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 and expectations. See Part I, Item 1A. "Risk Factors,"
and the other risks described in our 2019 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



? Pending and recent 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, as well as the effect of the

federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"),

enacted in March 2020, in an effort to mitigate the consequences of the

coronavirus pandemic and the governmental actions in response thereto

? 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 financial crisis by the U.S. federal banking agencies and our current

intention not to elect to use the recently enacted community bank leverage


   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, and expectations regarding collections

? 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 loan losses, underwriting standards, and risk


   grading



                                       32

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INDEX

? Our assessment of economic conditions and trends and credit cycles and their


   impact on our business



? 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, our strategy regarding troubled debt restructurings

("TDRs"), delinquency rates and our underwriting standards

? Our deposit base including renewal of time deposits

? The impact on our net interest income and net interest margin from the current


   interest rate environment



? Possible changes in the initiatives and policies of the federal bank regulatory


   agencies



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


   Cuts and Jobs Act



? Our pension and retirement plan costs

? Our liquidity strategies and beliefs concerning the adequacy of our liquidity


   position



? 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 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

? Our expectations regarding the adoption of the expected loss model for

determining the allowance for loan losses

? The effects of the coronavirus pandemic on the U.S., California and global

economies and the actions of governments to reduce the spread of the virus and

to mitigate the resulting economic consequences

? 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 2019 Annual Report on Form 10-K, and in our other reports to
the SEC.

                                       33

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INDEX

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, 2019.

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 second quarter and year-to-date 2020 included:

• Net income of $5.4 million for the six months ended June 30, 2020, down 27.2%

from $7.4 million earned for the same period last year. Net income of $2.7

million for the three months ended June 30, 2020, down 20.6% from $3.4 million

for the same period last year.

• Diluted income per share of $0.42 for the six months ended June 30, 2020, down

26.3% from diluted income per share of $0.57 in the same period last year.

Diluted income per share of $0.21 for the three months ended June 30, 2020,

down 19.2% from diluted income per share of $0.26 for the same period last


  year.



• Net interest income of $22.6 million for the six months ended June 30, 2020,

down 3.9% from $23.5 million for the same period last year. Net interest

income of $11.4 million for the three months ended June 30, 2019, down 4.0%

from $11.8 million for the same period last year. The decrease was due to a

decrease in loan interest income and due from banks, which was partially offset

by an increase in interest income on investment securities.

• Net interest margin of 3.36% for the six months ended June 30, 2020, down 18.1%

from 4.10% for the same period last year. Net interest margin of 3.13% for the

three months ended June 30, 2019, down 23.8% from 4.11% for the same period


  last year.



• Provision for loan losses of $1.5 million for the six months ended June 30,

2020, compared to no provision for the same period last year. Provision for

loan losses of $0.8 million for the three months ended June 30, 2020, compared

to no provision for the same period last year. The increase was largely driven

by increases in qualitative factors due to declines in the general economic

environment as a result of the coronavirus pandemic.

• Total assets of $1.61 billion as of June 30, 2020, up 24.7% from $1.29 billion


  as of December 31, 2019.



• Total net loans (including loans held-for-sale) of $981.9 million as of June

30, 2020, up 27.0% from $773.0 million as of December 31, 2019. The increase

was largely driven by Paycheck Protection Program (PPP) loans totaling $232

million as of June 30, 2020.

• Total investment securities of $336.0 million as of June 30, 2020, down 2.0%

from $342.9 million as of December 31, 2019.

• Total deposits of $1.44 billion as of June 30, 2020, up 26.3% from $1.14

billion as of December 31, 2019.

• FHLB advances of $10 million as of June 30, 2020, compared to no FHLB advances

as of December 31, 2019. Advances are from the FHLB's COVID-19 Relief and

Recovery Advances Program and are short-term borrowings with a 0% interest


  rate.



