercial real estate    owner occupied		-		-		-		557		-		-		-		557
Commercial real estate    Non-owner occupied		-		-		-		-		-		-		-		-
Total Real Estate     Loans		-		3,754		40		795		-		-		102		4,691
Agricultural		-		-		-		-		-		-		-		-
Commercial and Industrial		-		1,563		-		308		-		-		-		1,871
Consumer Loans		-		469		-		-		-		-		92		561
Small Business
Administration loans		-		-		-		-		-		-		-		-
	$	-	$	5,786	$	40	$	1,103	$	-	$	-	$	194	$	7,123

The following table presents troubled debt restructurings by type of modification during the period ending December 31, 2012 (dollars in thousands):

													Rate, Term
									Rate &		Term &		& Interest
	Rate		Term		Interest Only		Rate & Term		Interest Only		Interest Only		Only
	Modification		Modification		Modification		Modification		Modification		Modification		Modification		Total
Troubled Debt Restructurings
Real Estate:
Other Construction/Land	$	-	$	458	$	-	$	375	$	-	$	-	$	-	$	833
1-4 family - closed-end		-		313		-		200		-		222		616		1,351
Equity Lines		-		29		-		-		-		-		-		29
Commercial real estate    owner occupied		-		1,006		-		1,184		-		-		-		2,190
Commercial real estate    Non-owner occupied		-		330		-		60		-		-		-		390
Total Real Estate     Loans		-		2,136		-		1,819		-		222		616		4,793
Agricultural		-		-		-		-		-		-		-		-
Commercial and Industrial		-		625		2		658		-		-		-		1,285
Consumer Loans		-		1,328		-		269		-		-		117		1,714
Small Business
Administration loans		-		200		-		475		-		-		-		675
	$	-	$	4,289	$	2	$	3,221	$	-	$	222	$	733	$	8,467

Schedule of Debtor Troubled Debt Restructuring, Subsequent Periods

The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2013 (dollars in thousands):

		Pre-		Post-
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Reserve
	Loans	Investment		Investment		Difference(1)
Real Estate:
Other Construction/Land	2	$	418	$	416	$	38
1-4 family - closed-end	8		3,679		3,678		20
Equity Lines	1		40		40		40
Commercial real estate owner occupied	1		557		557		-
Commercial real estate non-owner occupied	0		-		-		-
Total Real Estate Loans			4,694		4,691		98
Agricultural	0		-		-		-
Commercial and Industrial	8		1,858		1,871		257
Consumer Loans	13		561		561		54
Small Business Administration loans	0		-		-		-
		$	7,113	$	7,123	$	409

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Subsequent Defaults
	Number of Loans		Recorded  Investment		Charge-Offs
Real Estate:
Other Construction/Land	2	$	162	$	47
1-4 family - closed-end	2		779		133
Equity Lines	0		-		-
Commercial real estate- owner occupied	1		308		245
Commercial real estate- non owner occupied	0		-		-
Total Real Estate Loans			1,249		425
Agricultural	0		-		-
Commercial and Industrial	7		374		373
Consumer Loans	7		181		132
Small Business Administration Loans	2		194		-
		$	1,998	$	930

The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2012 (dollars in thousands):

		Pre-		Post-
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Reserve
	Loans	Investment		Investment		Difference(1)
Real Estate:
Other Construction/Land	10	$	835	$	833	$	48
1-4 family - closed-end	11		1,365		1,351		101
Equity Lines	1		29		29		13
Commercial real estate owner occupied	6		1,857		2,190		(45)
Commercial real estate non-owner      occupied	3		390		390		6
Total Real Estate Loans			4,476		4,793		123
Agricultural	0		-		-		-
Commercial and Industrial	20		1,295		1,285		109
Consumer Loans	37		1,723		1,714		21
Small Business Administration loans	2		668		675		8
		$	8,162	$	8,467	$	261

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Subsequent Defaults
		Recorded
	Number of Loans	Investment		Charge-Offs
Real Estate:
Other Construction/Land	0	$	-	$	-
1-4 family - closed-end	1		222		-
Equity Lines	0		-		-
Commercial real estate- owner occupied	1		332		-
Commercial real estate- non owner occupied	0		-		-
Total Real Estate Loans			554		-
Agricultural	0		-		-
Commercial and Industrial	1		66		66
Consumer Loans	2		115		-
Small Business Administration Loans	0		-		-
		$	735	$	66

XML

Amounts Computed by Applying the Statutory Federal Income Tax Rates to Income Before Income axes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statutory Federal Income Tax Rates To Income Before Income Taxes [Line Items]
Income tax expense at Federal statutory rate									$ 5,597	$ 2,666	$ 2,837
Increase (decrease) resulting from:
State franchise tax expense, net of Federal tax effect									414	0	540
Tax exempt income									(920)	(1,388)	(1,330)
Affordable housing tax credits									(1,257)	(1,639)	(1,605)
Other									(741)	17	122
Income Tax Expense (Benefit)	$ 895	$ 663	$ 1,331	$ 204	$ (398)	$ (321)	$ 454	$ (79)	$ 3,093	$ (344)	$ 564
Effective tax rate									18.80%	(4.40%)	6.80%

XML

Aggregate Annual Maturities of Time Deposits (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Statement Aggregate Annual Maturities Of Time Deposits [Line Items]
2014	$ 296,969
2015	8,467
2016	989
2017	833
2018	290
Thereafter	619
Time Deposits	$ 308,167

XML

Summary of Minimum Total Risk-Based Tier 1 Risk-Based and Leverage Capital Ratios (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Sierra Bancorp and Subsidiary
Leverage Ratio
Capital Amount	$ 198,216	$ 186,783
Minimum requirement for "Well - Capitalized" institutions	68,969	69,993
Minimum regulatory requirement	55,175	55,994
Ratio	14.37%	13.34%
Minimum requirement for "Well-Capitalized" institutions, Ratio	5.00%	5.00%
Minimum regulatory requirement, Ratio	4.00%	4.00%
Tier 1 Risk-Based Capital Ratio
Capital Amount	198,225	183,783
Minimum requirement for "Well-Capitalized" institutions	58,330	61,878
Minimum regulatory requirement	38,887	41,252
Ratio	20.39%	18.11%
Minimum requirement for "Well-Capitalized" institution, Ratio	6.00%	6.00%
Minimum regulatory requirement, Ratio	4.00%	4.00%
Total Risk-Based Capital Ratio
Capital Amount	210,669	199,700
Minimum requirement for "Well-Capitalized" institution	97,217	103,131
Minimum regulatory requirement	77,773	82,504
Ratio	21.67%	19.36%
Minimum requirement for "Well-Capitalized" institution, Ratio	10.00%	10.00%
Minimum regulatory requirement, Ratio	8.00%	8.00%
Bank Of Sierra
Leverage Ratio
Capital Amount	195,001	184,024
Minimum requirement for "Well - Capitalized" institutions	68,765	69,866
Minimum regulatory requirement	55,012	55,893
Ratio	14.18%	13.17%
Minimum requirement for "Well-Capitalized" institutions, Ratio	5.00%	5.00%
Minimum regulatory requirement, Ratio	4.00%	4.00%
Tier 1 Risk-Based Capital Ratio
Capital Amount	195,001	184,024
Minimum requirement for "Well-Capitalized" institutions	58,174	61,737
Minimum regulatory requirement	38,783	41,158
Ratio	20.11%	17.88%
Minimum requirement for "Well-Capitalized" institution, Ratio	6.00%	6.00%
Minimum regulatory requirement, Ratio	4.00%	4.00%
Total Risk-Based Capital Ratio
Capital Amount	206,960	196,912
Minimum requirement for "Well-Capitalized" institution	96,957	102,895
Minimum regulatory requirement	$ 77,565	$ 82,316
Ratio	21.35%	19.14%
Minimum requirement for "Well-Capitalized" institution, Ratio	10.00%	10.00%
Minimum regulatory requirement, Ratio	8.00%	8.00%

XML

Loans and Leases - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Financing Receivable, Modifications [Line Items]
Additional commitments to financing receivable modifications, amount	$ 250,000		$ 195,000
Interest Income Recognized on Impaired Loans	1,220,000	[1]	1,394,000	[1]	1,214,000
Interest Income Recognized on Cash Basis Method	0		0		0
Loans and leases receivable, collateral for secured borrowings	413,369,000		392,644,000
Salaries and employee benefits	2,804,000		2,745,000		2,586,000
Servicing portfolio	1,585,000		2,596,000		506,000
Financing receivable modifications subsequent default increase decrease allowance for loan and lease losses	660,000		31,000
Financing receivable modifications subsequent default writeoff	155,000		66,000
Allowance for loan and lease losses, adjustments, Net	3,321,000		1,079,000
Commercial Loan
Financing Receivable, Modifications [Line Items]
Imparied debt restructuring loans	3,714,000		3,427,000
Mortgage Loans on Real Estate
Financing Receivable, Modifications [Line Items]
Imparied debt restructuring loans	32,960,000		40,639,000
Consumer Loans
Financing Receivable, Modifications [Line Items]
Imparied debt restructuring loans	$ 3,250,000		$ 3,976,000

[1] Interest income is recognized on performing balances on a regular accrual basis.

XML

Other Borrowing Arrangements - Additional Information (Detail) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Short-term Debt [Line Items]
Federal Home Loan Bank, Advances, General Debt Obligations, Amount of Available, Unused Funds	$ 93,380,000
Unused lines of Credit [Member]
Short-term Debt [Line Items]
Unsecured line of credit facility, amount	70,000,000	55,000,000
Line of Credit Facility, Amount Outstanding	$ 0

XML

Summary of the Company's Stock Option Activity (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Companys Stock Option Activity [Line Items]
Outstanding Shares, beginning of year	927		810		835
Exercised , Shares	(111)		(5)		(125)
Granted, Shares	0		189		186
Canceled, Shares	(70)		(67)		(86)
Outstanding Shares, end of year	746		927		810
Exercisable, end of year	542	[1]	599	[1]	504	[1]
Outstanding, beginning of year, Weighted Average Exercise Price	$ 14.16		$ 14.97		$ 14.24
Exercised , Weighted Average Exercise Price	$ 9.87		$ 9.45		$ 6.72
Granted, Weighted Average Exercise Price	$ 0		$ 10.21		$ 10.58
Canceled, Weighted Average Exercise Price	$ 15.75		$ 13.08		$ 10.43
Outstanding, end of year, Weighted Average Exercise Price	$ 14.65		$ 14.16		$ 14.97
Exercisable, end of year, Weighted Average Exercise Price	$ 16.30	[1]	$ 16.07	[1]	$ 17.15	[1]
Outstanding, end of year, Aggregate Intrinsic vaue	$ 2,961	[2]
Exercisable, end of year, Aggregate Intrinsic value	$ 583	[1],[2]

[1] The weighted average remaining contractual life of stock options outstanding and exercisable on December 31, 2013 was 6.0 years and 7.1 years, respectively.

[2] The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2013. This amount changes based on changes in the market value of the Company's stock.

XML

Commitments and Contingencies - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Commitments And Contingencies [Line Items]
Federal home loan bank advances, Amount	$ 0	$ 0
Federal reserve bank stock	41,761,000	38,962,000
Lease expense for premises	1,001,000	1,011,000	1,167,000
Letter of Credit
Commitments And Contingencies [Line Items]
Federal home loan bank advances, Amount	78,000,000
Secure Public Deposits
Commitments And Contingencies [Line Items]
Federal home loan bank advances, Amount	70,000,000
Guarantee Financial Performance
Commitments And Contingencies [Line Items]
Federal home loan bank advances, Amount	$ 8,000,000
Commercial Real Estate
Commitments And Contingencies [Line Items]
Concentration risk, Percentage	55.00%
Real Estate
Commitments And Contingencies [Line Items]
Concentration risk, Percentage	72.00%
Residential Real Estate
Commitments And Contingencies [Line Items]
Concentration risk, Percentage	26.00%
Farmland
Commitments And Contingencies [Line Items]
Concentration risk, Percentage	19.00%

XML

Information Related to Stock Options (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock Option [Line Items]
Weighted-average grant-date fair value per share	$ 0	$ 3.86	$ 3.79
Total intrinsic value of stock options exercised	$ 605,000	$ 9,000	$ 465,000
Total fair value of stock options vested	$ 583,000	$ 517,000	$ 0

XML

Provision for Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Schedule Provision For Income Taxes [Line Items]
Federal (Current)									$ 563	$ 220	$ 627
Federal (Deferred)									1,842	(647)	(706)
Federal									2,405	(427)	(79)
State (Current)									170	0	818
State (Deferred)									518	83	(175)
State									688	83	643
Income Tax Expense (Benefit)	$ 895	$ 663	$ 1,331	$ 204	$ (398)	$ (321)	$ 454	$ (79)	$ 3,093	$ (344)	$ 564

XML

Other Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Schedule Of Other Assets [Line Items]
Accrued interest receivable	$ 4,990	$ 5,095
Deferred tax assets	12,286	11,995
Prepaid taxes	2,787	3,775
Investment in limited partnerships	9,204	10,316
Federal Home Loan Bank stock, at cost	5,581	6,019
Cash surrender value of officer life insurance policies	39,424	38,007
Other	5,613	6,262
Other Assets	$ 79,885	$ 81,469

XML

RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

17. RELATED PARTY TRANSACTIONS

During the normal course of business, the Bank enters into loans with related parties, including executive officers and directors. These loans are made with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Balance, beginning of year	$	629	$	2,471	$	3,465
Disbursements		543		625		773
Amounts repaid		(606)		(2,467)		(1,767)
Decreased		-		-		-
Balance, end of year	$	566	$	629	$	2,471
Undisbursed commitments to related parties	$	460	$	330	$	472

Deposits from related parties held by the Bank at December 31, 2013 and 2012 amounted to $7,523,000 and $9,012,000, respectively.

XML

Summary of Significant Accounting Policies - Additional Information (Detail)	Dec. 31, 2013
Accounting Policies [Line Items]
Percentage of more-likely-than-not threshold likelihood of fair value is less than its carrying amount	50.00%
2007 Plan
Accounting Policies [Line Items]
Number of shares authorized but unissued stock and reserved for issuance	1,500,000

XML

NON-INTEREST REVENUE (Tables)

12 Months Ended

Dec. 31, 2013

Non Interest Revenue [Abstract]

Schedule of Other Nonoperating Income (Expense)

Non-interest revenue also includes one general category of “other income” of which the following are major components (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Included in other income:
Loss on limited partnerships	$	(1,063)	$	(395)	$	(885)
Dividends on Equity Investments		356		67		26
Rental income on leases		46		102		173
Other		2,569		2,134		1,842
Total other non-interest revenue	$	1,908	$	1,908	$	1,156

XML

Short-Term Borrowings (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Short-term Debt [Line Items]
Repurchase agreements, Amount	$ 5,974	$ 1,419
Overnight Federal Home Loan Bank advances, Amount	0	36,650
Federal Home Loan Bank advances, Amount	0	0
Short-term Debt, Total	$ 5,974	$ 38,069
Repurchase agreements, Fixed Rate	0.44%	0.60%
Overnight Federal Home Loan Bank advances, Fixed Rate	0.00%	0.26%
Federal Home Loan Bank advances, Fixed Rate	0.00%	0.00%

XML

Carrying Amount and Estimated Fair Values of Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Financial Assets:
Investment securities available for sale	$ 425,044	$ 380,188
Commitments to extend credit
Off-balance-sheet financial instruments:
Notional Amount	420,707	225,400
Standby letters of credit
Off-balance-sheet financial instruments:
Notional Amount	8,703	6,690
Commercial and similar letters of credit
Off-balance-sheet financial instruments:
Notional Amount	8,070	8,539
Fair Value, Inputs, Level 3
Financial Liabilities:
Noninterest-bearing		0
Interest-bearing		0
Fed Funds Purchased and Repurchase Agreements		0
Short-term borrowings		0
Long-term borrowings		0
Subordinated debentures		0
Limited partnership capital commitment		0
Accrued Interest Payable		0
Carrying Amount
Financial Assets:
Cash and cash equivalents	78,006	61,818
Investment securities available for sale	425,044	380,188
Loans and leases held for investment	778,382	839,629
Collateral dependent impaired loans	14,705	27,449
Loans held-for-sale	105	210
Cash surrender value of life insurance policies	39,424	38,007
Other Investments	5,932	6,370
Investment in Limited Partnership	9,204	10,316
Accrued interest receivable	4,990	5,095
Financial Liabilities:
Noninterest-bearing	365,997	352,597
Interest-bearing	808,182	821,437
Fed Funds Purchased and Repurchase Agreements	5,974	1,419
Short-term borrowings	0	36,650
Long-term borrowings	0	5,000
Subordinated debentures	30,928	30,928
Limited partnership capital commitment	962	962
Accrued Interest Payable	186	304
Fair Value
Financial Assets:
Cash and cash equivalents	78,006	61,818
Investment securities available for sale	425,044	380,188
Loans and leases held for investment	797,383	873,309
Collateral dependent impaired loans	14,705	27,449
Loans held-for-sale	105	210
Cash surrender value of life insurance policies	39,424	38,007
Other Investments	5,932	6,370
Investment in Limited Partnership	9,204	10,316
Accrued interest receivable	4,990	5,095
Financial Liabilities:
Noninterest-bearing	365,997	352,597
Interest-bearing	808,182	821,911
Fed Funds Purchased and Repurchase Agreements	5,974	1,419
Short-term borrowings	0	36,650
Long-term borrowings	0	5,038
Subordinated debentures	11,175	12,141
Limited partnership capital commitment	962	962
Accrued Interest Payable	186	304
Fair Value | Fair Value, Inputs, Level 1
Financial Assets:
Cash and cash equivalents	78,006	61,818
Investment securities available for sale	2,456	1,809
Loans and leases held for investment	0	0
Collateral dependent impaired loans	0	0
Loans held-for-sale	105	210
Cash surrender value of life insurance policies	0	0
Other Investments	0	0
Investment in Limited Partnership	0	0
Accrued interest receivable	0	0
Financial Liabilities:
Noninterest-bearing	365,997	352,597
Interest-bearing	0	0
Fed Funds Purchased and Repurchase Agreements	0	0
Short-term borrowings	0	0
Long-term borrowings	0	0
Subordinated debentures	0	0
Limited partnership capital commitment	0	0
Accrued Interest Payable	0	0
Fair Value | Fair Value, Inputs, Level 2
Financial Assets:
Cash and cash equivalents	0	0
Investment securities available for sale	422,588	378,379
Loans and leases held for investment	797,383	873,309
Collateral dependent impaired loans	14,705	27,449
Loans held-for-sale	0	0
Cash surrender value of life insurance policies	39,424	38,007
Other Investments	5,932	6,370
Investment in Limited Partnership	9,204	10,316
Accrued interest receivable	4,990	5,095
Financial Liabilities:
Noninterest-bearing	0	0
Interest-bearing	808,182	821,911
Fed Funds Purchased and Repurchase Agreements	5,974	1,419
Short-term borrowings	0	36,650
Long-term borrowings	0	5,038
Subordinated debentures	11,175	12,141
Limited partnership capital commitment	962	962
Accrued Interest Payable	186	304
Fair Value | Fair Value, Inputs, Level 3
Financial Assets:
Cash and cash equivalents	0	0
Investment securities available for sale	0	0
Loans and leases held for investment	0	0
Collateral dependent impaired loans	0	0
Loans held-for-sale	0	0
Cash surrender value of life insurance policies	0	0
Other Investments	0	0
Investment in Limited Partnership	0	0
Accrued interest receivable	0	0
Financial Liabilities:
Noninterest-bearing	0
Interest-bearing	0
Fed Funds Purchased and Repurchase Agreements	0
Short-term borrowings	0
Long-term borrowings	0
Subordinated debentures	0
Limited partnership capital commitment	0
Accrued Interest Payable	$ 0

XML

OTHER BORROWING ARRANGEMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Schedule of Short-term Debt

Short-term borrowings consisted of the following (dollars in thousands):

	2013				2012
	Amount		Fixed Rate		Amount		Fixed Rate
As of December 31:
Repurchase agreements	$	5,974	.44	%	$	1,419	.60	%
Overnight Federal Home Loan
Bank advances		-	-			36,650	.26	%
Federal Home Loan Bank advances		-	-			-	-
	$	5,974			$	38,069

XML

Investment Securities Available-For-Sale - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Proceeds from sale of available-for-sale securities	$ 700,000	$ 56,400,000	$ 45,700,000
Number of securities with unrealized gross losses	197	89
Other Contractual Obligations and Short-Term Borrowing Arrangements
Schedule of Available-for-sale Securities [Line Items]
Pledged financial instruments, not separately reported, securities	162,393,000	174,930,000
Pledged assets separately reported, securities pledged as collateral, at fair value	164,390,000	178,550,000
Group Of Debt Securities Sold One
Schedule of Available-for-sale Securities [Line Items]
Number of securities with unrealized gross losses		22
Available-for-sale securities, gross realized gain (loss)		297,000
Group Of Debt Securities Sold Two
Schedule of Available-for-sale Securities [Line Items]
Number of securities with unrealized gross losses		129
Available-for-sale securities, gross realized gain (loss)		$ 2,059,000

