BSRR Sierra Bancorp

PROPOSAL 1

ELECTION OF DIRECTORS

Our Bylaws currently provide that the number of directors shall be not fewer than six nor more than eleven 11 until changed by a bylaw amendment duly adopted by the vote or written consent of our shareholders.  The Bylaws further provide that the exact number of directors shall be fixed from time to time, within the foregoing range, by a bylaw or amendment thereof or by a resolution duly adopted by the vote or written consent of our shareholders or by our Board of Directors.  The exact number of directors is presently fixed at nine.

Pursuant to the Company’s Articles of Incorporation, the Board of Directors is divided into two classes, designated Classes I and II.  The directors serve staggered two-year terms, so that directors of only one class are elected at each Annual Meeting of Shareholders.  At the Meeting, shareholders will be asked to elect the following four Class I directors whose terms expire this year, for an additional term of two years to serve until 2022 and their successors are elected and have qualified:

Since shareholders do not have cumulative voting rights in the election of directors, a plurality of the votes cast is required for the election of directors.  See “VOTING SECURITIES” above.  In the event that any of the nominees should be unable to serve as a director, it is intended that the Proxy will be voted for the election of such substitute nominee, if any, as shall be designated by the Board of Directors.  Management has no reason to believe that any nominee will become unavailable.

Board of Directors’ Recommendation

Your Board of Directors unanimously recommends a vote “FOR”

each of the nominees listed in this proxy statement.

The following table sets forth information as of March 31, 2020 with respect to (i) each of the persons nominated by the Board of Directors for election as directors, all of whom are also directors of the Company, (ii) each of our directors and executive officers, and (iii) our directors and executive officers as a group.  Additional information concerning the

experience and qualifications of the Company’s directors appears below under “CORPORATE GOVERNANCE – Director Nomination Procedures, Qualifications and Related Matters.”

CORPORATE GOVERNANCE

General

The Board of Directors believes that it is important to encourage the highest level of corporate ethics and responsibility and has fully implemented the corporate governance requirements of Nasdaq and the Securities and Exchange Commission (the “SEC”).

Code of Ethics

We have adopted a Code of Ethics which applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions.  The Code of Ethics requires that our directors, officers and employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the Company’s best interests.  Under the terms of the Code of Ethics, directors, officers and employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Ethics.  The Code of Ethics may be found on our web site, “www.sierrabancorp.com” on the “Investor Relations” tab under the topic “Governance Documents.”  We intend to post notice of any waiver from, or amendment to, any provision of our Code of Ethics on this web site.

Procedures for Reporting Concerns about Accounting, Internal Accounting Controls or Auditing Matters

As a mechanism to encourage compliance with the Code of Ethics, we have established procedures for (i) receiving, retaining and addressing complaints regarding accounting, internal accounting controls or auditing matters; (ii) allowing employees to anonymously report any problems they may detect with respect to such matters; and (iii) reporting any suspected violations of the Code or of law.  The Code of Ethics also prohibits the Company from retaliating against any director, officer or employee who makes a good faith report of a suspected violation of the Code or of law (even if the report is mistaken), or against anyone who assists in the investigation of a reported violation.

Director Independence

General.  The Board has determined that all of its directors, other than the Chief Executive Officer, are “independent” as that term is defined by Nasdaq rules.  The overwhelming majority of the members of our Board of Directors have historically been independent, and our Audit, Nominating and Governance, and Compensation Committees are comprised solely of independent directors in accordance with SEC and Nasdaq requirements.

Executive Sessions.  The independent directors meet regularly in executive session without any members of management present.

Director Attendance

Board and Committee Meeting Attendance.  During the fiscal year ended December 31, 2019, our Board of Directors held a total of 13 meetings.  Each incumbent director who served as a director during 2019 attended at least 75% of the aggregate of (a) the total number of such meetings and (b) the total number of meetings held by all committees of the Board on which such director served during 2019.

Director Attendance at Annual Meetings of Shareholders.  The Board believes it is important for all directors to attend the annual meeting of shareholders in order to show their support for the Company and to provide an opportunity for shareholders to communicate any concerns to them.  The Company’s policy is to encourage, but not require, attendance by each director at the Company’s annual meeting of shareholders.  All but one of our directors attended our Annual Meeting of Shareholders in 2019.

Shareholder Communications with Board of Directors

Shareholders may communicate with the Board of Directors or with any individual director by mailing a communication to our principal executive offices addressed to the Board of Directors or to the individual director.  All of such communications, except those clearly of a marketing nature, will be forwarded unopened directly to the appropriate director or presented to the full Board of Directors at the next regularly scheduled Board meeting.

Director Nomination Procedures, Qualifications and Related Matters

Procedure for Consideration of Director Nominees.  Prior to making any recommendations to the Board of Directors concerning the nomination of directors for each year’s annual meeting, the Nominating and Governance Committee (the “Governance Committee”) shall (i) evaluate the performance, attendance records of, and any loans or other transactions between the Company or the Bank and each of the current Board members proposed for reelection, and on that basis consider the appropriateness of such members standing for reelection; (ii) review the composition and size of the Board in order to ensure that the Board is comprised of members reflecting the proper expertise, skills, attributes and personal and professional backgrounds for service as directors of the Company; (iii) consider the need to augment the Board for any specific purpose; (iv) review and consider any additional requests from outside parties to serve as directors; (v) if a new nominee is needed, determine the specific skills and experience desired in a new director; and (vi) in such case, identify potential nominees who have such skills and experience, determine whether the potential nominees are shareholders of the Company, investigate the potential nominee’s background, develop personal knowledge about the candidate, develop a consensus of the committee members with respect to which potential nominee would be best suited for the position, determine whether the candidate is interested, and vote on the recommendation.

The Governance Committee shall consider recommendations from directors, officers and employees of the Company and the Bank, as well as persons recommended by shareholders of the Company, and shall evaluate persons recommended by directors, officers or employees in the same manner as those recommended by shareholders in selecting Board nominees.