Since March 13, 2020, the United States has been operating under a state of
emergency declared by President Trump in response to the spread of the
coronavirus and the COVID-19 disease which it causes.  On March 4, 2020,
California Governor Gavin Newsom declared a similar state-wide emergency.  Also,
early in March, a number of county and other local health agencies in California
declared emergencies and issued "stay-at-home" ordinances for all persons other
than workers at "essential businesses".  During March 2020 and continuing
thereafter, the pandemic and governmental responses have resulted in
recessionary economic, labor and financial market conditions across the United
States and in our markets in California, including dramatic increases in
unemployment. In response, the FRB reduced its federal funds rate by 1.5
percentage points to .00 to .25 percent.  In addition, in late March 2020, the
U.S. government enacted the CARES Act, a $2.2 trillion economic stimulus
package, the largest in U.S. history, in an effort to lessen the impact of the
pandemic on consumers and businesses.
                                       34

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INDEX


These developments have had an impact on our business.  Our commercial real
estate loan portfolio exposure to industries most affected by the stay-at-home
order includes 5.8% to retail properties and business; 1.4% to restaurants; and
0.9% to the hospitality/hotel sector at June 30, 2020.  Loans to these customers
are generally secured by real estate with relatively low loan-to-value ratios
and strong guarantors.  There is concern that borrowers will draw on their
credit lines to support cashflow disruptions caused by the stay at home
ordinances. Most of the Bank's optional advance lines of credit are "controlled"
with advances supported by certain assets pledged to the bank for repayment or
specific budgeted expense. The Bank monitors credit line advances daily and has
not noted any significant, unusual loan advances.  We have also granted customer
relief in a variety of ways, including extended grace periods on residential and
commercial mortgages, commercial loans, and automobile loan and lease payments,
refraining from reporting payment deferrals to credit bureaus and waiving or
refunding certain fees.  The increase in our provision for loan and lease losses
to $800,000 and $1,450,000 for the second quarter and year to date 2020,
compared to no provision for the same periods in 2019, was largely driven by the
economic impacts of the pandemic on our borrowers.  The Bank, in the first part
of April 2020, commenced participation in the Paycheck Protection Program (PPP)
of the Small Business Administration (SBA) which is aimed at providing relief
from the pandemic to small businesses through loans by banks guaranteed by the
SBA.  In the initial phase of the program, the Bank approved approximately 650
applications for loans under the PPP covering approximately $184 million in
funding.  The program was suspended after the initial Congressional
appropriation of $349 billion was exhausted.  A second phase of the program,
involving a Congressional appropriation of some $310 billion, was initiated on
April 27, 2020.  As of June 30, 2020, the Bank had approved approximately 670
applications in this second phase, covering approximately $51 million in
funding.  A total of approximately $235 million in PPP loans were originated
during the second quarter of 2020.  These PPP loan originations resulted in
approximately $7.8 million in SBA processing fees which will be recognized as an
adjustment to the effective yield over the loans projected life.  A total of
approximately $2 million of PPP processing fees has been recognized in interest
income on loans for the three and six months ended June 30, 2020.  The Company
expects that a significant portion of the loans it has made under the PPP will
be forgiven during the remainder of 2020 under the terms of the program, as
borrowers satisfy the requirement of applying at least 60% of the loan proceeds
to support their payroll expenses.  Thereafter, the Company expects to be
reimbursed by the SBA for the amounts forgiven pursuant to the terms of the
PPP.  Loans which do not qualify for the forgiveness will remain on the Bank's
books, subject to the SBA's guarantee.