XML

Troubled Debt Restructurings including any Subsequent Defaults (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Financing Receivable, Modifications [Line Items]
Pre-Modification Outstanding Recorded Investment	$ 7,113		$ 8,162
Post-Modification Outstanding Recorded Investment	7,123		8,467
Reserve Difference	409	[1]	261	[1]
Recorded Investment	1,998		735
Charge-Offs	930		66
Consumer Loans
Financing Receivable, Modifications [Line Items]
Number of Loans	13		37
Pre-Modification Outstanding Recorded Investment	561		1,723
Post-Modification Outstanding Recorded Investment	561		1,714
Reserve Difference	54	[1]	21	[1]
Subsequent Default Number Of Loans	7		2
Recorded Investment	181		115
Charge-Offs	132		0
Agricultural
Financing Receivable, Modifications [Line Items]
Number of Loans	0		0
Pre-Modification Outstanding Recorded Investment	0		0
Post-Modification Outstanding Recorded Investment	0		0
Reserve Difference	0	[1]	0	[1]
Subsequent Default Number Of Loans	0		0
Recorded Investment	0		0
Charge-Offs	0		0
Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Number of Loans	8		20
Pre-Modification Outstanding Recorded Investment	1,858		1,295
Post-Modification Outstanding Recorded Investment	1,871		1,285
Reserve Difference	257	[1]	109	[1]
Subsequent Default Number Of Loans	7		1
Recorded Investment	374		66
Charge-Offs	373		66
Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Number of Loans	0		2
Pre-Modification Outstanding Recorded Investment	0		668
Post-Modification Outstanding Recorded Investment	0		675
Reserve Difference	0	[1]	8	[1]
Subsequent Default Number Of Loans	2		0
Recorded Investment	194		0
Charge-Offs	0		0
Real Estate Loans
Financing Receivable, Modifications [Line Items]
Pre-Modification Outstanding Recorded Investment	4,694		4,476
Post-Modification Outstanding Recorded Investment	4,691		4,793
Reserve Difference	98	[1]	123	[1]
Recorded Investment	1,249		554
Charge-Offs	425		0
Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Number of Loans	8		11
Pre-Modification Outstanding Recorded Investment	3,679		1,365
Post-Modification Outstanding Recorded Investment	3,678		1,351
Reserve Difference	20	[1]	101	[1]
Subsequent Default Number Of Loans	2		1
Recorded Investment	779		222
Charge-Offs	133		0
Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Number of Loans	1		6
Pre-Modification Outstanding Recorded Investment	557		1,857
Post-Modification Outstanding Recorded Investment	557		2,190
Reserve Difference	0	[1]	(45)	[1]
Subsequent Default Number Of Loans	1		1
Recorded Investment	308		332
Charge-Offs	245		0
Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Number of Loans	0		3
Pre-Modification Outstanding Recorded Investment	0		390
Post-Modification Outstanding Recorded Investment	0		390
Reserve Difference	0	[1]	6	[1]
Subsequent Default Number Of Loans	0		0
Recorded Investment	0		0
Charge-Offs	0		0
Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Number of Loans	1		1
Pre-Modification Outstanding Recorded Investment	40		29
Post-Modification Outstanding Recorded Investment	40		29
Reserve Difference	40	[1]	13	[1]
Subsequent Default Number Of Loans	0		0
Recorded Investment	0		0
Charge-Offs	0		0
Other construction/Land | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Number of Loans	2		10
Pre-Modification Outstanding Recorded Investment	418		835
Post-Modification Outstanding Recorded Investment	416		833
Reserve Difference	38	[1]	48	[1]
Subsequent Default Number Of Loans	2		0
Recorded Investment	162		0
Charge-Offs	$ 47		$ 0

[1] This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

XML

Activity in Allowance for Loan and Lease Losses (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Allowance for credit losses:
Beginning of year	$ 13,873	$ 17,283
Charge-offs	(8,263)	(18,778)
Recoveries	1,717	1,158
Provision	4,350	14,210
End of year	11,677	13,873
Reserves:
Specific	5,349	7,125
General	6,328	6,748
Financing Receivable, Allowance for Credit Losses, Total	11,677	13,873
Loans evaluated for impairment:
Individually	56,387	78,162
Collectively	746,855	801,633
Total Loans	803,242	879,795
Consumer Loans
Allowance for credit losses:
Beginning of year	2,114	2,608
Charge-offs	(1,917)	(2,568)
Recoveries	297	278
Provision	623	1,796
End of year	1,117	2,114
Reserves:
Specific	431	878
General	686	1,236
Financing Receivable, Allowance for Credit Losses, Total	1,117	2,114
Loans evaluated for impairment:
Individually	3,463	4,348
Collectively	20,073	24,524
Total Loans	23,536	28,872
Real Estate Loans
Allowance for credit losses:
Beginning of year	8,034	8,260
Charge-offs	(4,205)	(11,108)
Recoveries	618	302
Provision	1,097	10,580
End of year	5,544	8,034
Reserves:
Specific	2,867	4,180
General	2,677	3,854
Financing Receivable, Allowance for Credit Losses, Total	5,544	8,034
Loans evaluated for impairment:
Individually	47,010	66,133
Collectively	530,829	479,656
Total Loans	577,839	545,789
Agricultural
Allowance for credit losses:
Beginning of year	258	19
Charge-offs	(473)	(634)
Recoveries	0	0
Provision	1,193	873
End of year	978	258
Reserves:
Specific	126	28
General	852	230
Financing Receivable, Allowance for Credit Losses, Total	978	258
Loans evaluated for impairment:
Individually	470	663
Collectively	24,710	21,819
Total Loans	25,180	22,482
Commercial and Industrial
Allowance for credit losses:
Beginning of year	2,056	4,638
Charge-offs	(1,268)	(3,517)
Recoveries	747	483
Provision	633	452
End of year	2,168	2,056
Reserves:
Specific	655	934
General	1,513	1,122
Financing Receivable, Allowance for Credit Losses, Total	2,168	2,056
Loans evaluated for impairment:
Individually	2,695	3,656
Collectively	156,061	254,240
Total Loans	158,756	257,896
Small Business Administration Loans
Allowance for credit losses:
Beginning of year	1,246	1,447
Charge-offs	(294)	(753)
Recoveries	37	95
Provision	626	457
End of year	1,615	1,246
Reserves:
Specific	1,270	1,038
General	345	208
Financing Receivable, Allowance for Credit Losses, Total	1,615	1,246
Loans evaluated for impairment:
Individually	2,749	3,227
Collectively	12,156	17,296
Total Loans	14,905	20,523
Direct Finance Leases
Allowance for credit losses:
Beginning of year	165	311
Charge-offs	(106)	(198)
Recoveries	18	0
Provision	(73)	52
End of year	4	165
Reserves:
Specific	0	67
General	4	98
Financing Receivable, Allowance for Credit Losses, Total	4	165
Loans evaluated for impairment:
Individually	0	135
Collectively	3,026	4,098
Total Loans	3,026	4,233
Unallocated
Allowance for credit losses:
Beginning of year	0	0
Charge-offs	0	0
Recoveries	0	0
Provision	251	0
End of year	251	0
Reserves:
Specific	0	0
General	251	0
Financing Receivable, Allowance for Credit Losses, Total	251	0
Loans evaluated for impairment:
Individually	0	0
Collectively	0	0
Total Loans	$ 0	$ 0

XML

PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Schedule of Condensed Balance Sheet

BALANCE SHEETS

Years Ended December 31, 2013 and 2012

(dollars in thousands)

	2013		2012
ASSETS
Cash and due from banks	$	1,337	$	1,712
Investments in bank subsidiary		208,326		200,497
Investment in Trust subsidiaries		928		928
Investment in other securities		2,421		1,809
Other assets		310		263
Total Assets	$	213,322	$	205,209
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other liabilities	$	720	$	389
Subordinated debentures		30,928		30,928
Total liabilities		31,648		31,317
Shareholders' equity:
Common stock		68,428		67,044
Retained Earnings		112,817		103,128
Accumulated other comprehensive income, net of taxes		429		3,720
Total shareholders' equity		181,674		173,892
Total liabilities and shareholders' equity	$	213,322	$	205,209

Schedule of Condensed Income Statement

STATEMENTS OF INCOME

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands)

	2013		2012		2011
Income:
Other-than-temporary impairment losses on equity securities	$	-	$	-	$	(1,370)
Dividend from Subsidiary		3,000		-		-
Other operating income		16		10		21
Total Income		3,016		10		(1,349)
Expense
Salaries and employee benefits		349		254		206
Other expenses		1,313		1,365		1,388
Total expenses		1,662		1,619		1,594
Income (loss) before income taxes		1,354		(1,609)		(2,943)
Income tax benefit		(803)		(663)		(1,212)
Income (loss) before equity in undistributed income of subsidiary		2,157		(946)		(1,731)
Equity in undistributed income of subsidiary		11,212		9,131		9,511
Net income	$	13,369	$	8,185	$	7,780

Schedule of Condensed Cash Flow Statement

STATEMENTS OF CASH FLOWS

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands)

	2013		2012		2011
Cash flows from operating activities:
Net Income	$	13,369	$	8,185	$	7,780
Adjustments to reconcile net income to net cash provided by     operating activities:
Undistributed net income of subsidiary		(11,212)		(9,131)		(9,511)
Other-than-temporary impairment loss		-		-		1,370
(Increase) decrease in other assets		(75)		583		(140)
Increase in other liabilities		106		50		73
Tax benefit (provision) from equity based compensation		29		(36)		109
Net provided for (used in) operating activities		2,217		(349)		(319)
Cash flows from financing activities:
Expense from the issuance of common stock		-		-		(23)
Stock options exercised		1,088		51		867
Dividends paid		(3,680)		(3,385)		(3,368)
Net cash used in by financing activities		(2,592)		(3,334)		(2,524)
Net decrease in cash and cash equivalents		(375)		(3,683)		(2,843)
Cash and cash equivalents, beginning of year		1,712		5,395		8,238
Cash and cash equivalents, end of year	$	1,337	$	1,712	$	5,395

XML

THE BUSINESS OF SIERRA BANCORP

12 Months Ended

Dec. 31, 2013

Business Description [Abstract]

THE BUSINESS OF SIERRA BANCORP

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-five 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. These areas have diverse economies with principal industries being agriculture, real estate and light manufacturing.

XML

Past Due and Nonaccrual Loans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 7,212		$ 14,379
60-89 Days Past Due	1,358		2,050
90 Days or More Past Due	11,676	[1]	7,359	[2]
Total Past Due	20,246		23,788
Current	782,996		856,007
Total Financing Receivables	803,242		879,795
Non-Accrual Loans	37,414	[3]	53,094	[3]
Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	181		238
60-89 Days Past Due	0		189
90 Days or More Past Due	0	[1]	87	[2]
Total Past Due	181		514
Current	23,355		28,358
Total Financing Receivables	23,536		28,872
Non-Accrual Loans	992	[3]	1,138	[3]
Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	892		24
60-89 Days Past Due	327		157
90 Days or More Past Due	125	[1]	506	[2]
Total Past Due	1,344		687
Current	23,836		21,795
Total Financing Receivables	25,180		22,482
Non-Accrual Loans	470	[3]	664	[3]
Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	342		1,419
60-89 Days Past Due	78		518
90 Days or More Past Due	24	[1]	7	[2]
Total Past Due	444		1,944
Current	158,312		255,952
Total Financing Receivables	158,756		257,896
Non-Accrual Loans	685	[3]	2,386	[3]
Small Business Administration
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	976		905
60-89 Days Past Due	509		0
90 Days or More Past Due	1,274	[1]	1,574	[2]
Total Past Due	2,759		2,479
Current	12,146		18,044
Total Financing Receivables	14,905		20,523
Non-Accrual Loans	1,937	[3]	2,159	[3]
Direct Financing Leases
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	0		0
60-89 Days Past Due	0		34
90 Days or More Past Due	0	[1]	123	[2]
Total Past Due	0		157
Current	3,026		4,076
Total Financing Receivables	3,026		4,233
Non-Accrual Loans	0	[3]	135	[3]
Real Estate Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	4,821		11,793
60-89 Days Past Due	444		1,152
90 Days or More Past Due	10,253	[1]	5,062	[2]
Total Past Due	15,518		18,007
Current	562,321		527,782
Total Financing Receivables	577,839		545,789
Non-Accrual Loans	33,330	[3]	46,612	[3]
Real Estate Loans | 1-4 Family residential construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	0		0
60-89 Days Past Due	0		0
90 Days or More Past Due	0	[1]	153	[2]
Total Past Due	0		153
Current	1,720		3,021
Total Financing Receivables	1,720		3,174
Non-Accrual Loans	0	[3]	153	[3]
Real Estate Loans | Other Construction/Land
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	294		374
60-89 Days Past Due	0		211
90 Days or More Past Due	116	[1]	0	[2]
Total Past Due	410		585
Current	25,121		27,417
Total Financing Receivables	25,531		28,002
Non-Accrual Loans	5,528	[3]	11,163	[3]
Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	2,181		1,335
60-89 Days Past Due	300		88
90 Days or More Past Due	171	[1]	376	[2]
Total Past Due	2,652		1,799
Current	84,372		98,117
Total Financing Receivables	87,024		99,916
Non-Accrual Loans	13,168	[3]	15,381	[3]
Real Estate Loans | Equity Lines
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	98		473
60-89 Days Past Due	0		40
90 Days or More Past Due	288	[1]	66	[2]
Total Past Due	386		579
Current	53,337		60,885
Total Financing Receivables	53,723		61,463
Non-Accrual Loans	778	[3]	1,026	[3]
Real Estate Loans | Multi-family residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	0		177
60-89 Days Past Due	0		0
90 Days or More Past Due	0	[1]	0	[2]
Total Past Due	0		177
Current	8,485		5,783
Total Financing Receivables	8,485		5,960
Non-Accrual Loans	0	[3]	0	[3]
Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,917		1,372
60-89 Days Past Due	144		813
90 Days or More Past Due	2,011	[1]	1,289	[2]
Total Past Due	4,072		3,474
Current	181,940		179,140
Total Financing Receivables	186,012		182,614
Non-Accrual Loans	5,516	[3]	5,314	[3]
Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	0		7,831
60-89 Days Past Due	0		0
90 Days or More Past Due	7,667	[1]	1,499	[2]
Total Past Due	7,667		9,330
Current	99,173		83,478
Total Financing Receivables	106,840		92,808
Non-Accrual Loans	8,058	[3]	11,642	[3]
Real Estate Loans | Farmland
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	331		231
60-89 Days Past Due	0		0
90 Days or More Past Due	0	[1]	1,679	[2]
Total Past Due	331		1,910
Current	108,173		69,941
Total Financing Receivables	108,504		71,851
Non-Accrual Loans	$ 282	[3]	$ 1,933	[3]

[1] As of December 31, 2013 there were no loans over 90 days past due and still accruing.

[2] As of December 31, 2012 there were no loans over 90 days past due and still accruing.

[3] Included in Total Financing Receivables

XML

OTHER OPERATING EXPENSE (Tables)

12 Months Ended

Dec. 31, 2013

Other Income and Expenses [Abstract]

Schedule of Other Operating Cost and Expense, by Component

Other expense consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Professional fees	$	4,143	$	3,454	$	3,941
Data processing		1,987		1,807		1,523
Advertising and promotion		1,960		1,771		2,051
Deposit services		1,980		2,266		2,516
Stationery and supplies		657		738		705
Telephone and data communication		1,613		1,549		1,291
Loan and credit card processing		1,327		419		1,082
Foreclosed assets expense		1,202		4,914		5,226
Postage		713		718		576
Other		1,039		1,905		1,267
Total other non-interest expense	$	16,621	$	19,541	$	20,178

XML

CONDENSED QUARTERLY RESULTS OF OPERATIONS

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

CONDENSED QUARTERLY RESULTS OF OPERATIONS

21. CONDENSED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth the Company’s results of operations for the four quarters of 2013 and 2012 and is unaudited. In management’s opinion, the results of operations reflect all adjustments (which include only recurring adjustments) necessary to present fairly the condensed results for such periods.

	2013 Quarter Ended
	December 31,		September 30,		June 30,		March 31,
Interest income	$	13,188	$	12,791	$	13,090	$	12,716
Interest expense		743		790		815		873
Net interest income		12,445		12,001		12,275		11,843
Provision for loan and lease losses		1,500		800		450		1,600
Non-interest income		4,607		4,319		4,022		4,115
Non-interest expense		10,788		11,490		10,717		11,820
Net income before taxes		4,764		4,030		5,130		2,538
Provision for taxes		895		663		1,331		204
Net income	$	3,869	$	3,367	$	3,799	$	2,334
Diluted earnings per share	$	0.27	$	.23	$	.27	$	.16
Cash dividend per share	$	0.07	$	.07	$	.06	$	.06

	2012 Quarter Ended
	December 31,		September 30,		June 30,		March 31,
Interest income	$	13,389	$	14,192	$	13,612	$	13,709
Interest expense		973		1,063		1,064		1,221
Net interest income		12,416		13,129		12,548		12,488
Provision for loan and lease losses		3,600		4,700		3,160		2,750
Non-interest income		5,521		4,381		4,121		4,103
Non-interest expense		12,637		11,496		10,482		12,041
Net income before taxes		1,700		1,314		3,027		1,800
Provision for taxes		(398)		(321)		454		(79)
Net income	$	2,098	$	1,635	$	2,573	$	1,879
Diluted earnings per share	$	.15	$	.12	$	.18	$	.13
Cash dividend per share	$	.06	$	.06	$	.06	$	.06

XML

PARENT ONLY CONDENSED FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

PARENT ONLY CONDENSED FINANCIAL STATEMENTS

20. PARENT ONLY CONDENSED FINANCIAL STATEMENTS

BALANCE SHEETS

Years Ended December 31, 2013 and 2012

(dollars in thousands)

	2013		2012
ASSETS
Cash and due from banks	$	1,337	$	1,712
Investments in bank subsidiary		208,326		200,497
Investment in Trust subsidiaries		928		928
Investment in other securities		2,421		1,809
Other assets		310		263
Total Assets	$	213,322	$	205,209
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other liabilities	$	720	$	389
Subordinated debentures		30,928		30,928
Total liabilities		31,648		31,317
Shareholders' equity:
Common stock		68,428		67,044
Retained Earnings		112,817		103,128
Accumulated other comprehensive income, net of taxes		429		3,720
Total shareholders' equity		181,674		173,892
Total liabilities and shareholders' equity	$	213,322	$	205,209

STATEMENTS OF INCOME

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands)

	2013		2012		2011
Income:
Other-than-temporary impairment losses on equity securities	$	-	$	-	$	(1,370)
Dividend from Subsidiary		3,000		-		-
Other operating income		16		10		21
Total Income		3,016		10		(1,349)
Expense
Salaries and employee benefits		349		254		206
Other expenses		1,313		1,365		1,388
Total expenses		1,662		1,619		1,594
Income (loss) before income taxes		1,354		(1,609)		(2,943)
Income tax benefit		(803)		(663)		(1,212)
Income (loss) before equity in undistributed income of subsidiary		2,157		(946)		(1,731)
Equity in undistributed income of subsidiary		11,212		9,131		9,511
Net income	$	13,369	$	8,185	$	7,780

STATEMENTS OF CASH FLOWS

Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands)

	2013		2012		2011
Cash flows from operating activities:
Net Income	$	13,369	$	8,185	$	7,780
Adjustments to reconcile net income to net cash provided by     operating activities:
Undistributed net income of subsidiary		(11,212)		(9,131)		(9,511)
Other-than-temporary impairment loss		-		-		1,370
(Increase) decrease in other assets		(75)		583		(140)
Increase in other liabilities		106		50		73
Tax benefit (provision) from equity based compensation		29		(36)		109
Net provided for (used in) operating activities		2,217		(349)		(319)
Cash flows from financing activities:
Expense from the issuance of common stock		-		-		(23)
Stock options exercised		1,088		51		867
Dividends paid		(3,680)		(3,385)		(3,368)
Net cash used in by financing activities		(2,592)		(3,334)		(2,524)
Net decrease in cash and cash equivalents		(375)		(3,683)		(2,843)
Cash and cash equivalents, beginning of year		1,712		5,395		8,238
Cash and cash equivalents, end of year	$	1,337	$	1,712	$	5,395

XML

Parent Only Condensed Financial Statements (Detail 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net Income	$ 3,869	$ 3,367	$ 3,799	$ 2,334	$ 2,098	$ 1,635	$ 2,573	$ 1,879	$ 13,369	$ 8,185	$ 7,780
Adjustments to reconcile net income to net cash provided by operating activities:
Other-than-temporary impairment loss									0	0	1,370
(Increase) decrease in other assets									(2,225)	(610)	(2,354)
Increase in other liabilities									1,514	1,646	666
Tax benefit (provision) from equity based compensation									110	200	189
Net provided for (used in) operating activities									34,538	38,697	34,647
Cash flows from financing activities:
Stock options exercised									1,396	63	867
Dividends paid									(3,680)	(3,385)	(3,367)
Net cash used in by financing activities									(38,954)	92,404	37,087
Net decrease in cash and cash equivalents									16,188	(1,218)	20,391
Cash and cash equivalents, beginning of year				61,818				63,036	61,818	63,036	42,645
Cash and cash equivalents, end of year	78,006				61,818				78,006	61,818	63,036
Parent
Cash flows from operating activities:
Net Income									13,369	8,185	7,780
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed net income of subsidiary									(11,212)	(9,131)	(9,511)
Other-than-temporary impairment loss									0	0	(1,370)
(Increase) decrease in other assets									(75)	583	(140)
Increase in other liabilities									106	50	73
Tax benefit (provision) from equity based compensation									29	(36)	109
Net provided for (used in) operating activities									2,217	(349)	(319)
Cash flows from financing activities:
Expense from the issuance of common stock									0	0	(23)
Stock options exercised									1,088	51	867
Dividends paid									(3,680)	(3,385)	(3,368)
Net cash used in by financing activities									(2,592)	(3,334)	(2,524)
Net decrease in cash and cash equivalents									(375)	(3,683)	(2,843)
Cash and cash equivalents, beginning of year				1,712				5,395	1,712	5,395	8,238
Cash and cash equivalents, end of year	$ 1,337				$ 1,712				$ 1,337	$ 1,712	$ 5,395

XML

Amortized Cost and Estimated Fair Value of Investment Securities Available for Sale by Contractual Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Amortized Cost And Estimated Fair Value Of Investment Securities Available For Sale By Contractual Maturity [Line Items]
Maturing within one year, Amortized Cost	$ 2,294
Maturing after one year through five years, Amortized Cost	241,396
Maturing after five years through ten years, Amortized Cost	59,572
Maturing after ten years, Amortized Cost	49,674
Amortized Cost, Total	424,315	373,865
Maturing within one year, Fair Value	2,316
Maturing after one year through five years, Fair Value	242,493
Maturing after five years through ten years, Fair Value	59,402
Maturing after ten years, Fair Value	47,737
Fair Value, Total	425,044	380,188
U.S Government agencies collateralized by mortgage obligations
Amortized Cost And Estimated Fair Value Of Investment Securities Available For Sale By Contractual Maturity [Line Items]
Investment securities not due at a single maturity date, Amortized Cost	70,043
Investment securities not due at a single maturity date, Fair Value	70,640
Other securities
Amortized Cost And Estimated Fair Value Of Investment Securities Available For Sale By Contractual Maturity [Line Items]
Investment securities not due at a single maturity date, Amortized Cost	1,336
Investment securities not due at a single maturity date, Fair Value	$ 2,456

XML

RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

The following is a summary of the aggregate activity involving related party borrowers (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Balance, beginning of year	$	629	$	2,471	$	3,465
Disbursements		543		625		773
Amounts repaid		(606)		(2,467)		(1,767)
Decreased		-		-		-
Balance, end of year	$	566	$	629	$	2,471
Undisbursed commitments to related parties	$	460	$	330	$	472

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Consolidation and Basis of Presentation

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 2013. 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

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

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 Equivalents

Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold, and interest bearing deposits in banks.

