SIERRA BANCORP

The Company records its provision for income taxes using the annual effective tax rate method prescribed by ASC 740, Income Taxes. Under this methodology, income tax expense is determined by applying the Company's estimated annual effective tax rate to year-to-date pre-tax income and adjusting for discrete tax items recognized in the period in which they occur. The estimated annual effective tax rate reflects the impact of tax-exempt income, tax credits, and other permanent differences between book and taxable income. Permanent differences include, but are not limited to, tax-exempt interest income, BOLI income, and certain book expenses that are not allowed as tax deductions. Tax credits consist primarily of benefits generated through investments in low-income housing tax credit funds and, more recently, renewable energy tax equity investments. The Company's effective tax rate was 22.7% for the third quarter of 2026, compared to 23.6% for the third quarter of 2025. For the first nine months of 2026, the effective tax rate was 24.2%, compared to 24.9% for the same period in 2025. The Company's effective tax rate declined during the third quarter of 2026 primarily due to the recognition of expected tax benefits associated with its renewable energy tax equity investment, consistent with management's estimate of credits expected to be realized during 2026, as well as the continued benefit of tax-exempt income.