The Bank has also continued to actively assist our communities by providing
temporary loan relief under Section 4013 of the Coronavirus Aid, Relief and
Economic Security ('CARES') Act to customers who have been negatively impacted
by COVID. This relief included loan modifications which included temporary
forbearance programs (both full payment deferrals and interest only payments).
The total amount of loans that have been provided temporary forbearance relief
totaled approximately $94.2 million as of June 30, 2020. For loans that were
provided full payment deferrals the Bank has made a policy election to cease
recognizing interest during the terms of the payment suspension. Upon completion
of the payment forbearance period the foregone interest will be capitalized as
deferred interest and recognized as a yield adjustment over the remaining life
of the loan. Loans on interest-only plans continued to accrue interest income as
the loans have continued to make payments over the course of the forbearance
period. Of the $94.2. million in total forbearances approximately $82.7 million
were provided full payment deferrals for terms ranging from three to six months
which resulted in the loss of interest income of approximately $0.9 million for
the three and six months ended June 30, 2020 which partially offsets the
recognition of PPP loan origination fee income previously discussed.

Although banks in California are defined as "essential businesses" under the
California governmental actions and thus are allowed to remain open, in order to
protect the health of our employees, approximately 40% of our employees are now
working remotely, a majority of whom would normally be working in our branches
or offices.  We anticipate the majority of those employees working remotely to
return to our branches and offices effective August 3, 2020, wearing face
coverings, social distancing and using proper hygiene practices.

For additional information on the possible effects of the pandemic on our business, see Part II., Item 1.A., "Risk Factors", in this Report on Form 10-Q.


                                       35

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INDEX

SUMMARY FINANCIAL DATA



The Company recorded net income of $5,384,000 for the six months ended June 30,
2020, representing a decrease of $2,007,000 or 27.2% from net income of
$7,391,000 for the same period in 2019.  The Company recorded net income of
$2,705,000 for the three months ended June 30, 2020, representing a decrease of
$701,000 or 20.6% from net income of $3,406,000 for the same period in 2019.

The following tables present a summary of the results for the three and six months ended June 30, 2020 and 2019, and a summary of financial condition at June 30, 2020 and December 31, 2019.



                                                Three Months         Three Months          Six Months           Six Months
                                               Ended June 30,       Ended June 30,       Ended June 30,       Ended June 30,
                                                    2020                 2019                 2020                 2019
(in thousands except for per share amounts)
For the Period:
Net Income                                    $          2,705     $          3,406     $          5,384     $          7,391
Basic Earnings Per Common Share               $           0.21     $           0.27     $           0.42     $           0.58
Diluted Earnings Per Common Share             $           0.21     $           0.26     $           0.42     $           0.57
Net Income to Average Assets (annualized)                 0.70 %               1.11 %               0.75 %               1.21 %
Net Income to Average Equity (annualized)                 7.54 %              11.31 %               7.71 %              12.54 %
Average Equity to Average Assets                          9.27 %               9.86 %               9.76 %               9.63 %



                                                                                   December 31,
                                                                June 30, 2020          2019

(in thousands except for ratios)
At Period End:
Total Assets                                                   $     1,612,057     $  1,292,591
Total Investment Securities, at fair value                             335,998          342,897
Total Loans, Net (including loans held-for-sale)               $       981,942     $    773,003
Total Deposits                                                 $     1,438,203     $  1,138,632
Loan-To-Deposit Ratio                                                     68.3 %           67.9 %



                                       36

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INDEX


                        FIRST NORTHERN COMMUNITY BANCORP

  Distribution of Average Statements of Condition and Analysis of Net Interest
                                     Income
                   (in thousands, except percentage amounts)