Investment Securities

Investment Securities

Investments are classified into the following categories:

⋅ Securities available-for-sale, reported at fair value, with unrealized gains and losses excluded from earnings and reflected, net of tax, as a separate component of shareholders’ equity in accumulated other comprehensive income.

⋅ Securities held-to-maturity, which the Company has the intent and has the ability to hold to maturity, are carried at cost, adjusted for amortization of premiums and the accretion of discounts.

Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value. Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are currently classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. Potential credit impairment is also a consideration. If it is determined that OTTI exists on a security, the entire difference between amortized cost and fair value is recognized as a charge through earnings.

Loans and Leases (Financing Receivables)

Loans and Leases (Financing Receivables)

Our credit quality classifications of Loans and Leases include Pass, Special Mention, Substandard and Impaired. These classifications are defined in Note 4 (Loans and Leases) to our consolidated financial statements.

Loans and leases are reported at the principal amounts outstanding, adjusted for unearned income, deferred loan origination fees and costs, purchase premiums and discounts, write-downs, and the allowance for loan and lease losses. Loan and lease origination fees, net of certain deferred origination costs, and purchase premiums and discounts are recognized as an adjustment to yield of the related loans and leases over the contractual life of the loan using both the effective interest and straight line methods.

Interest income for all performing loans, regardless of classification (Pass, Special Mention, Substandard and Impaired), is recognized on an accrual basis, with interest accrued daily. Costs associated with successful loan originations are netted from loan origination fees, with the net amount (net deferred loan fees) amortized over the contractual life of the loan in interest income. If a loan has scheduled periodic payments, the amortization of the net deferred loan fee is calculated using the effective interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight line basis over the contractual life of the loan. Fees received for loan commitments are recognized as interest income over the term of the commitment. When loans are repaid, any remaining unamortized balances of deferred fees and costs are accounted for through interest income.

Generally, the Company places a loans or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process. When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed. For loans with an interest reserve, i.e., where loan proceeds are advanced to the borrower to make interest payments, all interest recognized from the inception of the loan is reversed when the loan is placed on non-accrual. Once a loan is on non-accrual status subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. Generally, loans and leases are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Impaired loans are classified as either nonaccrual or accrual, depending on individual circumstances regarding the collectability of interest and principal according to the contractual terms.

Loans Modified in a Troubled Debt Restructuring

Loans Modified in a Troubled Debt Restructuring

Loans are considered to have been modified in a troubled debt restructuring (“TDR”) when due to a borrower’s financial difficulties the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period.  If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status. TDRs may be removed from TDR designation in the calendar year following the restructuring, if the loan is in compliance with all modified terms and is yielding a market rate of interest.

A TDR is generally considered to be in default when it appears likely that the customer will not be able to repay all principal and interest pursuant to the terms of the restructured agreement.

Allowance for Loan and Lease Losses

Allowance for Loan and Lease Losses 

The allowance for loan and lease losses is maintained at a level which, in management’s judgment, is adequate to absorb loan and lease losses inherent in the loan and lease portfolio. The allowance for loan and lease losses is increased by a provision for loan and lease losses, which is charged to expense, and reduced by principal charge-offs, net of recoveries. The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, changes in its risk profile, credit concentrations, historical trends, and economic conditions. This evaluation also considers the balance of impaired loans and leases. A loan or lease is impaired when it is probable that the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan or lease agreement. The impairment on certain individually identified loans or leases is measured based on the present value of expected future cash flows discounted at the original effective interest rate of the loan or lease. As a practical expedient, impairment may be measured based on the loan’s or lease’s observable market price or the fair value of collateral if the loan or lease is collateral dependent. The amount of impairment, if any, is recorded through the provision for loan and lease losses and is added to the allowance for loan and lease losses, with any changes over time recognized as additional bad debt expense in our provision for loan losses. Impaired loans with homogenous characteristics, such as one-to-four family residential mortgages and consumer installment loans, may be subjected to a collective evaluation for impairment, considering delinquency and repossession statistics, historical loss experience, and other factors.

General reserves cover non-impaired loans and are based on historical net loss rates for each portfolio segment by call report code, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in international, national, regional, and local economic and business conditions and developments; changes in nature and volume of the portfolio; changes in the experience, ability and depth of lending management and staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in quality of the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit; and the effect of the other external factors such as competition and legal and regulatory requirements.

Most of the Company’s business activity is with customers located within the South Central Valley of California, therefore the Company’s exposure to credit risk is significantly affected by changes in the economy in that region. The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for loan losses. Portfolio segments identified by the Company include Direct Financing leases, Agricultural, Commercial and Industrial, Real Estate, Small Business Administration, and Consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer related loans; and credit scores, debt-to-income ratios, collateral type and loan-to-value ratios for consumer related loans.

Though management believes the allowance for loan and lease losses to be adequate, ultimate losses may vary from their estimates. However, estimates are reviewed periodically, and as adjustments become necessary they are reported in earnings during the periods they become known. In addition, the FDIC and the California Department of Business Oversight, as an integral part of their examination processes, review the allowance for loan and lease losses. These agencies may require additions to the allowance for loan and lease losses based on their judgment about information available at the time of their examinations.

Reserve for Off-Balance Sheet Commitments

Reserve for Off-Balance Sheet Commitments

In addition to the exposure to credit loss from outstanding loans, the Company is also exposed to credit loss from certain off-balance sheet commitments such as unused commitments from revolving lines of credit, mortgage warehouse lines of credit, unused commitments on construction loans and commercial and standby letters of credit. Because the available funds have not yet been disbursed on these commitments the estimated losses are not included in the calculation of ALLL. The reserve for off-balance sheet commitments is an estimated loss contingency which is included in other liabilities on the Consolidated Balance Sheets. The adjustments to the reserve for off-balance sheet commitments are reported as a noninterest expense. This reserve is for estimated losses that could occur when the Company is contractually obligated to make a payment under these instruments and must seek repayment from a party that may not be as financially sound in the current period as it was when the commitment was originally made.

Sale and Servicing of Loans

Sale and Servicing of Loans

The Company periodically originates loans intended to be sold on the secondary market. These loans are recorded as “held for sale” and reported at the lower of cost or fair value in the Consolidated Balance Sheets.  The loan’s cost basis includes unearned deferred fees and costs, and premiums and discounts. These loans are generally held between 30 to 90 days from their origination date. Loans held for sale by the Company currently consist entirely of residential real estate loans.  Loans classified as held for sale are disclosed in Note 4 of these Consolidated Financial Statements.

Gains and losses on sales of loans are recognized at the time of sale and are calculated based on the difference between the selling price and the allocated book value of loans sold. Book value allocations are determined in accordance with U.S. GAAP. Any inherent risk of loss on loans sold is transferred to the buyer at the date of sale.

The Company has issued various representations and warranties associated with the sale of loans. These representations and warranties may require the Company to repurchase loans with underwriting deficiencies as defined per the applicable sales agreements and certain past due loans within 90 days of the sale. The Company did not experience losses during the years ended December 31, 2013, 2012 or 2011 regarding these representations and warranties.

Premises and Equipment

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful lives of premises are estimated to be thirty years. The useful lives of furniture, fixtures and equipment are estimated to be three to twenty years.  Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred.

Impairment of long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets which indicate long-lived assets may be impaired.

Foreclosed Assets

Foreclosed Assets

Foreclosed assets include real estate and other property acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the recorded investment in the loan balance and accrued interest income over the appraised fair market value of the property, net of estimated selling costs, is charged against the allowance for loan and lease losses. A valuation allowance for losses on foreclosed assets is maintained to provide for temporary declines in value. The allowance is established through a provision for losses on foreclosed assets which is included in other non-interest expense. Subsequent gains or losses on sales or write-downs resulting from permanent impairments are recorded in other non-interest income or expense as incurred.

Goodwill

Goodwill

The Company acquired Sierra National Bank in 2000, and the acquisition was accounted for using the purchase method of accounting. The goodwill resulting from this transaction represents the amount by which the purchase price exceeded the fair value of the net assets. In accordance with U.S. GAAP the Company evaluates goodwill periodically for impairment. There was no impairment recognized for the years ended December 31, 2013, 2012, and 2011.

Income Taxes

Income Taxes

The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income tax expense represents each entity’s proportionate share of the consolidated provision for income taxes.

Income taxes are accounted for using the asset and liability method. Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

The Company adopted guidance issued by the FASB accounting for income taxes, effective January 1, 2007, which clarifies the accounting and disclosure for uncertainty in tax positions as defined. This guidance seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. 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, 2013 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

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

Comprehensive income consists of net income and the net change in unrealized gains 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 investment 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

Stock-Based Compensation

At December 31, 2013, 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 is for 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.

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:

	Years Ended December 31,
	2013 (a)	2012		2011
Dividend yield	N/A	2.35	%	2.27	%
Expected Volatility	N/A	56.71	%	52.92	%
Risk-free interest rate	N/A	0.43	%	1.06	%
Expected option life	N/A	5.5 years		6.8 years

^(a) No stock options were issued in 2013.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, with the goal of improving the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income, by component. In addition, if the amount reclassified is required under U.S. Generally Accepted Accounting Principles (GAAP) to be reclassified to net income in its entirety in the same reporting period, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. For public entities, this update became effective prospectively for reporting periods beginning after December 15, 2012. We adopted ASU 2013-02 commencing with our report on Form 10-Q filed for the first quarter of 2013.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Fair value of option date of grant

The fair value of each option is estimated on the date of grant using the following assumptions:

	Years Ended December 31,
	2013 (a)	2012		2011
Dividend yield	N/A	2.35	%	2.27	%
Expected Volatility	N/A	56.71	%	52.92	%
Risk-free interest rate	N/A	0.43	%	1.06	%
Expected option life	N/A	5.5 years		6.8 years

^(a) No stock options were issued in 2013.

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net income	$ 13,369	$ 8,185	$ 7,780
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on investment of securities	(6)	(1,762)	(1,660)
Other-than-temporary impairment loss	0	0	1,370
Gain on sales of loans	(129)	(183)	(139)
(Gain) loss on disposal of fixed assets	(15)	30	25
Loss on sale of foreclosed assets	223	864	451
Writedown of foreclosed assets	730	3,173	4,184
Share-based compensation expense	268	487	460
Provision for loan losses	4,350	14,210	12,000
Depreciation and amortization	2,131	2,437	2,695
Net amortization on securities premiums and discounts	8,177	8,500	5,874
Decrease (increase) in unearned net loan fees	366	(535)	(509)
Increase in cash surrender value of life insurance policies	(1,417)	(350)	(934)
Proceeds from sales of loans	5,459	8,191	7,210
Originations of Loans Held For Sale	(5,225)	(6,864)	(7,511)
Decrease in interest receivable and other assets	2,225	610	2,354
Increase in other liabilities	1,514	1,646	666
Net decrease in FHLB stock, at cost	438	670	1,321
Deferred income tax provision (benefit)	2,360	(564)	(881)
Excess tax benefit from equity based compensation	(280)	(48)	(109)
Net cash provided by operating activities	34,538	38,697	34,647
Cash flows from investing activities:
Maturities of securities available for sale	1,724	1,120	7,107
Proceeds from sales/calls of securities available for sale	4,135	63,776	46,872
Purchases of securities available for sale	(160,251)	(150,305)	(205,500)
Principal paydowns on securities available for sale	95,772	104,752	76,171
Decrease (increase) in loans receivable, net	64,868	(163,789)	24,661
Purchases of premises and equipment, net	(667)	(3,411)	(2,734)
Proceeds from sales of foreclosed assets	15,023	15,538	7,212
Purchase of bank owned life insurance	0	0	(5,132)
Net cash provided by (used in) investing activities	20,604	(132,319)	(51,343)
Cash flows from financing activities:
Increase in deposits	145	87,766	33,994
(Decrease) increase in borrowed funds	(41,650)	9,530	2,470
Increase (decrease) in Repurchase Agreements	4,555	(1,618)	3,037
Cash dividends paid	(3,680)	(3,385)	(3,367)
Issuance of Common Stock	0	0	(23)
Stock options exercised	1,396	63	867
Excess tax provision from equity based compensation	280	48	109
Net cash (used in) provided by financing activities	(38,954)	92,404	37,087
Increase (decrease) in cash and due from banks	16,188	(1,218)	20,391
Cash and cash equivalents, beginning of year	61,818	63,036	42,645
Cash and cash equivalents, end of year	78,006	61,818	63,036
Cash paid during the year for:
Interest	3,340	4,531	5,492
Income taxes	0	0	1,643
Non-cash investing activities
Real estate acquired through foreclosure	4,990	23,965	6,520
Change in unrealized net (losses) gains on Investment securities available-for-sale	$ (5,594)	$ (202)	$ 4,976

XML

INVESTMENT SECURITIES AVAILABLE-FOR-SALE (Tables)

12 Months Ended

Dec. 31, 2013

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities Reconciliation

The amortized cost and estimated fair value of investment securities available-for-sale are as follows

(dollars in thousands):

	December 31, 2013
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
US Government Agencies	$	5,395	$	18	$	(109)	$	5,304
Mortgage-backed securities		320,223		3,269		(2,771)		320,721
State and political subdivisions		97,361		1,723		(2,521)		96,563
Equity securities		1,336		1,120		-		2,456
Total investment securities	$	424,315	$	6,130	$	(5,401)	$	425,044

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
US Government Agencies	$	2,987	$	3	$	(17)	$	2,973
Mortgage-backed securites		298,806		3,547		(964)		301,389
State and political subdivisions		70,736		3,430		(180)		73,986
Equity securities		1,336		508		(4)		1,840
Total investment securities	$	373,865	$	7,488	$	(1,165)	$	380,188

Realized Gain (Loss) on Investments

Gross gains and losses from the sales and calls of investment securities for the years ended were as follows (dollars in thousands):

	December 31,
	2013		2012		2011
Gross Gains on Sales and Calls of Investment Securities	$	6	$	2,059	$	1,666
Gross Losses on Sales and Calls of Investment Securities		-		(297)		(6)
Net Gains on Sales and Calls of Investment Securities	$	6	$	1,762	$	1,660

Information Pertaining to Investment Securities Aggregated by Investment Category and Length of Time that Individual Securities in a Continuous Loss Position

Information pertaining to these securities aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (dollars in thousands):

	December 31, 2013
	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
US Government Agencies	$	(92)	$	1,913	$	(17)	$	1,920
Mortgage-backed securities		(642)		21,747		(2,129)		124,317
State and political subdivisions		(461)		6,799		(2,060)		38,083
Equity securities		-		-		-		-
Total	$	(1,195)	$	30,459	$	(4,206)	$	164,320

	December 31, 2012
	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
US Government Agencies	$	(17)	$	1,996	$	-	$	-
Mortgage-backed securities		(903)		106,799		(61)		6,965
State and political subdivisions		(180)		9,324		-		-
Equity securities		(4)		242		-		-
Total	$	(1,104)	$	118,361	$	(61)	$	6,965

Investments Classified by Contractual Maturity Date

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without penalties.

	Amortized Cost		Fair Value
	(dollars in thousands)
Maturing within one year	$	2,294	$	2,316
Maturing after one year through five years		241,396		242,493
Maturing after five years through ten years		59,572		59,402
Maturing after ten years		49,674		47,737
Investment securities not due at a single maturity date:
U.S Government agencies collateralized by mortgage obligations		70,043		70,640
Other securities		1,336		2,456
	$	424,315	$	425,044

XML

Financial Instruments Represent Off-Balance-Sheet Credit Risk (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fixed-rate commitments to extend credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments off-balance sheet credit risks	$ 64,148	$ 53,550
Variable-rate commitments to extend credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments off-balance sheet credit risks	356,559	171,850
Standby letters of credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments off-balance sheet credit risks	8,703	6,690
Commercial and similar letters of credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments off-balance sheet credit risks	$ 8,070	$ 8,539

XML

SHAREHOLDERS' EQUITY (Tables)

12 Months Ended

Dec. 31, 2013

Stockholders Equity Note [Abstract]

Schedule of Calculation of Numerator and Denominator in Earnings Per Share

A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:

	For the Years Ended December 31,
	2013		2012		2011
Basic Earnings Per Share
Net income (dollars in thousands)	$	13,369	$	8,185	$	7,780
Weighted average shares outstanding		14,155,927		14,103,805		14,036,667
Basic earnings per share	$	0.94	$	0.58	$	0.55
Diluted Earnings Per Share
Net income (dollars in thousands)	$	13,369	$	8,185	$	7,780
Weighted average shares outstanding		14,155,927		14,103,805		14,036,667
Effect of dilutive stock options		134,223		16,508		48,534
Weighted average shares outstanding		14,290,150		14,120,313		14,085,201
Diluted earnings per share	$	0.94	$	0.58	$	0.55

Schedule of Share-based Compensation, Stock Options, Activity

A summary of the Company’s stock option activity, including options from the 1998 Plan, follows (shares in thousands, except exercise price):

	2013					2012			2011
		Weighted					Weighted			Weighted
		Average		Aggregate			Average			Average
		Exercise		Intrinsic			Exercise			Exercise
	Shares	Price		Value (1)		Shares	Price		Shares	Price
Outstanding, beginning of     year	927	$	14.16			810	$	14.97	835	$	14.24
Exercised	(111)	$	9.87			(5)	$	9.45	(125)	$	6.72
Granted	-	$	-			189	$	10.21	186	$	10.58
Canceled	(70)	$	15.75			(67)	$	13.08	(86)	$	10.43
Outstanding, end of year	746	$	14.65	$	2,961	927	$	14.16	810	$	14.97
Exercisable, end of     year (2)	542	$	16.30	$	583	599	$	16.07	504	$	17.15

⁽¹⁾The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2013. This amount changes based on changes in the market value of the Company's stock.

⁽²⁾The weighted average remaining contractual life of stock options outstanding and exercisable on December 31, 2013 was 6.0 years and 7.1 years, respectively.

Schedule of Options Indexed to Issuer's Equity

Information related to stock options during each year follows:

	2013		2012		2011
Weighted-average grant-date fair value per share	$	-	$	3.86	$	3.79
Total intrinsic value of stock options exercised	$	605,000	$	9,000	$	465,000
Total fair value of stock options vested	$	583,000	$	517,000	$	-

XML

Amortized Cost and Estimated Fair Value of Investment Securities Available for Sale (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 424,315	$ 373,865
Gross Unrealized Gains	6,130	7,488
Gross Unrealized Losses	(5,401)	(1,165)
Estimated Fair Value	425,044	380,188
U.S. Government agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,395	2,987
Gross Unrealized Gains	18	3
Gross Unrealized Losses	(109)	(17)
Estimated Fair Value	5,304	2,973
Mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	320,223	298,806
Gross Unrealized Gains	3,269	3,547
Gross Unrealized Losses	(2,771)	(964)
Estimated Fair Value	320,721	301,389
State and political subdivisions
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	97,361	70,736
Gross Unrealized Gains	1,723	3,430
Gross Unrealized Losses	(2,521)	(180)
Estimated Fair Value	96,563	73,986
Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,336	1,336
Gross Unrealized Gains	1,120	508
Gross Unrealized Losses	0	(4)
Estimated Fair Value	$ 2,456	$ 1,840

XML

Interest Bearing Deposits (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Interest Bearing Deposits [Line Items]
Interest Bearing Demand Deposits	$ 82,408	$ 84,655
NOW	200,313	196,771
Savings	144,162	118,547
Money Market	73,132	71,222
CDAR's, Under $100,000	437	791
CDAR's, $100,000 or more	12,919	14,274
Time, Under $100,000	79,261	101,893
Time, $100,000 or more	205,550	218,284
Brokered Deposits	10,000	15,000
Interest-bearing Deposit Liabilities	$ 808,182	$ 821,437

XML

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 51,342	$ 42,079
Interest-bearing deposits in banks	26,664	19,739
Cash and cash equivalents	78,006	61,818
Investment securities available-for-sale	425,044	380,188
Loans held-for-sale	105	210
Loans and leases:
Gross loans and leases	803,242	879,795
Allowance for loan and lease losses	(11,677)	(13,873)
Deferred loan and lease fees, net	1,522	1,156
Net Loans and Leases	793,087	867,078
Premises and equipment, net	20,393	21,830
Operating leases, net	0	12
Foreclosed assets	8,185	19,754
Goodwill	5,544	5,544
Other assets	79,885	81,469
Total Assets	1,410,249	1,437,903
Deposits:
Non-interest bearing	365,997	352,597
Interest bearing	808,182	821,437
Total Deposits	1,174,179	1,174,034
Federal funds purchased and repurchase agreements	5,974	1,419
Short-term borrowings	0	36,650
Long-term borrowings	0	5,000
Subordinated debentures	30,928	30,928
Other liabilities	17,494	15,980
Total liabilities	1,228,575	1,264,011
Commitments and contingencies (Note 11)
Shareholders' equity
Serial Preferred stock, no par value; 10,000,000 shares authorized; none issued
Common stock, no par value; 24,000,000 shares authorized; 14,217,199 and 14,106,959 shares issued and outstanding in 2013 and 2012 resectively	65,780	64,384
Additional paid in capital	2,648	2,660
Retained earnings	112,817	103,128
Accumulated other comprehensive income, net of taxes of $300 in 2013 and $2,602 in 2012	429	3,720
Total shareholders' equity	181,674	173,892
Total liabilities and shareholders' equity	$ 1,410,249	$ 1,437,903

XML

FAIR VALUE (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis, including financial liabilities for which the Company has elected the fair value option, are summarized below (dollars in thousands):

	Fair Value Measurements at December 31, 2013, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss)
Investment Securities
US Government Agencies	$	-	$	5,304	$	-	$	5,304	$	-
Mortgage-backed securities		-		320,721		-		320,721		-
State and political subdivisions		-		96,563		-		96,563		-
Equity securities		2,456		-		-		2,456		-
Total available-for-sale securities	$	2,456	$	422,588	$	-	$	425,044	$	-

