Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

- 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 2025 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, except as may be required by law.

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:

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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

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Legal and regulatory actions, and future legislative and regulatory developments

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

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The costs and effects of legal or regulatory actions

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

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

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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

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

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

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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

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Our assessment of economic conditions and trends and credit cycles and their impact on our business including the imposition of tariffs on imported goods to the U.S.

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The seasonal nature of our business

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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

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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

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

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

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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

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

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Our pension and retirement plan costs

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

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

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

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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

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Maintenance of insurance coverages appropriate for our operations

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

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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 2025 Form 10-K, and in our other reports to the SEC.

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 our other reports to the SEC, together with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our 2025 Form 10-K.

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 and year-to-date 2026 included:

●	Net income of $5.9 million for the three months ended March 31, 2026, up 60.9% from net income of $3.7 million earned for the same period last year.

●	Diluted income per share of $0.36 for the three months ended March 31, 2026, up 63.6% from diluted income per share of $0.22 for the same period last year.

●	Net interest income of $17.2 million for the three months ended March 31, 2026, up 7.9% from net interest income of $15.9 million for the same period last year.

●	Net interest margin of 3.83% for the three months ended March 31, 2026, up 5.2% from net interest margin of 3.64% for the same period last year.

●	Provision for credit losses of $0.3 million for the three months ended March 31, 2026, down 64.7% from provision for credit losses of $0.9 million for the same period last year.

●	Total assets of $1.92 billion as of March 31, 2026, up 0.7% from $1.91 billion as of December 31, 2025.

●	Total net loans (including loans held-for-sale) of $1.06 billion as of March 31, 2026, up 1.3% from $1.05 billion as of December 31, 2025.

●	Total investment securities of $623.3 million as of March 31, 2026, up 1.0% from $617.2 million as of December 31, 2025.

●	Total deposits of $1.69 billion as of March 31, 2026, up 0.9% from $1.68 billion as of December 31, 2025.

SUMMARY FINANCIAL DATA

The Company recorded net income of $5,906,000 for the three months ended March 31, 2026, representing an increase of $2,235,000, or 60.9%, from net income of $3,671,000 for the same period in 2025.

The following tables present a summary of the results for the three months ended March 31, 2026 and 2025, and a summary of financial condition at March 31, 2026 and December 31, 2025.

		Three Months Ended				Three Months Ended
		March 31, 2026				March 31, 2025
(in thousands, except per share amounts and ratios)
For the Period:
Net Income		$	5,906			$	3,671
Basic Earnings Per Common Share		$	0.37			$	0.22
Diluted Earnings Per Common Share		$	0.36			$	0.22
Return on Average Assets (annualized)			1.24	%			0.79	%
Return on Average Equity (annualized)			11.21	%			8.23	%
Average Equity to Average Assets			11.10	%			9.65	%

		March 31, 2026				December 31, 2025
(in thousands, except ratios)
At Period End:
Total Assets		$	1,924,548			$	1,910,950
Total Investment Securities, at fair value		$	623,282			$	617,243
Total Loans, Net (including loans held-for-sale)		$	1,064,622			$	1,050,473
Total Deposits		$	1,694,698			$	1,679,143
Loan-To-Deposit Ratio			62.8	%			62.6	%