Director Qualifications.  In considering a possible candidate for election as a director, the Governance Committee shall be guided by the principle that each director should: (i) be an individual of the highest ethical character and integrity; (ii) have substantial experience which is of particular relevance to the Company; (iii) have the ability and willingness to devote sufficient time to the affairs of the Company; (iv) have a meaningful financial stake in the Company so as to assure that every director’s interests are aligned with those of the shareholders; (v) be knowledgeable about the business activities and market areas in which the Company and its subsidiaries engage; (vi) have a general appreciation regarding major issues facing public companies of a size and operational scope similar to the Company, including contemporary governance concerns, regulatory obligations of a public issuer, strategic business planning, competition in a global economy, and basic concepts of corporate accounting and finance; (vii) live or work within 25 miles of an existing or proposed office of the Bank; (viii) have an excellent personal and professional reputation in and commitment to one or more communities in which the Company does business; (ix) serve or have served as chief executive officer or in another position of active leadership with a business or professional interest located within the market areas served by the Company and its subsidiaries; (x) have an inquiring mind, a willingness to ask hard questions, and the ability to work constructively with others; (xi) have the ability and desire to exercise independent thinking when considering matters brought before the Board, and not be unduly influenced by the opinions of others; (xii) have no conflict of interest that would interfere with his or her performance as a director; and (xiii) have the capacity and desire to represent the best interests of the shareholders as a whole and not primarily a specific interest group or constituency.

While the Board and the Governance Committee believe that every director should possess as many of the foregoing attributes as possible, the Governance Committee has not recommended, and the Board has not established, any specific group of such attributes to be considered “minimum qualifications” for serving as a director.

In considering the desirability of any particular candidate as a potential director, the Governance Committee shall also consider the contributions that a candidate can be expected to make to the collective functioning of the Board based upon the totality of the candidate’s credentials, experience and expertise, the composition of the Board at the time, and other relevant circumstances, including the fit of the individual’s skills and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company.

Board Diversity, Qualifications and Experience.  As currently comprised, the Board of Directors is a diverse group of individuals drawn from various market sectors and industry groups with a presence in the Company’s markets.  The Board considers diversity as one of many factors in evaluating the composition of the Board but has no set policy in this regard.  Board members are individuals with knowledge and experience who serve and represent the communities we serve.  Current Board representation provides backgrounds in accounting, banking, farming, legal, manufacturing, and retail.  The expertise of these individuals covers accounting and financial reporting, corporate management, strategic planning, business acquisitions, legal matters, marketing, retail, and small business operations.  What follows is a brief

description of the particular experience, attributes and qualifications of each member of the Company’s Board of Directors that led to the conclusion that these individuals should serve as directors of the Company.

Morris A. Tharp is an original proponent of the Bank and has served as Chairman of the Board of the Bank and of Sierra Bancorp since their formations in 1977 and 2000, respectively.  He also serves as Chairman of the Governance Committee and has served on the Audit, Compliance and CRA Committee (the “Audit Committee”) and the Compensation Committee for many years. Mr. Tharp is a native of Porterville and following his schooling, joined his father in the family business of E.M. Tharp, Inc. Over the years, he has purchased the family business and is now sole owner.  For many years he has been very involved in community activities.  In selecting Mr. Tharp as a nominee this year, the Board considered the following: his involvement in the formation of the Bank, his lengthy experience as a bank director and accumulated knowledge of the Company’s operations, his leadership qualities and management expertise gained by owning and running his own company, and his involvement in the local community.

Albert L. Berra has been a director of the Bank and of Sierra Bancorp since their formations in 1977 and 2000, respectively.  He has served on numerous committees of the Bank and the Company throughout that time and is currently Chairman of both the Audit Committee and the Compensation Committee and a member of the Governance Committee.  A native of Porterville, Dr. Berra attended the University of California, Berkeley after high school and went on to St. Louis University to complete his dental and orthodontic training.  After service in the U.S. Army, Dr. Berra returned to Porterville to establish his orthodontic practice, which he operated continuously since his return until he retired and sold his practice in 2014.  He also runs a farming operation in the area. Dr. Berra is involved in many community activities. Dr. Berra was selected to serve on the Board because of his involvement in the formation of the Bank, his lengthy experience as a bank director and accumulated knowledge of the Company’s operations, his experience operating his own business, his agricultural expertise, and his active involvement in the local community.

Vonn R. Christenson was appointed to the Boards of the Bank and of Sierra Bancorp effective September 15, 2016 and was simultaneously appointed to serve on the Governance Committee and the Investment Committee.  He graduated from Brigham Young University with honors in 2003 and earned his J.D. at Harvard Law School in 2006.  After working for a time as an attorney in Orange County, California, Mr. Christenson joined the Christenson Law Firm in Porterville, California, specializing in business and contract disputes, personal injury, medical malpractice, and intellectual property litigation.  He currently resides in Porterville and is actively involved in the community including with the Porterville Optimist Club, the Porterville Chamber of Commerce Board of Directors, and the Porterville Unified School District Academy of Law, Justice & Ethics Advisory Board. Mr. Christenson was selected to serve on the Board due in part to his active involvement in the local community, his stellar educational background, and his ability to add a unique legal perspective to Board discussions.

Laurence S. Dutto, Ph.D., was appointed to the Boards of the Bank and of Sierra Bancorp effective September 15, 2016, at which time he was also appointed to serve on the Governance Committee and the Insurance Committee. Dr. Dutto, a resident of Visalia, California, is a retired college administrator with extensive hands-on agricultural experience.  His decorated 30‑year career at College of the Sequoias in Visalia, California includes service as Provost of the Tulare College Center, Dean of Academic Services, Dean of Technical Education, Agriculture Division Chair, and Faculty Academic Senate President.  His prior experience includes 15 years working on his family’s dairy farm, and he currently is in a partnership with his sister growing almonds.  He was appointed to the Board due in part to his management and administrative expertise and his community connections, and to help strengthen the Bank’s ties to the local agricultural community.

