UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number 000-30707

FIRST NORTHERN COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

California	68-0450397
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

195 N. First Street, Dixon, California	95620
(Address of principal executive offices)	(Zip Code)

707 -678-3041

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbols(s)	Name of each exchange on which registered
None	Not Applicable	Not Applicable

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No  ☒

The number of shares of Common Stock outstanding as of May 6, 2024 was 15,529,531.

FIRST NORTHERN COMMUNITY BANCORP

INDEX

	Page
PART I – Financial Information	3
ITEM I. – Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Income (Unaudited)	4
Condensed Consolidated Statements of Comprehensive Income/Loss (Unaudited)	4
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)	6
Condensed Consolidated Statements of Cash Flows (Unaudited)	7
Notes to Condensed Consolidated Financial Statements	8
ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4. – CONTROLS AND PROCEDURES	44
PART II – OTHER INFORMATION	44
ITEM 1. – LEGAL PROCEEDINGS	44
ITEM 1A. – RISK FACTORS	44
ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	46
ITEM 3. – DEFAULTS UPON SENIOR SECURITIES	46
ITEM 4. – MINE SAFETY DISCLOSURES	46
ITEM 5. – OTHER INFORMATION	46
ITEM 6. – EXHIBITS	46
SIGNATURES	47

2

PART I – FINANCIAL INFORMATION

FIRST NORTHERN COMMUNITY BANCORP

ITEM I.    – FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)	March 31, 2024			December 31, 2023
Assets
Cash and cash equivalents	$	186,909		$	149,211
Certificates of deposit		18,185			19,710
Investment securities – available-for-sale, at estimated fair value, net of allowance for credit losses of $0; amortized cost of $608,472 at March 31, 2024 and $620,314 at December 31, 2023		558,441			572,357
Loans, net of allowance for credit losses of $16,246 at March 31, 2024 and $16,596 at December 31, 2023		1,047,296			1,052,465
Stock in Federal Home Loan Bank and other equity securities, at cost		10,518			10,518
Premises and equipment, net		9,694			9,962
Core deposit intangible		3,931			4,141
Interest receivable and other assets		52,150			53,468
Total Assets	$	1,887,124		$	1,871,832
Liabilities and Stockholders’ Equity
Liabilities:
Demand deposits	$	736,794		$	744,799
Interest-bearing transaction deposits		372,762			380,477
Savings and MMDA’s		443,201			431,472
Time, $250,000 or less		127,009			109,373
Time, over $250,000		29,106			26,323
Total deposits		1,708,872			1,692,444
Interest payable and other liabilities		15,903			20,143
Total Liabilities		1,724,775			1,712,587
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Common stock, no par value; 32,000,000 shares authorized; 15,550,731 shares issued and outstanding at March 31, 2024 and 15,482,332 shares issued and outstanding at December 31, 2023		123,856			123,235
Additional paid-in capital		977			977
Retained earnings		72,704			68,760
Accumulated other comprehensive loss, net		(35,188	)		(33,727	)
Total Stockholders’ Equity		162,349			159,245
Total Liabilities and Stockholders’ Equity	$	1,887,124		$	1,871,832

See notes to unaudited condensed consolidated financial statements.

3

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)	Three months ended March 31, 2024			Three months ended March 31, 2023
Interest and dividend income:
Loans	$	13,475		$	11,377
Due from banks interest bearing accounts		1,715			2,400
Investment securities
Taxable		2,845			2,683
Non-taxable		252			273
Other earning assets		256			178
Total interest and dividend income		18,543			16,911
Interest expense:
Deposits		3,181			930
Total interest expense		3,181			930
Net interest income		15,362			15,981
Reversal of provision for credit losses		(300	)		—
Net interest income after reversal of provision for credit losses		15,662			15,981
Non-interest income:
Service charges on deposit accounts		428			412
Gains on sales of loans held-for-sale		—			18
Investment and brokerage services income		139			121
Mortgage brokerage income		9			10
Loan servicing income		67			64
Debit card income		659			654
(Losses) gains on sales/calls of available-for-sale securities		(42	)		2
Gain on bargain purchase		—			1,405
Other income		247			187
Total non-interest income		1,507			2,873
Non-interest expenses:
Salaries and employee benefits		6,671			6,805
Occupancy and equipment		1,127			1,017
Data processing		1,020			1,019
Stationery and supplies		60			100
Advertising		108			146
Directors’ fees		69			66
Amortization of core deposit intangible		210			151
Other expense		1,962			1,980
Total non-interest expenses		11,227			11,284
Income before provision for income taxes		5,942			7,570
Provision for income taxes		1,666			2,081
Net income	$	4,276		$	5,489
Basic earnings per common share	$	0.28		$	0.36
Diluted earnings per common share	$	0.28		$	0.36

See notes to unaudited condensed consolidated financial statements.

4

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS (UNAUDITED)

(in thousands)	Three months ended March 31, 2024			Three months ended March 31, 2023
Net income	$	4,276		$	5,489
Other comprehensive (losses) gains, net of tax:
Unrealized holding gains (losses) on securities:
Unrealized holding (losses) gains arising during the period, net of tax effect of $(625) and $2,522 for the three-month periods ended March 31, 2024 and March 31, 2023, respectively		(1,491	)		6,014
Less: reclassification adjustment due to (losses) gains realized on sales of securities, net of tax effect of $12 and $(1) for the three-month periods ended March 31, 2024 and March 31, 2023, respectively		30			(1	)
Other comprehensive (loss) income	$	(1,461	)	$	6,013
Comprehensive income	$	2,815		$	11,502

See notes to unaudited condensed consolidated financial statements.

5

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)

	Common Stock						Additional Paid-in		Retained			Accumulated Other Comprehensive
	Shares			Amounts			Capital		Earnings			Income (Loss)			Total
Balance at December 31, 2022		14,652,584		$	116,099		$	977	$	54,492		$	(46,528	)	$	125,040
Cumulative change from adoption of ASU 2016-13 on January 1, 2023										(916	)					(916	)
Balance at January 1, 2023 (as adjusted for change in accounting principle)		14,652,584			116,099			977		53,576			(46,528	)		124,124
Net income										5,489						5,489
Other comprehensive income, net of tax													6,013			6,013
Stock dividend adjustment		3,525			296					(296	)					—
Cash in lieu of fractional shares		(164	)							(7	)					(7	)
Stock-based compensation					192											192
Common shares issued related to restricted stock grants		72,242			—											—
Stock options exercised, net of swapped shares		11,000			—											—
Stock repurchase and retirement		(3,580	)		(26	)										(26	)
Balance at March 31, 2023		14,735,607		$	116,561		$	977	$	58,762		$	(40,515	)	$	135,785
Balance at December 31, 2023		15,482,332		$	123,235		$	977	$	68,760		$	(33,727	)	$	159,245
Net income										4,276						4,276
Other comprehensive loss, net of tax													(1,461	)		(1,461	)
Stock dividend adjustment		2,671			325					(325	)					—
Cash in lieu of fractional shares		(148	)							(7	)					(7	)
Stock-based compensation					296											296
Common shares issued related to restricted stock grants, net of restricted stock reversals		57,489			—											—
Stock options exercised, net of swapped shares		8,387			—											—
Balance at March 31, 2024		15,550,731		$	123,856		$	977	$	72,704		$	(35,188	)	$	162,349

See notes to unaudited condensed consolidated financial statements.

6

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	(in thousands)
	Three months ended March 31, 2024			Three months ended March 31, 2023
Cash Flows From Operating Activities
Net income	$	4,276		$	5,489
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		268			230
Accretion and amortization of investment securities premiums and discounts, net		291			612
(Decrease) increase in deferred loan origination fees and costs, net		(123	)		424
Amortization of core deposit intangible		210			151
Reversal of provision for credit losses		(300	)		—
Stock-based compensation		296			192
Loss (gain) on sales/calls of available-for-sale securities		42			(2	)
Amortization of operating lease right-of-use asset		273			268
Gain on sales of loans held-for-sale		—			(18	)
Proceeds from sales of loans held-for-sale		670			420
Originations of loans held-for-sale		(670	)		(817	)
Gain on bargain purchase		—			(1,405	)
Changes in assets and liabilities:
Decrease in interest receivable and other assets		1,658			2,755
Net decrease in interest payable and other liabilities		(4,240	)		(3,263	)
Net cash provided by operating activities		2,651			5,036
Cash Flows From Investing Activities
Proceeds from calls or maturities of available-for-sale securities		16,240			8,750
Proceeds from sales of available-for-sale securities		971			7,201
Principal repayments on available-for-sale securities		16,810			17,317
Purchase of available-for-sale securities		(22,512	)		(31,047	)
Proceeds from maturities of certificates of deposit		2,465			980
Purchase of certificates of deposit		(940	)		(1,727	)
Net decrease (increase) in loans		5,592			(495	)
Purchases of premises and equipment		—			(285	)
Cash and cash equivalents acquired in acquisition		—			103,425
Net cash provided by investing activities		18,626			104,119
Cash Flows From Financing Activities
Net increase (decrease) in deposits		16,428			(90,429	)
Cash dividends paid in lieu of fractional shares		(7	)		(7	)
Repurchases and retirements of common stock		—			(26	)
Net cash provided by (used in) financing activities		16,421			(90,462	)
Net increase in Cash and Cash Equivalents		37,698			18,693
Cash and Cash Equivalents, beginning of period		149,211			187,417
Cash and Cash Equivalents, end of period	$	186,909		$	206,110
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	2,978		$	870
Income taxes		4,270			—
Supplemental disclosures of non-cash investing and financing activities:
Stock dividend distributed		6,392			5,652
Unrealized holding (losses) gains on available for sale securities, net of taxes		(1,461	)		6,013
Market value of shares tendered in-lieu of cash to pay for exercise of options		93			81
Recognition of right-of-use assets obtained in exchange for operating lease liabilities		—			245
Non-cash assets acquired (liabilities assumed) in acquisition:
Total assets acquired		—			12,612
Total liabilities assumed		—			(115,916	)

See notes to unaudited condensed consolidated financial statements.

7

FIRST NORTHERN COMMUNITY BANCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of First Northern Community Bancorp (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Articles 9 and 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  The results of operations for any interim period are not necessarily indicative of results expected for the full year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenue and expense during the reporting period.  Actual results could differ from those estimates.  All material intercompany balances and transactions have been eliminated in consolidation.

2. ACCOUNTING POLICIES

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Accounting Standards Adopted in 2024

On January 1, 2024, the Company adopted Accounting Standards Updated (ASU) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.  These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.   Adoption of ASU 2022-03 did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope.  This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.  An entity may elect to apply ASU 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.   An entity may elect to apply ASU 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.  In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.  This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.  ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.  The Company is in the process of evaluating the provisions of this ASU but does not expect it to have a material impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.  The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.  Early adoption is permitted. The Company is evaluating whether this ASU will have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.  Among other things, these amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.  This ASU is effective for annual periods beginning after December 15, 2024. The Company is evaluating whether this ASU will have a material impact on the Company’s consolidated financial statements.