FIRST NORTHERN COMMUNITY BANCORP

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

		Three months ended												Three months ended
		March 31, 2026												March 31, 2025
		Average								Yield/				Average								Yield/
(in thousands, except percentages)		Balance				Interest				Rate (4)				Balance				Interest				Rate (4)
Assets
Interest-earning assets:
Loans (1)		$	1,044,166			$	14,322				5.56	%		$	1,042,559			$	13,602				5.29	%
Certificate of deposits			10,558				106				4.07	%			15,868				161				4.11	%
Interest bearing due from banks			125,045				1,098				3.56	%			70,468				727				4.18	%
Investment securities, taxable			573,637				4,434				3.13	%			587,332				4,348				3.00	%
Investment securities, non-taxable (2)			57,685				447				3.14	%			50,403				393				3.16	%
Other interest earning assets			10,870				555				20.71	%			10,518				272				10.49	%
Total average interest-earning assets			1,821,961				20,962				4.67	%			1,777,148				19,503				4.45	%
Non-interest-earning assets:
Cash and due from banks			29,481												34,338
Premises and equipment, net			8,693												9,145
Interest receivable and other assets			65,134												52,755
Total average assets		$	1,925,269											$	1,873,386
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing transaction deposits			444,368				766				0.70	%			432,335				691				0.65	%
Savings and MMDA's			475,494				1,809				1.54	%			451,198				1,550				1.39	%
Time, $250,000 or less			85,614				723				3.42	%			99,503				973				3.97	%
Time, over $250,000			55,793				460				3.34	%			44,028				346				3.19	%
Total average interest-bearing liabilities			1,061,269				3,758				1.44	%			1,027,064				3,560				1.41	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits			632,800												651,590
Interest payable and other liabilities			17,462												13,919
Total liabilities			1,711,531												1,692,573
Total average stockholders' equity			213,738												180,813
Total average liabilities and stockholders' equity		$	1,925,269											$	1,873,386
Net interest income and net interest margin (3)						$	17,204				3.83	%						$	15,943				3.64	%

(1)

Average balances for loans include loans held-for-sale and non-accrual loans and are net of the allowance for credit losses, but non-accrued interest thereon is generally excluded. Loan interest income includes loan fees, net of deferred costs of approximately $5 and $(8) for the three months ended March 31, 2026 and 2025, 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.

FIRST NORTHERN COMMUNITY BANCORP

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

		Three months ended												Three months ended
		March 31, 2026												December 31, 2025
		Average								Yield/				Average								Yield/
(in thousands, except percentages)		Balance				Interest				Rate				Balance				Interest				Rate (4)
Assets
Interest-earning assets:
Loans (1)		$	1,044,166			$	14,322				5.56	%		$	1,050,919			$	15,179				5.73	%
Certificates of deposit			10,558				106				4.07	%			11,709				122				4.13	%
Interest bearing due from banks			125,045				1,098				3.56	%			139,963				1,465				4.15	%
Investment securities, taxable			573,637				4,434				3.13	%			557,389				4,230				3.01	%
Investment securities, non-taxable (2)			57,685				447				3.14	%			56,151				439				3.10	%
Other interest earning assets			10,870				555				20.71	%			10,871				251				9.16	%
Total average interest-earning assets			1,821,961				20,962				4.67	%			1,827,002				21,686				4.71	%
Non-interest-earning assets:
Cash and due from banks			29,481												31,324
Premises and equipment, net			8,693												8,466
Interest receivable and other assets			65,134												66,699
Total average assets		$	1,925,269											$	1,933,491
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing transaction deposits			444,368				766				0.70	%			427,612				770				0.71	%
Savings and MMDA's			475,494				1,809				1.54	%			471,222				1,928				1.62	%
Time, $250,000 and under			85,614				723				3.42	%			89,058				973				4.33	%
Time, over $250,000			55,793				460				3.34	%			54,256				286				2.09	%
Total average interest-bearing liabilities			1,061,269				3,758				1.44	%			1,042,148				3,957				1.51	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits			632,800												665,760
Interest payable and other liabilities			17,462												17,496
Total liabilities			1,711,531												1,725,404
Total average stockholders' equity			213,738												208,087
Total average liabilities and stockholders' equity		$	1,925,269											$	1,933,491
Net interest income and net interest margin (3)						$	17,204				3.83	%						$	17,729				3.85	%

(1)

Average balances for loans include loans held-for-sale and non-accrual loans and are net of the allowance for credit losses, but non-accrued interest is generally excluded. Loan interest income includes loan fees, net of deferred costs of approximately $5 and $(212) for the three months ended March 31, 2026 and December 31, 2025, 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.