Robb Evans was appointed to the Boards of the Bank and of Sierra Bancorp effective September 15, 2016, at which time he was also appointed to serve on the Governance Committee and the Audit Committee.  He is currently designated as an audit committee financial expert. Mr. Evans is the Chairman of Robb Evans & Associates LLC, which acts as a fiduciary or advisor in complex corporate and financial matters.  He was formerly Chairman of the Board of Coast Bancorp and Coast National Bank, which were acquired by Sierra Bancorp in July 2016, and he helped facilitate the post-acquisition integration of Coast by maintaining board-level ties to our new market area.  He also has extensive executive-level banking experience, including prior service as Chief Executive Officer at four different California banks, three international banking corporations chartered by the Federal Reserve, and a Hong Kong merchant bank. Mr. Evans has served as a California Special Deputy Commissioner of Financial Institutions and Special Deputy Superintendent of Banks.  He maintains residences in both Bakersfield and Cambria, California.  In selecting Mr. Evans as a nominee this year, the Board considered his broad-ranging association with banking industry experts and regulators and his extensive financial

and management expertise in the banking arena, including a familiarity with opportunities and challenges facing our industry.

James C. Holly is a founding Director and Vice Chairman of the Board of both the Bank and Sierra Bancorp, and currently serves as a member of all Board Committees.  He served as President and Chief Executive Officer of the Bank and Sierra Bancorp from their formations in 1977 and 2000, respectively, until January 1, 2014, when Mr. McPhaill was appointed President and Chief Operating Officer of both entities. Mr. Holly continued to serve as Chief Executive Officer of both entities until he retired on March 31, 2015 and was appointed Vice Chairman of the Board effective April 1, 2015.  He was born and raised in Racine, Wisconsin and received both a BBA and an MBA degree from the University of Wisconsin. Mr. Holly is also a graduate of the Southwestern Graduate School of Banking at Southern Methodist University and served as a Commissioned Officer in the U.S. Army (Armor).  He began his banking career with United California Bank, now Wells Fargo Bank.  After 10 years as a branch manager, Mr. Holly left United California Bank and joined in the effort to organize Bank of the Sierra of which he served as President and Chief Executive Officer from its inception in 1977 until January 1, 2014, and served as Chief Executive Officer until his retirement in March 2015.  He is a current director of the Sequoia Parks Conservancy, a philanthropic and educational organization, and a director of River Island Country Club.  In selecting Mr. Holly as a nominee, the Board considered the following: his leadership capabilities; his long tenure and strong track record as President and CEO of the Bank; his deep understanding of bank lending, operations, and financial management resulting from his banking background; his extensive network in the banking industry; his knowledge of the local economy; and his involvement in the local community.

Kevin J. McPhaill has been a director of the Bank and of Sierra Bancorp since January 1, 2015 and was appointed President and Chief Executive Officer of the Company and the Bank effective April 1, 2015. Mr. McPhaill is a native and current resident of Visalia, California, and his educational background includes a bachelor’s degree from Fresno Pacific University, a master’s degree in business administration from Fresno State, and the successful completion of post-graduate training at the Southwestern Graduate School of Banking at Southern Methodist University.  He has been employed by Bank of the Sierra since June 2001, starting as the regional manager of the Hanford area, then progressing to Executive Vice President and Chief Banking Officer of the Company and the Bank in 2006, to President and Chief Operating Officer of the Company and the Bank in 2014, and to his current positions on April 1, 2015. Mr. McPhaill is involved in the local community and is active in financial education outreach efforts to primary and secondary schools in the Bank’s market areas. Mr. McPhaill was selected to serve on the Board because of his leadership abilities; his extensive experience at the Bank and other financial institutions; his knowledge of the Bank’s culture; his lending, operations, and management experience; and his insight into key factors that drive the Bank’s financial success.

Lynda B. Scearcy has been a director of the Bank and of Sierra Bancorp since December 2007.  She has been a valuable member of the Audit Committee since that time and is currently designated as an audit committee financial expert.  She also serves on the Compensation Committee and the Governance Committee. Ms. Scearcy received her undergraduate degree from the University of Florida and her Master’s Degree in Taxation from San Joaquin College of Law. Ms. Scearcy is a retired tax professional.  She was previously the tax partner at McKinley Scearcy Associates, an accounting and consulting firm which she joined in 1983.  McKinley Scearcy Associates sold to H&R Block in November 2014, and Ms. Scearcy retired from the firm in September 2017.  She is deeply committed to the community, as demonstrated by her involvement with, among others, the Rotary Club of Porterville (Past President), Porterville Chamber of Commerce (Past Treasurer), Tule River Economic Development Corporation (Past Treasurer) and Tulare County Office of Education Foundation (Board Member).  In selecting Ms. Scearcy as a nominee this year, the Board considered the following: her strong educational background, her experience as a partner and leader at her accounting and consulting firm, her deep understanding of accounting and tax issues, her financial acumen, and her strong commitment to and involvement in the local community.

Gordon T. Woods was an original proponent of the Bank and has been a director of the Bank and of Sierra Bancorp since their formations in 1977 and 2000, respectively.  For many years, he has served on the Audit Committee, the Compensation Committee and the Governance Committee.  He attended Arizona State University and the University of Arizona on scholarship, majoring in chemical engineering, and is a U.S. Army veteran.  His professional experience includes employment as a chemical engineer, as well as executive positions with divisions of Gulf Oil Company and Ford Motor Company.  In 1969 he moved to Porterville and established Hydrokleen Systems, a designer and manufacturer of water and waste treatment systems, and in 1989 he established Gordon T. Woods Construction, an engineering construction company building industrial and municipal water and wastewater systems.  He is currently CEO of both of

those companies. Mr. Woods has been active in numerous service organizations in Porterville and has also served on the Porterville City Council, including two years as Mayor and two years as Mayor Pro‑Tem. Mr. Woods was selected to serve on the Board because of his involvement in the formation of the Bank, his lengthy experience as a bank director and accumulated knowledge of the Company’s operations, his experience in executive positions at international companies, his success at owning and operating his own businesses, his financial acumen, and his involvement in the local community.