8

3.  INVESTMENT SECURITIES

The amortized cost, unrealized gains and losses and estimated fair values of investments in debt and other securities at March 31, 2024 are summarized as follows:

	Amortized cost		Unrealized gains		Unrealized losses			Estimated fair value		ACL
Investment securities available-for-sale:
U.S. Treasury securities	$	84,676	$	60	$	(2,850	)	$	81,886	$	—
Securities of U.S. government agencies and corporations		115,840		48		(6,177	)		109,711		—
Obligations of states and political subdivisions		55,599		149		(3,860	)		51,888		—
Collateralized mortgage obligations		105,134		—		(17,681	)		87,453		—
Mortgage-backed securities		247,223		95		(19,815	)		227,503		—
Total debt securities	$	608,472	$	352	$	(50,383	)	$	558,441	$	—

The amortized cost, unrealized gains and losses and estimated fair values of investments in debt and other securities at December 31, 2023 are summarized as follows:

	Amortized cost		Unrealized gains		Unrealized losses			Estimated fair value		ACL
Investment securities available-for-sale:
U.S. Treasury securities	$	90,063	$	134	$	(3,015	)	$	87,182	$	—
Securities of U.S. government agencies and corporations		121,305		105		(6,331	)		115,079		—
Obligations of states and political subdivisions		55,021		237		(3,581	)		51,677		—
Collateralized mortgage obligations		107,658		15		(16,726	)		90,947		—
Mortgage-backed securities		246,267		242		(19,037	)		227,472		—
Total debt securities	$	620,314	$	733	$	(48,690	)	$	572,357	$	—

The Company had $971,000 and $7,201,000 proceeds from sales of available-for-sale securities for the three months ended March 31, 2024 and March 31, 2023, respectively.  Gross realized gains on sales/calls of available-for-sale securities were $0 and $58,000 for the three months ended March 31, 2024 and March 31, 2023, respectively.  Gross realized losses on sales of available-for-sale securities were $42,000 and $56,000 for the three months ended March 31, 2024 and March 31, 2023, respectively.

The amortized cost and estimated fair value of debt and other securities at March 31, 2024, by contractual maturity, are shown in the following table:

(in thousands)	Amortized cost		Estimated fair value
Maturity in years:
Due in one year or less	$	71,862	$	70,762
Due after one year through five years		126,902		119,731
Due after five years through ten years		29,358		27,406
Due after ten years		27,993		25,586
Subtotal		256,115		243,485
MBS & CMO		352,357		314,956
Total	$	608,472	$	558,441

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  In addition, factors such as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities.

9

An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of March 31, 2024, follows:

	Less than 12 months					12 months or more					Total
(in thousands)	Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
U.S. Treasury securities	$	2,401	$	(15	)	$	68,912	$	(2,835	)	$	71,313	$	(2,850	)
Securities of U.S. government agencies and corporations		9,804		(43	)		92,229		(6,134	)		102,033		(6,177	)
Obligations of states and political subdivisions		11,059		(100	)		31,341		(3,760	)		42,400		(3,860	)
Collateralized mortgage obligations		3,651		(21	)		82,409		(17,660	)		86,060		(17,681	)
Mortgage-backed securities		24,555		(244	)		184,678		(19,571	)		209,233		(19,815	)
Total	$	51,470	$	(423	)	$	459,569	$	(49,960	)	$	511,039	$	(50,383	)

Forty-five securities, all considered investment grade, which had an aggregate fair value of $51,470,000 and a total unrealized loss of $423,000 have been in an unrealized loss position for less than twelve months as of March 31, 2024. Four hundred and sixty securities, all considered investment grade, which had an aggregate fair value of $459,569,000 and a total unrealized loss of $49,960,000, have been in an unrealized loss position for more than twelve months as of March 31, 2024.  The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates.  The decline in fair value is attributable to changes in interest rates and not credit quality, and the Company does not intend to sell the securities.  The Company has concluded it is not more likely than not that the Company will be required to sell these securities prior to recovery of their anticipated cost basis. Therefore, as of March 31, 2024, the Company has not recorded an allowance for credit losses on these securities and the unrecognized or unrealized losses on these securities have not been recognized into income.

The fair value of investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, an allowance for credit loss may occur in the future.

An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of December 31, 2023, follows:

	Less than 12 months					12 months or more					Total
(in thousands)	Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
U.S. Treasury Securities	$	—	$	—		$	77,203	$	(3,015	)	$	77,203	$	(3,015	)
Securities of U.S. government agencies and corporations		3,424		(7	)		97,057		(6,324	)		100,481		(6,331	)
Obligations of states and political subdivisions		4,981		(31	)		32,578		(3,550	)		37,559		(3,581	)
Collateralized Mortgage obligations		6,597		(26	)		80,995		(16,700	)		87,592		(16,726	)
Mortgage-backed securities		17,023		(124	)		182,626		(18,913	)		199,649		(19,037	)
Total	$	32,025	$	(188	)	$	470,459	$	(48,502	)	$	502,484	$	(48,690	)

Investment securities carried at $42,153,000 and $43,884,000 at March 31, 2024 and December 31, 2023, respectively, were pledged to secure public deposits or for other purposes as required or permitted by law.

10

4.  LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the Company’s loan portfolio, by loan class, as of March 31, 2024 and December 31, 2023 was as follows:

($ in thousands)	March 31, 2024			December 31, 2023
Commercial	$	108,786		$	106,897
Commercial Real Estate		726,069			721,729
Agriculture		91,865			105,838
Residential Mortgage		108,553			107,328
Residential Construction		11,981			12,323
Consumer		16,087			14,868
		1,063,341			1,068,983
Allowance for credit losses		(16,246	)		(16,596	)
Net deferred origination fees and costs		201			78
Loans, net	$	1,047,296		$	1,052,465

At March 31, 2024 and December 31, 2023, all loans were pledged under a blanket collateral lien to secure actual and potential borrowings from the Federal Home Loan Bank (“FHLB”).

Allowance for Credit Losses (ACL)

The following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities as of March 31, 2024 and March 31, 2023.

	Allowance for Credit Losses - Three months ended March 31, 2024
($ in thousands)	Beginning balance		Charge-offs			Recoveries		Provision (Recovery)			Ending Balance
Commercial	$	2,041	$	(130	)	$	41	$	(405	)	$	1,547
Commercial Real Estate		10,864		—			—		(368	)		10,496
Agriculture		997		—			—		644			1,641
Residential Mortgage		2,005		—			—		(104	)		1,901
Residential Construction		334		—			—		27			361
Consumer		355		(13	)		2		(44	)		300
Allowance for credit losses on loans		16,596		(143	)		43		(250	)		16,246
Reserve for unfunded commitments		1,150		—			—		(50	)		1,100
Total	$	17,746	$	(143	)	$	43	$	(300	)	$	17,346

	Allowance for Credit Losses – Three months ended March 31, 2023
($ in thousands)	Beginning balance		Adoption of CECL			Charge-offs			Recoveries		Provision (Recovery)			Ending Balance
Commercial	$	1,491	$	689		$	(127	)	$	23	$	(173	)	$	1,903
Commercial Real Estate		10,259		(513	)		—			—		211			9,957
Agriculture		1,789		(742	)		—			—		(98	)		949
Residential Mortgage		896		923			(3	)		—		9			1,825
Residential Construction		181		221			—			—		51			453
Consumer		176		222			(1	)		—		—			397
Allowance for credit losses on loans		14,792		800			(131	)		23		—			15,484
Reserve for unfunded commitments		700		500			—			—		—			1,200
Total	$	15,492	$	1,300		$	(131	)	$	23	$	—		$	16,684

The Company moved from California state loss drivers to national loss drivers at the beginning of 2024. The reason for the change is a higher loan loss correlation between the national loss driver variables than the state loss driver variables. During the quarter ended March 31, 2024, the levels of forecasted national unemployment and forecasted gross domestic product remained relatively stable. Those factors, coupled with a decrease in loans, were the reasons for the reversal of provision for credit losses for the quarter ended March 31, 2024. Management believes the allowance for credit losses at March 31, 2024 appropriately reflected expected credit losses in the loan portfolio at that date.

11

Collateral-Dependent Loans

In accordance with ASC 326, a loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. All loans individually analyzed were collateral-dependent loans as of March 31, 2024 and December 31, 2023.  The following table presents the amortized cost basis of collateral-dependent loans by class, which are individually evaluated to determine expected credit losses as of March 31, 2024 and December 31, 2023:

March 31, 2024
($ in thousands)	Secured by 1-4 Family Residential Properties- 1st lien		Secured by 1-4 Family Residential Properties- junior lien		Secured by 1-4 Family Residential Properties- revolving		Commercial		Construction and land development		Secured by farmland		Agriculture production loans		Total
Commercial	$	—	$	—	$	—	$	139	$	—	$	—	$	—	$	139
Commercial Real Estate		—		—		—		—		—		—		—		—
Agriculture		—		—		—		—		—		899		1,829		2,728
Residential Mortgage		1,315		—		—		—		—		—		—		1,315
Residential Construction		—		—		—		—		4,000		—		—		4,000
Consumer		—		335		267		—		—		—		—		602
Total	$	1,315	$	335	$	267	$	139	$	4,000	$	899	$	1,829	$	8,784

December 31, 2023
($ in thousands)	Secured by 1-4 Family Residential Properties- 1st lien		Secured by 1-4 Family Residential Properties- junior lien		Secured by 1-4 Family Residential Properties- revolving		Commercial		Construction and land development		Secured by farmland		Agriculture production loans		Total
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial Real Estate		—		—		—		—		—		—		—		—
Agriculture		—		—		—		—		—		946		1,925		2,871
Residential Mortgage		424		—		—		—		—		—		—		424
Residential Construction		—		—		—		—		—		—		—		—
Consumer		—		351		352		—		—		—		—		703
Total	$	424	$	351	$	352	$	—	$	—	$	946	$	1,925	$	3,998

Foreclosure Proceedings

The Company had no residential real estate property in the process of foreclosure at March 31, 2024 and December 31, 2023.

12

Non-accrual and Past Due Loans

The Company’s loans by delinquency and non-accrual status, as of March 31, 2024 and December 31, 2023, was as follows:

($ in thousands)	30-59 days Past Due & Accruing		60-89 days Past Due & Accruing		90 days or More Past Due & Accruing		Nonaccrual Loans		Total Past Due & Nonaccrual Loans		Current & Accruing Loans		Total Loans		Nonaccrual loans with No ACL
March 31, 2024
Commercial	$	1,032	$	50	$	—	$	139	$	1,221	$	107,565	$	108,786	$	139
Commercial Real Estate		—		—		—		—		—		726,069		726,069		—
Agriculture		922		—		—		2,728		3,650		88,215		91,865		2,728
Residential Mortgage		386		—		—		1,315		1,701		106,852		108,553		1,315
Residential Construction		—		—		—		4,000		4,000		7,981		11,981		4,000
Consumer		—		—		—		602		602		15,485		16,087		602
Total	$	2,340	$	50	$	—	$	8,784	$	11,174	$	1,052,167	$	1,063,341	$	8,784
December 31, 2023
Commercial	$	91	$	178	$	—	$	—	$	269	$	106,628	$	106,897	$	—
Commercial Real Estate		—		—		—		—		—		721,729		721,729		—
Agriculture		—		—		—		2,871		2,871		102,967		105,838		2,871
Residential Mortgage		976		—		916		424		2,316		105,012		107,328		424
Residential Construction		—		—		3,420		—		3,420		8,903		12,323		—
Consumer		194		—		—		703		897		13,971		14,868		703
Total	$	1,261	$	178	$	4,336	$	3,998	$	9,773	$	1,059,210	$	1,068,983	$	3,998

The Company recognized $5,000 and $0 of interest income on nonaccrual loans during the three months ended March 31, 2024 and March 31, 2023, respectively.