Analysis of Changes

in Interest Income and Interest Expense

Following is an analysis of changes in interest income and expense (dollars in thousands) for the three months ended March 31, 2026 over the three months ended March 31, 2025 and the three months ended March 31, 2026 over the three months ended December 31, 2025. Changes not solely due to interest rate or volume have been allocated proportionately to interest rate and volume.

		Three Months Ended												Three Months Ended
		March 31, 2026												March 31, 2026
		Over												Over
		Three Months Ended												Three Months Ended
		March 31, 2025												December 31, 2025
						Interest												Interest
		Volume				Rate				Change				Volume				Rate				Change
(in thousands)
Increase (Decrease) in Interest Income:
Loans		$	21			$	699			$	720			$	(152	)		$	(705	)		$	(857	)
Certificates of Deposit			(53	)			(2	)			(55	)			(14	)			(2	)			(16	)
Due From Banks			494				(123	)			371				(158	)			(209	)			(367	)
Investment Securities - Taxable			(104	)			190				86				86				118				204
Investment Securities - Non-taxable			57				(3	)			54				5				3				8
Other Assets			9				274				283				-				304				304
		$	424			$	1,035			$	1,459			$	(233	)		$	(491	)		$	(724	)
Increase (Decrease) in Interest Expense:
Deposits:
Interest-Bearing Transaction Deposits		$	20			$	55			$	75			$	13			$	(17	)		$	(4	)
Savings & MMDAs			86				173				259				11				(130	)			(119	)
Time Certificates			(29	)			(107	)			(136	)			(64	)			(12	)			(76	)
FHLB advances			-				-				-				-				-				-
		$	77			$	121			$	198			$	(40	)		$	(159	)		$	(199	)
Increase (Decrease) in Net Interest Income:		$	347			$	914			$	1,261			$	(193	)		$	(332	)		$	(525	)

CHANGES IN FINANCIAL CONDITION

The assets of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a $5,970,000, or 4.1%, decrease in cash and cash equivalents, a $6,039,000, or 1.0%, increase in investment securities available-for-sale, and a $14,149,000, or 1.3%, increase in net loans held-for-investment from December 31, 2025 to March 31, 2026. The decrease in cash and cash equivalents was primarily due to an increase in investment securities due to purchases of investment securities and an increase in loans due to net loan originations, which was partially offset by an increase in deposit balances. The increase in investment securities was due to purchases of available-for-sale securities, which was partially offset by paydowns and maturities of available-for-sale securities. The increase in net loans held-for-investment was primarily due to net originations of commercial loans, which was partially offset by net payoffs of commercial real estate, agriculture, 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 $15,555,000, or 0.9%, from December 31, 2025 to March 31, 2026. 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 3.50% to 3.75% during the three months ended March 31, 2026.

Interest income on loans for the three months ended March 31, 2026 was up 5.3% from the same period in 2025, increasing from $13,602,000 to $14,322,000. The increase in interest income on loans for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to a 27 basis point increase in yield on loans coupled with an increase in average balance of loans.

Interest income on certificates of deposit for the three months ended March 31, 2026 was down 34.2% from the same period in 2025, decreasing from $161,000 to $106,000. The decrease in interest income on certificates of deposit for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to a decrease in average balances of certificates of deposit coupled with a 4 basis point decrease in yield on certificates of deposit.

Interest income on interest-bearing due from banks for the three months ended March 31, 2026 was up 51.0% from the same period in 2025, increasing from $727,000 to $1,098,000. The increase in interest income on interest-bearing due from banks for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to an increase in average balances of interest-bearing due from banks, which was partially offset by a 62 basis point decrease in yield on interest-bearing due from banks.

Interest income on investment securities available-for-sale for the three months ended March 31, 2026 was up 3.0% from the same period in 2025, increasing from $4,741,000 to $4,881,000. The increase in interest income on investment securities for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to a 13 basis point increase in investment yields, which was partially offset by a decrease in average investment securities.