                                   Three months ended                            Three months ended
                                      June 30, 2020                                 June 30, 2019
                          Average                        Yield/         Average                        Yield/
                          Balance        Interest       Rate (4)        Balance        Interest       Rate (4)
Assets
Interest-earning
assets:
Loans (1)               $   919,301     $    9,702           4.23 %   $   730,215     $    9,856           5.41 %
Certificate of
deposits                     22,486            123           2.19 %        11,757             85           2.90 %
Interest bearing due
from banks                  163,031             36           0.09 %        99,589            553           2.23 %
Investment
securities, taxable         324,040          1,667           2.06 %       292,656          1,597           2.19 %
Investment
securities,
non-taxable  (2)             19,929            124           2.50 %        11,656             70           2.41 %
Other interest
earning assets                6,502             83           5.12 %         6,446            108           6.72 %
Total average
interest-earning
assets                    1,455,289         11,735           3.23 %     1,152,319         12,269           4.27 %
Non-interest-earning
assets:
Cash and due from
banks                        35,907                                        27,271
Premises and
equipment, net                6,375                                         6,262
Other real estate
owned                             -                                         1,081
Interest receivable
and other assets             50,343                                        35,396
Total average assets    $ 1,547,914                                   $ 1,222,329

Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Interest-bearing
transaction deposits        347,261             81           0.09 %       304,217            111           0.15 %
Savings and MMDA's          386,804            218           0.23 %       327,631            246           0.30 %
Time, $250,000 or
less                         38,046             57           0.60 %        42,163             56           0.53 %
Time, over $250,000          13,309             29           0.87 %        16,748             39           0.93 %
Total average
interest-bearing
liabilities                 785,420            385           0.20 %       690,759            452           0.26 %
Non-interest-bearing
liabilities:
Federal Home Loan
Bank advances                 5,275                                             -
Non-interest-bearing
demand deposits             595,343                                       396,000
Interest payable and
other liabilities            18,358                                        15,108
Total liabilities         1,404,396                                     1,101,867
Total average
stockholders' equity        143,518                                       120,462
Total average
liabilities and
stockholders' equity    $ 1,547,914                                   $ 1,222,329
Net interest income
and net interest
margin (3)                              $   11,350           3.13 %                   $   11,817           4.11 %


(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

thereon is excluded. Loan interest income includes loan fees of approximately

$1,859 and $67 for the three months ended June 30, 2020 and 2019,

respectively. Loan fees for the three months ended June 30, 2020 include

$1,981 in PPP loan fees recognized. Excluding this amount, loan fees for the

three months ended June 30, 2020 totaled $(122).

(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.



                                       37

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INDEX


                        FIRST NORTHERN COMMUNITY BANCORP

  Distribution of Average Statements of Condition and Analysis of Net Interest
                                     Income
                   (in thousands, except percentage amounts)

                                    Six months ended                              Six months ended
                                      June 30, 2020                                 June 30, 2019
                          Average                        Yield/         Average                        Yield/
                          Balance        Interest       Rate (4)        Balance        Interest       Rate (4)
Assets
Interest-earning
assets:
Loans (1)               $   836,798     $   18,937           4.54 %   $   737,092     $   19,468           5.33 %
Certificate of
deposits                     20,323            237           2.34 %        10,383            151           2.93 %
Interest bearing due
from banks                  139,268            455           0.66 %        93,581          1,128           2.43 %
Investment
securities, taxable         326,667          3,424           2.10 %       296,241          3,230           2.20 %
Investment
securities,
non-taxable  (2)             18,108            224           2.48 %        11,141            120           2.17 %
Other interest
earning assets                6,538            207           6.35 %         6,234            223           7.21 %
Total average
interest-earning
assets                    1,347,702         23,484           3.49 %     1,154,672         24,320           4.25 %
Non-interest-earning
assets:
Cash and due from
banks                        34,590                                        27,058
Premises and
equipment, net                6,452                                         6,409
Other real estate
owned                             -                                         1,087
Interest receivable
and other assets             43,216                                        33,999
Total average assets    $ 1,431,960                                   $ 1,223,225

Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Interest-bearing
transaction deposits        339,462            239           0.14 %       307,022            237           0.16 %
Savings and MMDA's          365,943            486           0.27 %       328,592            409           0.25 %
Time, $250,000 or
less                         38,475            113           0.59 %        43,033            112           0.52 %
Time, over $250,000          13,459             65           0.97 %        17,093             65           0.77 %
Total average
interest-bearing
liabilities                 757,339            903           0.24 %       695,740            823           0.24 %
Non-interest-bearing
liabilities:
Federal Home Loan
Bank Advances                 2,637                                             -
Non-interest-bearing
demand deposits             513,453                                       395,628
Interest payable and
other liabilities            18,799                                        14,006
Total liabilities         1,292,228                                     1,105,374
Total average
stockholders' equity        139,732                                       117,851
Total average
liabilities and
stockholders' equity    $ 1,431,960                                   $ 1,223,225
Net interest income
and net interest
margin (3)                              $   22,581           3.36 %                   $   23,497           4.10 %


(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

thereon is excluded. Loan interest income includes loan fees of approximately

$1,857 and $57 for the six months ended June 30, 2020 and 2019,

respectively. Loan fees for the six months ended June 30, 2020 include

$1,981 in PPP loan fees recognized. Excluding this amount, loan fees for the

six months ended June 30, 2020 totaled $(124).

(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.



                                       38

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INDEX


                        FIRST NORTHERN COMMUNITY BANCORP

  Distribution of Average Statements of Condition and Analysis of Net Interest
                                     Income
                   (in thousands, except percentage amounts)

                                   Three months ended                            Three months ended
                                      June 30, 2020                                March 31, 2020
                          Average                        Yield/         Average                        Yield/
                          Balance        Interest         Rate          Balance        Interest         Rate
Assets
Interest-earning
assets:
Loans (1)               $   919,301     $    9,702           4.23 %   $   754,296     $    9,235           4.91 %
Certificates of
deposit                      22,486            123           2.19 %        18,159            114           2.52 %
Interest bearing due
from banks                  163,031             36           0.09 %       115,507            419           1.45 %
Investment
securities, taxable         324,040          1,667           2.06 %       329,293          1,757           2.14 %
Investment
securities,
non-taxable (2)              19,929            124           2.50 %        16,287            100           2.46 %
Other interest
earning assets                6,502             83           5.12 %         6,574            124           7.57 %
Total average
interest-earning
assets                    1,455,289         11,735           3.23 %     1,240,116         11,749           3.80 %
Non-interest-earning
assets:
Cash and due from
banks                        35,907                                        33,271
Premises and
equipment, net                6,375                                         6,529
Other real estate
owned                             -                                             -
Interest receivable
and other assets             50,343                                        36,089
Total average assets    $ 1,547,914                                   $ 1,316,005

Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Interest-bearing
transaction deposits        347,261             81           0.09 %       331,663            158           0.19 %
Savings and MMDA's          386,804            218           0.23 %       345,082            268           0.31 %
Time, $250,000 and
under                        38,046             57           0.60 %        38,418             56           0.58 %
Time, over $250,000          13,309             29           0.87 %        14,097             36           1.02 %
Total average
interest-bearing
liabilities                 785,420            385           0.20 %       729,260            518           0.28 %
Non-interest-bearing
liabilities:
Federal Home Loan
Bank Advances                 5,275                                             -
Non-interest-bearing
demand deposits             595,343                                       431,675
Interest payable and
other liabilities            18,358                                        19,236
Total liabilities         1,404,396                                     1,180,171
Total average
stockholders' equity        143,518                                       135,834
Total average
liabilities and
stockholders' equity    $ 1,547,914                                   $ 1,316,005
Net interest income
and net interest
margin (3)                              $   11,350           3.13 %                   $   11,231           3.63 %


(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 of approximately $1,859

and $(2) for the three months ended June 30, 2020 and March 31, 2020,

respectively. Loan fees for the three months ended June 30, 2020 include

$1,981 in PPP loan fees recognized. Excluding this amount, loan fees for the

three months ended June 30, 2020 totaled $(122).

(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.