	Fair Value Measurements at December 31, 2012, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss)
Investment Securities
US Government Agencies	$	-	$	2,973	$	-	$	2,973	$	-
Mortgage-backed securities		-		301,389		-		301,389		-
State and political subdivisions		-		73,986		-		73,986		-
Equity securities		1,809		31		-		1,840		-
Total available-for-sale securities	$	1,809	$	378,379	$	-	$	380,188	$	-

Schedule Of Fair Value Assets and Liabilities Measured On Non Recurring Basis

Assets and liabilities measured at fair market value on a non-recurring basis are summarized below (dollars in thousands):

	Year Ended December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Collateral Dependent Impaired Loans	$	-	$	14,705	$	-	$	14,705
Foreclosed Assets	$	-	$	8,185	$	-	$	8,185

	Year Ended December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Collateral Dependent Impaired Loans	$	-	$	27,449	$	-	$	27,449
Foreclosed Assets	$	-	$	19,754	$	-	$	19,754

XML

Summary of Assets and Liabilities Measured at Fair Market Value on a Non-Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	$ 8,185	$ 19,754
Fair Value, Measurements, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired Loans	14,705	27,449
Foreclosed assets	8,185	19,754
Fair Value, Measurements, Nonrecurring | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired Loans	0	0
Foreclosed assets	0	0
Fair Value, Measurements, Nonrecurring | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired Loans	14,705	27,449
Foreclosed assets	8,185	19,754
Fair Value, Measurements, Nonrecurring | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired Loans	0	0
Foreclosed assets	$ 0	$ 0

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $)	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Balance at Dec. 31, 2010	$ 159,597,000	$ 63,477,000	$ 1,652,000	$ 93,570,000	$ 898,000
Balance (in shares) at Dec. 31, 2010		13,976,741
Net income	7,780,000			7,780,000
Net change in unrealized gain on investment securities available- for- sale, net of tax	2,950,000				2,950,000
Issuance of Common stock	(23,000)	(23,000)
Reversal of Cumulative effect of change in accounting principle	191,000			191,000
Exercise of stock options and related tax benefit (in shares)		124,868
Exercise of stock options and related tax benefit	976,000	867,000	109,000
Stock compensation costs	460,000		460,000
Cash dividends	(3,367,000)			(3,367,000)
Balance at Dec. 31, 2011	168,564,000	64,321,000	2,221,000	98,174,000	3,848,000
Balance (in shares) at Dec. 31, 2011		14,101,609
Net income	8,185,000			8,185,000
Net change in unrealized gain on investment securities available- for- sale, net of tax	(128,000)				(128,000)
Reversal of Cumulative effect of change in accounting principle	154,000			154,000
Exercise of stock options and related tax benefit (in shares)		5,350
Exercise of stock options and related tax benefit	15,000	63,000	(48,000)
Stock compensation costs	487,000		487,000
Cash dividends	(3,385,000)			(3,385,000)
Balance at Dec. 31, 2012	173,892,000	64,384,000	2,660,000	103,128,000	3,720,000
Balance (in shares) at Dec. 31, 2012		14,106,959
Net income	13,369,000			13,369,000
Net change in unrealized gain on investment securities available- for- sale, net of tax	(3,291,000)				(3,291,000)
Exercise of stock options and related tax benefit (in shares)		110,240
Exercise of stock options and related tax benefit	1,116,000	1,396,000	(280,000)
Stock compensation costs	268,000		268,000
Cash dividends	(3,680,000)			(3,680,000)
Balance at Dec. 31, 2013	$ 181,674,000	$ 65,780,000	$ 2,648,000	$ 112,817,000	$ 429,000
Balance (in shares) at Dec. 31, 2013		14,217,199

XML

Summary of the Aggregate Activity Involving Related Party Borrowers (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Related Party Transaction [Line Items]
Balance, beginning of year	$ 629	$ 2,471	$ 3,465
Disbursements	543	625	773
Amounts repaid	(606)	(2,467)	(1,767)
Decreased	0	0	0
Balance, end of year	566	629	2,471
Undisbursed commitments to related parties	$ 460	$ 330	$ 472

XML

Credit Quality Classifications (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	$ 803,242	$ 879,795
Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	23,536	28,872
Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	577,839	545,789
Real Estate Loans | Other construction/Land
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	25,531	28,002
Pass
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	709,559	738,840
Pass | Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	19,387	23,881
Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	499,345	427,173
Pass | Real Estate Loans | Other construction/Land
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	18,243	13,270
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	29,130	44,948
Special Mention | Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	478	445
Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	24,762	37,448
Special Mention | Real Estate Loans | Other construction/Land
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	334	952
Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	8,166	17,845
Substandard | Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	208	198
Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	6,722	15,035
Substandard | Real Estate Loans | Other construction/Land
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	203	1,132
Impaired
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	56,387	78,162
Impaired | Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	3,463	4,348
Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	47,010	66,133
Impaired | Real Estate Loans | Other construction/Land
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	6,751	12,648
Agricultural
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	25,180	22,482
Agricultural | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	24,178	21,333
Agricultural | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	532	462
Agricultural | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	24
Agricultural | Impaired
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	470	663
Commercial and Industrial
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	158,756	257,896
Commercial and Industrial | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	153,125	247,375
Commercial and Industrial | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	2,520	5,020
Commercial and Industrial | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	416	1,845
Commercial and Industrial | Impaired
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	2,695	3,656
Small Business Administration Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	14,905	20,523
Small Business Administration Loans | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	10,498	15,002
Small Business Administration Loans | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	838	1,551
Small Business Administration Loans | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	820	743
Small Business Administration Loans | Impaired
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	2,749	3,227
Direct Financing Leases
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	3,026	4,233
Direct Financing Leases | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	3,026	4,076
Direct Financing Leases | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	22
Direct Financing Leases | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	0
Direct Financing Leases | Impaired
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	135
1-4 Family residential construction | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	1,720	3,174
1-4 Family residential construction | Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	1,720	1,599
1-4 Family residential construction | Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	1,333
1-4 Family residential construction | Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	89
1-4 Family residential construction | Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	153
1-4 Family - closed end | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	87,024	99,916
1-4 Family - closed end | Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	67,051	73,002
1-4 Family - closed end | Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	1,305	2,484
1-4 Family - closed end | Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	770	1,209
1-4 Family - closed end | Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	17,898	23,222
Equity Lines | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	53,723	61,463
Equity Lines | Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	51,019	58,161
Equity Lines | Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	254	95
Equity Lines | Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	1,429	1,949
Equity Lines | Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	1,021	1,258
Multi-family residential | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	8,485	5,960
Multi-family residential | Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	8,059	5,351
Multi-family residential | Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	426	609
Multi-family residential | Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	0
Multi-family residential | Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	0	0
Commercial real estate - owner occupied | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	186,012	182,614
Commercial real estate - owner occupied | Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	158,155	144,207
Commercial real estate - owner occupied | Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	17,033	22,895
Commercial real estate - owner occupied | Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	3,261	6,562
Commercial real estate - owner occupied | Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	7,563	8,950
Commercial real estate - non-owner occupied | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	106,840	92,808
Commercial real estate - non-owner occupied | Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	89,475	67,407
Commercial real estate - non-owner occupied | Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	3,630	6,864
Commercial real estate - non-owner occupied | Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	240	568
Commercial real estate - non-owner occupied | Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	13,495	17,969
Farmland | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	108,504	71,851
Farmland | Pass | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	105,623	64,176
Farmland | Special Mention | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	1,780	2,216
Farmland | Substandard | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	819	3,526
Farmland | Impaired | Real Estate Loans
Financing Receivable, Recorded Investment [Line Items]
Total Financing Receivable	$ 282	$ 1,933

XML

Parent Only Condensed Financial Statements (Detail 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income:
Other-than-temporary impairment losses on equity securities									$ 0	$ 0	$ 1,370
Expense
Salaries and employee benefits									21,920	20,734	20,669
Income (loss) before income taxes	4,764	4,030	5,130	2,538	1,700	1,314	3,027	1,800	16,462	7,841	8,344
Income tax benefit	895	663	1,331	204	(398)	(321)	454	(79)	3,093	(344)	564
Net income									10,078	8,057	10,730
Parent
Income:
Other-than-temporary impairment losses on equity securities									0	0	(1,370)
Other operating income									16	10	21
Total Income									3,016	10	(1,349)
Expense
Salaries and employee benefits									349	254	206
Other expenses									1,313	1,365	1,388
Total expenses									1,662	1,619	1,594
Income (loss) before income taxes									1,354	(1,609)	(2,943)
Income tax benefit									(803)	(663)	(1,212)
Income (loss) before equity in undistributed income of subsidiary									2,157	(946)	(1,731)
Equity in undistributed income of subsidiary									11,212	9,131	9,511
Net income									13,369	8,185	7,780
Subsidiary | Parent
Income:
Dividend									$ 3,000	$ 0	$ 0

XML

OTHER ASSETS (Tables)

12 Months Ended

Dec. 31, 2013

Other Assets [Abstract]

Schedule of Other Assets

Other assets consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Accrued interest receivable	$	4,990	$	5,095
Deferred tax assets		12,286		11,995
Prepaid taxes		2,787		3,775
Investment in limited partnerships		9,204		10,316
Federal Home Loan Bank stock, at cost		5,581		6,019
Cash surrender value of officer life insurance policies		39,424		38,007
Other		5,613		6,262
	$	79,885	$	81,469

XML

Summary of Interest Income from Non-Accrual Loans in the Portfolio (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Summary of Interest Income from Non-Accrual Loans in the Portfolio [Line Items]
Interest that would have been recorded under the loans’ original terms	$ 3,209	$ 4,084	$ 4,353
Less gross interest recorded	304	2,088	1,328
Foregone interest	$ 2,905	$ 1,996	$ 3,025

XML

BENEFIT PLANS

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

BENEFIT PLANS

14. BENEFIT PLANS

Salary Continuation Agreements, Directors’ Retirement and Officer Supplemental Life Insurance Plans

The Company has entered into salary continuation agreements with its executive officers, and has established retirement plans for qualifying members of the Board of Directors. The plans provide for annual benefits for up to fifteen years after retirement or death. The benefit obligation under these plans totaled $4,952,000 and $4,747,000 and was fully accrued for the years ended December 31, 2013 and 2012, respectively. The expense recognized under these arrangements totaled $288,000 and $292,000, and $403,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Salary continuation benefits paid to former directors or executives of the Company or their beneficiaries totaled $83,000 for each of the years ended December 31, 2013, 2012 and 2011. The Company also provides benefits to former executives of Sierra National Bank under salary continuation plans that were in effect at the time Sierra National Bank was merged into Bank of the Sierra. The benefit obligation under these plans totaled $89,000, $145,000 and $197,000, and was fully accrued for the years ended December 31, 2013, 2012, and 2011, respectively. Benefits paid to former executives of SNB under this plan totaled $67,000, for each of the years ended December 31, 2013, 2012, and 2011, respectively. Certain officers of the Company have supplemental life insurance policies with death benefits available to the officers’ beneficiaries.

In connection with these plans the Company has purchased, or acquired through the merger, single premium life insurance policies with cash surrender values totaling $35,250,000 and $34,762,000 at December 31, 2013 and 2012, respectively. On the consolidated balance sheet, the cash surrender values are included in other assets.

Officer and Director Deferred Compensation Plan

The Company has established a deferred compensation plan for certain members of the management group and a deferred fee plan for directors for the purpose of providing the opportunity for participants to defer compensation. The Company bears the costs for the plan’s administration and the interest earned on participant deferrals. The related administrative expense was not material for the years ended December 31, 2013, 2012 and 2011. In connection with this plan, life insurance policies with cash surrender values totaling $4,174,000 and $3,245,000 at December 31, 2013 and 2012, respectively, are included on the consolidated balance sheet in other assets.

401(k) Savings Plan

The 401(k) savings plan (the “Plan”) allows participants to defer, on a pre-tax basis, up to 15% of their salary (subject to Internal Revenue Service limitations) and accumulate tax-deferred earnings as a retirement fund. The Bank may make a discretionary contribution to match a specified percentage of the first 6% of the participants’ contributions annually. The amount of the matching contribution was 60% for the year ended December 31, 2013 and 50% for each of the years ended December 31, 2012 and 2011. The matching contribution is discretionary, vests over a period of five years from the participants’ hire date, and is subject to the approval of the Board of Directors. The Company contributed $360,000, $302,000 and $304,000 to the Plan in 2013, 2012 and 2011, respectively.

XML

DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

Schedule Of Interest Bearing Deposit Liabilities Domestic By Component

Interest-bearing deposits consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Interest Bearing Demand Deposits	$	82,408	$	84,655
NOW		200,313		196,771
Savings		144,162		118,547
Money Market		73,132		71,222
CDAR's, Under $100,000		437		791
CDAR's, $100,000 or more		12,919		14,274
Time, Under $100,000		79,261		101,893
Time, $100,000 or more		205,550		218,284
Brokered Deposits		10,000		15,000
	$	808,182	$	821,437

Schedule Of Maturities Of Tmes Deposit

Aggregate annual maturities of time deposits are as follows (dollars in thousands):

Year Ending December 31,
2014	$	296,969
2015		8,467
2016		989
2017		833
2018		290
Thereafter		619
	$	308,167

Schedule Of Interest Expense Recognized In Interest Bearing Deposit

Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Interest Bearing Demand Deposits	$	281	$	257	$	137
NOW		359		556		860
Savings		285		241		203
Money Market		94		127		506
CDAR's, Under $100,000		-		2		5
CDAR's, $100,000 or more		36		50		194
Time, Under $100,000		420		619		1,001
Time, $100,000 or more		823		1,154		1,223
Brokered Deposits		157		202		176
	$	2,455	$	3,208	$	4,305

XML

Parent Only Condensed Financial Statements (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
ASSETS
Cash and due from banks	$ 51,342	$ 42,079
Other assets	79,885	81,469
Total Assets	1,410,249	1,437,903
Liabilities:
Other liabilities	17,494	15,980
Total liabilities	1,228,575	1,264,011
Shareholders' equity:
Common stock	65,780	64,384
Retained Earnings	112,817	103,128
Accumulated other comprehensive income, net of taxes	429	3,720
Total shareholders' equity	181,674	173,892	168,564	159,597
Total liabilities and shareholders' equity	1,410,249	1,437,903
Parent [Member]
ASSETS
Cash and due from banks	1,337	1,712
Investment in other securities	2,421	1,809
Other assets	310	263
Total Assets	213,322	205,209
Liabilities:
Other liabilities	720	389
Subordinated debentures	30,928	30,928
Total liabilities	31,648	31,317
Shareholders' equity:
Common stock	68,428	67,044
Retained Earnings	112,817	103,128
Accumulated other comprehensive income, net of taxes	429	3,720
Total shareholders' equity	181,674	173,892
Total liabilities and shareholders' equity	213,322	205,209
Parent [Member] | Subsidiaries
ASSETS
Investments	208,326	200,497
Parent [Member] | Trust Subsidiaries
ASSETS
Investments	$ 928	$ 928

XML

OTHER OPERATING EXPENSE

12 Months Ended

Dec. 31, 2013

Other Income and Expenses [Abstract]

OTHER OPERATING EXPENSE

16. OTHER OPERATING EXPENSE

Other expense consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Professional fees	$	4,143	$	3,454	$	3,941
Data processing		1,987		1,807		1,523
Advertising and promotion		1,960		1,771		2,051
Deposit services		1,980		2,266		2,516
Stationery and supplies		657		738		705
Telephone and data communication		1,613		1,549		1,291
Loan and credit card processing		1,327		419		1,082
Foreclosed assets expense		1,202		4,914		5,226
Postage		713		718		576
Other		1,039		1,905		1,267
Total other non-interest expense	$	16,621	$	19,541	$	20,178

XML

Premises and Equipment at Cost Consisted (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 46,790	$ 49,299
Less accumulated depreciation and amortization	26,402	27,473
Construction in progress	5	4
Premises and equipment, net	20,393	21,830
Land
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	2,607	2,607
Buildings and improvements
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	15,818	15,720
Furniture, fixtures and equipment
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	17,829	20,476
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 10,536	$ 10,496

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash dividends, per share	$ 0.26	$ 0.24	$ 0.24

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Serial Preferred stock, no par value	$ 0	$ 0
Preferred stock, shares authorized	10,000,000	10,000,000
Common stock, no par value	$ 0	$ 0
Common stock, shares authorized	24,000,000	24,000,000
Common stock, shares issued	14,217,199	14,106,959
Common stock, shares outstanding	14,217,199	14,106,959
Accumulated other comprehensive income, tax	$ 300	$ 2,602

XML

INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

9. INCOME TAXES

The provision for income taxes follows (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Federal:
Current	$	563	$	220	$	627
Deferred		1,842		(647)		(706)
		2,405		(427)		(79)
State:
Current		170		-		818
Deferred		518		83		(175)
		688		83		643
	$	3,093	$	(344)	$	564

The components of the net deferred tax asset, included in other assets, are as follows (dollars in thousands):

	December 31,
	2013		2012
Deferred tax assets:
Allowance for loan losses	$	5,669	$	6,594
Foreclosed Assets		1,779		4,461
Deferred compensation		4,112		3,627
Accrued reserves		594		502
Non Accrual Loans		1,211		865
Other than temporary impairment charge		576		576
Credit Carryforward		3,089		2,273
Other		153		185
Total deferred tax assets		17,183		19,083
Deferred tax liabilities:
Premises and equipment		(589)		(552)
Deferred loan costs		(2,254)		(2,152)
Unrealized gain on securities available-for-sale		(299)		(2,602)
Other		(1,755)		(1,782)
Total deferred tax liabilities		(4,897)		(7,088)
Net deferred tax assets	$	12,286	$	11,995

The expense for income taxes differs from amounts computed by applying the statutory Federal income tax rates to income before income taxes. The significant items comprising these differences consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013			2012			2011
Income tax expense at Federal statutory rate	$	5,597		$	2,666		$	2,837
Increase (decrease) resulting from:
State franchise tax expense, net of      Federal tax effect		414			-			540
Tax exempt income		(920)			(1,388)			(1,330)
Affordable housing tax credits		(1,257)			(1,639)			(1,605)
Other		(741)			17			122
	$	3,093		$	(344)		$	564
Effective tax rate		18.8	%		(4.4)	%		6.8	%

The Company is subject to federal income tax and income tax of the state of California. Our federal income tax returns for the years ended December 31, 2010, 2011 and 2012 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2009, 2010, 2011 and 2012 are open to audit by the state authorities.

There were no recorded interest or penalties related to uncertain tax positions as part of income tax for the years ended December 31, 2013, 2012, and 2011, respectively. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months.

XML

Related Party Transactions - Additional Information (Detail) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Related Party Transaction [Line Items]
Deposit From Related Party	$ 7,523,000	$ 9,012,000

XML

Major Components Of Non-Interest Revenue (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Amounts Attributable to Parent, Disclosures [Abstract]
Loss on limited partnerships	$ (1,063)	$ (395)	$ (885)
Dividends on Equity Investments	356	67	26
Rental income on leases	46	102	173
Other	2,569	2,134	1,842
Total other non-interest revenue	$ 1,908	$ 1,908	$ 1,156

XML

Document And Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Feb. 28, 2014	Jun. 28, 2013
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Trading Symbol	BSRR
Entity Common Stock, Shares Outstanding		14,240,399
Entity Registrant Name	SIERRA BANCORP
Entity Central Index Key	0001130144
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 160

XML

SUBORDINATED DEBENTURES

12 Months Ended

Dec. 31, 2013

Subordinated Borrowings [Abstract]

SUBORDINATED DEBENTURES

10. SUBORDINATED DEBENTURES

Sierra Statutory Trust II (“Trust II”) and Sierra Capital Trust III (“Trust III”), (collectively, the “Trusts”) were formed by the Company for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. For financial reporting purposes, the Trusts are not consolidated and the Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures”) held by the Trusts and issued and guaranteed by the Company are reflected in the Company’s consolidated balance sheet in accordance with provisions of ASC Topic 810. Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to twenty-five percent of the Company’s Tier 1 capital on a pro forma basis. At December 31, 2013, $30,000,000 of the Company’s trust preferred securities qualified as Tier 1 capital.

During the first quarter of 2004, Sierra Statutory Trust II issued 15,000 Floating Rate Capital Trust Pass-Through Securities (TRUPS II), with a liquidation value of $1,000 per security, for gross proceeds of $15,000,000. The entire proceeds of the issuance were invested by Trust II in $15,464,000 of Subordinated Debentures issued by the Company, with identical maturity, re-pricing and payment terms as the TRUPS II. The Subordinated Debentures, purchased by Trust II, represent the sole assets of the Trust II. Those Subordinated Debentures mature on March 17, 2034, bear a current interest rate of 2.99% (based on 3-month LIBOR plus 2.75%), with re-pricing and payments due quarterly.

Those Subordinated Debentures are currently redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 17^th, June 17^th, September 17^th, or December 17^th. The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture.

The TRUPS II are subject to mandatory redemption to the extent of any early redemption of the related Subordinated Debentures and upon maturity of the Subordinated Debentures on March 17, 2034.

Trust II has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the Subordinated Debentures. The TRUPS II issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS II.

During the second quarter of 2006, Sierra Capital Trust III issued 15,000 Floating Rate Capital Trust Pass-Through Securities (TRUPS III), with a liquidation value of $1,000 per security, for gross proceeds of $15,000,000. The entire proceeds of the issuance were invested by Trust III in $15,464,000 of Subordinated Debentures issued by the Company, with identical maturity, repricing and payment terms as the TRUPS III. The Subordinated Debentures, purchased by Trust III, represent the sole assets of the Trust III. Those Subordinated Debentures mature on September 23, 2036, bear a current interest rate of 1.65% (based on 3-month LIBOR plus 1.40%), with repricing and payments due quarterly.

Those Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 23^rd, June 23^rd, September 23^rd, or December 23^rd. The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture. The TRUPS III are subject to mandatory redemption to the extent of any early redemption of the related Subordinated Debentures and upon maturity of the Subordinated Debentures on September 23, 2036.

Trust III has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the Subordinated Debentures. The TRUPS III issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS III.