Consideration of Shareholder Recommendations.  In considering any additional requests from outside parties to serve as directors, including parties recommended by shareholders, the Governance Committee shall follow the same principles outlined above, and shall request of any potential nominee such information, including a completed Directors’ and Officers’ Questionnaire of the same type completed by each of the Company’s existing directors and executive officers each year in connection with the preparation of the Company’s proxy materials, as the committee deems necessary to enable it to properly evaluate such person’s qualifications and to be aware of any information concerning such person which might require disclosure to shareholders pursuant to SEC rules concerning proxy statements.

A shareholder wishing to submit recommendations for director candidates for election at an annual meeting of shareholders must do so in writing by December 15th of the previous calendar year, and must include the following in the written recommendation: (i) a statement that the writer is a shareholder and is proposing a candidate for consideration; (ii) the name and contact information for the candidate; (iii) a statement of the candidate’s business and educational experience; (iv) information regarding the candidate’s qualifications to be a director; (v) the number of shares of the Company’s stock owned either beneficially or of record by the candidate and the length of time such shares have been so owned; (vi) the written consent of the candidate to serve as a director if nominated and elected; (vii) information regarding any relationship or understanding between the proposing shareholder and the candidate; (viii) a statement that the proposed candidate has agreed to furnish to the Company all information (including a completed Directors’ and Officers’ Questionnaire as described above) as the Company deems necessary to evaluate such candidate’s qualifications to serve as a director; and (ix) as to the shareholder giving the notice, the name and address of the shareholder and the number of shares of the Company’s stock which are owned beneficially or of record by the shareholder.

Nominations by Shareholders.  The procedure and requirements for shareholders to nominate directors (as opposed to making recommendations as described above) are set forth in our Bylaws, which provide in pertinent part as follows:

“Nominations for election of members of the Board of Directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors.  Notice of intention to make any nominations by a shareholder shall be made in writing and shall be delivered or mailed to and received by the Secretary of the Corporation not less than one hundred twenty (120) calendar days in advance of the date corresponding to that on which the Corporation’s proxy statement was released to the shareholders in connection with the previous year’s annual meeting of shareholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the shareholder must be received by the Secretary of the Corporation not later than the close of business on the later of (i) one hundred and twenty (120) days prior to such annual meeting; or (ii) ten (10) days after the date the notice of such meeting is sent to shareholders pursuant to Section 2.2(d) of these Bylaws…. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of voting stock of the Corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder and the beneficial owner, if any, on whose behalf the nomination is made; and (e) the number of shares of voting stock of the Corporation owned beneficially and of record by the notifying shareholder and such beneficial owner.”

For our 2021 Annual Meeting of Shareholders, written notice of intention to make any nominations must be received no later than December 24, 2020.

Board Leadership Structure.  The Company is focused on corporate governance practices, and independent Board oversight is valued as an essential component of strong corporate performance to enhance shareholder value. Our commitment to independent oversight is demonstrated by the fact that all but two of our directors are independent.  In

addition, all members of the Board’s Audit Committee, Compensation Committee, and Governance Committee are independent.

The Company currently has an independent Chairman separate from the Chief Executive Officer, and our corporate governance guidelines specify that these two positions should be kept separate except in unusual circumstances.  Such circumstances have not occurred in the Company’s history.  The Board believes it is important to maintain flexibility in its leadership structure, but firmly supports having an independent director in a board leadership position.  If for any reason it were necessary for the Chairman to also hold the office of Chief Executive Officer temporarily, the Board would appoint an independent lead director to serve in an independent leadership position during this time.  Having an independent Chairman or lead director enables non-management directors to raise issues and concerns for Board consideration without immediately involving management.  The Chairman provides independent leadership of the Board and also serves as a liaison between the Board and senior management.  The Board has determined that the current structure, an independent Chair, separate from the Chief Executive Officer, is the most appropriate structure at this time, while ensuring that, at all times, there will be an independent director in a Board leadership position.

Board Role in Risk Oversight.  Risk is inherent with every business, and how well a firm manages risk can ultimately determine its success.  The Company faces a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk, regulatory risk, market risk and reputational risk.  Management is responsible for the day-to-day identification and measurement of these risks, while the Board, as a whole and through its committees, is responsible for oversight of management actions in addressing those risks.   The Board Audit Committee has traditionally served as the primary Committee charged with risk oversight, with each of the other Committees responsible for monitoring risks within their areas of responsibility. During 2019, the Company identified the growing need for greater focus and visibility across risk categories and added a Risk Management Committee at the Company’s subsidiary to assist the Audit Committee with its risk oversight.  The new Risk Management Committee is described below.  The Board considers the most significant risks facing the Company and the Company’s general risk management strategy, to ensure that risks undertaken by the Company are consistent with the Board’s stated risk appetite. In its risk oversight role, the Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

The Audit Committee is responsible for overseeing the Company’s financial reporting risk and he entire audit function, and it evaluates the effectiveness of internal and external audit efforts.  It receives a status report from the Company’s Director of Internal Audit on at least a quarterly basis regarding the adequacy and effectiveness of internal control systems.  The Director of Audit will also present annually to the Board an audit plan for the coming year. It is the Committee responsibility to review and approve the audit plan and to ensure it meets the needs of the organization.  The full Board takes responsibility for ensuring that other risks are monitored and controlled, including credit, liquidity and interest rate risk, and the Chief Risk Officer, Chief Financial Officer and Chief Credit Officer present quarterly reports to the Board to assist with this responsibility.  In addition, to accomplish the Board’s overall risk management strategy, the Board works closely, and meets frequently and as necessary, with senior management to discuss strategy and risks facing the Company.  Senior management attends appropriate portions of the Board meetings and is available to address any questions or concerns raised by the Board on risk management and any other matters.  The Chairman of the Board and other independent directors work together to provide strong, independent oversight of the Company’s management and affairs directly and through its standing committees and, when necessary, special meetings of independent directors  The Bank believes this structure and division of responsibility is an effective approach in identifying and mitigating risks.  Although seemingly well suited to this purpose, the Bank will continue to regularly reevaluate the Board leaderships structure to ensure appropriateness in the face of various situations and circumstances

Employee, Officer and Director Hedging.

