SIERRA BANCORP

Credit risk is inherent in the business of making loans. The Company sets aside an allowance for credit losses on loans, a contra-asset account, through periodic charges to earnings, which are reflected in the income statement as the provision for credit losses on loans. Specifically identifiable and quantifiable loan losses are immediately charged off against the allowance, with subsequent recoveries reflected as an increase to the allowance. The Company recorded a provision for credit losses of $3.7 million in the third quarter of 2025, as compared to $1.2 million in the third quarter of 2024. The year-to-date provision for credit losses on loans was $6.9 million in 2025, as compared to $2.3 million for the same period in 2024. The $2.5 million increase in the provision for credit losses on loans in the third quarter of 2025, as compared to the third quarter of 2024, and the $4.6 million year-to-date increase in the provision for credit losses on loans, compared to the same period in 2024, was primarily due to the addition of $3.5 million in individual reserves mostly related to a single agricultural production loan, in the third quarter of 2025. At September 30, 2025, such agricultural production loan had a remaining book balance of $3.5 million with an associated individual reserve of $3.5 million fully offsetting such loan. See “Allowance for Credit Losses – Loans” for additional information on this credit.

The allowance for credit losses on loans is at a level that, in Management’s judgment, is adequate to absorb probable credit losses on loans related to individually identified loans as well as probable credit losses in the remaining loan portfolio.

The Company’s policies for monitoring the adequacy of the allowance, determining loan balances that should be charged off, and other detailed information with regard to changes in the allowance are discussed in Note 10 to the consolidated financial statements, and below, under “Allowance for Credit Losses.” The process utilized to establish an appropriate credit allowance for losses on loans can result in a high degree of variability in the Company’s credit loss provision, and consequently in net earnings.