13

Loan Modifications

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, payment delays or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following tables present the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods ended March 31, 2024 and March 31, 2023 by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

($ in thousands)	Term Extension		Combination Term Extension and Interest Rate Reduction		Total Class of Financing Receivable
March 31, 2024
Commercial	$	2,718	$	—		2.50	%
Commercial Real Estate		—		—		—
Agriculture		—		—		—
Residential Mortgage		—		—		—
Residential Construction		—		—		—
Consumer		—		—		—
Total	$	2,718	$	—		0.26	%

($ in thousands)	Term Extension		Combination Term Extension and Interest Rate Reduction		Total Class of Financing Receivable
March 31, 2023
Commercial	$	250	$	50		0.29	%
Commercial Real Estate		—		—		—
Agriculture		—		—		—
Residential Mortgage		—		—		—
Residential Construction		—		—		—
Consumer		—		—		—
Total	$	250	$	50		0.03	%

The Company had commitments totaling $835 and $0 to lend additional funds to borrowers whose loans were modified at March 31, 2024 and March 31, 2023, respectively.

14

The following tables present the financial effect of the loan modifications to borrowers experiencing financial difficulty for the three-month periods ended March 31, 2024 and March 31, 2023:

($ in thousands)	Weighted-Average Interest Rate Reduction		Weighted-Average Term Extension (in months)
March 31, 2024
Commercial		—	$	8
Commercial Real Estate		—		—
Agriculture		—		—
Residential Mortgage		—		—
Residential Construction		—		—
Consumer		—		—
Total		—	$	8

($ in thousands)	Weighted-Average Interest Rate Reduction			Weighted-Average Term Extension (in months)
March 31, 2023
Commercial		0.50	%	$	9
Commercial Real Estate		—			—
Agriculture		—			—
Residential Mortgage		—			—
Residential Construction		—			—
Consumer		—			—
Total		0.50	%	$	9

There were no loans modified within the previous twelve months and for which there was a payment default during the three-month periods ended March 31, 2024 and March 31, 2023.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off.  Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.

15

Credit Quality Indicators

All loans are rated using the credit risk ratings and criteria adopted by the Company.  Risk ratings are adjusted as future circumstances warrant.  All credits risk rated 1, 2, 3 or 4 equate to a Pass as indicated by Federal and State bank regulatory agencies; a 5 equates to a Special Mention; a 6 equates to Substandard; a 7 equates to Doubtful; and an 8 equates to a Loss.  For the definitions of each risk rating, see Note 4 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

The following tables present the loan portfolio by loan class, origination year, and internal risk rating as of March 31, 2024 and December 31, 2023. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to permanent loans, are presented by year of origination.  Revolving loans converted to term loans totaled $630,000 and $881,000 as of March 31, 2024 and December 31, 2023, respectively.

(in thousands)
	Term Loans Amortized Cost Basis by Origination Year - As of March 31, 2024
	2024		2023			2022			2021		2020			Prior			Revolving Loans Amortized Cost Basis		Total
Commercial
Pass	$	13,255	$	17,078		$	15,223		$	14,713	$	4,972		$	12,759		$	21,639	$	99,639
Special Mention		—		—			2,348			2,771		212			289			1,790		7,410
Substandard		927		—			—			—		521			—			289		1,737
Doubtful/Loss		—		—			—			—		—			—			—		—
Total Commercial loans	$	14,182	$	17,078		$	17,571		$	17,484	$	5,705		$	13,048		$	23,718	$	108,786
Current Period Write-offs		—		(40	)		(75	)		—		(13	)		(2	)		—		(130	)
Current Period Recoveries		—		—			—			—		—			41			—		41
Current Period Net Write-offs		—		(40	)		(75	)		—		(13	)		39			—		(89	)
Commercial Real Estate
Pass	$	24,352	$	107,222		$	174,355		$	189,466	$	44,174		$	159,555		$	6,785	$	705,909
Special Mention		—		—			—			2,175		—			1,254			—		3,429
Substandard		—		392			—			7,119		1,673			7,547			—		16,731
Doubtful/Loss		—		—			—			—		—			—			—		—
Total Commercial Real Estate loans	$	24,352	$	107,614		$	174,355		$	198,760	$	45,847		$	168,356		$	6,785	$	726,069
Current Period Write-offs		—		—			—			—		—			—			—		—
Current Period Recoveries		—		—			—			—		—			—			—		—
Current Period Net Write-offs		—		—			—			—		—			—			—		—
Agriculture
Pass	$	2,484	$	7,051		$	16,881		$	20,433	$	6,707			15,645		$	14,940	$	84,141
Special Mention		—		—			1,891			2,996		—			—			—		4,887
Substandard		—		—			—			899		—			—			1,938		2,837
Doubtful/Loss		—		—			—			—		—			—			—		—
Total Agriculture loans	$	2,484	$	7,051		$	18,772		$	24,328	$	6,707		$	15,645		$	16,878	$	91,865
Current Period Write-offs		—		—			—			—		—			—			—		—
Current Period Recoveries		—		—			—			—		—			—			—		—
Current Period Net Write-offs		—		—			—			—		—			—			—		—

16

(in thousands)
	Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2024
	2024			2023			2022			2021		2020			Prior			Revolving Loans Amortized Cost Basis		Total
Residential Mortgage
Pass	$	1,312		$	20,536		$	23,824		$	27,975	$	13,966		$	19,625		$	—	$	107,238
Special Mention		—			—			—			—		—			—			—		—
Substandard		—			—			—			37		—			1,278			—		1,315
Doubtful/Loss		—			—			—			—		—			—			—		—
Total Residential Mortgage loans	$	1,312		$	20,536		$	23,824		$	28,012	$	13,966		$	20,903		$	—	$	108,553
Current Period Write-offs		—			—			—			—		—			—			—		—
Current Period Recoveries		—			—			—			—		—			—			—		—
Current Period Net Write-offs		—			—			—			—		—			—			—		—
Residential Construction
Pass	$	575		$	3,998		$	2,073		$	1,335	$	—		$	—		$	—	$	7,981
Special Mention		—			—			—			—		—			—			—		—
Substandard		4,000			—			—			—		—			—			—		4,000
Doubtful/Loss		—			—			—			—		—			—			—		—
Total Residential Construction loans	$	4,575		$	3,998		$	2,073		$	1,335	$	—		$	—		$	—	$	11,981
Current Period Write-offs		—			—			—			—		—			—			—		—
Current Period Recoveries		—			—			—			—		—			—			—		—
Current Period Net Write-offs		—			—			—			—		—			—			—		—
Consumer
Pass	$	207		$	186		$	1,173		$	131	$	131		$	310		$	13,347	$	15,485
Special Mention		—			—			—			—		—			—			—		—
Substandard		—			—			—			—		—			—			602		602
Doubtful/Loss		—			—			—			—		—			—			—		—
Total Consumer loans	$	207		$	186		$	1,173		$	131	$	131		$	310		$	13,949	$	16,087
Current Period Write-offs		(13	)		—			—			—		—			—			—		(13	)
Current Period Recoveries		—			—			—			—		—			2			—		2
Current Period Net Write-offs		(13	)		—			—			—		—			2			—		(11	)
Total Loans
Pass	$	42,185		$	156,071		$	233,529		$	254,053	$	69,950		$	207,894		$	56,711	$	1,020,393
Special Mention		—			—			4,239			7,942		212			1,543			1,790		15,726
Substandard		4,927			392			—			8,055		2,194			8,825			2,829		27,222
Doubtful/Loss		—			—			—			—		—			—			—		—
Total Loans	$	47,112		$	156,463		$	237,768		$	270,050	$	72,356		$	218,262		$	61,330	$	1,063,341
Current Period Write-offs	$	(13	)	$	(40	)	$	(75	)	$	—	$	(13	)	$	(2	)	$	—	$	(143	)
Current Period Recoveries	$	—		$	—		$	—		$	—	$	—		$	43		$	—	$	43
Current Period Net Write-offs	$	(13	)	$	(40	)	$	(75	)	$	—	$	(13	)	$	41		$	—	$	(100	)

17

(in thousands)
	Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
	2023			2022			2021			2020		2019			Prior		Revolving Loans Amortized Cost Basis			Total
Commercial
Pass	$	19,776		$	16,961		$	15,833		$	5,381	$	7,420		$	6,298	$	26,183		$	97,852
Special Mention		—			1,122			2,530			235		308			—		2,936			7,131
Substandard		—			32			1,152			542		—			—		188			1,914
Doubtful/Loss		—			—			—			—		—			—		—			—
Total Commercial loans	$	19,776		$	18,115		$	19,515		$	6,158	$	7,728		$	6,298	$	29,307		$	106,897
Current Period Write-offs		(47	)		(196	)		(36	)		—		(87	)		—		—			(366	)
Current Period Recoveries		—			—			—			—		87			148		—			235
Current Period Net Write-offs		(47	)		(196	)		(36	)		—		—			148		—			(131	)
Commercial Real Estate
Pass	$	115,807		$	173,918		$	191,907		$	50,150	$	52,157		$	107,909	$	6,879		$	698,727
Special Mention		—			—			7,448			—		2,869			1,273		—			11,590
Substandard		395			—			1,712			1,684		6,604			1,017		—			11,412
Doubtful/Loss		—			—			—			—		—			—		—			—
Total Commercial Real Estate loans	$	116,202		$	173,918		$	201,067		$	51,834	$	61,630		$	110,199	$	6,879		$	721,729
Current Period Write-offs		—			—			—			—		—			—		—			—
Current Period Recoveries		—			—			—			—		—			—		—			—
Current Period Net Write-offs		—			—			—			—		—			—		—			—
Agriculture
Pass	$	6,842		$	16,985		$	20,511		$	8,792	$	2,509			11,437	$	29,893		$	96,969
Special Mention		—			1,937			2,996			—		—			1,064		—			5,997
Substandard		—			—			946			—		1,926			—		—			2,872
Doubtful/Loss		—			—			—			—		—			—		—			—
Total Agriculture loans	$	6,842		$	18,922		$	24,453		$	8,792	$	4,435		$	12,501	$	29,893		$	105,838
Current Period Write-offs		(1,825	)		—			—			—		—			—		(742	)		(2,567	)
Current Period Recoveries		1,825			—			—			—		—			—		742			2,567
Current Period Net Write-offs		—			—			—			—		—			—		—			—

18

(in thousands)
	Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
	2023			2022			2021			2020		2019			Prior			Revolving Loans Amortized Cost Basis			Total
Residential Mortgage
Pass	$	20,239		$	24,906		$	26,429		$	14,500	$	5,481		$	15,349		$	—		$	106,904
Special Mention		—			—			—			—		—			—			—			—
Substandard		—			—			39			—		—			385			—			424
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Residential Mortgage loans	$	20,239		$	24,906		$	26,468		$	14,500	$	5,481		$	15,734		$	—		$	107,328
Current Period Write-offs		—			—			—			—		—			(3	)		—			(3	)
Current Period Recoveries		—			—			—			—		—			—			—			—
Current Period Net Write-offs		—			—			—			—		—			(3	)		—			(3	)
Residential Construction
Pass	$	3,714		$	1,991		$	3,198		$	—	$	—		$	—		$	—		$	8,903
Special Mention		—			—			—			—		—			—			—			—
Substandard		—			3,420			—			—		—			—			—			3,420
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Residential Construction loans	$	3,714		$	5,411		$	3,198		$	—	$	—		$	—		$	—		$	12,323
Current Period Write-offs		—			—			—			—		—			—			—			—
Current Period Recoveries		—			—			—			—		—			—			—			—
Current Period Net Write-offs		—			—			—			—		—			—			—			—
Consumer
Pass	$	350		$	758		$	133		$	149	$	70		$	273		$	12,516		$	14,249
Special Mention		—			—			—			—		—			—			—			—
Substandard		—			—			—			—		—			—			619			619
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Consumer loans	$	350		$	758		$	133		$	149	$	70		$	273		$	13,135		$	14,868
Current Period Write-offs		(13	)		—			—			—		—			—			—			(13	)
Current Period Recoveries		—			—			—			—		—			1			—			1
Current Period Net Write-offs		(13	)		—			—			—		—			1			—			(12	)
Total Loans
Pass	$	166,728		$	235,519		$	258,011		$	78,972	$	67,637		$	141,266		$	75,471		$	1,023,604
Special Mention		—			3,059			12,974			235		3,177			2,337			2,936			24,718
Substandard		395			3,452			3,849			2,226		8,530			1,402			807			20,661
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Loans	$	167,123		$	242,030		$	274,834		$	81,433	$	79,344		$	145,005		$	79,214		$	1,068,983
Current Period Write-offs	$	(1,885	)	$	(196	)	$	(36	)	$	—	$	(87	)	$	(3	)	$	(742	)	$	(2,949	)
Current Period Recoveries	$	1,825		$	—		$	—		$	—	$	87		$	149		$	742		$	2,803
Current Period Net Write-offs	$	(60	)	$	(196	)	$	(36	)	$	—	$	—		$	146		$	—		$	(146	)