                                       39

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  INDEX
                              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 June 30, 2020 over the three months ended
June 30, 2019, the six months ended June 30, 2020 over the six months ended June
30, 2019, and the three months ended June 30, 2020 over the three months ended
March 31, 2020.  Changes not solely due to interest rate or volume have been
allocated proportionately to interest rate and volume.

                           Three Months Ended                    Six Months Ended               Three Months Ended
                              June 30, 2020                        June 30, 2020                   June 30, 2020
                                  Over                                 Over                            Over
                           Three Months Ended                    Six Months Ended               Three Months Ended
                              June 30, 2019                        June 30, 2019                  March 31, 2020
                                     Interest                        Interest                        Interest
                   Volume              Rate      Change    Volume      Rate      Change    Volume      Rate      Change

Increase (Decrease) in Interest Income:



Loans            $ 2,268         $     (2,422)   $ (154)   $ 2,526   $ (3,057)   $ (531)   $ 1,800   $ (1,333)   $   467
Certificates of
Deposit               63                  (25)        38       122        (36)        86        25        (16)         9
Due From Banks       219                 (736)     (517)       394     (1,067)     (673)       123       (506)     (383)
Investment
Securities -
Taxable              167                  (97)        70       340       (146)       194      (27)        (63)      (90)
Investment
Securities -
Non-taxable           51                     3        54        84          20       104        22           2        24
Other Assets           1                  (26)      (25)        11        (27)      (16)       (1)        (40)      (41)
                 $ 2,769         $     (3,303)   $ (534)   $ 3,477   $ (4,313)   $ (836)   $ 1,942   $ (1,956)   $  (14)

Increase (Decrease) in Interest Expense:



Deposits:
Interest-Bearing
Transaction
Deposits         $        16         $    (46)   $  (30)   $    29   $    (27)   $     2   $     7   $    (84)   $  (77)
Savings & MMDAs           38              (66)      (28)        45          32        77        28        (78)      (50)
Time
Certificates            (12)                 3       (9)      (64)          65         1       (1)         (5)       (6)

                 $        42         $   (109)   $  (67)   $    10   $      70   $    80   $    34   $   (167)   $ (133)

Increase
(decrease) in
Net Interest
Income:          $     2,727         $ (3,194)   $ (467)   $ 3,467   $ (4,383)   $ (916)   $ 1,908   $ (1,789)   $   119



                                       40

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INDEX

CHANGES IN FINANCIAL CONDITION



The assets of the Company set forth in the Unaudited Condensed Consolidated
Balance Sheets reflect a $113,611,000 or 101.9% increase in cash and cash
equivalents, a $5,638,000 or 38.4% increase in certificates of deposit, a
$6,899,000 or 2.0% decrease in investment securities available-for-sale, a
$211,221,000 or 27.5% increase in net loans held-for-investment, and a
$2,282,000 or 55.3% decrease in loans held-for-sale from December 31, 2019 to
June 30, 2020.  The increase in cash and cash equivalents was primarily due to
an increase in deposit balances.  The increase in certificates of deposit was
due to allocating the cash flows from payments on and maturities of
available-for-sale securities towards additional purchases of certificates of
deposit.  The decrease in investment securities was primarily due to maturities
and calls of available for sale securities that was allocated towards purchases
of certificates of deposits.  The increase in net loans held-for-investment was
primarily due to PPP loans originated in the second quarter of 2020 totaling
approximately $235 million which are classified as commercial loans.  The
decrease in loans held-for-sale was due to the timing of funding and sale of the
loans held-for-sale pipeline.

The liabilities of the Company set forth in the Unaudited Condensed Consolidated
Balance Sheets reflect an increase in total deposits of $299,571,000 or 26.3%
from December 31, 2019 to June 30, 2020.  The overall increase in total deposits
was primarily attributable to PPP loans originated in the second quarter of
2020.  The Company required PPP loans to fund to a First Northern demand deposit
account which resulted in a significant increase in demand deposits during the
quarter.  The PPP program also resulted in new customer relationships coupled
with increased savings rates as a result of current economic uncertainties.
During the second quarter of 2020, the Company requested and received advances
totaling $10 million through the FHLB's COVID-19 Relief and Recovery Advances
Program.  The advances are short-term borrowings with a 0% interest rate.

