SIERRA BANCORP

Net interest income was $30.2 million for the second quarter of 2024, a $1.9 million increase, or 7% over the second quarter of 2023, and increased $2.4 million, or 4%, to $58.9 million for the first six months of 2024 relative to the same period in 2023. This increase in interest income for the quarterly comparison was due primarily to an increase in interest income on loans of $4.2 million, augmented by a $0.8 million decrease in interest expense due to the reduction in borrowed funds facilitated by a balance sheet restructuring, partially offset by a related decline in interest income on investments of $1.6 million, or 10%, due to the sale of low yielding investments.

For the second quarter of 2024, although the balance of average interest-earning assets was $106.2 million lower, the yield was 71 basis points higher as compared to the same period in 2023. There was a 23 basis point increase in the cost of our interest-bearing liabilities for the same period, which offset some of the higher yields on the asset side.

Net interest income for the comparative year-to-date periods increased $2.4 million, due to the strategic decision to change the mix on interest earning assets, selling off lower yielding bonds in the fourth quarter of 2023 and first quarter of 2024, moderated by an increase in interest rates paid on interest-bearing liabilities. There was a $112.5 million, or 6%, increase in average loan balances yielding 41 basis points higher for the same period, while average investment balances decreased $229.1 million, yielding 69 basis points higher for the same period. Average interest-bearing liabilities decreased $83.7 million, mostly in borrowed funds. The cost of interest-bearing liabilities was 41 basis points higher for the comparative periods. The favorable net impact of the mix and rate change was a 23 basis point increase in our net interest margin for the six-months ending June 30, 2024 as compared to the same period in 2023.

Interest expense was $13.3 million for the second quarter of 2024, an increase of $0.8 million, relative to the second quarter of 2023. For the first six months of 2024, compared to the first six months of 2023, interest expense increased $3.7 million, to $25.6 million. The increase in interest expense is primarily attributable to an increase in interest rates paid on certain time deposits, and a shift in deposits to higher interest rate accounts partially offset by lower balances on other borrowings. There was an unfavorable shift in the deposit mix in the second quarter of 2024 as compared to the same period in 2023

due to increased demand from customers for higher rates. Higher cost customer time deposits increased by $23.0 million, and wholesale brokered deposits increased by $129.3 million, while lower cost and noninterest bearing deposits decreased by $181.4 million. A $128.9 million decrease in borrowed funds mitigated some of the unfavorable shift for the quarterly comparison. For the first half of 2024, as compared to the same period in 2023, customer time deposits increased $61.6 million, and wholesale brokered deposits increased $85.9 million, while borrowed funds decreased $88.7 million, and other deposits decreased $218.7 million.

The Company had $1.5 billion in adjustable and variable rate loans and $519.9 million in floating rate bonds, as compared to $316.6 million in floating rate CDs and $35.7 million in floating rate trust preferred securities at June 30, 2024. The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years. Of the $1.5 billion in adjustable and variable rate loans, $610.7 million of such adjustable and variable rate loans reprice in the next twelve months.

Our net interest margin was 3.69% for the second quarter of 2024, and 3.39% for the second quarter of 2023, an increase of 30 basis points, and 3.66% for the first half of 2024, as compared to 3.43% for the first half of 2023, an increase of 23 basis points. While the yield of interest-earning assets increased 71 basis points for the second quarter of 2024, the cost of interest-bearing liabilities increased 23 basis points for the same period of comparison. The average balance of interest-earning assets decreased $106.2 million, while the decrease in interest-bearing liabilities was $86.0 million for the same period. The decrease in higher cost borrowed funds over the increase in yield on interest-earning assets improved the net interest margin in the second quarter of 2024 over the same period in 2023.

For the year-to-date comparison the increase in net interest margin of 23 basis points comes from an increase in yield on interest-earning assets of 50 basis points partially offset by an increase in interest rates paid on interest-bearing liabilities of 41 basis points. The increase in yield on interest earning assets is over a much larger volume base than of interest-bearing liabilities reflecting the positive change in the net interest margin for the first half of 2024.

The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities.

The following tables show average balances for significant balance sheet categories and the amount of interest income or interest expense associated with each category for the noted periods. The tables also display calculated yields on each major component of the Company’s investment and loan portfolios, average rates paid on each key segment of the Company’s interest-bearing liabilities, and our net interest margin for the noted periods.