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5.  MORTGAGE OPERATIONS

Transfers and servicing of financial assets and extinguishments of liabilities are accounted for and reported based on consistent application of a financial-components approach that focuses on control.  Transfers of financial assets that are sales are distinguished from transfers that are secured borrowings.  Retained servicing rights on loans sold are measured by allocating the previous carrying amount of the transferred assets between the loans sold and retained interest, if any, based on their relative fair value at the date of transfer.  Fair values are estimated using discounted cash flows based on a current market interest rate.

The Company recognizes a gain or loss and a related asset for the fair value of the rights to service loans for others when loans are sold and servicing is retained.  The Company sold a substantial portion of its portfolio of conforming long-term residential mortgage loans originated during the three months ended March 31, 2024 on a servicing retained basis, for cash proceeds equal to the fair value of the loans.  At March 31, 2024, and December 31, 2023, the Company serviced real estate mortgage loans for others totaling $181,353,000 and $184,288,000, respectively.

The recorded value of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues.  The Company assesses capitalized mortgage servicing rights for impairment based upon the fair value of those rights at each reporting date. For purposes of measuring impairment, the rights are stratified based upon the product type, term and interest rates.  Fair value is determined by discounting estimated net future cash flows from mortgage servicing activities using discount rates that approximate current market rates and estimated prepayment rates, among other assumptions.  The amount of impairment recognized, if any, is the amount by which the capitalized mortgage servicing rights for a stratum exceeds their fair value.  Impairment, if any, is recognized through a valuation allowance for each individual stratum.  Changes in the carrying amount of mortgage servicing rights are reported in earnings under other operating income on the condensed consolidated statements of income.

Key assumptions used in measuring the fair value of mortgage servicing rights as of March 31, 2024 and December 31, 2023 were as follows:

	March 31, 2024			December 31, 2023
Constant prepayment rate		7.23	%		6.09	%
Discount rate		10.00	%		10.50	%
Weighted average life (years)		7.39			7.99

The following table summarizes the Company’s mortgage servicing rights assets as of March 31, 2024 and December 31, 2023. Mortgage servicing rights are included in Interest Receivable and Other Assets on the condensed consolidated balance sheets:

	(in thousands)
	December 31, 2023		Additions		Reductions			March 31, 2024
Mortgage servicing rights	$	1,482	$	7	$	(55	)	$	1,434
Valuation allowance		—		—		—			—
Mortgage servicing rights, net of valuation allowance	$	1,482	$	7	$	(55	)	$	1,434

At March 31, 2024 and December 31, 2023, the estimated fair market value of the Company’s mortgage servicing rights asset was $2,010,000 and $2,094,000, respectively.  The changes in fair value of mortgage servicing rights during 2024 was primarily due to changes in prepayment speeds and the discount rate.

The Company received contractually specified servicing fees of $115,000 and $121,000 for the three months ended March 31, 2024 and March 31, 2023, respectively.  Loan servicing income on the condensed consolidated statements of income include contractually specified servicing fees, mortgage servicing rights additions, amortization and changes in the valuation allowance.

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6.  FAIR VALUE MEASUREMENTS

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale and trading securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a non-recurring basis, such as loans held-for-sale, loans held-for-investment and certain other assets. These non-recurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process.

Assets Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.

	(in thousands)
March 31, 2024	Fair Value		Quoted Prices  in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities	$	81,886	$	81,886	$	—	$	—
Securities of U.S. government agencies and corporations		109,711		—		109,711		—
Obligations of states and political subdivisions		51,888		—		51,888		—
Collateralized mortgage obligations		87,453		—		87,453		—
Mortgage-backed securities		227,503		—		227,503		—
Total investments at fair value	$	558,441	$	81,886	$	476,555	$	—

	(in thousands)
December 31, 2023	Fair Value		Quoted Prices  in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities	$	87,182	$	87,182	$	—	$	—
Securities of U.S. government agencies and corporations		115,079		—		115,079		—
Obligations of states and political subdivisions		51,677		—		51,677		—
Collateralized mortgage obligations		90,947		—		90,947		—
Mortgage-backed securities		227,472		—		227,472		—
Total investments at fair value	$	572,357	$	87,182	$	485,175	$	—

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Assets Recorded at Fair Value on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are included in the table below by level within the fair value hierarchy as of March 31, 2024.

March 31, 2024	Total		Level 1		Level 2		Level 3
Individually evaluated loans	$	139	$	—	$	—	$	139
Total assets at fair value	$	139	$	—	$	—	$	139

There were no assets measured at fair value on a non-recurring basis as of December 31, 2023.

There were no liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2024 and December 31, 2023.

Key methods and assumptions used in measuring the fair value of collateral dependent loans as of March 31, 2024 were as follows:

	Method	Assumption Inputs
Individually evaluated loans	Collateral, market, income, enterprise, liquidation, and discounted cash flows	External appraised values, management assumptions regarding market trends or other relevant factors, selling costs  generally ranging from 6% to 10%, or the amount and timing of cash flows based on the loan’s effective interest rate.

The following section describes the valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted market prices, if available.  If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions.  Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds.  Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities.  Securities classified as Level 3 include asset-backed securities in less liquid markets where valuations include significant unobservable assumptions.

Individually Evaluated Loans

The Company does not record loans at fair value on a recurring basis.  Loans that do not share similar risk characteristics are individually evaluated by management for potential impairment.  Included in loans individually evaluated are collateral dependent loans.  A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are considered to have unique risk characteristics and are individually evaluated. The ACL on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. If the value of underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken.  Collateral dependent loans where a charge-off is recorded based on the fair value of collateral require classification in the fair value hierarchy.  When a loan is evaluated based on the fair value of the underlying collateral securing the loan, the Company records the collateral dependent loan as non-recurring Level 3 given the valuation includes significant unobservable assumptions.

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Disclosures about Fair Value of Financial Instruments

The estimated fair values of the Company’s financial instruments for the periods ended March 31, 2024 and December 31, 2023 were approximately as follows:

			March 31, 2024				December 31, 2023
	Level		Carrying amount		Fair value		Carrying amount		Fair value
Financial assets:
Cash and cash equivalents		1	$	186,909	$	186,909	$	149,211	$	149,211
Certificates of deposit		2		18,185		18,032		19,710		19,570
Stock in Federal Home Loan Bank and other equity securities		3		10,518		10,518		10,518		10,518
Loans receivable:
Net loans		3		1,047,296		956,356		1,052,465		958,077
Interest receivable		2		6,667		6,667		6,810		6,810
Mortgage servicing rights		3		1,434		2,010		1,482		2,094
Financial liabilities:
Time deposits		3		156,115		155,594		135,696		135,540
Interest payable		2		1,770		1,770		1,567		1,567

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument and expected exit prices. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include deferred tax liabilities and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

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7.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit in addition to entering into commitments to sell loans in conjunction with our mortgage banking activities. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Financial instruments, whose contract amounts represent credit risk at the indicated periods, were as follows:

(in thousands)	March 31, 2024		December 31, 2023
Undisbursed loan commitments	$	179,893	$	187,401
Standby letters of credit		1,241		1,251
Commitments to sell loans		765		—
	$	181,899	$	188,652

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Bank issues both financial and performance standby letters of credit.  The financial standby letters of credit are primarily to guarantee payment to third parties.  At March 31, 2024 and December 31, 2023, there were no financial standby letters of credit outstanding.  The performance standby letters of credit are typically issued to municipalities as specific performance bonds.  Performance standby letters of credit totaled $1,241,000 and $1,251,000 at March 31, 2024 and December 31, 2023, respectively.  The Bank has experienced no draws on outstanding letters of credit, resulting in no related liability included on its balance sheet; however, should a triggering event occur, the Bank either has collateral in excess of the letter of credit or imbedded agreements of recourse from the customer.  The Bank has set aside a reserve for unfunded commitments in the amount of $1,100,000 and $1,150,000 at March 31, 2024 and December 31, 2023, respectively, which is recorded in “interest payable and other liabilities” on the condensed consolidated balance sheets.

Commitments to extend credit and standby letters of credit bear similar credit risk characteristics as outstanding loans. As of March 31, 2024 and December 31, 2023, the Company had no off-balance sheet derivatives requiring additional disclosure.

The Company may enter into interest rate lock commitments in connection with its mortgage banking activities to fund residential mortgage loans within specified times in the future.These commitments expose the Company to the risk that the price of the loan underlying the interest rate lock commitment might decline from the inception of the interest rate lock to the funding of the mortgage loan. To protect against this risk, the Company may enter into commitments to sell loans to economically hedge the risk of potential changes in the value of the loans that would result from the commitment. These commitments totaled $765,000 and $0 at March 31, 2024 and December 31, 2023, respectively.  Mortgage loans sold to investors may be sold with servicing rights retained, for which the Company makes only standard legal representations and warranties as to meeting certain underwriting and collateral documentation standards. In the past two years, the Company had to repurchase one loan totaling $420,000 due to deficiencies in underwriting or loan documentation.  Management believes that any liabilities that may result from such recourse provisions are not significant.

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8.  STOCK PLANS

On January 25, 2024, the Board of Directors of the Company declared a 5% stock dividend paid on March 25, 2024 to shareholders of record as of February 29, 2024. All stock options and restricted stock outstanding have been adjusted to give retroactive effect to stock dividends.

The following table presents the activity related to stock options for the three months ended March 31, 2024:

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
Options outstanding at Beginning of Period		642,779		$	8.40
Granted		—			—
Expired		—			—
Cancelled / Forfeited		—			—
Exercised		(20,028	)		4.64
Options outstanding at End of Period		622,751			8.52	$	435,548		4.59
Exercisable (vested) at End of Period		599,067		$	8.49	$	435,548		4.46

The intrinsic value of options exercised was $73,000 and $97,000 during the three months ended March 31, 2024 and March 31, 2023, respectively.  The fair value of awards vested was $88,000 and $123,000 during the three months ended March 31, 2024 and March 31, 2023, respectively.

As of March 31, 2024, there was $50,000 of total unrecognized compensation cost related to non-vested stock options.  This cost is expected to be recognized over a weighted average period of approximately 1.64 years.

There was $17,000 of recognized compensation cost related to stock options granted for the three months ended March 31, 2024.