CHANGES IN RESULTS OF OPERATIONS

Interest Income



The Federal Open Market Committee, in response to the economic effects of the
pandemic, decreased the Federal Funds rate by 150 basis points to 0.00% to 0.25%
during the six months ended June 30, 2020.

Interest income on loans for the six months ended June 30, 2020 was down 2.7%
from the same period in 2019, decreasing from $19,468,000 to $18,937,000, and
was down 1.6% for the three months ended June 30, 2020 over the same period in
2019, decreasing from $9,856,000 to $9,702,000.  The decrease in interest income
on loans for the three and six months ended June 30, 2020 was primarily due to a
79 basis point and 118 basis point decrease in loan yields, respectively.  The
decrease in loan yields compared to prior periods is due several factors:
adjustable rate loans re-pricing at lower rates as a result of recent declines
in interest rates and related indices, which is mitigated to some extent by the
inclusion of interest rate floors on the majority of our variable rate loans;
the accommodation of certain fixed rate loan customers to re-price their
existing loans at lower rates to retain existing relationships in a competitive
rate environment; an increase in non-accrual loan balances; our policy election
to cease interest recognition for loans provided temporary full payment
deferrals during the term of the forbearance period (generally ranging from
three to six months) under Section 4013 CARES Act (see FN 2) and the origination
of $235 million of PPP loans at an interest rate of 1%. Loans provided full
payment deferrals under the CARES act totaled $82.7 million on June 30, 2020
which resulted in the loss of interest income of approximately $0.9 million for
the three and six months ended June 30, 2020.  Partially offsetting these
impacts was the recognition of processing fees received by the SBA related to
the origination of the PPP loans. The Company received a total of approximately
$7.8 million in processing fees from the SBA during the three months ended June
30, 2020. These fees are required to be recognized as an adjustment to the
effective yield over the life of the loan. For the three and six months ended
June 30, 2020 the Bank recognized $1,981,000 of these processing fees which is
included as a component of interest income on loans. The remaining balance of
approximately $5.8 million will be recognized over remaining life of the PPP
loans.

Interest income on certificates of deposit for the six months ended June 30,
2020 was up 57.0% from the same period in 2019, increasing from $151,000 to
$237,000, and was up 44.7% for the three months ended June 30, 2020 over the
same period in 2019, increasing from $85,000 to $123,000.  The increase in
interest income on certificates of deposit for the six months ended June 30,
2020 as compared to the same period a year ago was primarily due to an increase
in average balances of certificates of deposit, which was partially offsect by a
59 basis point decrease in yield on certificates of deposit.  The increase in
interest income on certificates of deposit for the three months ended June 30,
2020 as compared to the same period a year ago was primarily due to an increase
in average certificates of deposit, which was partially offset by a 71 basis
point decrease in yield on certificates of deposit.

Interest income on interest-bearing due from banks for the six months ended June
30, 2020 was down 59.7% from the same period in 2019, decreasing from $1,128,000
to $455,000, and was down 93.5% for the three months ended June 30, 2020 over
the same period in 2019, decreasing from $553,000 to $36,000.  This income is
primarily derived from interest on excess reserves held at the Federal Reserve.
The decrease in interest income on interest-bearing due from banks for the six
months ended June 30, 2020 as compared to the same period a year ago was
primarily due to reductions in the Federal Funds Rate resulting in a 177 basis
point decrease in yield on interest-bearing due from banks, which was partially
offset by an increase in average balances of interest-bearing due from banks.
The increase in interest income on interest-bearing due from banks for the three
months ended June 30, 2020 as compared to the same period a year ago was
primarily due to reductions in the Federal Funds Rate, resulting in a 214 basis
point decrease in yield on interest-bearing due from banks, which was partially
offset by an increase in average balances of interest-bearing due from banks.

