SIERRA BANCORP

LIQUIDITY

The Company continues to have substantial liquidity through unencumbered assets and available borrowings. In addition, the Company’s loan-to-deposit ratio was 81% at September 30, 2026, and 89% at December 31, 2025.

Liquidity management 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 stress scenarios applied to assess the Company’s ability to meet liquidity needs under unusual or adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored; the Company is committed to 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 these short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances via FHLB or FRB lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources.

At September 30, 2026, and December 31, 2025, the Company had the following sources of primary and secondary liquidity (dollars in thousands):

Available funding sources, detailed above, of $2.0 billion represented 68% of total deposits and 264% of estimated uninsured and/or uncollateralized deposits as of September 30, 2026. Unpledged investment securities include $36.5 million of CLOs. As CLO rates reset every 90 days to current rates, the volatility of pricing of these securities is limited and the Company could sell such securities for liquidity at a significantly lower loss than selling lower-rate fixed term securities such as US government bonds or municipal bonds.

The Company performs regular stress tests on its liquidity, and at this time, Management believes it has sufficient primary and secondary liquidity sources for operations.

The Company has a higher level of actual balance sheet liquidity than might otherwise be the case since the Company utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at September 30, 2026, and December 31, 2025. Other sources of liquidity include the brokered deposit market, deposit listing services, Intrafi, and the ability to offer local time-deposit promotions. Management believes the Company maintains a strong liquidity position and that available liquidity sources, including on-balance sheet liquidity and contingent funding sources, are sufficient to meet anticipated funding needs, support loan growth, satisfy deposit withdrawal requirements, and meet other operating and contractual obligations.

The Company’s primary liquidity ratio was 18.7% at September 30, 2026, as compared to an internal policy guideline of “greater than 15%”. Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at September 30, 2026, are also periodically reviewed by Management and the Board. The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that the liquidity position will continue at current strong levels.

The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, interest on trust preferred securities and subordinated debt, shareholder dividends, and share repurchases. Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. As of September 30, 2026, the holding company maintained a cash balance of $8.7 million. Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2025, which was filed with the SEC.

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. The Company’s market risk exposure is primarily driven by interest rate risk and Management has established policies and procedures to monitor and limit the Company’s 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, the Company utilizes a third-party that uses commercially-available modeling software to perform periodic earnings simulations using a dynamic balance sheet and calculate the Company’s market value of equity under varying interest rate scenarios. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Assumptions regarding deposit betas in a rates up environment can range from 25% to 100% and from 0% to 100% in a rates down environment, depending on the deposit type. Deposit average life assumptions range from two to nine years based on the Company’s own historical averages. Prepayment speeds are based on expectations derived from historical market data. 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 interest income, interest expense, and the value of the Company’s financial instruments. 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).

In addition to a stable rate scenario, which presumes that there are no changes in interest rates, the Company typically uses at least eight other interest rate scenarios in conducting rolling 12‑month net interest income simulations: upward shocks of 100, 200, 300, and 400 basis points, and downward shocks of 100, 200, 300, and 400 basis points. Those scenarios may be supplemented, reduced in number, or otherwise adjusted as determined by Management to provide the most meaningful simulations considering economic conditions and expectations at the time the modeling is performed. The Company’s guideline is to limit any projected decline in net interest income over the next one year relative to the stable rate scenario to no more than 10% for a 100 basis point interest rate shock, 15% for a 200 basis point shock, 20% for a 300 basis point shock, and 25% for a 400 basis point shock.

The Company had the following estimated net interest income sensitivity profiles over one year, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration or any shifts in the Company’s projected balance sheet in different rate environments (dollars in thousands, unaudited):

The table above presents the estimated impact of immediate, parallel shifts in interest rates across all yield curves and represents an extreme scenario. Management utilizes this analysis as one tool in evaluating the Company's overall interest rate risk profile.

The Company's interest rate risk profile remained within internal policy limits at September 30, 2026. Compared to September 30, 2025, the balance sheet exhibited substantially less sensitivity to changes in market interest rates. In rising-rate scenarios, projected changes in net interest income ranged from a decrease of 0.4% to a decrease of 2.3%, compared to projected increases ranging from 1.3% to 4.0% at September 30, 2025. The reduction in asset sensitivity reflects changes in the composition and repricing characteristics of the Company's balance sheet, including lower mortgage warehouse balances, reduced holdings of floating-rate collateralized loan obligations, shorter-term wholesale funding, and growth in core deposits.

While the Company remains more sensitive to declining interest rates than rising interest rates, the potential adverse impact of falling rates improved significantly from the prior year. Under a 400 basis point declining-rate scenario, net interest income is projected to decrease 10.1% at September 30, 2026, compared to a 17.3% decrease at September 30, 2025. Similarly, the projected decline under a 200 basis point shock improved to 6.2% from 10.0% in the prior year. Management believes this improvement reflects the benefit of lower funding costs already realized during the current interest rate cycle, as well as a more balanced overall interest rate risk position.

The simulation results indicate that the Company's primary interest rate risk continues to be associated with declining market rates, as variable-rate earning assets generally reprice downward more rapidly than interest-bearing liabilities. However, the magnitude of this exposure has moderated compared to prior periods, resulting in a more balanced earnings profile across a wide range of potential interest rate environments. All modeled interest rate shock scenarios remain within the Company's Board-approved policy limits.

Management also evaluates a variety of alternative interest rate paths and stress scenarios that do not assume instantaneous parallel shifts in the yield curve, including forecasts in which short-term and long-term interest rates move independently. In addition, the Company evaluates stress assumptions related to deposit balances, deposit pricing, migration from low-cost to higher-cost deposit products, and loan prepayment speeds. Consistent with prior periods, the most significant modeled risk to future net interest income remains the reduction or migration of low-cost core deposits resulting in increased reliance on higher-cost funding sources.