XML

Subordinated Debentures - Additional Information (Detail) (USD $)		3 Months Ended
	Dec. 31, 2013 Statutory Trust	Jun. 30, 2006 Sierra Statutory Trust II	Mar. 31, 2004 Sierra Statutory Trust II	Jun. 30, 2006 Subordinated Debt	Mar. 31, 2004 Subordinated Debt
Subordinated Borrowings [Line Items]
Trust preferred securities qualified as tier one capital	$ 30,000,000
Floating rate capital trust pass through securities issued during period		15,000	15,000
Floating rate capital trust pass through securities liquidation value per securities		1,000	1,000
Proceeds from issuance of mandatory redeemable capital securities		15,000,000	15,000,000
Proceeds from issuance of subordinated long-term debt				$ 15,464,000	$ 15,464,000
Subordinated borrowing, due date				Sep. 23, 2036	Mar. 17, 2034
Subordinated borrowing, interest rate				1.65%	2.99%
Debt instrument, basis spread on variable rate				1.40%	2.75%

XML

Benefit Plans - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan Disclosure [Line Items]
Pension and other postretirement benefit contributions	$ 4,952,000	$ 4,747,000
Pension and other postretirement benefit expense	288,000	292,000	403,000
Defined benefit plan, benefits paid	83,000	83,000	83,000
Cash surrender value of life insurance	39,424,000	38,007,000
Defined contribution plan annual benefit after retirement or death period	15 years
Percentage of salary deferred for tax deferred savings plan maximum	15.00%
Defined contribution plan, employers matching contribution, annual vesting percentage	6.00%
Defined contribution plan, employer matching contribution, percent	60.00%	50.00%	50.00%
Defined contribution plan employer matching contribution vesting period	5 years
Defined contribution plan, employer discretionary contribution amount	360,000	302,000	304,000
Former Executive
Defined Benefit Plan Disclosure [Line Items]
Pension and other postretirement benefit expense	89,000	145,000	197,000
Defined benefit plan, benefits paid	67,000	67,000	67,000
Premium life insurance policies
Defined Benefit Plan Disclosure [Line Items]
Cash surrender value of life insurance	35,250,000	34,762,000
Deferred Compensation Plan
Defined Benefit Plan Disclosure [Line Items]
Cash surrender value of life insurance	$ 4,174,000	$ 3,245,000

XML

CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Interest income:
Interest and fees on loans and leases	$ 44,030	$ 45,765	$ 46,959
Interest on investment securities:
Taxable	4,916	6,364	8,753
Exempt from federal tax	2,737	2,703	2,834
Interest on Federal funds sold and interest-bearing deposits	102	70	68
Total interest income	51,785	54,902	58,614
Interest expense:
Interest on deposits	2,455	3,208	4,305
Interest on short-term borrowings	19	58	55
Interest on long-term borrowings	33	281	569
Interest on subordinated debentures	714	774	728
Total interest expense	3,221	4,321	5,657
Net Interest Income	48,564	50,581	52,957
Provision for loan and lease losses	4,350	14,210	12,000
Net Interest Income after Provision for Loan and lease losses	44,214	36,371	40,957
Non-interest revenue:
Service charges on deposit accounts	9,022	9,676	9,543
Gain on sale of loans	129	183	139
Credit card fees	462	390	411
Checkcard fees	3,749	2,787	2,519
Gains on sales and calls of investment securities available-for-sale	6	1,762	1,660
Other-than-temporary impairment losses on equity securities	0	0	(1,370)
Increase in cash surrender value of life insurance	1,787	1,420	934
Other income	1,908	1,908	1,156
Total non-interest revenue	17,063	18,126	14,992
Other operating expense:
Salaries and employee benefits	21,920	20,734	20,669
Occupancy and equipment expense	6,274	6,381	6,758
Other	16,621	19,541	20,178
Total non-interest expense	44,815	46,656	47,605
Income before income taxes	16,462	7,841	8,344
Provision for income taxes	3,093	(344)	564
Net Income	$ 13,369	$ 8,185	$ 7,780
Earnings per share:
Basic	$ 0.94	$ 0.58	$ 0.55
Diluted	$ 0.94	$ 0.58	$ 0.55

XML

LOANS AND LEASES

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

LOANS AND LEASES

4. LOANS AND LEASES

The composition of the loan and lease portfolio is as follows (dollars in thousands):

	December 31,
	2013		2012
Real estate:
Secured by residential, commercial and professional office properties,
including construction and development	$	318,383	$	303,424
Secured by residential properties		150,952		170,514
Secured by farm land		108,504		71,851
Total Real Estate Loans		577,839		545,789
Agricultural		25,180		22,482
Commercial and industrial		158,756		257,896
Small Business Administration loans		14,905		20,523
Direct Financing leases		3,026		4,233
Consumer		23,536		28,872
Total Loans		803,242		879,795
Deferred loan and lease origination cost, net		1,522		1,156
Allowance for loan and lease losses		(11,677)		(13,873)
Loans, net	$	793,087	$	867,078

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications:

Pass – Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position and some future date.

Substandard – Loans classified as substandard are those loans with clear and well-defined weaknesses such as a highly leveraged position, unfavorable financial operating results and/or trends, or uncertain repayment sources or poor financial condition, which may jeopardize ultimate recoverability of the debt.

Impaired – A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Additionally, all loans classified as troubled debt restructurings are considered impaired.

Credit quality classifications as of December 31, 2013 were as follows (dollars in thousands):

			Special
	Pass		Mention		Substandard		Impaired		Total
Real Estate:
1-4 family residential construction	$	1,720	$	-	$	-	$	-	$	1,720
Other Construction/Land		18,243		334		203		6,751		25,531
1-4 family - closed-end		67,051		1,305		770		17,898		87,024
Equity Lines		51,019		254		1,429		1,021		53,723
Multi-family residential		8,059		426		-		-		8,485
Commercial real estate owner occupied		158,155		17,033		3,261		7,563		186,012
Commercial real estate Non-owner occupied		89,475		3,630		240		13,495		106,840
Farmland		105,623		1,780		819		282		108,504
Total Real Estate		499,345		24,762		6,722		47,010		577,839
Agricultural		24,178		532		-		470		25,180
Commercial and Industrial		153,125		2,520		416		2,695		158,756
Small Business Administration loans		10,498		838		820		2,749		14,905
Direct finance leases		3,026		-		-		-		3,026
Consumer loans		19,387		478		208		3,463		23,536
Total Gross Loans and Leases	$	709,559	$	29,130	$	8,166	$	56,387	$	803,242

Credit quality classifications as of December 31, 2012 were as follows (dollars in thousands):

			Special
	Pass		Mention		Substandard		Impaired		Total
Real Estate:
1-4 family residential construction	$	1,599	$	1,333	$	89	$	153	$	3,174
Other Construction/Land		13,270		952		1,132		12,648		28,002
1-4 family - closed-end		73,002		2,484		1,209		23,222		99,917
Equity Lines		58,161		95		1,949		1,258		61,463
Multi-family residential		5,351		609		-		-		5,960
Commercial real estate owner occupied		144,207		22,895		6,562		8,950		182,614
Commercial real estate Non-owner occupied		67,407		6,864		568		17,969		92,808
Farmland		64,176		2,216		3,526		1,933		71,851
Total Real Estate		427,173		37,448		15,035		66,133		545,789
Agricultural		21,333		462		24		663		22,482
Commercial and Industrial		247,375		5,020		1,845		3,656		257,896
Small Business Administration loans		15,002		1,551		743		3,227		20,523
Direct finance leases		4,076		22		-		135		4,233
Consumer loans		23,881		445		198		4,348		28,872
Total Gross Loans and Leases	$	738,840	$	44,948	$	17,845	$	78,162	$	879,795

A summary of the transactions in the allowance for loan and lease losses follows (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Balance, beginning of year	$	13,873	$	17,283	$	21,138
Provision for loan and lease losses		4,350		14,210		12,000
Losses charged to allowance		(8,263)		(18,778)		(16,987)
Recoveries		1,717		1,158		1,132
Balance, end of year	$	11,677	$	13,873	$	17,283

Loans may or may not be collateralized, and collection efforts are continuously pursued. Loans or leases may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Loans and leases are charged off when they are deemed to be uncollectible, while recoveries are generally recorded only when cash payments are received subsequent to the charge-off.

The following table presents the activity in the allowance for loan losses for the year 2013 and the recorded investment in loans and impairment method as of December 31, 2013 by portfolio segment (dollars in thousands):

					Commercial				Direct
					and		Small Business		Finance
	Real Estate		Agricultural		Industrial		Administration		Leases		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning of year	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Charge-offs		(4,205)		(473)		(1,268)		(294)		(106)		(1,917)		-		(8,263)
Recoveries		618		-		747		37		18		297		-		1,717
Provision		1,097		1,193		633		626		(73)		623		251		4,350
End of year	$	5,544	$	978	$	2,168	$	1,615	$	4	$	1,117	$	251	$	11,677
Reserves:
Specific	$	2,867	$	126	$	655	$	1,270	$	-	$	431	$	-	$	5,349
General		2,677		852		1,513		345		4		686		251		6,328
	$	5,544	$	978	$	2,168	$	1,615	$	4	$	1,117	$	251	$	11,677
Loans evaluated for      impairment:
Individually	$	47,010	$	470	$	2,695	$	2,749	$	-	$	3,463	$	-	$	56,387
Collectively		530,829		24,710		156,061		12,156		3,026		20,073		-		746,855
	$	577,839	$	25,180	$	158,756	$	14,905	$	3,026	$	23,536	$	-	$	803,242

The following table presents the activity in the allowance for loan losses for the year 2012 and the recorded investment in loans and impairment method as of December 31, 2012 by portfolio segment (dollars in thousands):

 

					Commercial				Direct
					and		Small Business		Finance
	Real Estate		Agricultural		Industrial		Administration		Leases		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning of year	$	8,260	$	19	$	4,638	$	1,447	$	311	$	2,608	$	-	$	17,283
Charge-offs		(11,108)		(634)		(3,517)		(753)		(198)		(2,568)		-		(18,778)
Recoveries		302		-		483		95		-		278		-		1,158
Provision		10,580		873		452		457		52		1,796		-		14,210
End of year	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Reserves:
Specific	$	4,180	$	28	$	934	$	1,038	$	67	$	878	$	-	$	7,125
General		3,854		230		1,122		208		98		1,236		-		6,748
	$	8,034	$	258	$	2,056	$	1,246	$	165	$	2,114	$	-	$	13,873
Loans evaluated for      impairment:
Individually	$	66,133	$	663	$	3,656	$	3,227	$	135	$	4,348	$	-	$	78,162
Collectively		479,656		21,819		254,240		17,296		4,098		24,524		-		801,633
	$	545,789	$	22,482	$	257,896	$	20,523	$	4,233	$	28,872	$	-	$	879,795

Past due and nonaccrual loans as of December 31, 2013 were as follows (dollars in thousands):

	30-59 Days		60-89 Days		90 Days Or						Total Financing		Non-Accrual
	Past Due		Past Due		More Past Due(1)		Total Past Due		Current		Receivables		Loans(2)
Real Estate:
1-4 family residential     construction	$	-	$	-	$	-	$	-	$	1,720	$	1,720	$	-
Other Construction/Land		294		-		116		410		25,121		25,531		5,528
1-4 family - closed-end		2,181		300		171		2,652		84,372		87,024		13,168
Equity Lines		98		-		288		386		53,337		53,723		778
Multi-family residential		-		-		-		-		8,485		8,485		-
Commercial real estate     owner occupied		1,917		144		2,011		4,072		181,940		186,012		5,516
Commercial real estate     Non-owner occupied		-		-		7,667		7,667		99,173		106,840		8,058
Farmland		331		-		-		331		108,173		108,504		282
Total Real Estate      Loans		4,821		444		10,253		15,518		562,321		577,839		33,330
Agricultural		892		327		125		1,344		23,836		25,180		470
Commercial and Industrial		342		78		24		444		158,312		158,756		685
Small Business     Administration Loans		976		509		1,274		2,759		12,146		14,905		1,937
Direct finance leases		-		-		-		-		3,026		3,026		-
Consumer loans		181		-		-		181		23,355		23,536		992
Total Gross Loans and Leases	$	7,212	$	1,358	$	11,676	$	20,246	$	782,996	$	803,242	$	37,414

⁽¹⁾ As of December 31, 2013 there were no loans over 90 days past due and still accruing.

⁽²⁾ Included in Total Financing Receivables

Past due and nonaccrual loans as of December 31, 2012 were as follows (dollars in thousands):

	30-59 Days		60-89 Days		90 Days Or More						Total Financing		Non-Accrual
	Past Due		Past Due		Past Due(1)		Total Past Due		Current		Receivables		Loans(2)
Real Estate:
1-4 family residential     construction	$	-	$	-	$	153	$	153	$	3,021	$	3,174	$	153
Other Construction/Land		374		211		-		585		27,417		28,002		11,163
1-4 family - closed-end		1,335		88		376		1,799		98,117		99,916		15,381
Equity Lines		473		40		66		579		60,885		61,464		1,026
Multi-family residential		177		-		-		177		5,783		5,960		-
Commercial real estate     owner occupied		1,372		813		1,289		3,474		179,140		182,614		5,314
Commercial real estate     Non-owner occupied		7,831		-		1,499		9,330		83,478		92,808		11,642
Farmland		231		-		1,679		1,910		69,941		71,851		1,933
Total Real Estate      Loans		11,793		1,152		5,062		18,007		527,782		545,789		46,612
Agricultural		24		157		506		687		21,795		22,482		664
Commercial and Industrial		1,419		518		7		1,944		255,952		257,896		2,386
Small Business     Administration Loans		905		-		1,574		2,479		18,044		20,523		2,159
Direct finance leases		-		34		123		157		4,076		4,233		135
Consumer loans		238		189		87		514		28,358		28,872		1,138
Total Gross Loans and Leases	$	14,379	$	2,050	$	7,359	$	23,788	$	856,007	$	879,795	$	53,094

⁽¹⁾ As of December 31, 2012 there were no loans over 90 days past due and still accruing.

 ⁽²⁾ Included in Total Financing Receivables

Generally, the Company places a loan or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process.  When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed.  Subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required.

The following is a summary of information pertaining to impaired and non-accrual loans (dollars in thousands):

	Years Ended December 31,
	2013		2012
Impaired loans without a valuation allowance	$	25,722	$	14,292
Impaired loans with a valuation allowance		30,665		63,870
Total impaired loans (1)	$	56,387	$	78,162
Valuation allowance related to impaired loans	$	5,349	$	7,125
Total non-accrual loans	$	37,414	$	53,094
Total loans past-due ninety days or more and still accruing	$	-	$	-

⁽¹⁾ Principal balance only

Individually impaired loans as of December 31, 2013 were as follows (dollars in thousands):

	Year Emded December 31, 2013
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance(1)		Investment(2)		Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		2,972		2,972		502		3,000		98
1-4 Family - closed-end		13,522		13,522		1,324		13,630		260
Equity Lines		528		528		123		530		13
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		2,047		2,047		217		2,069		135
Commercial real estate- non-owner occupied		3,715		3,715		701		3,813		238
Farmland		-		-		-		-		-
Total Real Estate		22,784		22,784		2,867		23,042		744
Agricultural		125		125		126		131		-
Commercial and Industrial		1,870		1,857		655		2,009		85
Small Business Administration		2,710		2,488		1,270		2,487		46
Direct finance leases		-		-		-		-		-
Consumer loans		3,411		3,411		431		3,591		172
		30,900		30,665		5,349		31,260		1,047
With no Related Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		4,176		3,779		-		3,885		-
1-4 Family - closed-end		4,655		4,376		-		4,687		1
Equity Lines		565		493		-		493		-
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		7,436		5,516		-		5,568		-
Commercial real estate- non-owner occupied		10,077		9,780		-		9,820		115
Farmland		282		282		-		290		-
Total Real Estate		27,191		24,226		-		24,743		116
Agricultural		345		345		-		837		-
Commercial and Industrial		891		838		-		1,346		57
Small Business Administration		358		261		-		261		-
Direct finance leases		-		-		-		-		-
Consumer loans		241		52		-		77		-
		29,026		25,722		-		27,264		173
Total	$	59,926	$	56,387	$	5,349	$	58,524	$	1,220

⁽¹⁾Contractual principal balance due from customer.

⁽²⁾Principal balance on Company's books, less any direct charge offs.

⁽³⁾Interest income is recognized on performing balances on a regular accrual basis.

Individually impaired loans as of December 31, 2012 were as follows (dollars in thousands):

	Year Ended December 31, 2012
	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance(1)		Investment(2)		Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real Estate:
1-4 family residential construction	$	153	$	153	$	23	$	91	$	-
Other Construction/Land		10,313		10,313		1,244		10,755		86
1-4 Family - closed-end		19,218		18,910		955		19,024		401
Equity Lines		1,142		1,142		163		1,144		9
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		5,846		5,585		563		5,666		126
Commercial real estate- non-owner occupied		18,539		17,579		1,230		18,079		481
Farmland		254		254		2		259		-
Total Real Estate		55,465		53,936		4,180		55,018		1,103
Agricultural		28		28		28		28		-
Commercial and Industrial		2,955		2,920		934		3,100		51
Small Business Administration		2,704		2,507		1,038		2,507		53
Direct finance leases		135		135		67		135		-
Consumer loans		4,349		4,344		878		4,493		183
		65,636		63,870		7,125		65,281		1,390
With no Related Allowance Recorded
Real Estate:
1-4 family residential construction	$	-	$	-	$	-	$	-	$	-
Other Construction/Land		2,335		2,335		-		2,346		-
1-4 Family - closed-end		4,312		4,312		-		4,491		-
Equity Lines		116		116		-		155		1
Multifamily residential		-		-		-		-		-
Commercial real estate- owner occupied		4,298		3,365		-		3,540		-
Commercial real estate- non-owner occupied		390		390		-		421		3
Farmland		1,679		1,679		-		1,686		-
Total Real Estate		13,130		12,197		-		12,639		4
Agricultural		1,008		635		-		1,017		-
Commercial and Industrial		735		736		-		740		-
Small Business Administration		1,008		720		-		720		-
Direct finance leases		-		-		-		-		-
Consumer loans		4		4		-		7		-
		15,885		14,292		-		15,123		4
Total	$	81,521	$	78,162	$	7,125	$	80,404	$	1,394

⁽¹⁾Contractual principal balance due from customer.

⁽²⁾Principal balance on Company's books, less any direct charge offs.

⁽³⁾Interest income is recognized on performing balances on a regular accrual basis.

Included in loans above are troubled debt restructurings that were classified as impaired. The Company had $3,714,000 and $3,427,000 in commercial loans, $32,960,000 and $40,639,000 in real estate secured loans and $3,250,000 and $3,976,000 in consumer loans, which were modified as troubled debt restructurings and consequently classified as impaired at December 31, 2013 and 2012, respectively.

Additional commitments to existing customers with restructured loans totaled $250,000 and $195,000 at December 31, 2013 and 2012 respectively.

Interest income recognized on impaired loans was $1,220,000, $1,394,000, and $1,214,000 for the years ended December 31, 2013, 2012 and 2011 respectively. There was no interest income recognized on a cash basis on impaired loans for the years ended December 31, 2013, 2012 and 2011 respectively.

The following is a summary of interest income from non-accrual loans in the portfolio at year-end that was not recognized (dollars in thousands):

	Years Ended December 31,
	2013		2012		2011
Interest that would have been recorded under the      loans’ original terms	$	3,209	$	4,084	$	4,353
Less gross interest recorded		304		2,088		1,328
Foregone interest	$	2,905	$	1,996	$	3,025

Certain loans have been pledged to secure short-term borrowing arrangements (see Note 8). These loans totaled $413,369,000 and $392,644,000 at December 31, 2013 and 2012, respectively.

Salaries and employee benefits totaling $2,804,000, $2,745,000, and $2,586,000, have been deferred as loan and lease origination costs to be amortized over the estimated lives of the related loans and leases for the years ended December 31, 2013, 2012 and 2011, respectively.

During the periods ended December 31, 2013 and 2012, the terms of certain loans were modified as troubled debt restructurings. Types of modifications applied to these loans, include a reduction of the stated interest rate, a modification of term, an agreement to collect only interest rather than principal and interest for a specified period, or any combination thereof.