The Company does not allow directors and executive officers to enter into short sales of common stock or similar hedging or other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of our equity securities or where potential gains are linked to a decline in the price of our stock. Recipients of equity awards also may not enter into any agreement that has the effect of transferring or exchanging any economic interest in an award for any other consideration.  Further, directors and executive officers, as well as all officers of the Company, are prohibited from pledging Company securities as collateral for a loan or holding Company securities in a margin account.

COMMITTEES OF THE BOARD

Audit Committee

General.  The Board of Directors has, among others, a standing Audit, Compliance and CRA Committee (the “Audit Committee”), composed of directors Berra (Chairperson), Evans, Holly (effective January 17, 2019), Scearcy, Tharp and Woods, each of whom is an independent director as defined by the rules of Nasdaq.  Each member of the Audit Committee also meets the independence criteria prescribed by applicable law and the rules of the SEC for Audit Committee membership.  Each Audit Committee member meets Nasdaq’s financial knowledge requirements and has substantial experience as the chief executive officer or equivalent of his or her respective business or profession.  In addition, at least one member of the Audit Committee has the requisite financial sophistication required under the rules of Nasdaq for one such member.  The Board has designated Lynda Scearcy and Robb Evans as “audit committee financial experts” under SEC rules.

During the fiscal year ended December 31, 2019, the Audit Committee held a total of 15 meetings.  The purpose of this committee, with respect to its audit duties, is to meet with the Company’s outside auditors in order to fulfill the legal and technical requirements necessary to adequately protect the Company’s directors, shareholders, employees and depositors.  It is also the responsibility of the Audit Committee to select the Company’s independent registered public accounting firm and to make certain that this firm has the necessary freedom and independence to freely examine all Company records.  Further, the Audit Committee pre‑approves all audit and permissible non-audit services to be performed by the independent public accountants, with certain de minimis exceptions.  Each year the committee reviews the risk management assessment of the Company’s branches, credit centers and operating units and assigns priorities for the coming year to have independent reviews conducted by loan, operational, information systems and compliance teams hired by the committee. The committee meets with such independent review consultants on at least an annual basis and approves the contractual basis of each engagement letter and arrangement under consideration.  Further, as part of its regular meeting schedule, the committee reviews annual and quarterly SEC reports and discusses those reports with Management and the independent accountants as appropriate.  The committee also meets with the accounting audit partner in charge of the engagement, who presents the audited consolidated financial reports to the committee upon completion of the annual engagement.  The committee receives and reviews management letters and all reports of external independent firms which have been contracted to perform agreed upon procedures for the benefit of the Company and the committee.  Additionally, the committee reviews all Reports of Examination prepared by regulators regarding safety and soundness, compliance, or other examinations performed by such agencies.  As part of its responsibilities, the committee also reviews and approves any and all management-initiated responses to engagements conducted by independent consultant firms or regulatory agencies, prior to their submission to such firm or agency.  Finally, the Audit Committee has ultimate responsibility for determining matters of interpretation with respect to the audit and accounting related portions of our Code of Ethics, and for making all final decisions concerning any disciplinary actions relating to those portions of the Code.

Audit Committee Charter.  The Board of Directors has adopted an Audit Committee charter, which outlines the purpose of the Audit Committee, delineates the membership requirements, and addresses the key responsibilities of the committee.  The charter may be found on our web site, “www.sierrabancorp.com” on the “Investor Relations” tab under the topic “Governance Documents.”

Audit Committee Report.  The Audit Committee has reviewed and discussed with management our audited consolidated financial statements as of and for the fiscal year ended December 31, 2019.  The committee has discussed with our independent public accountants, which are responsible for expressing an opinion on the conformity of our audited consolidated financial statements with generally accepted accounting principles, the matters required to be discussed by Statement on Auditing Standards No. 114, including their judgments as to the quality of our financial reporting.  The committee has received written disclosures and a letter from our independent public accountants as required by the Public Company Accounting Oversight Board (PCAOB) Rule 3526 and discussed with the independent public accountants the firm’s independence from management and from the Company.  In considering the independence of our independent public accountants, the committee took into consideration the amount and nature of the fees paid the firm for non-audit services, as described on page 31 below.  The Audit Committee also reviewed management’s report on its assessment of the effectiveness of the Company’s internal control over financial reporting and the independent registered public accounting firm’s report on the effectiveness of the Company’s internal control over financial reporting.

In reliance on the review and discussions described above, the committee recommends to the Board of Directors that the year‑end audited consolidated financial statements be included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019 for filing with the SEC.

