SIERRA BANCORP

Noninterest Income/Expense

Noninterest Income:

Total noninterest income increased by $0.9 million, or 12%, for the quarter ended June 30, 2025, as compared to the same quarter in 2024 and decreased $1.0 million, or 6%, for the comparable year-to-date periods. The quarterly comparison increase primarily resulted from a $0.7 million positive variance in the value of separate account corporate-owned life insurance assets tied to non-qualified deferred compensation plans, and a $0.5 million increase in death benefit on life insurance proceeds, partially offset by lower service charges on deposit accounts. The year-to-date decrease reflects the net impact of the loss on the sale of investment securities in 2024, offset by the gain on the sale/leaseback of bank owned branch locations, with no like transactions in 2025. There was also an unfavorable variance of $0.8 million associated with the decrease in value of separate account corporate-owned life insurance assets tied to non-qualified deferred compensation plans, and a decrease of $0.5 million in service charges on deposits. These unfavorable variances to the year-to-date comparisons were partially offset by $0.8 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 $0.8 million within noninterest income and a favorable year-over-year $0.8 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.

Service charges and fees on customer deposit accounts declined by $0.3 million, or 5%, to $5.9 million in the second quarter of 2025 as compared to the second quarter of 2024, and declined by $0.5 million, or 4% for the year-to-date comparison. Lower analysis fees, returned check charges, and interchange on debit cards were the primary drivers of the unfavorable variance in both the quarterly and year-to-date variances.

In the “other” category of noninterest income there was a $0.5 million increase in the second quarter of 2025 as compared to the second quarter of 2024, and a $1.0 million increase for the first six months of 2025 as compared to the same period in 2024. Life insurance proceeds accounted for most of the favorable variance for both the quarterly and year-to-date comparisons.

Noninterest Expense:

Total noninterest expense increased by $1.1 million, or 5%, in the second quarter of 2025, relative to the second quarter of 2024, but favorably declined by $1.0 million, or 2%, in the first six months of 2025, as compared to the first six months of 2024.

Salaries and Benefits were $0.5 million, or 4%, higher in the second quarter of 2025, as compared to the second quarter of 2024, and were $0.3 million, or 1%, higher for the first six months of 2025, compared to the same period in 2024. The quarterly increase is due to increased officer bonus and group health insurance costs. The year-over-year increase is primarily due to the same reasons as the quarterly but also included an overall increase in officer salary costs and 401(k) company contributions, partially offset by an increase in deferred salary loan costs, due to the hiring of lending and lending support officers. Full-time equivalent employees were 494 at June 30, 2025, as compared to 485 at December 31, 2024, and 501 at June 30, 2024. Included in the June 30, 2025, figures were 10 summer interns and temporary employees.

Occupancy expenses were mostly unchanged for the second quarter and the first half of 2025, as compared to the same periods in 2024.

Other noninterest expense increased $0.6 million, or 8%, for the second quarter 2025, as compared to the second quarter in 2024, and decreased $1.3 million, or 8%, for the first half of 2025, as compared to the same period in 2024. Deferred compensation expense for directors increased $0.7 million for the quarterly comparison but decreased $0.7 million for the year-to-date comparison, which is linked to the changes in life insurance income. For the year-to-date comparison there were also decreases in marketing expenses.