The following table presents troubled debt restructurings by type of modification during the period ending December 31, 2013 (dollars in thousands):

													Rate, Term
									Rate &		Term &		& Interest
	Rate		Term		Interest Only		Rate & Term		Interest Only		Interest Only		Only
	Modification		Modification		Modification		Modification		Modification		Modification		Modification		Total
Troubled Debt Restructurings
Real Estate:
Other Construction/Land	$	-	$	416	$	-	$	-	$	-	$	-	$	-	$	416
1-4 family - closed-end		-		3,338		-		238		-		-		102		3,678
Equity Lines		-		-		40		-		-		-		-		40
Commercial real estate    owner occupied		-		-		-		557		-		-		-		557
Commercial real estate    Non-owner occupied		-		-		-		-		-		-		-		-
Total Real Estate     Loans		-		3,754		40		795		-		-		102		4,691
Agricultural		-		-		-		-		-		-		-		-
Commercial and Industrial		-		1,563		-		308		-		-		-		1,871
Consumer Loans		-		469		-		-		-		-		92		561
Small Business
Administration loans		-		-		-		-		-		-		-		-
	$	-	$	5,786	$	40	$	1,103	$	-	$	-	$	194	$	7,123

The following table presents troubled debt restructurings by type of modification during the period ending December 31, 2012 (dollars in thousands):

													Rate, Term
									Rate &		Term &		& Interest
	Rate		Term		Interest Only		Rate & Term		Interest Only		Interest Only		Only
	Modification		Modification		Modification		Modification		Modification		Modification		Modification		Total
Troubled Debt Restructurings
Real Estate:
Other Construction/Land	$	-	$	458	$	-	$	375	$	-	$	-	$	-	$	833
1-4 family - closed-end		-		313		-		200		-		222		616		1,351
Equity Lines		-		29		-		-		-		-		-		29
Commercial real estate    owner occupied		-		1,006		-		1,184		-		-		-		2,190
Commercial real estate    Non-owner occupied		-		330		-		60		-		-		-		390
Total Real Estate     Loans		-		2,136		-		1,819		-		222		616		4,793
Agricultural		-		-		-		-		-		-		-		-
Commercial and Industrial		-		625		2		658		-		-		-		1,285
Consumer Loans		-		1,328		-		269		-		-		117		1,714
Small Business
Administration loans		-		200		-		475		-		-		-		675
	$	-	$	4,289	$	2	$	3,221	$	-	$	222	$	733	$	8,467

The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2013 (dollars in thousands):

		Pre-		Post-
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Reserve
	Loans	Investment		Investment		Difference(1)
Real Estate:
Other Construction/Land	2	$	418	$	416	$	38
1-4 family - closed-end	8		3,679		3,678		20
Equity Lines	1		40		40		40
Commercial real estate owner occupied	1		557		557		-
Commercial real estate non-owner occupied	0		-		-		-
Total Real Estate Loans			4,694		4,691		98
Agricultural	0		-		-		-
Commercial and Industrial	8		1,858		1,871		257
Consumer Loans	13		561		561		54
Small Business Administration loans	0		-		-		-
		$	7,113	$	7,123	$	409

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Subsequent Defaults
	Number of Loans		Recorded  Investment		Charge-Offs
Real Estate:
Other Construction/Land	2	$	162	$	47
1-4 family - closed-end	2		779		133
Equity Lines	0		-		-
Commercial real estate- owner occupied	1		308		245
Commercial real estate- non owner occupied	0		-		-
Total Real Estate Loans			1,249		425
Agricultural	0		-		-
Commercial and Industrial	7		374		373
Consumer Loans	7		181		132
Small Business Administration Loans	2		194		-
		$	1,998	$	930

The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2012 (dollars in thousands):

		Pre-		Post-
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Reserve
	Loans	Investment		Investment		Difference(1)
Real Estate:
Other Construction/Land	10	$	835	$	833	$	48
1-4 family - closed-end	11		1,365		1,351		101
Equity Lines	1		29		29		13
Commercial real estate owner occupied	6		1,857		2,190		(45)
Commercial real estate non-owner      occupied	3		390		390		6
Total Real Estate Loans			4,476		4,793		123
Agricultural	0		-		-		-
Commercial and Industrial	20		1,295		1,285		109
Consumer Loans	37		1,723		1,714		21
Small Business Administration loans	2		668		675		8
		$	8,162	$	8,467	$	261

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Subsequent Defaults
		Recorded
	Number of Loans	Investment		Charge-Offs
Real Estate:
Other Construction/Land	0	$	-	$	-
1-4 family - closed-end	1		222		-
Equity Lines	0		-		-
Commercial real estate- owner occupied	1		332		-
Commercial real estate- non owner occupied	0		-		-
Total Real Estate Loans			554		-
Agricultural	0		-		-
Commercial and Industrial	1		66		66
Consumer Loans	2		115		-
Small Business Administration Loans	0		-		-
		$	735	$	66

In the tables above, the TDRs that subsequently defaulted increased the allowance for loan and lease losses by $660,000 and $31,000 for the years ended December 31, 2013 and 2012. Charge offs resulting from the above defaults were $155,000 and $66,000 respectively. The total allowance for loan and lease losses specifically allocated to the balances that were classified as TDRs during the year ended December 31, 2013 and 2012 is $3,321,000 and $1,079,000, respectively.

Interest income for all performing loans, regardless of class (Pass, Special Mention, Substandard and Impaired), is recognized on an accrual basis, with interest accrued daily. Costs associated with successful loan originations are netted from loan origination fees, with the net amount (net deferred loan fees) amortized over the contractual life of the loan in interest income. If a loan has scheduled periodic payments, the amortization of the net deferred loan fee is calculated using the effective interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight line basis over the contractual life of the loan. Fees received for loan commitments are recognized as interest income over the term of the commitment. When loans are repaid, any remaining unamortized balances of deferred fees and costs are accounted for through interest income.

Loan Servicing

The Company originates mortgage loans for sale to investors. During the years ended December 31, 2013, 2012, and 2011, all mortgage loans that were sold by the Company were sold without retention of related servicing.  The Company’s servicing portfolio at December 31, 2013, 2012 and 2011 totaled $1,585,000, $2,596,000 and $506,000, respectively. At December 31, 2013, loans were principally serviced for one investor.

XML

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

12 Months Ended

Dec. 31, 2013

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The amortized cost and estimated fair value of investment securities available-for-sale are as follows (dollars in thousands):

	December 31, 2013
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
US Government Agencies	$	5,395	$	18	$	(109)	$	5,304
Mortgage-backed securities		320,223		3,269		(2,771)		320,721
State and political subdivisions		97,361		1,723		(2,521)		96,563
Equity securities		1,336		1,120		-		2,456
Total investment securities	$	424,315	$	6,130	$	(5,401)	$	425,044

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
US Government Agencies	$	2,987	$	3	$	(17)	$	2,973
Mortgage-backed securites		298,806		3,547		(964)		301,389
State and political subdivisions		70,736		3,430		(180)		73,986
Equity securities		1,336		508		(4)		1,840
Total investment securities	$	373,865	$	7,488	$	(1,165)	$	380,188

For the years ended December 31, 2013, 2012, and 2011, proceeds from sales of securities available-for-sale were $700 thousand, $56.4 million, and $45.7 million, respectively. Gains and losses on the sale of investment securities are recorded on the trade date and are determined using the specific identification method.

Gross gains and losses from the sales and calls of investment securities for the years ended were as follows (dollars in thousands):

	December 31,
	2013		2012		2011
Gross Gains on Sales and Calls of Investment Securities	$	6	$	2,059	$	1,666
Gross Losses on Sales and Calls of Investment Securities		-		(297)		(6)
Net Gains on Sales and Calls of Investment Securities	$	6	$	1,762	$	1,660

At December 31, 2013 and 2012, the Company had 197 and 89 securities with unrealized gross losses, respectively. Information pertaining to these securities aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (dollars in thousands):

	December 31, 2013
	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
US Government Agencies	$	(92)	$	1,913	$	(17)	$	1,920
Mortgage-backed securities		(642)		21,747		(2,129)		124,317
State and political subdivisions		(461)		6,799		(2,060)		38,083
Equity securities		-		-		-		-
Total	$	(1,195)	$	30,459	$	(4,206)	$	164,320

	December 31, 2012
	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
US Government Agencies	$	(17)	$	1,996	$	-	$	-
Mortgage-backed securities		(903)		106,799		(61)		6,965
State and political subdivisions		(180)		9,324		-		-
Equity securities		(4)		242		-		-
Total	$	(1,104)	$	118,361	$	(61)	$	6,965

The Company has reviewed all sectors and securities in the investment portfolio for impairment. During the year ended December 31, 2013, the Company realized slight gains and no losses from the sale of three debt securities which were sold to improve the credit quality of the portfolio by minimizing securities on our Municipal Bond Watch List. During the year ended December 31, 2012 the Company realized losses through earnings from the sale of 22 debt securities for $297,000. The securities were sold with 129 other debt securities for which $2,059,000 in gains were realized, as a part of a liquidity strategy to fund new loan growth.

The Company has concluded as of December 31, 2013 that all remaining securities, currently in an unrealized loss position, are not other-than-temporarily-impaired. This assessment was based on the following factors: 1) the Company has the ability to hold the security, 2) the Company does not intend to sell the security, 3) the Company does not anticipate it will be required to sell the security before recovery, 4) and the Company expects to eventually recover the entire amortized cost basis of the security.

 

The amortized cost and estimated fair value of investment securities available-for-sale at December 31, 2013 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without penalties.

	Amortized Cost		Fair Value
	(dollars in thousands)
Maturing within one year	$	2,294	$	2,316
Maturing after one year through five years		241,396		242,493
Maturing after five years through ten years		59,572		59,402
Maturing after ten years		49,674		47,737
Investment securities not due at a single maturity date:
U.S Government agencies collateralized by mortgage obligations		70,043		70,640
Other securities		1,336		2,456
	$	424,315	$	425,044

Investment securities available-for-sale with amortized costs totaling $162,393,000 and estimated fair values totaling $164,390,000 were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2013. (see Note 8)

Investment securities available-for-sale with amortized costs totaling $174,930,000 and estimated fair values totaling $178,550,000 were pledged to secure public deposits, other contractual obligations and short-term borrowing arrangements at December 31, 2012. (see Note 8)

XML

NON-INTEREST REVENUE

12 Months Ended

Dec. 31, 2013

Non Interest Revenue [Abstract]

NON-INTEREST REVENUE

15. NON-INTEREST REVENUE

The major grouping of non-interest revenue on the consolidated income statements includes several specific items: service charges on deposit accounts, gains on the sale of loans, credit card fees, check card fees, the net gain (loss) on sales and calls of investment securities available for sale, and the net increase (decrease) in the cash surrender value of life insurance.

Non-interest revenue also includes one general category of “other income” of which the following are major components (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Included in other income:
Loss on limited partnerships	$	(1,063)	$	(395)	$	(885)
Dividends on Equity Investments		356		67		26
Rental income on leases		46		102		173
Other		2,569		2,134		1,842
Total other non-interest revenue	$	1,908	$	1,908	$	1,156

XML

COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain of its branch facilities under non-cancelable operating leases. Rental expense included in occupancy and equipment expense totaled $1,001,000, $1,011,000 and $1,167,000 and for the years ended December 31, 2013, 2012 and 2011, respectively.

Future minimum lease payments on non-cancelable operating leases are as follows:

Year Ending December 31,
2014	$	1,036,000
2015		996,000
2016		792,000
2017		783,000
2018		669,000
Thereafter		4,339,000
	$	8,615,000

The Company has options to renew its branch facilities after the initial leases expire. The renewal options range from one to ten years and are not included in the payments reflected above.

Letter of Credit

The Company holds two letters of credit with the Federal Home Loan Bank of San Francisco totaling $78,000,000. A $70,000,000 letter of credit is pledged to secure public deposits at December 31, 2013 and an $8,000,000 standby letter of credit was obtained on behalf of one of our customers to guarantee financial performance. Should the standby letter of credit be drawn upon, the customer would reimburse the Company from an existing line of credit.

Federal Reserve Requirements

Banks are required to maintain reserves with the Federal Reserve Bank equal to a specified percentage of their reservable deposits less vault cash. The reserve balances maintained at the Federal Reserve Bank at December 31, 2013 and 2012 were $41,761,000 and $38,962,000, respectively.

Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments consist of commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and letters of credit as it does for loans included on the balance sheet.

The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

	Years Ended December 31,
	2013		2012
Fixed-rate commitments to extend credit	$	64,148	$	53,550
Variable-rate commitments to extend credit	$	356,559	$	171,850
Standby letters of credit	$	8,703	$	6,690
Commercial and similar letters of credit	$	8,070	$	8,539

Commitments to extend credit consist primarily of the unused or unfunded portions of the following: home equity lines of credit; commercial real estate construction loans, where disbursements are made over the course of construction; commercial revolving lines of credit; mortgage warehouse lines of credit; unsecured personal lines of credit; and formalized (disclosed) deposit account overdraft lines. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to extend credit are made at both fixed and variable rates of interest as stated in the table above. Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party, while commercial letters of credit represent the Company’s commitment to pay a third party on behalf of a customer upon fulfillment of contractual requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

Concentration in Real Estate Lending

At December 31, 2013, in management’s judgment, a concentration of loans existed in real estate related loans. At that date, approximately 72% of the Company’s loans were real estate related. Balances secured by commercial buildings and construction and development loans represented 55% of all real estate loans, while loans secured by non-construction residential properties accounted for 26%, and loans secured by farmland were 19% of real estate loans. Although management believes the loans within these concentrations have no more than the normal risk of collectability, a further decline in the performance of the economy in general or a further decline in real estate values in the Company’s primary market areas, in particular, could have an adverse impact on collectability.

Concentration by Geographic Location

The Company grants commercial, real estate mortgage, real estate construction and consumer loans to customers primarily in the South Central San Joaquin Valley of California, specifically Tulare, Fresno, Kern, Kings and Madera counties. The ability of a substantial portion of the Company’s customers to honor their contracts is dependent on the economy in these areas. Although the Company’s loan portfolio is diversified, there is a relationship in this region between the local agricultural economy and the economic performance of loans made to non-agricultural customers.

Contingencies

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or results of operations of the Company.

XML

Shareholders' Equity - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stockholders Equity Note [Line Items]
Stock repurchased during period shares	700,000
Pre-tax compensation and directors' expense related to outstanding and vested stock options	$ 268,000	$ 487,000	$ 460,000
Tax benefit from compensation and directors' expense related to outstanding and vested stock options	110,000	200,000	189,000
Amount of unamortized compensation, and directors expense on unvested stock options	280,000
Period in which unamortized compensation, and directors expense on unvested stock options will be recognized	3 years 9 months 18 days
Exercised, Shares	111,000	5,000	125,000
Stock issued during period, value, stock options exercised	1,116,000	15,000	976,000
2007 Stock Option Plan
Stockholders Equity Note [Line Items]
Number of shares authorized to issued upon exercise of stock option	1,500,000
Deferred tax expense from stock options exercised	147,000
Exercised, Shares	110,240,000
Stock issued during period, value, stock options exercised	$ 1,088,000
Percentage of stock Options Exercise Price to fair market value	100.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Period Increase (Decrease)	780,920
Maximum
Stockholders Equity Note [Line Items]
Share based compensation arrangement by share based payment award options outstanding and exercisable weighted average remaining contractual term	7 years 1 month 6 days
Minimum
Stockholders Equity Note [Line Items]
Share based compensation arrangement by share based payment award options outstanding and exercisable weighted average remaining contractual term	6 years

XML

DEPOSITS

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

DEPOSITS

7. DEPOSITS

Interest-bearing deposits consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Interest Bearing Demand Deposits	$	82,408	$	84,655
NOW		200,313		196,771
Savings		144,162		118,547
Money Market		73,132		71,222
CDAR's, Under $100,000		437		791
CDAR's, $100,000 or more		12,919		14,274
Time, Under $100,000		79,261		101,893
Time, $100,000 or more		205,550		218,284
Brokered Deposits		10,000		15,000
	$	808,182	$	821,437

Aggregate annual maturities of time deposits are as follows (dollars in thousands):

Year Ending December 31,
2014	$	296,969
2015		8,467
2016		989
2017		833
2018		290
Thereafter		619
	$	308,167

Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Interest Bearing Demand Deposits	$	281	$	257	$	137
NOW		359		556		860
Savings		285		241		203
Money Market		94		127		506
CDAR's, Under $100,000		-		2		5
CDAR's, $100,000 or more		36		50		194
Time, Under $100,000		420		619		1,001
Time, $100,000 or more		823		1,154		1,223
Brokered Deposits		157		202		176
	$	2,455	$	3,208	$	4,305

XML

Summary of the Transactions in the Allowance for Loan and Lease Losses (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Allowance for Loan and Lease Losses [Line Items]
Balance, beginning of year				$ 13,873				$ 17,283	$ 13,873	$ 17,283	$ 21,138
Provision for loan and lease losses	1,500	800	450	1,600	3,600	4,700	3,160	2,750	4,350	14,210	12,000
Losses charged to allowance									(8,263)	(18,778)	(16,987)
Recoveries									1,717	1,158	1,132
Balance, end of year	$ 11,677				$ 13,873				$ 11,677	$ 13,873	$ 17,283

XML

PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

5. PREMISES AND EQUIPMENT

Premises and equipment at cost consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Land	$	2,607	$	2,607
Buildings and improvements		15,818		15,720
Furniture, fixtures and equipment		17,829		20,476
Leasehold improvements		10,536		10,496
		46,790		49,299
Less accumulated depreciation and amortization		26,402		27,473
Construction in progress		5		4
	$	20,393	$	21,830

Depreciation and amortization included in occupancy and equipment expense totaled $2,119,000, $2,289,000, and $2,505,000, for the years ended December 31, 2013, 2012 and 2011, respectively.

XML

OTHER ASSETS

12 Months Ended

Dec. 31, 2013

Other Assets [Abstract]

OTHER ASSETS

6. OTHER ASSETS

Other assets consisted of the following (dollars in thousands):

	December 31,
	2013		2012
Accrued interest receivable	$	4,990	$	5,095
Deferred tax assets		12,286		11,995
Prepaid taxes		2,787		3,775
Investment in limited partnerships		9,204		10,316
Federal Home Loan Bank stock, at cost		5,581		6,019
Cash surrender value of officer life insurance policies		39,424		38,007
Other		5,613		6,262
	$	79,885	$	81,469

The Company has invested in limited partnerships that operate qualified affordable housing projects to receive tax benefits in the form of tax deductions from operating losses and tax credits. The Company accounts for these investments under the cost method and management analyzes these investments annually for potential impairment. The Company has no remaining capital commitments to these partnerships at December 31, 2013.

The Company holds certain equity investments that are not readily marketable securities and thus are classified as “other assets” on the Company’s balance sheet. These include investments in Pacific Coast Bankers Bancshares, California Economic Development Lending Initiative, and the Federal Home Loan Bank (“FHLB”).

The largest of these is the Company’s $5,581,000 investment in FHLB stock, carried at cost. Quarterly, the FHLB evaluates and adjusts the Company’s minimum stock requirement based on the Company’s borrowing activity and membership requirements.  Any stock deemed in excess is automatically repurchased by the FHLB at cost.

XML

OTHER BORROWING ARRANGEMENTS

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

OTHER BORROWING ARRANGEMENTS

8. OTHER BORROWING ARRANGEMENTS

Short-term borrowings consisted of the following (dollars in thousands):

	2013				2012
	Amount		Fixed Rate		Amount		Fixed Rate
As of December 31:
Repurchase agreements	$	5,974	.44	%	$	1,419	.60	%
Overnight Federal Home Loan
Bank advances		-	-			36,650	.26	%
Federal Home Loan Bank advances		-	-			-	-
	$	5,974			$	38,069

The Company had unsecured lines of credit with its correspondent banks which, in the aggregate, amounted to $70,000,000 and $55,000,000 at December 31, 2013 and 2012, respectively, at interest rates which vary with market conditions. There was $0 outstanding under these lines of credit at December 31, 2013 and December 31, 2012, respectively.

At December 31, 2013, the Company had remaining borrowing capacity with the Federal Home Loan Bank of $93,380,000 secured by government agencies and whole loan collateral.

XML

Individually Impaired Loans (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	$ 30,900	[1]	$ 65,636	[1]
With an Allowance Recorded Recorded Investment	30,665	[2]	63,870	[2]
With an Allowance Recorded Related Allowance	5,349		7,125
With an Allowance Recorded Average Recorded Investment	31,260		65,281
With an Allowance Recorded Interest Income Recognized	1,047	[3]	1,390	[3]
With no Related Allowance Recorded Unpaid Principal Balance	29,026	[1]	15,885	[1]
With no Related Allowance Recorded Recorded Investment	25,722	[2]	14,292	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	27,264		15,123
With no Related Allowance Recorded Interest Income Recognized	173	[3]	4	[3]
Individually impaired loans Unpaid Principal Balance	59,926	[1]	81,521	[1]
Individually impaired loans Recorded Investment	56,387	[2],[4]	78,162	[2],[4]
Gross Unrealized Losses	5,349		7,125
Individually impaired loans Average Recorded Investment	58,524		80,404
Individually impaired loans Interest Income Recognized	1,220	[3]	1,394	[3]	1,214
Consumer Loans
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	3,411	[1]	4,349	[1]
With an Allowance Recorded Recorded Investment	3,411	[2]	4,344	[2]
With an Allowance Recorded Related Allowance	431		878
With an Allowance Recorded Average Recorded Investment	3,591		4,493
With an Allowance Recorded Interest Income Recognized	172	[3]	183	[3]
With no Related Allowance Recorded Unpaid Principal Balance	241	[1]	4	[1]
With no Related Allowance Recorded Recorded Investment	52	[2]	4	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	77		7
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Agricultural
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	125	[1]	28	[1]
With an Allowance Recorded Recorded Investment	125	[2]	28	[2]
With an Allowance Recorded Related Allowance	126		28
With an Allowance Recorded Average Recorded Investment	131		28
With an Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
With no Related Allowance Recorded Unpaid Principal Balance	345	[1]	1,008	[1]
With no Related Allowance Recorded Recorded Investment	345	[2]	635	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	837		1,017
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Commercial and Industrial
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	1,870	[1]	2,955	[1]
With an Allowance Recorded Recorded Investment	1,857	[2]	2,920	[2]
With an Allowance Recorded Related Allowance	655		934
With an Allowance Recorded Average Recorded Investment	2,009		3,100
With an Allowance Recorded Interest Income Recognized	85	[3]	51	[3]
With no Related Allowance Recorded Unpaid Principal Balance	891	[1]	735	[1]
With no Related Allowance Recorded Recorded Investment	838	[2]	736	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	1,346		740
With no Related Allowance Recorded Interest Income Recognized	57	[3]	0	[3]
Small Business Administration
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	2,710	[1]	2,704	[1]
With an Allowance Recorded Recorded Investment	2,488	[2]	2,507	[2]
With an Allowance Recorded Related Allowance	1,270		1,038
With an Allowance Recorded Average Recorded Investment	2,487		2,507
With an Allowance Recorded Interest Income Recognized	46	[3]	53	[3]
With no Related Allowance Recorded Unpaid Principal Balance	358	[1]	1,008	[1]
With no Related Allowance Recorded Recorded Investment	261	[2]	720	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	261		720
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Direct Financing Leases
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	0	[1]	135	[1]
With an Allowance Recorded Recorded Investment	0	[2]	135	[2]
With an Allowance Recorded Related Allowance	0		67
With an Allowance Recorded Average Recorded Investment	0		135
With an Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
With no Related Allowance Recorded Unpaid Principal Balance	0	[1]	0	[1]
With no Related Allowance Recorded Recorded Investment	0	[2]	0	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	0		0
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Real Estate Loans
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	22,784	[1]	55,465	[1]
With an Allowance Recorded Recorded Investment	22,784	[2]	53,936	[2]
With an Allowance Recorded Related Allowance	2,867		4,180
With an Allowance Recorded Average Recorded Investment	23,042		55,018
With an Allowance Recorded Interest Income Recognized	744	[3]	1,103	[3]
With no Related Allowance Recorded Unpaid Principal Balance	27,191	[1]	13,130	[1]
With no Related Allowance Recorded Recorded Investment	24,226	[2]	12,197	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	24,743		12,639
With no Related Allowance Recorded Interest Income Recognized	116	[3]	4	[3]
Real Estate Loans | 1-4 family residential construction
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	0	[1]	153	[1]
With an Allowance Recorded Recorded Investment	0	[2]	153	[2]
With an Allowance Recorded Related Allowance	0		23
With an Allowance Recorded Average Recorded Investment	0		91
With an Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
With no Related Allowance Recorded Unpaid Principal Balance	0	[1]	0	[1]
With no Related Allowance Recorded Recorded Investment	0	[2]	0	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	0		0
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Real Estate Loans | Other Construction/Land
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	2,972	[1]	10,313	[1]
With an Allowance Recorded Recorded Investment	2,972	[2]	10,313	[2]
With an Allowance Recorded Related Allowance	502		1,244
With an Allowance Recorded Average Recorded Investment	3,000		10,755
With an Allowance Recorded Interest Income Recognized	98	[3]	86	[3]
With no Related Allowance Recorded Unpaid Principal Balance	4,176	[1]	2,335	[1]
With no Related Allowance Recorded Recorded Investment	3,779	[2]	2,335	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	3,885		2,346
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	13,522	[1]	19,218	[1]
With an Allowance Recorded Recorded Investment	13,522	[2]	18,910	[2]
With an Allowance Recorded Related Allowance	1,324		955
With an Allowance Recorded Average Recorded Investment	13,630		19,024
With an Allowance Recorded Interest Income Recognized	260	[3]	401	[3]
With no Related Allowance Recorded Unpaid Principal Balance	4,655	[1]	4,312	[1]
With no Related Allowance Recorded Recorded Investment	4,376	[2]	4,312	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	4,687		4,491
With no Related Allowance Recorded Interest Income Recognized	1	[3]	0	[3]
Real Estate Loans | Equity Lines
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	528	[1]	1,142	[1]
With an Allowance Recorded Recorded Investment	528	[2]	1,142	[2]
With an Allowance Recorded Related Allowance	123		163
With an Allowance Recorded Average Recorded Investment	530		1,144
With an Allowance Recorded Interest Income Recognized	13	[3]	9	[3]
With no Related Allowance Recorded Unpaid Principal Balance	565	[1]	116	[1]
With no Related Allowance Recorded Recorded Investment	493	[2]	116	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	493		155
With no Related Allowance Recorded Interest Income Recognized	0	[3]	1	[3]
Real Estate Loans | Multi-family residential
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	0	[1]	0	[1]
With an Allowance Recorded Recorded Investment	0	[2]	0	[2]
With an Allowance Recorded Related Allowance	0		0
With an Allowance Recorded Average Recorded Investment	0		0
With an Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
With no Related Allowance Recorded Unpaid Principal Balance	0	[1]	0	[1]
With no Related Allowance Recorded Recorded Investment	0	[2]	0	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	0		0
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	2,047	[1]	5,846	[1]
With an Allowance Recorded Recorded Investment	2,047	[2]	5,585	[2]
With an Allowance Recorded Related Allowance	217		563
With an Allowance Recorded Average Recorded Investment	2,069		5,666
With an Allowance Recorded Interest Income Recognized	135	[3]	126	[3]
With no Related Allowance Recorded Unpaid Principal Balance	7,436	[1]	4,298	[1]
With no Related Allowance Recorded Recorded Investment	5,516	[2]	3,365	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	5,568		3,540
With no Related Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	3,715	[1]	18,539	[1]
With an Allowance Recorded Recorded Investment	3,715	[2]	17,579	[2]
With an Allowance Recorded Related Allowance	701		1,230
With an Allowance Recorded Average Recorded Investment	3,813		18,079
With an Allowance Recorded Interest Income Recognized	238	[3]	481	[3]
With no Related Allowance Recorded Unpaid Principal Balance	10,077	[1]	390	[1]
With no Related Allowance Recorded Recorded Investment	9,780	[2]	390	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	9,820		421
With no Related Allowance Recorded Interest Income Recognized	115	[3]	3	[3]
Real Estate Loans | Farmland
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	0	[1]	254	[1]
With an Allowance Recorded Recorded Investment	0	[2]	254	[2]
With an Allowance Recorded Related Allowance	0		2
With an Allowance Recorded Average Recorded Investment	0		259
With an Allowance Recorded Interest Income Recognized	0	[3]	0	[3]
With no Related Allowance Recorded Unpaid Principal Balance	282	[1]	1,679	[1]
With no Related Allowance Recorded Recorded Investment	282	[2]	1,679	[2]
With no Related Allowance Recorded Related Allowance	0		0
With no Related Allowance Recorded Average Recorded Investment	290		1,686
With no Related Allowance Recorded Interest Income Recognized	$ 0	[3]	$ 0	[3]