Nominating and Governance Committee

General.  The Board has a standing Nominating and Governance Committee (the “Governance Committee”), comprised of directors Tharp (Chairperson), Berra, Christenson, Dutto, Evans, Holly (effective January 17, 2019), Scearcy, and Woods, each of whom qualifies as an independent director under the Nasdaq rules.  The Governance Committee met once during 2019.  The primary functions of this committee are to (i) identify qualified candidates for director, evaluate the incumbent directors whose terms expire at each upcoming annual meeting, and recommend to the Board the director nominees for each annual meeting of shareholders; (ii) determine desired Board member skills and attributes and annually review and update the criteria for evaluating candidates for directors; (iii) annually evaluate the size and composition of the Board and each committee in light of the Company’s operating requirements and existing corporate governance trends; (iv) conduct searches as needed for prospective directors with the desired skills and attributes, and conduct reviews as appropriate into the background and qualifications of director candidates; (v) consider bona fide candidates recommended by shareholders for nomination for election to the Board in accordance with the policies and procedures set forth in the Governance Committee’s charter; (vi) retain and compensate third party search firms to assist in identifying or evaluating potential nominees to the Board, if necessary; (vii) assess and report annually to the Board concerning the effectiveness and performance of the Board and Board committees as well as the effectiveness of the relationship between the Board and management, and identify areas in which the Governance Committee or management believes the Board could improve; (viii) monitor the orientation and continuing education program for directors; (ix) annually review and assess the adequacy of the Company’s Corporate Governance Guidelines in light of applicable legal and regulatory requirements; (x) annually review and assess the adequacy of the Company’s Code of Ethics; (xi) have ultimate responsibility for determining matters of interpretation with respect to the non‑audit related portions of the Code of Ethics and for making all final decisions concerning any disciplinary actions relating to those portions of the Code; (xii) review and oversee matters relating to the independence of Board and committee members; and (xiii) periodically review the Company’s succession plans and make recommendations to the Board of Directors with respect to management and director succession.

We do not pay fees to any third party to identify or evaluate or assist in identifying or evaluating potential nominees.  The Board and the Governance Committee have adopted specific policies and procedures concerning the director nomination process, in accordance with which the Governance Committee considers various matters and criteria and on that basis recommends the proposed slate of nominees to the full Board.  The specific procedures and criteria which the Governance Committee follows and considers in making its decisions concerning recommended nominations for directors are described above under “CORPORATE GOVERNANCE – Director Nomination Procedures, Qualifications and Related Matters.”

Governance Committee Charter.  The Board of Directors has adopted a Nominating and Governance Committee charter, which outlines the purpose of the Governance Committee, delineates the membership requirements, and addresses the key responsibilities of the committee.  The charter may be found on our web site, “www.sierrabancorp.com” on the “Investor Relations” tab under the topic “Governance Documents.”

Compensation Committee

General.  The Board of Directors has a Compensation Committee, of which directors Berra (Chairperson), Holly (effective January 17, 2019), Scearcy, Tharp and Woods are members.  The Compensation Committee met twice during 2019.  All of the current and former members of the Compensation Committee are independent directors under Nasdaq rules.  The primary functions of this committee are to (i) consider and make recommendations to the Board of Directors

concerning the Company’s incentive compensation plans and equity‑based plans in which directors and executive officers may participate; (ii) approve option grants or restricted stock awards to the Company’s “Named Executive Officers” unless the Board of Directors, in its discretion, should decide to take such actions instead of the Committee with respect to any such awards; (iii) annually evaluate the performance of the Company’s Chief Executive Officer (the “CEO”)  in light of the goals and objectives of the Company’s executive compensation plans and the CEO’s individual performance goals, and make recommendations to the Board of Directors concerning his compensation levels based on this evaluation; (iv) annually review and make recommendations to the Board concerning the compensation arrangements for all executive officers; (v) monitor compensation trends, solicit independent advice where appropriate, and ensure that executive compensation plans are sufficient to attract and retain high quality executives; (vi) review and make recommendations to the Board concerning any salary continuation agreements or other contractual arrangements with any officers; (vii) annually review the compensation paid to non-employee directors and make recommendations to the Board regarding such compensation, provided that no member of the Committee may act to fix his or her own compensation except for uniform compensation paid to directors for their services as a director; (viii) review executive officer compensation for compliance with applicable laws and regulations; (ix) have the authority to retain and terminate any compensation consultant to be used to assist in the evaluation of the CEO, other executive officers, and director compensation; (x) produce an annual report on executive compensation, and review and approve the Compensation Discussion and Analysis appearing in the Proxy Statement; (xi) review and make recommendations to the Board concerning salary ranges for graded personnel, as well as personnel policies and any similar documents relating to personnel matters which require Board approval; and (xii) annually review group health insurance and workers compensation insurance, and make recommendations to the Board with regard to carriers and potential changes in coverage.

Compensation Committee Charter.  The Board of Directors has adopted a Compensation Committee charter, which outlines the purpose of the Compensation Committee, delineates the membership requirements, and addresses the key responsibilities of the Committee.  The charter may be found on our web site, “www.sierrabancorp.com” on the “Investor Relations” tab under the topic “Governance Documents.”

Compensation Committee Interlocks and Insider Participation in Compensation Decisions.  The persons named above were the only persons who served on the Compensation Committee during the fiscal year ended December 31, 2019.  None of these individuals has been an officer or employee of the Company or any of its subsidiaries within the past three fiscal years. None of our executive officers serves as a member of the Board of Directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board of Directors or our Compensation Committee.

Compensation Committee Report.  In performing its oversight role, the Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management.  Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement to be filed on Schedule 14A with the SEC.

In addition, the Compensation Committee reviewed the compensation structure for employees of the Company and concluded that none of the elements comprising such compensation encourages behavior that would lead to excessive risks for the Company.

The Risk Management Committee of Bank of the Sierra’s Board of Directors was formed in 2019 of which directors Woods (Chairperson), Scearcy, Evans, Christianson, and Dutto are members.  The Risk Committee meets quarterly and is responsible for understanding and assessing the overall risk condition of the Bank.  The Committee receives a report from the Chief Risk Officer on the levels of residual risk present in the Bank and whether the condition is consistent with risk appetite. The Committee evaluates the responses from management in addressing risks and any implications for operations and financial performance.  The Committee has oversight responsibility for the Company’s enterprise risk management framework, approval of risk management policies including an annual review of the Risk Appetite Statement, assessment of management’s implementation of the risk management framework.  The Committee evaluates the aggregate level of risk across each of the traditionally defined categories of risk: liquidity, credit, regulatory, operational, interest rate, market, strategic, and reputational.  The Risk Committee also oversees the Company’s insurance program.