The following table presents the activity related to non-vested restricted stock for the three months ended March 31, 2024:

	Number of Shares			Weighted Average Grant-Date Fair Value			Aggregate Intrinsic Value	Weighted Average Remaining Contractual Term (in years)
Non-vested Restricted stock outstanding at Beginning of Period		274,268		$	8.72
Granted		79,576			8.29
Cancelled/Forfeited		(19,212	)		8.77
Exercised/Released/Vested		(45,074	)		9.21
Non-vested restricted stock outstanding at End of Period		289,558		$	8.52	$	2,617,604	2.88

The weighted average fair value of restricted stock granted during the three months ended March 31, 2024 was $8.29 per share.

As of March 31, 2024, there was $1,383,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately 2.88 years.

There was $274,000 of recognized compensation cost related to restricted stock awards for the three months ended March 31, 2024.

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The Company has an Employee Stock Purchase Plan (“ESPP”). There are 376,856 shares authorized under the ESPP. The total number of shares authorized has been adjusted to give retroactive effect to stock dividends and stock splits, including the 5% stock dividend declared on January 25, 2024, payable March 25, 2024 to shareholders of record as of February 29, 2024. The ESPP will expire on March 16, 2026.

The ESPP is implemented by participation periods of not more than twenty-seven months each. The Board of Directors determines the commencement date and duration of each participation period. The Board of Directors approved the current participation period of November 24, 2023 to November 23, 2024.  An eligible employee is one who has been continually employed for at least 90 days prior to commencement of a participation period. Under the terms of the ESPP, employees can choose to have up to 10 percent of their compensation withheld to purchase the Company’s common stock each participation period.  The purchase price of the stock is 85 percent of the lower of the fair value on the last trading day before the date of participation or the fair value on the last trading day during the participation period.

As of March 31, 2024, there was $26,000 of unrecognized compensation cost related to ESPP issuances. This cost is expected to be recognized over a weighted average period of approximately 0.75 years.

There was $5,000 of recognized compensation cost related to ESPP issuances for the three months ended March 31, 2024.

The weighted average fair value at issuance date during the three months ended March 31, 2024 was $2.14.

A summary of the weighted average assumptions used in valuing ESPP issuances during the three months ended March 31, 2024 is presented below:

	Three Months Ended March 31, 2024
Risk Free Interest Rate		5.27	%
Expected Dividend Yield		0.00	%
Expected Life in Years		1.00
Expected Price Volatility		25.96	%

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9.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table details activity in accumulated other comprehensive income (loss) for the three months ended March 31, 2024:

($ in thousands)	Unrealized gains (losses) on securities			Officers’ retirement plan			Directors’ retirement plan		Accumulated other comprehensive income (loss)
Balance as of December 31, 2023	$	(33,778	)	$	(70	)	$	121	$	(33,727	)
Current period other comprehensive loss		(1,461	)		—			—		(1,461	)
Balance as of March 31, 2024	$	(35,239	)	$	(70	)	$	121	$	(35,188	)

The following table details activity in accumulated other comprehensive loss for the three months ended March 31, 2023:

($ in thousands)	Unrealized gains (losses) on securities			Officers’ retirement plan			Directors’ retirement plan		Accumulated other comprehensive income (loss)
Balance as of December 31, 2022	$	(46,273	)	$	(308	)	$	53	$	(46,528	)
Current period other comprehensive income		6,013			—			—		6,013
Balance as of March 31, 2023	$	(40,260	)	$	(308	)	$	53	$	(40,515	)

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10.  OUTSTANDING SHARES AND EARNINGS PER SHARE

On January 25, 2024, the Board of Directors of the Company declared a 5% stock dividend payable on March 25, 2024 to shareholders of record as of February 29, 2024. All income per share amounts have been adjusted to give retroactive effect to stock dividends.

Earnings Per Share (EPS)

Basic EPS includes no dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the respective period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding plus dilutive shares for the quarter. Diluted shares include all common stock equivalents (“in-the-money” stock options, unvested restricted stock, stock units, warrants and rights, convertible bonds and preferred stock), which reflects the potential dilution of securities that could share in the earnings of the Company.

The following table presents a reconciliation of basic and diluted EPS for the three months ended March 31, 2024 and 2023 (dollars in thousands except per share amounts):

	Three months ended March 31,
	2024		2023
Basic earnings per share:
Net income	$	4,276	$	5,489
Weighted average common shares outstanding		15,232,761		15,149,823
Basic EPS	$	0.28	$	0.36
Diluted earnings per share:
Net income	$	4,276	$	5,489
Weighted average common shares outstanding		15,232,761		15,149,823
Effect of dilutive shares		160,025		141,923
Adjusted weighted average common shares outstanding		15,392,786		15,291,746
Diluted EPS	$	0.28	$	0.36

Stock options which were not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect amounted to 538,671 shares and 538,711 shares for the three months ended March 31, 2024 and March 31, 2023, respectively. Restricted stock which were not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect amounted to 7,803 shares and 32,743 shares for the three months ended March 31, 2024 and March 31, 2023, respectively.

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11. LEASES

The Company leases eleven branch and administrative locations under operating leases expiring on various dates through 2031. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASU 2016-02, Leases (Topic 842), the Company combines lease and nonlease components. The Company had no financing leases as of March 31, 2024.

Most leases include options to renew, with renewal terms that can extend the lease term from 3 to 10 years. The exercise of lease renewal options is at the Company’s sole discretion. Most leases are currently in the extension period. For the remaining leases with options to renew, the Company has not included the extended lease terms in the calculation of lease liabilities as the options are not reasonably certain of being exercised. Certain lease agreements include rental payments that are adjusted periodically for inflation.  The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

The Company uses its FHLB advance fixed rates, which are its incremental borrowing rates for secured borrowings, as the discount rates to calculate lease liabilities.

The Company had right-of-use assets totaling $3,800,000 and $4,073,000 as of March 31, 2024 and December 31, 2023, respectively. Right-of-use assets are included in Interest receivable and other assets on the condensed consolidated balance sheets. The Company had lease liabilities totaling $4,313,000 and $4,585,000 as of March 31, 2024 and December 31, 2023, respectively. Lease liabilities are included in interest payable and other liabilities on the condensed consolidated balance sheets. The Company recognized lease expenses totaling $301,000 and $308,000 for the three months ended March 31, 2024 and March 31, 2023, respectively. Lease expense is included in Occupancy and equipment expense on the condensed consolidated statements of income.

The table below summarizes the maturity of remaining lease liabilities:

(in thousands)	March 31, 2024
2024 (remaining 9 months)	$	741
2025		1,051
2026		672
2027		611
2028		625
2029 and thereafter		895
Total lease payments		4,595
Less: interest		(282	)
Present value of lease liabilities	$	4,313

The following table presents supplemental cash flow information related to leases for the three months ended March 31, 2024 and March 31, 2023:

(in thousands)	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	299	$	313
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	245

The following table presents the weighted average operating lease term and discount rate as of March 31, 2024 and December 31, 2023:

(in thousands)	March 31, 2024		December 31, 2023
Weighted-average remaining lease term – operating leases, in years	5.32		5.43
Weighted-average discount rate – operating leases	2.41	%	2.42	%

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FIRST NORTHERN COMMUNITY BANCORP

ITEM 2.   – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This report may include forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our forecasts, if any, and expectations. See Part I, Item 1A. “Risk Factors,” and the other risks described in our 2023 Annual Report on Form 10-K and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q and the other risks described in our Quarterly Reports on Form 10-Q for factors to be considered when reading any forward-looking statements in this filing.

This report and other reports or statements which we may release may include forward-looking statements, which are subject to the “safe harbor” created by section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our Securities and Exchange Commission (SEC) filings, press releases, news articles and when we are speaking on behalf of the Company. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words “believe,” “expect,” “target,” “anticipate,” “intend,” “plan,” “seek,” “strive,” “estimate,” “potential,” “project,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or “may.” These forward-looking statements are intended to provide investors with additional information with which they may assess our future potential. All of these forward-looking statements are based on assumptions about an uncertain future and are based on information available to us at the date of these statements. We do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date any forward-looking statements are made.

In this document and in other SEC filings or other public statements, for example, we make forward-looking statements relating to the following topics, among others:

● Our business objectives, strategies and initiatives, our organizational structure, the growth of our business and our competitive position and prospects, and the effect of competition on our business and strategies

● Our assessment of significant factors and developments that have affected or may affect our results

● Legal and regulatory actions, and future legislative and regulatory developments, including the effects of the Dodd-Frank Wall Street Reform and Protection Act (the “Dodd-Frank Act”), the Economic Growth, Regulatory Relief and Consumer Protection Act (the “EGRRCPA”), and other legislation and governmental measures introduced in response to the financial crisis which began in 2008 and the ensuing recession affecting the banking system, financial markets and the U.S. economy

● Regulatory and compliance controls, processes and requirements and their impact on our business

● The costs and effects of legal or regulatory actions

● Expectations regarding draws on performance letters of credit and liabilities that may result from recourse provisions in standby letters of credit

● Our intent to sell or hold, and the likelihood that we would be required to sell, various investment securities

● Our regulatory capital requirements, including the capital rules established after the 2008 financial crisis by the U.S. federal banking agencies and our current intention not to elect to use the community bank leverage ratio framework

● Expectations regarding our non-payment of a cash dividend on our common stock in the foreseeable future

● Credit quality and provision for credit losses and management of asset quality and credit risk, expectations regarding collections and the timing thereof

● Our allowances for credit losses, including the conditions we consider in determining the unallocated allowance and our portfolio credit quality, the adequacy of the allowance for credit losses, underwriting standards, and risk grading

● Our assessment of economic conditions and trends and credit cycles and their impact on our business

30

● The seasonal nature of our business

● The impact of changes in interest rates and our strategy to manage our interest rate risk profile and the possible effect of changes in residential mortgage interest rates on new originations and refinancing of existing residential mortgage loans

● Loan portfolio composition and risk grade trends, expected charge-offs, portfolio credit quality, loan demand, our strategy regarding loan modifications, delinquency rates and our underwriting standards and our expectations regarding our recognition of interest income on loans that were provided payment deferrals upon completion of the payment forbearance period

● Our deposit base including renewal of time deposits and the outlook for deposit balances

● The impact on our net interest income and net interest margin of changes in interest rates

● The effect of possible changes in the initiatives and policies of the federal and state bank regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, the Securities and Exchange Commission and other standard setters

● Tax rates and the impact of changes in the U.S. tax laws

● Our pension and retirement plan costs

● Our liquidity strategies and beliefs concerning the adequacy of our liquidity, sources and amounts of funds and ability to satisfactorily manage our liquidity

● Critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements or changes in accounting principles

● Expected rates of return, maturities, loss exposure, growth rates, yields, and projected results

● The possible impact of weather-related or other natural conditions, including drought, fire or flooding, seismic events, and related governmental responses, including related electrical power outages, on economic conditions, especially in the agricultural sector

● Maintenance of insurance coverages appropriate for our operations

● Threats to the banking sector and our business due to cybersecurity issues and attacks and regulatory expectations related to cybersecurity

● Possible changes in the fair values recorded on our financial statements of the assets acquired and liabilities assumed in our business combination completed in January 2023

● The possible effects on community banks and our business from the failures of other banks

● The possible adverse impacts on the banking industry and our business from a period of significant, prolonged inflation

● Descriptions of assumptions underlying or relating to any of the foregoing

Readers of this document should not rely on any forward-looking statements, which reflect only our management’s belief as of the date of this report. There are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in our forward-looking statements. Many of these factors are beyond our ability to control or predict and could have a material adverse effect on our financial condition and results of operations or prospects. Such risks and uncertainties include, but are not limited to those listed in Item 1A “Risk Factors” of Part II of this Form 10-Q, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I of this Form 10-Q and "Risk Factors" and “Supervision and Regulation” in our 2023 Annual Report on Form 10-K, and in our other reports to the SEC.