[1] Contractual principal balance due from customer.

[2] Principal balance on Company's books, less any direct charge offs.

[3] Interest income is recognized on performing balances on a regular accrual basis.

[4] Principal balance only

XML

Reconciliation of the Numerators and Denominators of the Basic and Diluted Earnings Per Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Basic Earnings Per Share
Net income (dollars in thousands)	$ 3,869	$ 3,367	$ 3,799	$ 2,334	$ 2,098	$ 1,635	$ 2,573	$ 1,879	$ 13,369	$ 8,185	$ 7,780
Weighted average shares outstanding									14,155,927	14,103,805	14,036,667
Basic earnings per share									$ 0.94	$ 0.58	$ 0.55
Diluted Earnings Per Share
Net income (dollars in thousands)	$ 3,869	$ 3,367	$ 3,799	$ 2,334	$ 2,098	$ 1,635	$ 2,573	$ 1,879	$ 13,369	$ 8,185	$ 7,780
Weighted average shares outstanding									14,155,927	14,103,805	14,036,667
Effect of dilutive stock options									134,223	16,508	48,534
Weighted average shares outstanding									14,290,150	14,120,313	14,085,201
Diluted earnings per share	$ 0.27	$ 0.23	$ 0.27	$ 0.16	$ 0.15	$ 0.12	$ 0.18	$ 0.13	$ 0.94	$ 0.58	$ 0.55

XML

Troubled Debt Restructurings, by Type of Loan Modification (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	$ 7,123	$ 8,467
Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	561	1,714
Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	1,871	1,285
Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	675
Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	4,691	4,793
Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	3,678	1,351
Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	40	29
Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	557	2,190
Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	390
Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	416	833
Rate Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate Modification | Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	5,786	4,289
Term Modification | Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	469	1,328
Term Modification | Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term Modification | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	1,563	625
Term Modification | Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	200
Term Modification | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	3,754	2,136
Term Modification | Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	3,338	313
Term Modification | Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	29
Term Modification | Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	1,006
Term Modification | Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	330
Term Modification | Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	416	458
Interest-Only Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	40	2
Interest-Only Modification | Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Interest-Only Modification | Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Interest-Only Modification | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	2
Interest-Only Modification | Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Interest-Only Modification | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	40	0
Interest-Only Modification | Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Interest-Only Modification | Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	40	0
Interest-Only Modification | Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Interest-Only Modification | Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Interest-Only Modification | Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Term Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	1,103	3,221
Rate & Term Modification | Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	269
Rate & Term Modification | Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Term Modification | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	308	658
Rate & Term Modification | Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	475
Rate & Term Modification | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	795	1,819
Rate & Term Modification | Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	238	200
Rate & Term Modification | Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Term Modification | Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	557	1,184
Rate & Term Modification | Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	60
Rate & Term Modification | Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	375
Rate & Interest-Only Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate & Interest-Only Modification | Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	222
Term & Interest-Only Modification | Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification | Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification | Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	222
Term & Interest-Only Modification | Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	222
Term & Interest-Only Modification | Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification | Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification | Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Term & Interest-Only Modification | Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate, Term & Interest-Only Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	194	733
Rate, Term & Interest-Only Modification | Consumer Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	92	117
Rate, Term & Interest-Only Modification | Agricultural
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate, Term & Interest-Only Modification | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate, Term & Interest-Only Modification | Small Business Administration Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate, Term & Interest-Only Modification | Real Estate Loans
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	102	616
Rate, Term & Interest-Only Modification | Real Estate Loans | 1-4 Family - closed end
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	102	616
Rate, Term & Interest-Only Modification | Real Estate Loans | Equity Lines
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate, Term & Interest-Only Modification | Real Estate Loans | Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate, Term & Interest-Only Modification | Real Estate Loans | Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	0	0
Rate, Term & Interest-Only Modification | Real Estate Loans | Other construction/Land
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding, Recorded Investment	$ 0	$ 0

XML

Impaired and Non-Accrual Loans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Impaired loans without a valuation allowance	$ 25,722	[1]	$ 14,292	[1]
Impaired loans with a valuation allowance	30,665	[1]	63,870	[1]
Total impaired loans	56,387	[1],[2]	78,162	[1],[2]
Valuation allowance related to impaired loans	5,349		7,125
Total non-accrual loans	37,414	[3]	53,094	[3]
Total loans past-due ninety days or more and still accruing	$ 0		$ 0

[1] Principal balance on Company's books, less any direct charge offs.

[2] Principal balance only

[3] Included in Total Financing Receivables

XML

Other Expense (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Components Of Other Expenses [Line Items]
Other Noninterest Expense	$ 16,621	$ 19,541	$ 20,178
Professional fees
Components Of Other Expenses [Line Items]
Other Noninterest Expense	4,143	3,454	3,941
Data processing
Components Of Other Expenses [Line Items]
Other Noninterest Expense	1,987	1,807	1,523
Advertising and promotion
Components Of Other Expenses [Line Items]
Other Noninterest Expense	1,960	1,771	2,051
Deposit services
Components Of Other Expenses [Line Items]
Other Noninterest Expense	1,980	2,266	2,516
Stationery and supplies
Components Of Other Expenses [Line Items]
Other Noninterest Expense	657	738	705
Telephone and data communication
Components Of Other Expenses [Line Items]
Other Noninterest Expense	1,613	1,549	1,291
Loan and credit card processing
Components Of Other Expenses [Line Items]
Other Noninterest Expense	1,327	419	1,082
Foreclosed assets expense
Components Of Other Expenses [Line Items]
Other Noninterest Expense	1,202	4,914	5,226
Postage
Components Of Other Expenses [Line Items]
Other Noninterest Expense	713	718	576
Other
Components Of Other Expenses [Line Items]
Other Noninterest Expense	$ 1,039	$ 1,905	$ 1,267

XML

PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Premises and equipment at cost consisted of the following (dollars in thousands):

	Years Ended December 31,
	2013		2012
Land	$	2,607	$	2,607
Buildings and improvements		15,818		15,720
Furniture, fixtures and equipment		17,829		20,476
Leasehold improvements		10,536		10,496
		46,790		49,299
Less accumulated depreciation and amortization		26,402		27,473
Construction in progress		5		4
	$	20,393	$	21,830

XML

Assumptions of Fair Value Option on the Date of Grant (Detail)	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012	Dec. 31, 2011
Dividend yield		[1]	2.35%	2.27%
Expected Volatility		[1]	56.71%	52.92%
Risk-free interest rate		[1]	0.43%	1.06%
Expected option life			5 years 6 months	6 years 9 months 18 days

[1] No stock options were issued in 2013.

XML

REGULATORY MATTERS

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

REGULATORY MATTERS

13. REGULATORY MATTERS

The Company and the Bank are subject to certain regulatory requirements administered by the Board of Governors of the Federal Reserve System and the FDIC. Failure to meet these minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. Management believes that the Company and the Bank met all their capital adequacy requirements as of December 31, 2013 and 2012. In addition, as of December 31, 2013 and 2012, notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and leverage capital ratios as set forth below (dollars in thousands):

	Years Ended December 31,
	2013				2012
	Capital				Capital
	Amount		Ratio		Amount		Ratio
Leverage Ratio
Sierra Bancorp and subsidiary	$	198,216	14.37	%	$	186,783	13.34	%
Minimum requirement for "Well-Capitalized" institutions		68,969	5.0	%		69,993	5.0	%
Minimum regulatory requirement		55,175	4.0	%		55,994	4.0	%
Bank of the Sierra	$	195,001	14.18	%	$	184,024	13.17	%
Minimum requirement for "Well-Capitalized" institutions		68,765	5.0	%		69,866	5.0	%
Minimum regulatory requirement		55,012	4.0	%		55,893	4.0	%

	Years Ended Decmber 31,
	2013				2012
	Capital				Capital
	Amount		Ratio		Amount		Ratio
Tier 1 Risk-Based Capital Ratio
Sierra Bancorp and subsidiary	$	198,225	20.39	%	$	183,783	18.11	%
Minimum requirement for "Well-Capitalized" institutions		58,330	6.0	%		61,878	6.0	%
Minimum regulatory requirement		38,887	4.0	%		41,252	4.0	%
Bank of the Sierra	$	195,001	20.11	%	$	184,024	17.88	%
Minimum requirement for "Well-Capitalized" institutions		58,174	6.0	%		61,737	6.0	%
Minimum regulatory requirement		38,783	4.0	%		41,158	4.0	%
Total Risk-Based Capital Ratio
Sierra Bancorp and subsidiary	$	210,669	21.67	%	$	199,700	19.36	%
Minimum requirement for "Well-Capitalized" institutions		97,217	10.0	%		103,131	10.0	%
Minimum regulatory requirement		77,773	8.0	%		82,504	8.0	%
Bank of the Sierra	$	206,960	21.35	%	$	196,912	19.14	%
Minimum requirement for "Well-Capitalized" institutions		96,957	10.0	%		102,895	10.0	%
Minimum regulatory requirement		77,565	8.0	%		82,316	8.0	%

Under current rules of the Federal Reserve Board, qualified trust preferred securities are one of several “restricted” core capital elements which may be included in Tier 1 capital in an aggregate amount limited to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits generally may be included in Tier 2 capital. Since the Company had less than $15 billion in assets at December 31, 2013, under the Dodd-Frank Act the Company will be able to continue to include its existing trust preferred securities in Tier 1 Capital to the extent permitted by FRB guidelines.

Dividend Restrictions

The Company’s ability to pay cash dividends is dependent on dividends paid to it by the Bank, and is also limited by state corporation law. The California General Corporation Law allows a California corporation to pay dividends if the Company’s retained earnings equal at least the amount of the proposed dividend. If the Company does not have sufficient retained earnings available for the proposed dividend, it may still pay a dividend to its shareholders if immediately after giving effect to the dividend the sum of the company’s assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred taxes, deferred income and other deferred liabilities) and the current assets of the company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least equal to 125% of its current liabilities.

Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the Department of Business Oversight, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year. As of December 31, 2013, the maximum amount available for dividend distribution under this restriction was approximately $29,854,000.

XML

FAIR VALUE

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE

18. FAIR VALUE

Fair value is defined by U.S. GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

§ Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

§ Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

§ Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair values for each category of financial asset noted below:

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities.

Collateral-dependent impaired loans: A specific loss allowance is created for collateral dependent impaired loans, representing the difference between the face value of the loan and its current appraised value less estimated disposition costs.

Foreclosed assets: Repossessed real estate (OREO) and other assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected selling costs for OREO and some other assets such as mobile homes, and for all other assets fair value is represented by the estimated sales proceeds as determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation of expected cash flows and the timing of resolution. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance.

Assets and liabilities measured at fair value on a recurring basis, including financial liabilities for which the Company has elected the fair value option, are summarized below (dollars in thousands):

	Fair Value Measurements at December 31, 2013, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss)
Investment Securities
US Government Agencies	$	-	$	5,304	$	-	$	5,304	$	-
Mortgage-backed securities		-		320,721		-		320,721		-
State and political subdivisions		-		96,563		-		96,563		-
Equity securities		2,456		-		-		2,456		-
Total available-for-sale securities	$	2,456	$	422,588	$	-	$	425,044	$	-

	Fair Value Measurements at December 31, 2012, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss)
Investment Securities
US Government Agencies	$	-	$	2,973	$	-	$	2,973	$	-
Mortgage-backed securities		-		301,389		-		301,389		-
State and political subdivisions		-		73,986		-		73,986		-
Equity securities		1,809		31		-		1,840		-
Total available-for-sale securities	$	1,809	$	378,379	$	-	$	380,188	$	-

Assets and liabilities measured at fair market value on a non-recurring basis are summarized below (dollars in thousands):

	Year Ended December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Collateral Dependent Impaired Loans	$	-	$	14,705	$	-	$	14,705
Foreclosed Assets	$	-	$	8,185	$	-	$	8,185

	Year Ended December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Collateral Dependent Impaired Loans	$	-	$	27,449	$	-	$	27,449
Foreclosed Assets	$	-	$	19,754	$	-	$	19,754

XML

Summary of Assets Reported at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	$ 425,044	$ 380,188
Other-than-temporary impairment losses on equity securities	0	0	1,370
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	425,044	380,188
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	320,721	301,389
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring | State and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	96,563	73,986
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring | U.S.Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	5,304	2,973
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	2,456	1,840
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	2,456	1,809
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1 | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1 | State and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1 | U.S.Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1 | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	2,456	1,809
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	422,588	378,379
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2 | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	320,721	301,389
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2 | State and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	96,563	73,986
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2 | U.S.Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	5,304	2,973
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2 | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	31
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 3 | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 3 | State and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 3 | U.S.Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	0	0
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 3 | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available-for-sale	$ 0	$ 0

XML

The Business of Sierra Bancorp - Additional Information (Detail)	Dec. 31, 2013	Dec. 31, 2012
Organization Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Number of full service branch offices	25	25
Non-branch ATM locations	6

XML

REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and leverage capital ratios as set forth below (dollars in thousands):

	Years Ended December 31,
	2013				2012
	Capital				Capital
	Amount		Ratio		Amount		Ratio
Leverage Ratio
Sierra Bancorp and subsidiary	$	198,216	14.37	%	$	186,783	13.34	%
Minimum requirement for "Well-Capitalized" institutions		68,969	5.0	%		69,993	5.0	%
Minimum regulatory requirement		55,175	4.0	%		55,994	4.0	%
Bank of the Sierra	$	195,001	14.18	%	$	184,024	13.17	%
Minimum requirement for "Well-Capitalized" institutions		68,765	5.0	%		69,866	5.0	%
Minimum regulatory requirement		55,012	4.0	%		55,893	4.0	%

	Years Ended Decmber 31,
	2013				2012
	Capital				Capital
	Amount		Ratio		Amount		Ratio
Tier 1 Risk-Based Capital Ratio
Sierra Bancorp and subsidiary	$	198,225	20.39	%	$	183,783	18.11	%
Minimum requirement for "Well-Capitalized" institutions		58,330	6.0	%		61,878	6.0	%
Minimum regulatory requirement		38,887	4.0	%		41,252	4.0	%
Bank of the Sierra	$	195,001	20.11	%	$	184,024	17.88	%
Minimum requirement for "Well-Capitalized" institutions		58,174	6.0	%		61,737	6.0	%
Minimum regulatory requirement		38,783	4.0	%		41,158	4.0	%
Total Risk-Based Capital Ratio
Sierra Bancorp and subsidiary	$	210,669	21.67	%	$	199,700	19.36	%
Minimum requirement for "Well-Capitalized" institutions		97,217	10.0	%		103,131	10.0	%
Minimum regulatory requirement		77,773	8.0	%		82,504	8.0	%
Bank of the Sierra	$	206,960	21.35	%	$	196,912	19.14	%
Minimum requirement for "Well-Capitalized" institutions		96,957	10.0	%		102,895	10.0	%
Minimum regulatory requirement		77,565	8.0	%		82,316	8.0	%

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Net (loss) income	$ 13,369	$ 8,185	$ 7,780
Unrealized gains on securities:
Unrealized holding (losses) gains arising during period	(5,588)	1,560	5,266
Less: reclassification adjustment for gains included in net income	(6)	(1,762)	(1,660)
Plus: reclassification adjustment or other-than-temporary impairment losses (credit portion)	0	0	1,370
Other comprehensive (loss) income, before tax	(5,594)	(202)	4,976
Income tax benefit (expense) related to items of other comprehensive income, net of tax	2,303	74	(2,026)
Other comprehensive (loss) income	(3,291)	(128)	2,950
Comprehensive income	$ 10,078	$ 8,057	$ 10,730

XML

Regulatory Matters - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013
Banking And Thrift [Line Items]
Permited assets value requriement to continue include trust preferred securities in tier one capital	$ 15,000,000,000
Regulatory restrictions on payment of dividends	If the Company does not have sufficient retained earnings available for the proposed dividend, it may still pay a dividend to its shareholders if immediately after giving effect to the dividend the sum of the company's assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred taxes, deferred income and other deferred liabilities) and the current assets of the company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least equal to 125% of its current liabilities.
Amount available for dividend distribution without affecting capital adequacy requirements	$ 29,854,000
Statutory Trust
Banking And Thrift [Line Items]
Percentage of trust prefered securities to tier one capital	25.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 2013. 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. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

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 Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold, and interest bearing deposits in banks.

Investment Securities

Investments are classified into the following categories:

⋅ Securities available-for-sale, reported at fair value, with unrealized gains and losses excluded from earnings and reflected, net of tax, as a separate component of shareholders’ equity in accumulated other comprehensive income.

⋅ Securities held-to-maturity, which the Company has the intent and has the ability to hold to maturity, are carried at cost, adjusted for amortization of premiums and the accretion of discounts.

Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value. Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are currently classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. Potential credit impairment is also a consideration. If it is determined that OTTI exists on a security, the entire difference between amortized cost and fair value is recognized as a charge through earnings. 

Loans and Leases (Financing Receivables)

Our credit quality classifications of Loans and Leases include Pass, Special Mention, Substandard and Impaired. These classifications are defined in Note 4 (Loans and Leases) to our consolidated financial statements.

Loans and leases are reported at the principal amounts outstanding, adjusted for unearned income, deferred loan origination fees and costs, purchase premiums and discounts, write-downs, and the allowance for loan and lease losses. Loan and lease origination fees, net of certain deferred origination costs, and purchase premiums and discounts are recognized as an adjustment to yield of the related loans and leases over the contractual life of the loan using both the effective interest and straight line methods.

Interest income for all performing loans, regardless of classification (Pass, Special Mention, Substandard and Impaired), is recognized on an accrual basis, with interest accrued daily. Costs associated with successful loan originations are netted from loan origination fees, with the net amount (net deferred loan fees) amortized over the contractual life of the loan in interest income. If a loan has scheduled periodic payments, the amortization of the net deferred loan fee is calculated using the effective interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight line basis over the contractual life of the loan. Fees received for loan commitments are recognized as interest income over the term of the commitment. When loans are repaid, any remaining unamortized balances of deferred fees and costs are accounted for through interest income.

Generally, the Company places a loans or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process. When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed. For loans with an interest reserve, i.e., where loan proceeds are advanced to the borrower to make interest payments, all interest recognized from the inception of the loan is reversed when the loan is placed on non-accrual. Once a loan is on non-accrual status subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. Generally, loans and leases are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Impaired loans are classified as either nonaccrual or accrual, depending on individual circumstances regarding the collectability of interest and principal according to the contractual terms.