Interest income on other earning assets for the three months ended March 31, 2026 was up 104.0% from the same period in 2025, increasing from $272,000 to $555,000. This income is primarily derived from dividends received from the Federal Home Loan Bank. The increase in interest income on other earning assets for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to a special cash dividend issued by the Federal Home Loan Bank during the three months ended March 31, 2026.

The Company had no Federal Funds sold balances during the three months ended March 31, 2026 and March 31, 2025.

Interest Expense

Interest expense on interest-bearing liabilities for the three months ended March 31, 2026 was up 5.6% from the same period in 2025, increasing from $3,560,000 to $3,758,000. The increase in interest expense for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to an increase in average balance of interest-bearing liabilities coupled with a 3 basis point increase in average interest-bearing deposit yield.

Provision for Credit Losses

Provision for credit losses for the three months ended March 31, 2026 was down 64.7% from the same period in 2025, decreasing from $850,000 to $300,000. The decrease was primarily due to a decrease in nonaccrual loans requiring specific reserves, which was partially offset by an increase in reserves on pooled loans due to an increase in qualitative factors due to geopolitical risks.

Non-Interest Income

Non-interest income was up 19.8% for the three months ended March 31, 2026 from the same period in 2025, increasing from $1,453,000 to $1,740,000. The increase was primarily driven by an increase in investment and brokerage services income due to the Beacon Wealth client acquisition in the fourth quarter of 2025.

Non-Interest Expenses

Total non-interest expenses were down 4.8% for the three months ended March 31, 2026 from the same period in 2025, decreasing from $11,590,000 to $11,032,000. The decrease was primarily due to decreases in occupancy and equipment expense and other expenses, which was partially offset by increases in salaries and employee benefits and amortization of intangible assets. The decrease in occupancy and equipment expense was primarily due to the prior year upgrades to facilities which were not repeated in the current year. The decrease in other expenses was primarily due to decreases in consulting fees and loan collection expense. The increase in salaries and employee benefits was primarily due to an increase in full-time equivalent employees. The increase in amortization of intangible assets was due to the acquisition of a customer-related intangible asset during the fourth quarter of 2025.

The following table sets forth other non-interest expenses by category for the three months ended March 31, 2026 and 2025.

		Three months ended				Three months ended
(in thousands)		March 31, 2026				March 31, 2025
Other non-interest expenses
FDIC assessments		$	218			$	223
Contributions			70				130
Legal fees			79				67
Accounting and audit fees			158				173
Consulting fees			199				458
Postage expense			26				44
Telephone expense			66				45
Public relations			102				75
Training expense			13				39
Loan origination expense (recovery)			65				(5	)
Sundry losses			94				111
Loan collection expense			50				159
Debit card expense			240				264
Other non-interest expense			467				746
Total other non-interest expenses		$	1,847			$	2,529

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 increased 32.8% for the three months ended March 31, 2026 from the same period in 2025, increasing from $1,285,000 to $1,706,000. The effective tax rate was 22.4% and 25.9% for the three months ended March 31, 2026 and March 31, 2025, respectively. The increase in provision for income taxes for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to an increase in pre-tax income. The decrease in the effective tax rate was primarily due to the execution of a tax planning strategy that involved purchasing investment tax credits tied to alternative energy projects. The investment tax credits were acquired at a discount and the majority was recognized as a reduction to income tax expense in the third quarter of 2025, with the remaining credits recognized in the first quarter of 2026.

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, 2026				December 31, 2025
Undisbursed loan commitments		$	139,306			$	131,306
Standby letters of credit			1,038				1,038
Commitments to sell loans			770				-
		$	141,114			$	132,344

The reserve for unfunded lending commitments amounted to $1,100,000 and $1,200,000 as of March 31, 2026 and December 31, 2025, 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, "Commitments and Contingencies," 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 credit 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 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 table summarizes the Company's non-accrual loans net of guarantees of the State of California and U.S. Government by loan category at March 31, 2026 and December 31, 2025:

		At March 31, 2026												At December 31, 2025
		Gross				Guaranteed				Net				Gross				Guaranteed				Net
(in thousands)
Commercial		$	139			$	139			$	-			$	139			$	139			$	-
Commercial real estate			909				-				909				657				-				657
Agriculture			3,212				793				2,419				4,423				809				3,614
Residential mortgage			162				-				162				174				-				174
Residential construction			-				-				-				-				-				-
Consumer			496				-				496				637				-				637
Total non-accrual loans		$	4,918			$	932			$	3,986			$	6,030			$	948			$	5,082

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.