Average Balances and Rates

The Volume and Rate Variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to fluctuations in average balances (volume) or differences in average interest rates. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates, and rate variances are equal to the change in rates multiplied by prior period average balances. Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the rate variance.

Volume & Rate Variances

The volume variance calculated for the second quarter of 2024 relative to the second quarter of 2023 was a favorable $2.0 million; this is primarily from a favorable loan volume variance of $4.0 million augmented by a favorable reduction in other borrowed funds. There was a favorable rate variance of $0.8 million from the comparative quarter since the weighted average yield on interest-earning assets more than offset the increase in the average yield unfavorable variance on interest-bearing liabilities. There was an unfavorable mix variance of $0.9 million primarily from the sale of bonds with lower yields that has yet to be deployed into higher yielding assets combined with higher interest rates paid on customer time

and brokered deposits. The Company’s net interest margin for the second quarter of 2024 was 3.69%, as compared to 3.39% for the second quarter of 2023.

The volume variance calculated for the first six months of 2024 relative to the first six months of 2023 reflects a favorable variance of $1.0 million, a favorable rate variance of $2.4 million, and an unfavorable mix variance of $0.9 million. There were increases in loan balances for a favorable volume variance of $5.3 million which was mostly offset by a $4.6 million decrease in investments, due to the balance sheet restructure in 2023. There was a $2.8 million decrease in borrowed funds, partially offset by a $2.6 million increase in interest-bearing deposits. There was a positive rate variance on interest earning assets of $5.6 million for the first six months of 2024 partially offset by a $3.2 million rate increase in interest earning liabilities. The Company’s net interest margin for the first half of 2024 was 3.66%, as compared to 3.43% in the first half of 2023.

At June 30, 2024, approximately 15% of our total portfolio, or $342.7 million, consists of variable rate loans. At June 30, 2024, our outstanding fixed rate loans represented 31% of our loan portfolio. The remaining 54% of our loan portfolio at June 30, 2024, consists of adjustable-rate loans; 30% of these loans (approximately $355.0 million) will not have the ability to reprice for at least another 3 years. Our adjustable-rate loans have maturities up to 25 years and are generally adjustable every five years after the initial adjustment, which can vary from 5 to 10 years to initial adjustment. Approximately $170.9 million of these adjustable-rate loans have the ability to reprice in 2024, which is expected to have a positive impact on earnings as most of these adjustable-rate loans were made when rates were lower.

Interest earning cash balances for the quarter and year-to-date comparisons have increased and have a positive impact on our net interest margin since cash balances have been earning approximately 5.5%. Average cash and due from banks was $43.4 million, an increase of $26.4 million for the second quarter of 2024 as compared to the same period last year, and was $9.8 million higher for the first half of 2024 as compared to the same period in 2023.

Overall average investment securities decreased by $282.6 million for the second quarter of June 30, 2024, as compared to June 30, 2023, and decreased by $239.0 million for the first half of 2024, from the sale of lower yielding bonds from a strategic securities transaction, the proceeds of which were used to paydown higher cost borrowings. The overall investment portfolio had a tax-equivalent yield of 5.43% at June 30, 2024, with an average life of 6.08 years and average effective duration of 0.8 years for available-for-sale securities. Approximately $519.9 million of the investment securities reprice every 90 days and $49.3 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.

Interest expense was $13.3 million for the second quarter of 2024, an increase of $0.8 million, relative to the second quarter of 2023. For the first six months of 2024, compared to the first six months of 2023, interest expense increased $3.7 million, to $25.6 million. The increase in interest expense is primarily attributable to an increase in interest rates paid on certain time deposits, and a shift in deposits to higher interest rate accounts partially offset by lower balances on other borrowings. There was an unfavorable shift in the deposit mix in the second quarter of 2024 as compared to the same period in 2023 due to increased demand from customers for higher rates. Higher cost customer time deposits increased by $23.0 million, and wholesale brokered deposits increased by $129.3 million, while lower cost and noninterest bearing deposits decreased by $181.4 million. Mitigating some of the unfavorable shift there was also a $128.9 million decrease in borrowed funds for the quarterly comparison. For the first half of 2024, as compared to the same period in 2023, customer time deposits increased $61.6 million, and wholesale brokered deposits increased $85.9 million, while borrowed funds decreased $88.7 million, and other deposits decreased $218.7 million. Average noninterest-bearing demand deposits decreased $72.1 million or 7% for the second quarter of 2024 as compared to the second quarter of 2023 and decreased $76.2 million or 7% for the first half of 2024 as compared to the first half of 2023.