31

INTRODUCTION

This overview of Management’s Discussion and Analysis highlights selected information in this report and may not contain all of the information that is important to you.  For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting estimates, you should carefully read this entire report and any other reports to the Securities and Exchange Commission (“SEC”), together with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Our subsidiary, First Northern Bank of Dixon (the “Bank”), is a California state-chartered bank that derives most of its revenues from lending and deposit taking in the Sacramento Valley region of Northern California.  Interest rates, business conditions and customer confidence all affect our ability to generate revenues.  In addition, the regulatory and compliance environment and competition can present challenges to our ability to generate those revenues.

Significant results and developments during the first quarter 2024 included:

• Net income of $4.3 million for the three months ended March 31, 2024, down 22.1% from $5.5 million earned for the same period last year. Net income for the three months ended March 31, 2023 includes a pre-tax bargain purchase gain totaling approximately $1.4 million.

• Diluted earnings per share of $0.28 for the three months ended March 31, 2024, down 22.2% from $0.36 for the three months ended March 31, 2023.

• Net interest income of $15.4 million for the three months ended March 31, 2024, down 3.9% from $16.0 million in the same period last year.

• Net interest margin of 3.49% for the three months ended March 31, 2024, down 1.70% from 3.55% for the three months ended March 31, 2023.

• Reversal of provision for credit losses of $0.3 million for the three months ended March 31, 2024, compared to no provision for credit losses for the three months ended March 31, 2023.

• Total assets of $1.89 billion as of March 31, 2024, up 0.8% from $1.87 billion as of December 31, 2023.

• Total net loans (including loans held-for-sale) of $1.047 billion as of March 31, 2024, down 0.5% from $1.052 billion as of December 31, 2023.

• Total investment securities of $558.4 million as of March 31, 2024, down 2.4% from $572.4 million as of December 31, 2023.

• Total deposits of $1.71 billion as of March 31, 2024, up 1.0% from $1.69 billion as of December 31, 2023.

32

SUMMARY

The Company recorded net income of $4,276,000 for the three months ended March 31, 2024, representing a decrease of $1,213,000 from net income of $5,489,000 for the same period in 2023. Net income for the three months ended March 31, 2023 includes a pre-tax bargain purchase gain totaling approximately $1.4 million.

The following tables present a summary of the results for the three months ended March 31, 2024 and 2023, and a summary of our financial condition at March 31, 2024 and December 31, 2023:

	Three months ended March 31, 2024			Three months ended March 31, 2023
(in thousands except for per share amounts and ratios)
For the Period:
Net Income	$	4,276		$	5,489
Basic Earnings Per Common Share	$	0.28		$	0.36
Diluted Earnings Per Common Share	$	0.28		$	0.36
Net Income to Average Assets (annualized)		0.92	%		1.15	%
Net Income to Average Equity (annualized)		10.69	%		17.07	%
Average Equity to Average Assets		8.60	%		6.74	%

	March 31, 2024			December 31, 2023
(in thousands except for ratios)
At Period End:
Total Assets	$	1,887,124		$	1,871,832
Total Investment Securities	$	558,441		$	572,357
Total Loans, Net (including loans held-for-sale)	$	1,047,296		$	1,052,465
Total Deposits	$	1,708,872		$	1,692,444
Loan-To-Deposit Ratio		61.3	%		62.2	%

33

FIRST NORTHERN COMMUNITY BANCORP

Distribution of Average Statements of Condition and Analysis of Net Interest Income

(in thousands, except percentage amounts)

	Three months ended March 31, 2024							Three months ended March 31, 2023
	Average Balance		Interest		Yield/ Rate (4)			Average Balance		Interest		Yield/ Rate (4)
Assets
Interest-earning assets:
Loans (1)	$	1,047,358	$	13,475		5.16	%	$	963,015	$	11,377		4.79	%
Certificates of deposit		18,669		183		3.93	%		21,063		175		3.37	%
Interest bearing due from banks		123,224		1,532		4.99	%		206,490		2,225		4.37	%
Investment securities, taxable		525,261		2,845		2.17	%		582,370		2,683		1.87	%
Investment securities, non-taxable (2)		37,975		252		2.66	%		41,668		273		2.66	%
Other interest earning assets		10,518		256		9.76	%		9,440		178		7.65	%
Total average interest-earning assets		1,763,005		18,543		4.22	%		1,824,046		16,911		3.76	%
Non-interest-earning assets:
Cash and due from banks		36,100							45,730
Premises and equipment, net		9,852							6,595
Interest receivable and other assets		56,451							57,333
Total average assets		1,865,408							1,933,704
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing transaction deposits		372,188		511		0.55	%		457,551		258		0.23	%
Savings and MMDA’s		430,611		1,195		1.11	%		481,534		525		0.44	%
Time, $250,000 and under		115,881		1,211		4.19	%		41,774		104		1.01	%
Time, over $250,000		26,556		264		3.99	%		10,907		43		1.60	%
Total average interest-bearing liabilities		945,236		3,181		1.35	%		991,766		930		0.38	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		741,886							794,122
Interest payable and other liabilities		17,913							17,429
Total liabilities		1,705,035							1,803,317
Total average stockholders’ equity		160,373							130,387
Total average liabilities and stockholders’ equity	$	1,865,408						$	1,933,704
Net interest income and net interest margin (3)			$	15,362		3.49	%			$	15,981		3.55	%

(1) Average balances for loans include loans held-for-sale and non-accrual loans and are net of the allowance for loan losses, but non-accrued interest is excluded.  Loan interest income includes loan fees, net of deferred costs of approximately $(351) and $(36) for the three months ended March 31, 2024 and 2023, respectively.

(2) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.

(3) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

(4) For disclosure purposes, yield/rates are annualized by dividing the number of days in the reported period by 365.

34

FIRST NORTHERN COMMUNITY BANCORP

Distribution of Average Statements of Condition and Analysis of Net Interest Income

(in thousands, except percentage amounts)

	Three months ended March 31, 2024							Three months ended December 31, 2023
	Average Balance		Interest		Yield/ Rate (4)			Average Balance		Interest		Yield/ Rate (4)
Assets
Interest-earning assets:
Loans (1)	$	1,047,358	$	13,475		5.16	%	$	1,036,411	$	14,006		5.36	%
Certificates of deposit		18,669		183		3.93	%		20,640		202		3.88	%
Interest bearing due from banks		123,224		1,532		4.99	%		148,444		2,182		5.83	%
Investment securities, taxable		525,261		2,845		2.17	%		534,929		2,809		2.08	%
Investment securities, non-taxable (2)		37,975		252		2.66	%		32,310		222		2.73	%
Other interest earning assets		10,518		256		9.76	%		10,518		248		9.35	%
Total average interest-earning assets		1,763,005		18,543		4.22	%		1,783,252		19,669		4.38	%
Non-interest-earning assets:
Cash and due from banks		36,100							38,431
Premises and equipment, net		9,852							10,025
Interest receivable and other assets		56,451							62,559
Total average assets		1,865,408							1,894,267
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing transaction deposits		372,188		511		0.55	%		388,115		507		0.52	%
Savings and MMDA’s		430,611		1,195		1.11	%		438,994		1,011		0.91	%
Time, $250,000 and under		115,881		1,211		4.19	%		105,274		1,081		4.07	%
Time, over $250,000		26,556		264		3.99	%		25,336		168		2.63	%
Total average interest-bearing liabilities		945,236		3,181		1.35	%		957,719		2,767		1.15	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		741,886							776,104
Interest payable and other liabilities		17,913							20,124
Total liabilities		1,705,035							1,753,947
Total average stockholders’ equity		160,373							140,320
Total average liabilities and stockholders’ equity	$	1,865,408						$	1,894,267
Net interest income and net interest margin (3)			$	15,362		3.49	%			$	16,902		3.76	%

(1) Average balances for loans include loans held-for-sale and non-accrual loans and are net of the allowance for loan losses, but non-accrued interest is excluded.  Loan interest income includes loan fees, net of deferred costs of approximately $(351) and $141 for the three months ended March 31, 2024 and December 31, 2023, respectively.

(2) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.

(3) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

(4) For disclosure purposes, yield/rates are annualized by dividing the number of days in the reported period by 365.

35

Analysis of Changes

in Interest Income and Interest Expense

(Dollars in thousands)

Following is an analysis of changes in interest income and expense (dollars in thousands) for the three months ended March 31, 2024 over the three months ended March 31, 2023 and the three months ended March 31, 2024 over the three months ended December 31, 2023.  Changes not solely due to interest rate or volume have been allocated proportionately to interest rate and volume.

	Three Months Ended March 31, 2024 Over Three Months Ended March 31, 2023								Three Months Ended March 31, 2024 Over Three Months Ended December 31, 2023
	Volume			Interest Rate		Change			Volume			Interest Rate			Change
Increase (Decrease) in Interest Income:
Loans	$	1,115		$	983	$	2,098		$	111		$	(642	)	$	(531	)
Certificates of Deposit		(21	)		29		8			(22	)		3			(19	)
Due From Banks		(986	)		293		(693	)		(351	)		(299	)		(650	)
Investment Securities - Taxable		(270	)		432		162			(60	)		96			36
Investment Securities - Non-taxable		(21	)		—		(21	)		36			(6	)		30
Other Assets		23			55		78			—			8			8
	$	(160	)	$	1,792	$	1,632		$	(286	)	$	(840	)	$	(1,126	)
Increase (Decrease) in Interest Expense:
Deposits:
Interest-Bearing Transaction Deposits	$	(57	)	$	310	$	253		$	(23	)	$	27		$	4
Savings & MMDAs		(62	)		732		670			(21	)		205			184
Time Certificates		590			738		1,328			66			160			226
	$	471		$	1,780	$	2,251		$	22		$	392		$	414
Increase (Decrease) in Net Interest Income:	$	(631	)	$	12	$	(619	)	$	(308	)	$	(1,232	)	$	(1,540	)

36

CHANGES IN FINANCIAL CONDITION

The assets of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a $37,698,000 or 25.3% increase in cash and cash equivalents, a $1,525,000 or 7.7% decrease in certificates of deposit, a $13,916,000 or 2.4% decrease in investment securities available-for-sale, and a $5,169,000 or 0.5% decrease in net loans held-for-investment from December 31, 2023 to March 31, 2024.  The increase in cash and cash equivalents was primarily due to an increase in deposit balances coupled with decreases in investment securities and loans due to proceeds from maturities of available-for-sale securities and loan payoffs. The decreases in investment securities and certificates of deposit were due to maturities and repayments of investment securities and certificates of deposit. The decrease in net loans held-for-investment was primarily due to payoffs of agriculture loans, which was partially offset by originations of commercial, commercial real estate, residential mortgage and consumer loans.

The liabilities of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect an increase in total deposits of $16,428,000 or 1.0% from December 31, 2023 to March 31, 2024.  The overall increase in total deposits was primarily due to seasonal fluctuations due to changes in market conditions and monetary policy.

CHANGES IN RESULTS OF OPERATIONS

Interest Income

The Federal Open Market Committee kept the Federal Reserve's benchmark rate range at 5.25% to 5.50% during the three months ended March 31, 2024.