The Senior Loan Committee of the Bank of the Sierra’s board of directors is responsible for credit policy oversight, setting lending limits, monitoring rates, and approving loans over a certain amount.  The Senior Loan Committee meets semi-monthly and its members are Holly (Chairperson), Berra, Scearcy, Tharp, and McPhaill.

The Investment Committee of the Bank of Sierra’s board of directors is responsible for monitoring the credit and interest rate risks associated with the Bank of Sierra’s investment portfolio, as well as establishing the Company’s investment policies and guidelines. The Investment Committee meets quarterly and its members are Woods (Chairperson), Berra, Christenson, Holly, Scearcy, and McPhaill.

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy and Objectives

Our primary objectives with respect to executive compensation are to attract and retain the most talented and dedicated executives possible, and to align their interests with those of our shareholders.  To that end, we strive to maintain compensation plans that are competitive relative to those of similar publicly traded banking institutions, and to provide a substantial level of at-risk compensation for our executives that depends in part on the Company’s financial performance.  Compensation for our Named Executive Officers consists primarily of the following elements, which are discussed in greater detail below:  base salary; annual discretionary bonuses based on performance guidelines; and longer-term incentive awards including stock option grants, salary continuation agreements, and split-dollar life insurance benefits.  The Compensation Committee periodically evaluates and adjusts the weighting of these components to support Company objectives.  The Compensation Committee and the Board also believe it is important to ensure that the compensation of the CEO is equitable and reasonable in relation to that of the other Named Executive Officers, and that the compensation of the other Named Executive Officers is reasonable in relation to each other given their respective duties and responsibilities, experience, and certain other relevant factors.  In late 2018 we entered into employment agreements with our Named Executive Officers, and a similar agreement was entered into with our Chief Risk Officer upon commencement of his employment with the Company in March 2019.  Those agreements are discussed in greater detail below.  In some instances we also provide salary continuation agreements as described below.

Process for Making Compensation Decisions

Roles of the Compensation Committee.  The Compensation Committee reviews executive compensation and makes recommendations to the Board with regard to appropriate target compensation levels and compensation component weightings for all of the Named Executive Officers in alignment with our compensation philosophy and consistent with employment agreements.  Compensation includes the primary components listed in the previous paragraph, as well as any perquisites, or special or supplemental benefits.  In making its recommendations to the Board, the Compensation Committee evaluates compensation arrangements for comparable positions at peer institutions (where such data is publicly available), the relative financial performance of the Company, recommendations of the CEO (in the case of the other Named Executive Officers), internal fairness, the past performance and future goals of the CEO, and independent analysis performed by the committee.  The specific factors considered are detailed below under “Targeted Compensation” and “Elements of Executive Compensation.”  The Compensation Committee has the authority to engage consultants and request other information as needed to fairly measure and evaluate the overall compensation of the Named Executive Officers.  The Compensation Committee did not retain a consultant in 2019; rather, it directed Company personnel to utilize

publicly available data to update a peer compensation study completed for the Company in the past by a professional compensation consulting firm.

Role of the Chief Executive Officer.  The CEO annually reviews the performance of the Named Executive Officers other than himself, and presents his conclusions and recommendations based on those reviews to the Compensation Committee.  In 2019, the CEO considered the updated peer compensation study and the stated objectives of the Compensation Committee and the Board in formulating his recommendations for base salary adjustments, target bonus amounts, and equity awards.  The Compensation Committee can exercise its discretion in modifying the CEO’s recommendations before making its recommendations to the Board, but generally accepts them as presented.  The CEO is not a member of the Compensation Committee but is invited to attend meetings of the committee as necessary to provide input and recommendations on compensation for the other Named Executive Officers.  The CEO is not involved with any aspect of determining his own pay.

Targeted Compensation

As noted, a peer compensation study is used to assist in establishing targeted compensation levels for all Named Executive Officers.  For the most recently completed study, the peer group was comprised of 16 publicly-traded bank holding companies or banks headquartered in Western states, with total assets ranging from approximately $1.2 billion to $5.0 billion, with a median asset size of $1.7 billion (the “Peer Group”).1  In 2019, two peers used in previous years were sold and two peers grew to $5.0 billion which removed them from our criteria.  Three new peers were added to the group. The Peer Group criteria will be subject to modification for future studies if the Peer Group does not continue to provide a representation of similarly sized banks within our geography.  The study provides an analysis of base salary, short-term incentives (including incentive bonuses), and long-term incentives (including the value of stock option awards and increases in pension values) (collectively, “Total Direct Compensation”), for Peer Group officers with positions equivalent to the Named Executive Officers for whom compensation information is publicly disclosed.  Because the most recent available peer compensation data is from 2018, an adjusted Total Direct Compensation figure was also calculated for Peer Group officers which conservatively assumes increases of 5% per year since 2018.

Another element in assessing appropriate levels of Total Direct Compensation for the Named Executive Officers is the Company’s financial performance and size relative to peer institutions.  Using information that was obtainable for the first two quarters of 2018, the Company’s return on average assets and return on average equity were at the 50th and 69th percentiles, respectively, relative to peer institutions, and our efficiency ratio ratio was at the 63rd percentile.  In addition, the Company’s total assets were at the 75th percentile of the peer group.