Loans Modified in a Troubled Debt Restructuring

Loans are considered to have been modified in a troubled debt restructuring (“TDR”) when due to a borrower’s financial difficulties the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period.  If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status. TDRs may be removed from TDR designation in the calendar year following the restructuring, if the loan is in compliance with all modified terms and is yielding a market rate of interest.

A TDR is generally considered to be in default when it appears likely that the customer will not be able to repay all principal and interest pursuant to the terms of the restructured agreement.

Allowance for Loan and Lease Losses 

The allowance for loan and lease losses is maintained at a level which, in management’s judgment, is adequate to absorb loan and lease losses inherent in the loan and lease portfolio. The allowance for loan and lease losses is increased by a provision for loan and lease losses, which is charged to expense, and reduced by principal charge-offs, net of recoveries. The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, changes in its risk profile, credit concentrations, historical trends, and economic conditions. This evaluation also considers the balance of impaired loans and leases. A loan or lease is impaired when it is probable that the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan or lease agreement. The impairment on certain individually identified loans or leases is measured based on the present value of expected future cash flows discounted at the original effective interest rate of the loan or lease. As a practical expedient, impairment may be measured based on the loan’s or lease’s observable market price or the fair value of collateral if the loan or lease is collateral dependent. The amount of impairment, if any, is recorded through the provision for loan and lease losses and is added to the allowance for loan and lease losses, with any changes over time recognized as additional bad debt expense in our provision for loan losses. Impaired loans with homogenous characteristics, such as one-to-four family residential mortgages and consumer installment loans, may be subjected to a collective evaluation for impairment, considering delinquency and repossession statistics, historical loss experience, and other factors.

General reserves cover non-impaired loans and are based on historical net loss rates for each portfolio segment by call report code, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in international, national, regional, and local economic and business conditions and developments; changes in nature and volume of the portfolio; changes in the experience, ability and depth of lending management and staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in quality of the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit; and the effect of the other external factors such as competition and legal and regulatory requirements.

Most of the Company’s business activity is with customers located within the South Central Valley of California, therefore the Company’s exposure to credit risk is significantly affected by changes in the economy in that region. The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for loan losses. Portfolio segments identified by the Company include Direct Financing leases, Agricultural, Commercial and Industrial, Real Estate, Small Business Administration, and Consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer related loans; and credit scores, debt-to-income ratios, collateral type and loan-to-value ratios for consumer related loans.

Though management believes the allowance for loan and lease losses to be adequate, ultimate losses may vary from their estimates. However, estimates are reviewed periodically, and as adjustments become necessary they are reported in earnings during the periods they become known. In addition, the FDIC and the California Department of Business Oversight, as an integral part of their examination processes, review the allowance for loan and lease losses. These agencies may require additions to the allowance for loan and lease losses based on their judgment about information available at the time of their examinations.

Reserve for Off-Balance Sheet Commitments

In addition to the exposure to credit loss from outstanding loans, the Company is also exposed to credit loss from certain off-balance sheet commitments such as unused commitments from revolving lines of credit, mortgage warehouse lines of credit, unused commitments on construction loans and commercial and standby letters of credit. Because the available funds have not yet been disbursed on these commitments the estimated losses are not included in the calculation of ALLL. The reserve for off-balance sheet commitments is an estimated loss contingency which is included in other liabilities on the Consolidated Balance Sheets. The adjustments to the reserve for off-balance sheet commitments are reported as a noninterest expense. This reserve is for estimated losses that could occur when the Company is contractually obligated to make a payment under these instruments and must seek repayment from a party that may not be as financially sound in the current period as it was when the commitment was originally made.

Sale and Servicing of Loans

The Company periodically originates loans intended to be sold on the secondary market. These loans are recorded as “held for sale” and reported at the lower of cost or fair value in the Consolidated Balance Sheets.  The loan’s cost basis includes unearned deferred fees and costs, and premiums and discounts. These loans are generally held between 30 to 90 days from their origination date. Loans held for sale by the Company currently consist entirely of residential real estate loans.  Loans classified as held for sale are disclosed in Note 4 of these Consolidated Financial Statements.

Gains and losses on sales of loans are recognized at the time of sale and are calculated based on the difference between the selling price and the allocated book value of loans sold. Book value allocations are determined in accordance with U.S. GAAP. Any inherent risk of loss on loans sold is transferred to the buyer at the date of sale.

The Company has issued various representations and warranties associated with the sale of loans. These representations and warranties may require the Company to repurchase loans with underwriting deficiencies as defined per the applicable sales agreements and certain past due loans within 90 days of the sale. The Company did not experience losses during the years ended December 31, 2013, 2012 or 2011 regarding these representations and warranties.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful lives of premises are estimated to be thirty years. The useful lives of furniture, fixtures and equipment are estimated to be three to twenty years.  Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred.

Impairment of long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets which indicate long-lived assets may be impaired.

Foreclosed Assets

Foreclosed assets include real estate and other property acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the recorded investment in the loan balance and accrued interest income over the appraised fair market value of the property, net of estimated selling costs, is charged against the allowance for loan and lease losses. A valuation allowance for losses on foreclosed assets is maintained to provide for temporary declines in value. The allowance is established through a provision for losses on foreclosed assets which is included in other non-interest expense. Subsequent gains or losses on sales or write-downs resulting from permanent impairments are recorded in other non-interest income or expense as incurred.

Goodwill

The Company acquired Sierra National Bank in 2000, and the acquisition was accounted for using the purchase method of accounting. The goodwill resulting from this transaction represents the amount by which the purchase price exceeded the fair value of the net assets. In accordance with U.S. GAAP the Company evaluates goodwill periodically for impairment. There was no impairment recognized for the years ended December 31, 2013, 2012, and 2011.

Income Taxes

The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income tax expense represents each entity’s proportionate share of the consolidated provision for income taxes.

Income taxes are accounted for using the asset and liability method. Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

The Company adopted guidance issued by the FASB accounting for income taxes, effective January 1, 2007, which clarifies the accounting and disclosure for uncertainty in tax positions as defined. This guidance seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. 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, 2013 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 the net change in unrealized gains 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 investment 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, 2013, 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 is for 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.

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:

	Years Ended December 31,
	2013 (a)	2012		2011
Dividend yield	N/A	2.35	%	2.27	%
Expected Volatility	N/A	56.71	%	52.92	%
Risk-free interest rate	N/A	0.43	%	1.06	%
Expected option life	N/A	5.5 years		6.8 years

^(a) No stock options were issued in 2013.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, with the goal of improving the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income, by component. In addition, if the amount reclassified is required under U.S. Generally Accepted Accounting Principles (GAAP) to be reclassified to net income in its entirety in the same reporting period, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. For public entities, this update became effective prospectively for reporting periods beginning after December 15, 2012. We adopted ASU 2013-02 commencing with our report on Form 10-Q filed for the first quarter of 2013.

XML

Composition of the Loan and Lease Portfolio (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Composition of Loan and Lease Portfolio [Line Items]
Agricultural	$ 25,180	$ 22,482
Commercial and industrial	158,756	257,896
Small Business Administration loans	14,905	20,523
Direct Financing leases	3,026	4,233
Consumer	23,536	28,872
Total Loans	803,242	879,795
Deferred loan and lease origination cost, net	1,522	1,156
Allowance for loan and lease losses	(11,677)	(13,873)	(17,283)	(21,138)
Loans, net	793,087	867,078
Secured by residential, commercial and professional office properties, including construction and development
Composition of Loan and Lease Portfolio [Line Items]
Mortgage Loans on Real Estate, Carrying Amount of Mortgages	318,383	303,424
Secured by residential properties
Composition of Loan and Lease Portfolio [Line Items]
Mortgage Loans on Real Estate, Carrying Amount of Mortgages	150,952	170,514
Secured by farm land
Composition of Loan and Lease Portfolio [Line Items]
Mortgage Loans on Real Estate, Carrying Amount of Mortgages	108,504	71,851
Total Real Estate Loans
Composition of Loan and Lease Portfolio [Line Items]
Mortgage Loans on Real Estate, Carrying Amount of Mortgages	$ 577,839	$ 545,789

XML

Future Minimum Lease Payments on Non-Cancelable Operating Leases (Detail) (USD $)	Dec. 31, 2013
2014	$ 1,036,000
2015	996,000
2016	792,000
2017	783,000
2018	669,000
Thereafter	4,339,000
Operating Leases, Future Minimum Payments Due, Total	$ 8,615,000

XML

Premises and Equipment - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Depreciation and amortization	$ 2,119,000	$ 2,289,000	$ 2,505,000

XML

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2013

Investments, All Other Investments [Abstract]

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Disclosures include estimated fair values for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments at December 31, 2013 and 2012:

Cash and cash equivalents, and fed funds sold: For cash and cash equivalents and fed funds sold, the carrying amount is estimated to be fair value.

Investment securities: The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities when quoted prices for specific securities are not readily available.

Loans and leases: For variable-rate loans and leases that re-price frequently with no significant change in credit risk or interest rate spread, fair values are based on carrying values. Fair values for other loans and leases are estimated by discounting projected cash flows at interest rates being offered at each reporting date for loans and leases with similar terms, to borrowers of comparable creditworthiness.

Loans held for sale: Since loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and fluctuations in fair values are thus not relevant for reporting purposes. If available-for-sale loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices.

Cash surrender value of life insurance policies: The fair values are based on current cash surrender values at each reporting date provided by the insurers.

Investment in limited partnerships: The fair values of our investments in limited partnerships are estimated using quarterly indications of value provided by the general partner. The fair values of undisbursed capital commitments are assumed to be the same as their book values.

Other investments: Included in other assets are certain long-term investments carried at cost, which approximates estimated fair value, unless an impairment analysis indicates the need for adjustments.

Deposits: Fair values for non-maturity deposits are equal to the amount payable on demand at the reporting date, which is the carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a cash flow analysis, discounted at interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities.

Short-term borrowings: The carrying amounts approximate fair values for federal funds purchased, overnight FHLB advances, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days of the reporting dates. Fair values of other short-term borrowings are estimated by discounting projected cash flows at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Long-term borrowings: The fair values of the Company’s long-term borrowings are estimated using projected cash flows discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated debentures: The fair values of subordinated debentures are determined based on the current market value for like instruments of a similar maturity and structure.

Commitments to extend credit and letters of credit: If funded, the carrying amounts for currently unused commitments would approximate fair values for the newly created financial assets at the funding date. However, because of the high degree of uncertainty with regard to whether or not those commitments will ultimately be funded, fair values for loan commitments and letters of credit in their current undisbursed state cannot reasonably be estimated, and only notional values are disclosed in the table below.

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

	Year Ended December 31, 2013
			Estimated Fair Value
			Quoted Prices in				Significant
			Active Markets for		Significant		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	78,006	$	78,006	$	-	$	-	$	78,006
Investment securities available for sale		425,044		2,456		422,588		-		425,044
Loans and leases held for investment		778,382		-		797,383		-		797,383
Collateral dependent impaired loans		14,705		-		14,705		-		14,705
Loans held-for-sale		105		105		-		-		105
Cash surrender value of life insurance     policies		39,424		-		39,424		-		39,424
Other Investments		5,932		-		5,932		-		5,932
Investment in Limited Partnership		9,204		-		9,204		-		9,204
Accrued interest receivable		4,990		-		4,990		-		4,990
Financial Liabilities:
Deposits:
Noninterest-bearing	$	365,997	$	365,997	$	-	$	-	$	365,997
Interest-bearing		808,182		-		808,182		-		808,182
Fed Funds Purchased and
Repurchase Agreements		5,974		-		5,974		-		5,974
Short-term borrowings		-		-		-		-		-
Long-term borrowings		-		-		-		-		-
Subordinated debentures		30,928		-		11,175		-		11,175
Limited partnership capital commitment		962		-		962		-		962
Accrued Interest Payable		186		-		186		-		186
	Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit	$	420,707
Standby letters of credit		8,703
Commercial lines of credit		8,070

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

	Year Ended December 31, 2012
			Estimated Fair Value
			Quoted Prices in				Significant
			Active Markets for		Significant		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	61,818	$	61,818	$	-	$	-	$	61,818
Investment securities available for sale		380,188		1,809		378,379		-		380,188
Loans and leases held for investment		839,629		-		873,309		-		873,309
Collateral dependent impaired loans		27,449		-		27,449		-		27,449
Loans held-for-sale		210		210		-		-		210
Cash surrender value of life insurance     policies		38,007		-		38,007		-		38,007
Other Investments		6,370		-		6,370		-		6,370
Investment in Limited Partnership		10,316		-		10,316		-		10,316
Accrued interest receivable		5,095		-		5,095		-		5,095
Financial Liabilities:
Deposits:
Noninterest-bearing	$	352,597	$	352,597	$	-	$	-	$	352,597
Interest-bearing		821,437		-		821,911		-		821,911
Fed Funds Purchased and
Repurchase Agreements		1,419		-		1,419		-		1,419
Short-term borrowings		36,650		-		36,650		-		36,650
Long-term borrowings		5,000		-		5,038		-		5,038
Subordinated debentures		30,928		-		12,141		-		12,141
Limited partnership capital commitment		962		-		962		-		962
Accrued Interest Payable		304		-		304		-		304
		Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit		225,400
Standby letters of credit		6,690
Commercial lines of credit		8,539

XML

Interest Expense Recognized on Interest Bearing Deposits (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statement Aggregate Annual Maturities Of Time Deposits [Line Items]
Interest Bearing Demand Deposits	$ 281	$ 257	$ 137
NOW	359	556	860
Savings	285	241	203
Money Market	94	127	506
CDAR's, Under $100,000	0	2	5
CDAR's, $100,000 or more	36	50	194
Time, Under $100,000	420	619	1,001
Time, $100,000 or more	823	1,154	1,223
Brokered Deposits	157	202	176
Interest Expense, Deposits	$ 2,455	$ 3,208	$ 4,305

XML

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

The provision for income taxes follows (dollars in thousands):

	Year Ended December 31,
	2013		2012		2011
Federal:
Current	$	563	$	220	$	627
Deferred		1,842		(647)		(706)
		2,405		(427)		(79)
State:
Current		170		-		818
Deferred		518		83		(175)
		688		83		643
	$	3,093	$	(344)	$	564

Schedule of Deferred Tax Assets and Liabilities

The components of the net deferred tax asset, included in other assets, are as follows (dollars in thousands):

	December 31,
	2013		2012
Deferred tax assets:
Allowance for loan losses	$	5,669	$	6,594
Foreclosed Assets		1,779		4,461
Deferred compensation		4,112		3,627
Accrued reserves		594		502
Non Accrual Loans		1,211		865
Other than temporary impairment charge		576		576
Credit Carryforward		3,089		2,273
Other		153		185
Total deferred tax assets		17,183		19,083
Deferred tax liabilities:
Premises and equipment		(589)		(552)
Deferred loan costs		(2,254)		(2,152)
Unrealized gain on securities available-for-sale		(299)		(2,602)
Other		(1,755)		(1,782)
Total deferred tax liabilities		(4,897)		(7,088)
Net deferred tax assets	$	12,286	$	11,995

Schedule of Effective Income Tax Rate Reconciliation

The expense for income taxes differs from amounts computed by applying the statutory Federal income tax rates to income before income taxes. The significant items comprising these differences consisted of the following (dollars in thousands):

	Year Ended December 31,
	2013			2012			2011
Income tax expense at Federal statutory rate	$	5,597		$	2,666		$	2,837
Increase (decrease) resulting from:
State franchise tax expense, net of      Federal tax effect		414			-			540
Tax exempt income		(920)			(1,388)			(1,330)
Affordable housing tax credits		(1,257)			(1,639)			(1,605)
Other		(741)			17			122
	$	3,093		$	(344)		$	564
Effective tax rate		18.8	%		(4.4)	%		6.8	%

XML

SHAREHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2013

Stockholders Equity Note [Abstract]

SHAREHOLDERS' EQUITY

12. SHAREHOLDERS’ EQUITY

Share Repurchase Plan

At December 31, 2013, the Company had a stock repurchase plan which has no expiration date.  During the year ended December 31, 2013, the Company did not repurchase any shares.  The total number of shares available for repurchase at December 31, 2013 was 700,000. Repurchases are generally made in the open market at market prices.

Earnings Per Share

A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:

	For the Years Ended December 31,
	2013		2012		2011
Basic Earnings Per Share
Net income (dollars in thousands)	$	13,369	$	8,185	$	7,780
Weighted average shares outstanding		14,155,927		14,103,805		14,036,667
Basic earnings per share	$	0.94	$	0.58	$	0.55
Diluted Earnings Per Share
Net income (dollars in thousands)	$	13,369	$	8,185	$	7,780
Weighted average shares outstanding		14,155,927		14,103,805		14,036,667
Effect of dilutive stock options		134,223		16,508		48,534
Weighted average shares outstanding		14,290,150		14,120,313		14,085,201
Diluted earnings per share	$	0.94	$	0.58	$	0.55

Stock Options

In June 1998, Bank of the Sierra adopted the 1998 Stock Option Plan (the “1998 Plan”) for which shares were reserved for issuance to employees and directors under incentive and non-statutory agreements. The 1998 Plan was assumed by the Company effective August 10, 2001. Effective May 23, 2007, the 1998 Plan was terminated and no further options may be granted thereunder, but options granted under the 1998 Plan which were outstanding as of the termination date were not affected by this termination. As of December 31, 2013, options granted under the 1998 Plan covering 143,550 shares were still outstanding.

On March 15, 2007 the Board of Directors approved and adopted the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which was approved by the Company’s shareholders on May 23, 2007. The 2007 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors, of the Company and its subsidiaries. The 2007 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants, which awards may be granted on such terms and conditions as are established by the Board of Directors or the Compensation Committee in its discretion.  We have not issued, nor do we currently have plans to issue, restricted stock awards.

The maximum number of shares subject to issuance under the 2007 Plan was originally  1,500,000 shares of the Company’s authorized but unissued common stock, covering both restricted stock awards and stock options.  The number subject to issuance under the 2007 Plan had declined to 780,920 at December 31, 2013, due to stock options already granted under the plan net of any canceled options that were returned to the pool available for issuance.

All options granted under the 2007 Plan have been or will be granted at an exercise price of not less than 100% of the fair market value of the stock on the date of grant, exercisable in installments as provided in individual stock option agreements. In the event of a “Change in Control” as defined in the 2007 Plan, all outstanding options shall become exercisable in full (subject to certain notification requirements), and shall terminate if not exercised within a specified period of time unless such options are assumed by the successor corporation or substitute options are granted. Options also terminate in the event an optionee ceases to be employed by or to serve as a director of the Company or its subsidiaries, and the vested portion thereof must be exercised within 30 days after such cessation of employment or service.

A summary of the Company’s stock option activity, including options from the 1998 Plan, follows (shares in thousands, except exercise price):

	2013					2012			2011
		Weighted					Weighted			Weighted
		Average		Aggregate			Average			Average
		Exercise		Intrinsic			Exercise			Exercise
	Shares	Price		Value (1)		Shares	Price		Shares	Price
Outstanding, beginning of     year	927	$	14.16			810	$	14.97	835	$	14.24
Exercised	(111)	$	9.87			(5)	$	9.45	(125)	$	6.72
Granted	-	$	-			189	$	10.21	186	$	10.58
Canceled	(70)	$	15.75			(67)	$	13.08	(86)	$	10.43
Outstanding, end of year	746	$	14.65	$	2,961	927	$	14.16	810	$	14.97
Exercisable, end of     year (2)	542	$	16.30	$	583	599	$	16.07	504	$	17.15

⁽¹⁾The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2013. This amount changes based on changes in the market value of the Company's stock.

⁽²⁾The weighted average remaining contractual life of stock options outstanding and exercisable on December 31, 2013 was 6.0 years and 7.1 years, respectively.

Information related to stock options during each year follows:

	2013		2012		2011
Weighted-average grant-date fair value per share	$	-	$	3.86	$	3.79
Total intrinsic value of stock options exercised	$	605,000	$	9,000	$	465,000
Total fair value of stock options vested	$	583,000	$	517,000	$	-

Cash received from the exercise of 110,240 shares was $1,088,000 for the period ended December 31, 2013 with a related tax benefit of $147,000.

The Company is using the Black-Scholes model to value stock options. In accordance with U.S. GAAP, charges of $268,000, $487,000 and $460,000 are reflected in the Company’s income statements for the years ended December 31, 2013, 2012 and 2011, respectively, as pre-tax compensation and directors’ expense related to stock options. The related tax benefit of these options is $110,000, $200,000 and $189,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Unamortized compensation expense associated with unvested stock options outstanding at December 31, 2013 was $280,000, which will be recognized over the next 3.8 years.

XML

Condensed Quarterly Results of Operations (Unaudited) (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Effect Of Quarterly Financial Information [Line Items]
Interest income	$ 13,188	$ 12,791	$ 13,090	$ 12,716	$ 13,389	$ 14,192	$ 13,612	$ 13,709	$ 51,785	$ 54,902	$ 58,614
Interest expense	743	790	815	873	973	1,063	1,064	1,221	3,221	4,321	5,657
Net interest income	12,445	12,001	12,275	11,843	12,416	13,129	12,548	12,488	48,564	50,581	52,957
Provision for loan and lease losses	1,500	800	450	1,600	3,600	4,700	3,160	2,750	4,350	14,210	12,000
Non-interest income	4,607	4,319	4,022	4,115	5,521	4,381	4,121	4,103	17,063	18,126	14,992
Non-interest expense	10,788	11,490	10,717	11,820	12,637	11,496	10,482	12,041	44,815	46,656	47,605
Net income before taxes	4,764	4,030	5,130	2,538	1,700	1,314	3,027	1,800	16,462	7,841	8,344
Provision for taxes	895	663	1,331	204	(398)	(321)	454	(79)	3,093	(344)	564
Net income	$ 3,869	$ 3,367	$ 3,799	$ 2,334	$ 2,098	$ 1,635	$ 2,573	$ 1,879	$ 13,369	$ 8,185	$ 7,780
Diluted earnings per share	$ 0.27	$ 0.23	$ 0.27	$ 0.16	$ 0.15	$ 0.12	$ 0.18	$ 0.13	$ 0.94	$ 0.58	$ 0.55
Cash dividend per share	$ 0.07	$ 0.07	$ 0.06	$ 0.06	$ 0.06	$ 0.06	$ 0.06	$ 0.06