Interest income on loans for the three months ended March 31, 2024 was up 18.4% from the same period in 2023, increasing from $11,377,000 to $13,475,000. The increase in interest income on loans for the three months ended March 31, 2024 as compared to the same period a year ago was primarily due to an increase in average balance of loans coupled with a 37 basis point increase in yield on loans.

Interest income on certificates of deposit for the three months ended March 31, 2024 was up 4.6% from the same period in 2023, increasing from $175,000 to $183,000.  The increase was primarily due to a 56 basis point increase in certificates of deposit yields, which was partially offset by a decrease in average balances of certificates of deposit.

Interest income on interest-bearing due from banks for the three months ended March 31, 2024 was down 31.2% from the same period in 2023, decreasing from $2,225,000 to $1,532,000.  The decrease was primarily due to a decrease in average interest-bearing due from banks balance, which was partially offset by a 62 basis point increase in interest-bearing due from yields.

Interest income on investment securities available-for-sale for the three months ended March 31, 2024 was up 4.8% from the same period in 2023, increasing from $2,956,000 to $3,097,000. The increase was primarily due to a 29 basis point increase in yields on investment securities, which was partially offset by a decrease in average balances of investment securities.

The Company had no Federal Funds sold balances during the three months ended March 31, 2024 and March 31, 2023.

Interest Expense

Interest expense on deposits for the three months ended March 31, 2024 was up 242.0% from the same period in 2023, increasing from $930,000 to $3,181,000.  The increase in interest expense was primarily due to a 97 basis point increase in average interest-bearing deposits yield, which was partially offset by a decrease in average deposits.

Provision for Credit Losses

There was a reversal of provision for credit losses of $300,000 for the three months ended March 31, 2024, compared to no provision for credit losses for the three months ended March 31, 2023. The allowance for credit losses was approximately $16,246,000, or 1.52% of total loans, at March 31, 2024, compared to $16,596,000, or 1.55% of total loans, at December 31, 2023. During the quarter ended March 31, 2024, the levels of forecasted national unemployment and forecasted gross domestic product remained relatively stable. Those factors, coupled with a decrease in loans, were the reasons for the reversal of provision for credit losses for the quarter ended March 31, 2024.

Provision for Unfunded Lending Commitment Losses

There was a reversal of provision for unfunded lending commitment losses of $50,000 for the three months ended March 31, 2024, compared to no provision for unfunded lending commitments for the three months ended March 31, 2023.

37

Provisions for unfunded lending commitment losses are included in provision for credit losses in the Condensed Consolidated Statements of Income.

Non-Interest Income

Non-interest income was down 47.6% for the three months ended March 31, 2024 from the same period in 2023, decreasing from $2,873,000 to $1,507,000.

The decrease was primarily due to the bargain purchase gain totaling approximately $1.4 million recognized during the three months ended March 31, 2023.  The bargain purchase gain was the result of the acquisition of the Colusa, Willows, and Orland branches in the first quarter of 2023.

Non-Interest Expenses

Total non-interest expenses were down 0.5% for the three months ended March 31, 2024 from the same period in 2023, decreasing from $11,284,000 to $11,227,000.

The decrease was primarily due to decreases in salaries and employee benefits, which was partially offset by increases in occupancy and equipment expenses.  The decrease in salaries and employee benefits was primarily due to a decrease in profit sharing expense. The increase in occupancy and equipment expenses was partially due to a full quarter of expenses related to the acquired branches in the first quarter of 2023.

The following table sets forth other non-interest expenses by category for the three months ended March 31, 2024 and 2023.

	(in thousands)
	Three months ended March 31, 2024		Three months ended March 31, 2023
Other non-interest expenses
FDIC assessments	$	230	$	140
Contributions		85		45
Legal fees		55		193
Accounting and audit fees		157		135
Consulting fees		205		252
Postage expense		41		41
Telephone expense		36		48
Public relations		103		71
Training expense		50		83
Loan origination expense		27		71
Computer software depreciation		1		9
Operational losses		124		58
Loan collection expense		90		141
Debit card expense		299		291
Other non-interest expense		459		402
Total other non-interest expenses	$	1,962	$	1,980

Income Taxes

The Company’s tax rate, the Company’s income before taxes and the amount of tax relief provided by non-taxable earnings affect the Company’s provision for income taxes.  Provision for income taxes decreased 19.9% for the three months ended March 31, 2024 from the same period in 2023, decreasing from $2,081,000 to $1,666,000 primarily due to a decrease in pre-tax income.  The effective tax rate was 28.0% and 27.5% for the three months ended March 31, 2024 and March 31, 2023, respectively.

38

Off-Balance Sheet Commitments

The following table shows the distribution of the Company’s undisbursed loan commitments at the dates indicated.

	(in thousands)
	March 31, 2024		December 31, 2023
Undisbursed loan commitments	$	179,893	$	187,401
Standby letters of credit		1,241		1,251
Commitments to sell loans		765		—
	$	181,899	$	188,652

The reserve for unfunded lending commitments amounted to $1,100,000 and $1,150,000 as of March 31, 2024 and December 31, 2023, respectively.  The reserve for unfunded lending commitments is included in other liabilities on the Condensed Consolidated Balance Sheets.  See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q, "Financial Instruments with Off-Balance Sheet Risk," for additional information.

Asset Quality

The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans and delinquencies, with particular attention to portfolio dynamics and loan mix.  The Company strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of collectability and current collateral values and to maintain an adequate allowance for loan losses at all times.   Asset quality reviews of loans and other non-performing assets are administered using credit risk-rating standards and criteria similar to those employed by state and federal banking regulatory agencies.  The Federal bank regulatory agencies utilize the following definitions for assets adversely classified for supervisory purposes:

• Substandard Assets – A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

• Doubtful Assets – An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable.

Other Real Estate Owned and loans rated Substandard and Doubtful are deemed "classified assets".  This category, which includes both performing and non-performing assets, receives an elevated level of attention regarding collection.

The following tables summarize the Company’s non-accrual loans net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored enterprises, by loan category at March 31, 2024 and December 31, 2023:

	At March 31, 2024						At December 31, 2023
	Gross		Guaranteed		Net		Gross		Guaranteed		Net
(dollars in thousands)
Commercial	$	139	$	—	$	139	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—		—
Agriculture		2,728		—		2,728		2,871		—		2,871
Residential mortgage		1,315		—		1,315		424		—		424
Residential construction		4,000		—		4,000		—		—		—
Consumer		602		—		602		703		—		703
Total non-accrual loans	$	8,784	$	—	$	8,784	$	3,998	$	—	$	3,998

It is generally the Company’s policy to discontinue interest accruals once a loan is past due for a period of 90 days as to interest or principal payments unless the loan is well secured and in process of collection.  When a loan is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income.  Payments received on non-accrual loans are applied against principal.  A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected or there is an extended period of positive performance and a high probability that the loan will continue to pay according to original terms.

39

Non-accrual loans amounted to $8,784,000 at March 31, 2024 and were comprised of one commercial loan totaling $139,000, two agriculture loans totaling $2,728,000, four residential mortgage loans totaling $1,315,000, one residential construction loan totaling $4,000,000 and three consumer loans totaling $602,000.  Non-accrual loans amounted to $3,998,000 at December 31, 2023 and were comprised of two agriculture loans totaling $2,871,000, three residential mortgage loans totaling $424,000 and four consumer loans totaling $703,000.

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The allowance for credit losses, or ACL, on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. It is generally the Company’s policy that if the value of the underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken.

As the following table illustrates, total non-performing assets, net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored enterprises, increased $450,000 or 5.4% to $8,784,000 during the first three months of 2024.  Non-performing assets, net of guarantees, represented 0.5% of total assets at March 31, 2024.

	At March 31, 2024							At December 31, 2023
	Gross		Guaranteed		Net			Gross		Guaranteed		Net
(dollars in thousands)
Non-accrual loans	$	8,784	$	—	$	8,784		$	3,998	$	—	$	3,998
Loans 90 days past due and still accruing		—		—		—			4,336		—		4,336
Total non-performing loans		8,784		—		8,784			8,334		—		8,334
Other real estate owned		—		—		—			—		—		—
Total non-performing assets		8,784		—		8,784			8,334		—		8,334
Non-performing loans (net of guarantees) to total loans						0.8	%						0.8	%
Non-performing assets (net of guarantees) to total assets						0.5	%						0.5	%
Allowance for loan and lease losses to non-performing loans (net of guarantees)						184.9	%						199.1	%

The Company had no loans 90 days or more past due and still accruing interest at March 31, 2024. The Company had two loans totaling $4,336,000 that were 90 days or more past due and still accruing at December 31, 2023.

Excluding the non-performing loans cited previously, loans totaling $18,438,000 and $12,327,000 were classified as substandard loans, representing potential problem loans at March 31, 2024 and December 31, 2023, respectively.  Management believes that the allowance for credit losses at March 31, 2024 and December 31, 2023 appropriately reflected expected credit losses inherent in the loan portfolio at that date.  The ratio of the allowance for credit losses to total loans at March 31, 2024 and December 31, 2023 was 1.52% and 1.55%, respectively.

Other real estate owned (“OREO”) consists of property that the Company has acquired by deed in lieu of foreclosure or through foreclosure proceedings, and property that the Company does not hold title to but is in actual control of, known as in-substance foreclosure.  The estimated fair value of the property is determined prior to transferring the balance to OREO.  The balance transferred to OREO is the estimated fair value of the property less estimated cost to sell.  Impairment may be deemed necessary to bring the book value of the loan equal to the appraised value.  Appraisals or loan officer evaluations are then conducted periodically thereafter charging any additional impairment to the appropriate expense account.  The Company had no OREO as of March 31, 2024 and December 31, 2023.

40

Allowance for Credit Losses (ACL)

The Company's ACL is maintained at a level believed by management to appropriately reflect expected credit losses inherent in the loan portfolio.  The ACL is increased by provisions charged to operating expense and reduced by net charge-offs.  The Company contracts with vendors for credit reviews of the loan portfolio and utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period.  The ACL is based on estimates, and actual losses may vary from current estimates.

The following table summarizes the ACL of the Company during the three months ended March 31, 2024 and 2023, and for the year ended December 31, 2023:

 Analysis of the Allowance for Credit Losses

(Amounts in thousands, except percentage amounts)

	Three months ended March 31,						Year ended December 31,
	2024			2023			2023
Balance at beginning of period	$	16,596		$	14,792		$	14,792
Impact of adopting ASC 326		—			800			800
Reversal of provision for credit losses		(250	)		—			1,150
Loans charged-off:
Commercial		(130	)		(127	)		(366	)
Commercial Real Estate		—			—			—
Agriculture		—			—			(2,567	)
Residential Mortgage		—			(3	)		(3	)
Residential Construction		—			—			—
Consumer		(13	)		(1	)		(13	)
Total charged-off		(143	)		(131	)		(2,949	)
Recoveries:
Commercial		41			23			235
Commercial Real Estate		—			—			—
Agriculture		—			—			2,567
Residential Mortgage		—			—			—
Residential Construction		—			—			—
Consumer		2			—			1
Total recoveries		43			23			2,803
Net charge-offs		(100	)		(108	)		(146	)
Balance at end of period	$	16,246		$	15,484		$	16,596
Ratio of net charge-offs to average loans outstanding during the period (annualized)		(0.04	%)		(0.04	%)		(0.01	%)
Allowance for credit losses to total loans		1.52	%		1.56	%		1.55	%
Nonaccrual loans to Total Loans		0.8	%		0.8	%		0.4	%
Allowance for credit losses to nonaccrual loans		184.9	%		189.9	%		415.1	%

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Deposits

Deposits are one of the Company’s primary sources of funds.  At March 31, 2024 and December 31, 2023, the Company had the following deposit mix:

	March 31, 2024			December 31, 2023
Savings and MMDA		26.0	%		25.5	%
Time		9.1	%		8.0	%
Interest-bearing transaction		21.8	%		22.5	%
Non-interest bearing transaction		43.1	%		44.0	%

The Company obtains deposits primarily from the communities it serves.  The Company believes that no material portion of its deposits has been obtained from or is dependent on any one person or industry.  The Company accepts deposits in excess of $250,000  (the current FDIC insurance limit) from customers.  These deposits are priced to remain competitive.

