SIERRA BANCORP

Noninterest Income/Expense

Noninterest Income:

Noninterest income decreased by $1.9 million, or 23%, in the first quarter of 2025 as compared to the same quarter in 2024. The decrease in the first quarter 2025, is due mostly to a $1.5 million unfavorable change in bank owned life insurance associated with deferred compensation plans (as described further below) as well as $0.9 million in year-over-year differences due to the first quarter of 2024 strategic balance sheet restructure, which included a bond sale and sale leaseback of branch properties. Partially offsetting these unfavorable variances were $0.3 million in additional life insurance death benefits.

Within noninterest income and noninterest expense are mostly offsetting amounts related to bank owned life insurance and non-qualified deferred compensation. This created a year-over-year unfavorable variance of $1.5 million within noninterest income and a favorable year-over-year $1.5 million variance for noninterest expense. The Company maintains a non-qualified deferred compensation plan for officers and directors, which allows the participant to defer a portion of their earnings tax-free. Participants are allowed to choose different hypothetical investment alternatives to determine their individualized return on their deferred compensation. The Company has chosen to offset the cost of this liability with BOLI which is funded based on deferral elections from the participants. Although the BOLI is not directly tied to the deferred compensation plan, the BOLI is invested in similar fund types as those selected by the participants. There is some inefficiency in net earnings of the BOLI asset as compared to the deferred compensation liability created by the cost of insurance, differences in balances, and differences in individual fund performance. During the first quarter of 2025, reversal of earnings from the BOLI was $0.3 million, while reversal of expense from the related deferred compensation liability was $0.4 million. Most of such expense is reported as professional fees under directors’ fees as such expense is related to deferral of past directors’ fees. Specifically, $0.4 million for the quarterly comparison is reflected as a reversal of directors’ fees as part of the overall professional fees expense line item.

Service charges and fees on customer deposit accounts declined by $0.1 million, or 3%, to $5.6 million in the first quarter of 2025 as compared to the first quarter of 2024. Lower returned check charges was the primary driver of the unfavorable variance.

In the “other” category of noninterest income there was a $0.5 million increase in the first quarter of 2025 as compared to the first quarter of 2024. Life insurance proceeds and a 2024 first quarter loss on the valuation of equity securities account accounted for most of the favorable variance.

Noninterest Expense:

Total noninterest expense decreased $2.1 million, or 9%, compared to the first quarter of 2024. The primary driver of the positive variance as compared to the same period of 2024 is $1.5 million favorable change of deferred directors’ fees and officers’ deferred compensation expense as part of the Company’s deferred compensation plan as described above.

Salaries and benefits were $0.2 million lower than the first quarter of 2024. The decrease in the year-over-year quarterly comparison is due to several factors, including severance payments in the first quarter of 2024, with no like payments in the first quarter of 2025, and a decrease in deferred compensation expense. Overall full-time equivalent employees were 489 at March 31, 2025, as compared to 492 at March 31, 2024.

Occupancy expense was mostly unchanged for the first quarter of 2025 as compared to the same quarter last year.

Other noninterest expense decreased $1.9 million over the first quarter of 2024. The primary reason for the positive variance was decreased directors deferred compensation expense which is linked to the fluctuation in BOLI income. Additionally, debit card processing costs and debit card losses were $0.4 million lower in the year-over-year quarterly comparison because of the Company’s conversion from Mastercard to VISA.