Non-accrual loans amounted to $4,918,000 at March 31, 2026 and were comprised of one commercial loan totaling $139,000, two commercial real estate loans totaling $909,000, four agriculture loans totaling $3,212,000, three residential mortgage loans totaling $162,000 and four consumer loans totaling $496,000. Non-accrual loans amounted to $6,030,000 at December 31, 2025 and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $657,000, four agriculture loans totaling $4,423,000, three residential mortgage loans totaling $174,000 and five consumer loans totaling $637,000.

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 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 agencies, decreased $1,096,000, or 17.3%, to $5,227,000 during the first three months of 2026. Non-performing assets, net of guarantees, represented 0.3% of total assets at March 31, 2026.

		At March 31, 2026												At December 31, 2025
		Gross				Guaranteed				Net				Gross				Guaranteed				Net
(dollars in thousands)
Non-accrual loans		$	4,918			$	932			$	3,986			$	6,030			$	948			$	5,082
Loans 90 days past due and still accruing			-				-				-				-				-				-
Total non-performing loans			4,918				932			$	3,986				6,030				948			$	5,082
Other real estate owned			1,241				-				1,241				1,241				-				1,241
Total non-performing assets		$	6,159			$	932			$	5,227			$	7,271			$	948			$	6,323
Non-performing loans (net of guarantees) to total loans											0.4	%											0.5	%
Non-performing assets (net of guarantees) to total assets											0.3	%											0.3	%
Allowance for credit losses to non-performing loans (net of guarantees)											371.4	%											285.7	%

The Company had no loans that were 90 days or more past due and still accruing as of March 31, 2026 and December 31, 2025.

Excluding non-performing loans, loans totaling $18,447,000 and $18,259,000 were classified as substandard or doubtful loans, representing potential problem loans at March 31, 2026 and December 31, 2025, respectively. Management believes that the allowance for credit losses at March 31, 2026 and December 31, 2025 appropriately reflected expected credit losses in the loan portfolio at that date. The ratio of the allowance for credit losses to total loans was 1.37% and 1.36% at March 31, 2026 and December 31, 2025, 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. OREO can also consist of Company owned properties that the Company has determined are no longer intended for use or future development. 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 OREO totaling $1,241,000 for each of the periods ended March 31, 2026 and December 31, 2025. As of March 31, 2026 and December 31, 2025, OREO represented land, transferred from premises and equipment, that the Company determined is no longer intended for future development and is actively marketing for sale.

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, 2026 and 2025, and for the year ended December 31, 2025:

Analysis of the Allowance for Credit Losses

		Three months ended								Year ended
		March 31,								December 31,
		2026				2025				2025
(in thousands, except ratios)
Balance at beginning of period		$	14,519			$	15,885			$	15,885
Provision for credit losses			400				600				(500	)
Loans charged-off:
Commercial			(139	)			(10	)			(648	)
Commercial Real Estate			-				-				(26	)
Agriculture			-				-				(474	)
Residential Mortgage			-				-				(5	)
Residential Construction			-				-				-
Consumer			(1	)			(6	)			(19	)
Total charged-off			(140	)			(16	)			(1,172	)
Recoveries:
Commercial			3				65				273
Commercial Real Estate			-				-				-
Agriculture			20				-				-
Residential Mortgage			-				-				-
Residential Construction			-				-				-
Consumer			1				1				33
Total recoveries			24				66				306
Net (charge-offs) recoveries			(116	)			50				(866	)
Balance at end of period		$	14,803			$	16,535			$	14,519
Ratio of net (charge-offs) recoveries to average loans outstanding during the period (annualized)			(0.05	)%			0.02	%			(0.08	)%
Allowance for credit losses to total loans			1.37	%			1.56	%			1.36	%
Nonaccrual loans to total loans			0.46	%			1.31	%			0.57	%
Allowance for credit losses to nonaccrual loans			301.00	%			119.43	%			240.78	%