Based on favorable trends in the Company’s net income and financial performance metrics, as well as overall favorable financial performance relative to peer institutions, compensation data in the peer study, recommendations of the CEO (in the case of the other Named Executive Officers), individual performance, and other independent analysis performed by the Compensation Committee, the committee selected a range encompassing the 50th to 70th percentiles of adjusted Total Compensation for Peer Group officers as a general target for Total Compensation for the Named Executive Officers.  Nevertheless, after applying the principle of internal equity and in consideration of prior position-specific experience, Total Compensation established by the Compensation Committee for an individual Named Executive Officer might exceed or fall short of the target range. With regard to the components of Total Compensation, the goal of the Compensation Committee was to maintain a substantial level of “at risk” compensation while striving to ensure that neither base salary nor potential short-term incentive compensation are substantially below the Peer Group median.

1    The Peer Group consists of the following banks and bank holding companies: Bank of Commerce Holdings, Redding, California; Bank of Marin Bancorp, Novato, California; Baycom Corp, Walnut Creek, California; Central Valley Community Bancorp, Fresno, California; Farmers & Merchants Bancorp, Lodi, California; First Choice Bancorp, Cerritos, CA; First Financial Northwest, Inc., Renton, Washington; First Northwest Bancorp, Port Angeles, Washington; FS Bancorp, Inc., Terrace, WA; Heritage Commerce Corp, San Jose, California; Pacific Mercantile Bancorp, Costa Mesa, California; PCB Bancorp, Los Angeles, CA; People’s Utah Bancorp, American Fork, Utah; Preferred Bank, Los Angeles, California; RBB Bancorp, Los Angeles, California; and Timberland Bancorp, Inc., Hoquiam, WA

The aforementioned variables being duly analyzed and considered, the Compensation Committee came to a unanimous conclusion concerning appropriate 2020 targets for base salaries and short-term incentive compensation for the Named Executive Officers.  The Compensation Committee then presented its recommendations to the Board, which unanimously approved those recommendations.  This ultimately resulted in base salary increases of 9% for the Chief Executive Officer, 14% for the Chief Banking Officer, 8% for the Chief Credit Officer, and 14% for the Chief Risk Officer relative to their base salaries paid during 2019.  In addition, the CFO received an 8% annualized increase although he would be retiring effective January 31, 2020.  In addition, the Committee unanimously approved a base salary of $380,000 for the newly appointed CFO, Christopher Treece, who began employment with the Company in January 2020.  For comparison, the 2019 over 2018 base salary increases totaled 11% for the President/CEO, 7% for the CFO and the CCO, and 10% for the CBO.  The CRO was newly hired in 2019.  The incentive bonus potential for 2020 was established as 75% of base salary for the CEO and 50% of base salary for the other Named Executive Officers, which is unchanged from 2019.

When factoring in base salaries and the estimated fair value of stock options granted in the first quarter of 2020, and assuming a full incentive bonus payout, the potential Total Direct Compensation for Named Executive Officers for 2020 would be at the following percentile rankings relative to the Peer Group’s adjusted compensation data (as noted above, the adjusted Peer estimate incorporates 5% annual increases):  the 59th percentile for the CEO, the 60th percentile for the newly-appointed CFO including one-time moving expense reimbursement and stock option awards, the 66th percentile for the CCO, the 58th percentile for the CBO, and the 60th percentile for the CRO.  As a validity check, the Company also measured 2019 total compensation for our Named Executive Officers relative to the Peer Group’s unadjusted 2018 total compensation data, which places the CEO at the 59th percentile, the retiring CFO at the 75th percentile, the CCO at the 67th percentile, the CRO at the 73rd percentile and the CBO at the 55th percentile.

Employment Agreements

In late December 2018, after concluding that such agreements are standard and customary in the industry, Sierra Bancorp and its wholly-owned subsidiary, Bank of the Sierra, entered into an employment agreement with each executive officer of the Company.  The agreements commenced on January 1, 2019 and have initial terms of three years, with evergreen renewals for one-year terms subsequent to the initial term unless either the executive or the Company provides notification of non-renewal to the other party at least six months in advance of the renewal date.  A similar agreement was entered into with the Company’s Chief Risk Officer upon commencement of his employment in March 2019, with the Company’s new Chief Financial Officer upon commencement of his employment in January 2020, and with the Company’s Chief Administrative Officer, Jennifer Johnson, upon commencement of her employment in February 2020.  The agreements specify minimum annual base salaries of $525,000 for Mr. McPhaill, $360,000 for Messrs. Taylor (now retired) and Gardunio, $330,000 for Messrs. Olague and Macia, $380,000 for Mr. Treece, and $340,000 for Ms. Johnson, as well as annual discretionary bonuses of up to 75% of annual base salary for Mr. McPhaill and 50% of annual base salary for the other Named Executive Officers.  The agreements also note the basic terms and conditions of other benefits, delineate permitted outside activities, and provide indemnification for the executives for certain circumstances.  Each agreement includes noncompetition, non-solicitation and nondisclosure conditions applicable to the executives.

The employment agreements automatically terminate in certain circumstances, including the following:  the death or incapacity of the executive; termination of the executive’s employment for cause; or, a change in control of Sierra Bancorp.  For such automatic terminations, there is no further obligation on the part of the Company to make payments or provide any benefits pursuant to an agreement except in the case of a change in control of the Company.  Furthermore, the agreements stipulate that the Company may terminate the employment of the named executive officer with 30 days prior written notice to the executive, and the executive may terminate his agreement and his employment with the Company at any time with 90 days prior written notice to the Company.  In the event of a change in control, or if the Company initiates termination of employment for a reason other than one which constitutes an automatic termination, the Company will provide the executive(s) with the payments and benefits that are outlined below under “EXECUTIVE OFFICER AND DIRECTOR COMPENSATION – Potential Payments Upon Termination or Change in Control.”  An executive’s receipt of severance benefits of any kind pursuant to his employment agreement is conditioned upon his execution of the full and complete release of any and all claims against Sierra Bancorp and Bank of the Sierra and their respective affiliates, directors, officers, employees, agents, attorneys, insurers, and successors in interest, arising from or in any way related to executive’s employment or termination of executive’s employment.