Maturities of time certificates of deposits of over $250,000 or more outstanding at March 31, 2024 and December 31, 2023 are summarized as follows:

	(in thousands)
	March 31, 2024		December 31, 2023
Three months or less	$	5,369	$	4,321
Over three months through six months		10,655		3,653
Over six months to twelve months		7,790		13,277
Over twelve months		5,292		5,072
Total	$	29,106	$	26,323

Approximately 37% of our deposits were uninsured as of each of the periods ended March 31, 2024 and December 31, 2023.

Liquidity and Capital Resources

In order to serve our market area and comply with banking regulations, the Company must maintain adequate liquidity and adequate capital. Liquidity refers to the Company’s ability to provide funds at an acceptable cost to meet loan demand and deposit withdrawals, as well as contingency plans to meet unanticipated funding needs or loss of funding sources. These objectives can be met from either the asset or liability side of the balance sheet.

Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally summarized as investing activities in the Condensed Consolidated Statement of Cash Flows. For the three months ended March 31, 2024, net liquidity provided by investing activities totaled $18,626,000.

The Company’s available-for-sale investment securities plus cash and cash equivalents in excess of reserve requirements and certificates of deposit totaled $763,535,000 on March 31, 2024, which was 40.5% of assets at that date. This was an increase of $22,257,000 from $741,278,000 and 39.6% as of December 31, 2023. The Company’s investment securities are generally shorter term in nature to provide ongoing cash flows for liquidity needs and/or reinvestment for interest rate risk management. On March 31, 2024, the effective duration of our investment securities was 2.99 with projected principal cashflow of $128,448,000 for the remainder of 2024 available for reinvestment or liquidity needs. The Company had no held-to-maturity securities as of March 31, 2024 and December 31, 2023.

Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding. These activities are included under financing activities in the Condensed Consolidated Statement of Cash Flows. As of March 31, 2024, the Company had $0 in borrowings outstanding. For the three months ended March 31, 2024, net liquidity provided by financing activities totaled $16,421,000. While these sources of funds are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market conditions.

Liquidity is also provided or used through the results of operating activities. For the three months ended March 31, 2024, operating activities provided cash of $2,651,000.

Liquidity is measured by various ratios, in management’s opinion, the most common being the ratio of net loans to deposits (including loans held-for-sale).  This ratio was 61.3% and 62.2% as of March 31, 2024 and December 31, 2023, respectively.

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Loan demand during 2024 will depend in part on economic and competitive conditions. The Company emphasizes the solicitation of non-interest-bearing demand deposits and money market checking accounts, which are the least sensitive to interest rates. The outlook for deposit balances during 2024 is subject to actions by the Federal Reserve and heightened competition.

To meet unanticipated funding requirements, the Company maintains short-term unsecured lines of credit with other banks which totaled $130,000,000 at March 31, 2024.  Additionally, the Company has a line of credit with the FHLB, with a remaining borrowing capacity at March 31, 2024 of $404,630,000; credit availability is subject to certain collateral requirements.

The Company’s primary source of liquidity on a stand-alone basis is dividends from the Bank.  Dividends from the Bank are subject to regulatory restrictions.

In July 2013, the FRB and the other U.S. federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations and to conform this framework to the guidelines published by the Basel Committee known as the Basel III Global Regulatory Framework for Capital and Liquidity.  The Basel Committee is a committee of banking supervisory authorities from major countries in the global financial system which formulates broad supervisory standards and guidelines relating to financial institutions for implementation on a country-by-country basis.   These rules adopted by the FRB and the other federal banking agencies (the U.S. Basel III Capital Rules) replaced the federal banking agencies’ general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules, in accordance with certain transition provisions.

Banks, such as First Northern, became subject to the final rules on January 1, 2015.  The final rules implement higher minimum capital requirements, include a new common equity Tier 1 capital requirement, and establish criteria that instruments must meet in order to be considered common equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital.  The final rules provide for increased minimum capital ratios as follows: (a) a common equity Tier 1 capital ratio of 4.5%; (b) a Tier 1 capital ratio of 6%; (c) a total capital ratio of 8%; and (d) a Tier 1 leverage ratio to average consolidated assets of 4%.  Under these rules, in order to avoid certain limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements (equal to 2.5% of total risk-weighted assets).  The capital conservation buffer is designed to absorb losses during periods of economic stress.

Pursuant to the EGRRCPA, the FRB adopted a final rule, effective August 31, 2018, amending the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (the “policy statement”) to increase the consolidated assets threshold to qualify to utilize the provisions of the policy statement from $1 billion to $3 billion. Bank holding companies, such as the Company, are subject to capital adequacy requirements of the FRB; however, bank holding companies which are subject to the policy statement are not subject to compliance with the regulatory capital requirements until they hold $3 billion or more in consolidated total assets. As a consequence, as of December 31, 2018, the Company was not required to comply with the FRB’s regulatory capital requirements until such time that its consolidated total assets equal $3 billion or more or if the FRB determines that the Company is no longer deemed to be a small bank holding company. However, if the Company had been subject to these regulatory capital requirements, it would have exceeded all regulatory requirements.

In August of 2020, the Federal banking agencies adopted the final version of the community bank leverage ratio framework rule (the “CBLR”), implementing two interim final rules adopted in April of 2020.  The rule provides an optional, simplified measure of capital adequacy.  Under the optional CBLR framework, the CBLR was 8.5 percent through calendar year 2021 and is 9 percent thereafter.  The rule is applicable to all non-advanced approaches FDIC-supervised institutions with less than $10 billion in total consolidated assets.  Banks not electing the CBLR framework will continue to be subject to the generally applicable risk-based capital rule.  At the present time, the Company and the Bank do not intend to elect to use the CBLR framework.

As of March 31, 2024, the Bank’s capital ratios exceeded applicable regulatory requirements.  The following table presents the capital ratios for the Bank, compared to the regulatory standards for well-capitalized depository institutions, as of March 31, 2024.

	(amounts in thousands except percentage amounts)
	Actual					Well Capitalized Ratio Requirement
	Capital		Ratio
Leverage	$	191,795		10.11	%		5.0	%
Common Equity Tier 1	$	207,494		15.29	%		6.5	%
Tier 1 Risk-Based	$	207,494		15.29	%		8.0	%
Total Risk-Based	$	207,494		16.54	%		10.0	%

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ITEM 3.   – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.   – CONTROLS AND PROCEDURES

(a)  We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of March 31, 2024.  This conclusion is based on an evaluation conducted under the supervision and with the participation of management.

(b)  During the quarter ended March 31, 2024, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II   – OTHER INFORMATION

ITEM 1. – LEGAL PROCEEDINGS

Neither the Company nor the Bank is a party to any material pending legal proceeding, nor is any of their property the subject of any material pending legal proceeding, except ordinary routine litigation arising in the ordinary course of the Bank’s business and incidental to its business, none of which is expected to have a material adverse impact upon the Company’s or the Bank’s business, financial position or results of operations.

ITEM 1A. – RISK FACTORS

For a discussion of risk factors relating to our business, please refer to Part I, Item 1A of our 2023 Report on Form 10-K, which is incorporated by reference herein.

Several of California’s Largest Home Insurance Providers Have Recently Paused or Severely Limited Their Issuance of New Policies, or Their Renewal of Existing Policies, in the State, Which Could Increase the Bank’s Risk of Loss in its Loan Portfolio

At March 31, 2024, real estate mortgage (excluding loans held-for-sale) and construction loans (residential and other) comprised approximately 89% and 3%, respectively, of the principal amount of total loans in the Bank’s portfolio.  At March 31, 2024, all of the Bank’s real estate mortgage and construction loans were secured fully or in part by deeds of trust on underlying real estate.  Most of the Company’s customers, including its loan customers, are located in the State of California.

Recently, several of California’s largest home insurance providers, including State Farm, Allstate, Farmers, USAA, Travelers, Nationwide and Chubb, have either paused or severely limited their issuance of new policies, or their renewal of existing policies, in the state. Mounting claims from wildfire damages, the increasing cost of building and repairing homes in California, and a steep increase in reinsurance premiums, as well as state insurance regulations that make it difficult for insurers to adjust premiums in response to the evolving risk landscape, have challenged the capacity of insurance companies to sustainably and profitably offer home insurance in California. The result of these actions has been to significantly limit the availability of home insurance in California, where homeowners already face escalating property values and high wildfire, seismic, severe weather and other risks.

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The California Department of Insurance enforces some safeguards to temporarily shield homeowners from the cancellation or non-renewal of home insurance policies in high-risk areas, particularly those prone to wildfires.  In addition, the California Fair Access to Insurance Requirements (FAIR) Plan, a state-established risk pool, operates as an insurer of last resort, providing temporary coverage for California homeowners unable to obtain (generally at increased premium cost) such coverage from a traditional insurance carrier; however, enrollment in the FAIR Plan as a percentage of the total number of residential insurance policies in California has steadily increased over the past five years, particularly in counties with the highest wildfire risk, threatening the ongoing stability of the Plan.  In late 2023, following the California Governor’s declaration of a State of Emergency regarding property insurance, the Insurance Commissioner of the State of California introduced a comprehensive package of executive actions aimed at insurance reform; however, there can be no assurance that these regulatory actions will increase insurance availability or stabilize and strengthen California’s insurance market.

Many homeowners in the State of California have been negatively impacted by the contraction of insurance options in the State and the resulting lack of access to affordable home insurance, which could adversely impact the ability of prospective homebuyers to obtain insurance, and escalating premiums and limited coverage options could result in limiting coverage in the event of loss.  If any loss suffered by a loan customer of the Bank is not insured or exceeds applicable insurance limits, this could increase the risk of loss in the Bank’s loan portfolio, which could have a material adverse effect on the Company’s business, financial condition, and results of operations.  For additional information, see “The Bank’s Dependence on Real Estate Lending Increases Our Risk of Losses” in Part I, Item 1A “Risk Factors” in our 2023 Annual Report on Form 10-K.

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ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. – OTHER INFORMATION

None.

ITEM 6. – EXHIBITS

Exhibit Number	Description of Document
10.44	Employment Agreement for Brett Hamilton, Executive Vice President and Chief Credit Officer, between First Northern Bank and Mr. Hamilton dated as of April 1, 2024 - provided herewith**
31.1	Rule 13a — 14(a) Certification of Chief Executive Officer
31.2	Rule 13a — 14(a) Certification of Chief Financial Officer
32.1*	Statement of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2*	Statement of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*   In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

**  Management contract or compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			FIRST NORTHERN COMMUNITY BANCORP
Date:	May 9, 2024	By:	/s/ Kevin Spink
			Kevin Spink, Executive Vice President / Chief Financial Officer
			(Principal Financial Officer and Duly Authorized Officer)

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