Deposits

Deposits are one of the Company's primary sources of funds. At March 31, 2026 and December 31, 2025, the Company had the following deposit mix:

		March 31, 2026				December 31, 2025
Non-interest bearing transaction			37.0	%			37.7	%
Interest-bearing transaction			26.2	%			26.1	%
Savings and MMDA			28.5	%			27.8	%
Time			8.3	%			8.4	%

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 from customers. These deposits are priced to remain competitive.

Maturities of time certificates of deposit of over $250,000 outstanding at March 31, 2026 and December 31, 2025 are summarized as follows:

(in thousands)		March 31, 2026				December 31, 2025
Three months or less		$	17,723			$	18,034
Over three to six months			16,405				14,471
Over six to twelve months			14,846				14,924
Over twelve months			6,248				6,201
Total		$	55,222			$	53,630

Approximately 43% and 40% of our deposits were uninsured as of March 31, 2026 and December 31, 2025, respectively.

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 Statements of Cash Flows. For the three months ended March 31, 2026, net liquidity used in investing activities totaled $24,617,000.

The Company's available-for-sale investment securities plus cash and cash equivalents in excess of reserve requirements and certificates of deposit totaled $773,038,000 on March 31, 2026, which was 40.2% of assets at that date. This was a decrease of $61,000 from $772,977,000 and 40.4% of assets as of December 31, 2025. 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, 2026, the effective duration of our investment securities was 3.11 with projected principal cashflow of $116,255,000 for the remainder of 2026 available for reinvestment or liquidity needs. The Company had no held-to-maturity securities as of March 31, 2026 and December 31, 2025.

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 Statements of Cash Flows. As of March 31, 2026, the Company had $0 in borrowings outstanding. For the three months ended March 31, 2026, net liquidity provided by financing activities totaled $14,393,000, primarily due to a net increase in deposits. 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, 2026, net cash provided by operating activities totaled $4,254,000, primarily as a result of net income during the three months ended March 31, 2026.

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 62.8% and 62.6% as of March 31, 2026 and December 31, 2025, respectively.

Loan demand during the remainder of 2026 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 the remainder of 2026 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, 2026. Additionally, the Company has a line of credit with the FHLB, with a remaining borrowing capacity at March 31, 2026 of $354,702,000; 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 Federal Reserve 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 Federal Reserve 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 implemented higher minimum capital requirements, included a new common equity Tier 1 capital requirement, and established 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 Economic Growth, Regulatory Relief and Consumer Protection Act ("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% through calendar year 2021 and is 9% 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. On April 23, 2026, the US federal banking regulators issued a final rule implementing changes to the CBLR framework intended to encourage additional community banks to opt into the CBLR framework. The final rule, which is effective July 1, 2026, reduces the CBLR requirement from 9% to 8% and extends the grace period for qualifying institutions that fall below the 8% ratio to return to compliance from the current two quarters to four quarters (subject to a limit of eight quarters in the previous five-year period). At the present time, the Company and the Bank do not intend to elect to use the CBLR framework.

As of March 31, 2026, 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, 2026.

		Actual								Well Capitalized
										Ratio
(in thousands except ratios)		Capital				Ratio				Requirement
Leverage		$	226,932				11.7	%			5.0	%
Common Equity Tier 1		$	226,932				17.8	%			6.5	%
Tier 1 Risk-Based		$	226,932				17.8	%			8.0	%
Total Risk-Based		$	242,835				19.1	%			10.0	%