SIERRA BANCORP

Noninterest Income/Expense

Noninterest Income:

Noninterest income increased $1.3 million, or 20%, to $8.0 million in the first quarter of 2026 compared to the same period in 2025. The $1.3 million increase in noninterest income in the first quarter of 2026 as compared to the same quarter in 2025 was due to higher service charge and fee income, an increase in cash surrender value of life insurance due to purchases of additional life insurance in the second quarter of 2025, and other increases related to higher FHLB dividend income, an increase in the fair value of bank stocks, and a gain on sale of fixed assets.

Service charges and fees on customer deposit accounts increased by $0.1 million, or 2%, to $5.7 million in the first quarter of 2026 as compared to the same quarter in 2025. Higher overdraft income and a decrease in costs related to our VISA debit card program were the primary drivers of the favorable variance.

The Company maintains a non-qualified deferred compensation plan for officers and directors, under which participants may defer a portion of their earnings and select from various hypothetical investment alternatives to determine their individual returns. The Company economically offsets this liability with separate account life insurance policies that are invested in similar underlying fund types within the life insurance policy. Because the deferred compensation liability and the separate account life insurance asset are not contractually linked, differences in balances, fund performance, and insurance costs can result in temporary timing mismatches between changes in separate account life insurance income and the related deferred compensation expense.

During the first quarter of 2026, declines in market values of investments inside the life insurance policy to offset employee and director deferred compensation plan elections resulted in a $0.4 million net loss related to separate account life insurance, while the related deferred compensation liability experienced a $0.6 million benefit as the funds that the plan participants elected declined in value. These offsetting movements reflect market-driven changes in the underlying investment alternatives and do not represent credit- or performance-related deterioration.

The majority of the deferred compensation expense is reported within professional fees, under deferred directors’ fees, as it primarily relates to the deferral of directors’ compensation. Specifically, $0.6 million of deferred compensation benefit was recorded as deferred directors’ fees during the first quarter of 2026. The related tax shortfall associated with the loss associated with separate account life insurance and taxable deferred compensation expense/(benefit) totaled $0.3 million for the quarter.

Noninterest Expense:

Total noninterest expense decreased $0.6 million, or 3%, to $21.8 million in the first quarter of 2026, compared to the first quarter of 2025. The primary driver of lower noninterest expense was lower deferred compensation expense, reflecting market-driven changes in the related deferred compensation liability. Excluding the change in deferred compensation, total noninterest expense declined $1.0 million in the first quarter of 2026 as compared to the fourth quarter of 2025.

The decrease in deferred compensation expense was mostly offset by lower separate account life insurance income, as declines in market values during the quarter resulted in a loss related to separate account life insurance policies, consistent with the discussion above. These offsetting movements reflect normal market-related volatility between the separate account life insurance asset and the deferred compensation liability.

Salaries and benefits were relatively stable compared to both the linked quarter and the same period last year, with modest period-to-period changes primarily related to normal compensation timing and benefit costs. Occupancy expense declined modestly compared to the linked quarter and remained relatively consistent year over year, reflecting disciplined expense management.

Other noninterest expense declined compared to both the linked quarter and the prior year, driven primarily by lower deferred directors’ compensation expense/(benefit) and continued cost control across operating expense categories.