                                       41

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INDEX


Interest income on investment securities available-for-sale for the six months
ended June 30, 2020 was up 8.9% from the same period in 2019, increasing from
$3,350,000 to $3,648,000, and was up 7.4% for the three months ended June 30,
2020 over the same period in 2019, increasing from $1,667,000 to $1,791,000.
The increase in interest income on investment securities for the six months
ended June 30, 2020 as compared to the same period a year ago was primarily due
to an increase in average investment securities, which was partially offset by
an 8 basis point decrease in investment yields.  The increase in interest income
on investment securities for the three months ended June 30, 2020 as compared to
the same period a year ago was primarily due to an increase in average
investment securities, which was partially offset by an 11 basis point decrease
in investment yields.

Interest income on other earning assets for the six months ended June 30, 2020
was down 7.2% from the same period in 2019, decreasing from $223,000 to
$207,000, and was down 23.2% for the three months ended June 30, 2020 over the
same period in 2019, decreasing from $108,000 to $83,000.  This income is
primarily derived from dividends received by the Federal Home Loan Bank.  The
decrease in interest income on other assets for the six months ended June 30,
2020 as compared to the same period a year ago was primarily due to an 86 basis
point decrease in yield on other earning assets as a result of decreased FHLB
dividend rates.  The decrease in interest income on other earning assets for the
three months ended June 30, 2020 as compared to the same period a year ago was
primarily due to a 160 basis point decrease in yield on other earning assets as
a result of decreased FHLB dividend rates.

The Company had no Federal Funds sold balances during the three and six months ended June 30, 2020 and June 30, 2019.

Interest Expense



Interest expense on deposits for the six months ended June 30, 2020 was up 9.7%
from the same period in 2019, increasing from $823,000 to $903,000, and was down
14.8% for the three months ended June 30, 2020 over the same period in 2019,
decreasing from $452,000 to $385,000.  The increase in interest expense during
the six months ended June 30, 2020 was primarily due to an increase in the
average balance of interest-bearing liabilities.  The decrease in interest
expense during the three months ended June 30, 2020 was primarily due to a 6
basis point decrease in the Company's average cost of funds, which was partially
offset by an increase in the average balance of interest-bearing liabilities.

The Company received FHLB advances of $10 million during the three months ended
June 30, 2020.  The advances are short-term borrowings with a 0% interest rate.
The Company had no FHLB advances or other borrowing balances during the three
months ended June 30, 2019.

Provision for Loan Losses

Provision for loan losses totaled $1,450,000 for the six months ended June 30,
2020 compared to no provision for loan losses for the same period in 2019.
Provision for loan losses totaled $800,000 for the three months ended June 30,
2020 compared to no provision for loan losses for the same period in 2019.  The
allowance for loan losses was approximately $13,631,000 or 1.36% of total loans,
at June 30, 2020, compared to $12,356,000, or 1.58% of total loans, at December
31, 2019.  The allowance for loan losses is maintained at a level considered
adequate by management to provide for probable loan losses inherent in the loan
portfolio.  The decrease in the ratio of allowance to total loans from December
31, 2019 to June 30, 2020 was primarily due to PPP loans of approximately $232
million outstanding as of June 30, 2020, which are fully guaranteed by the SBA.

The increase in the provision for loan losses during the three and six months
ended June 30, 2020 compared to the same period in 2019 was due to an increase
in net charge-offs, coupled with adjustments to qualitative factors resulting
from the downturn in economic conditions associated with the COVID-19 pandemic.

Provision for Unfunded Lending Commitment Losses



Provision for unfunded lending commitment losses totaled $110,000 and $40,000
for the six months ended June 30, 2020 and June 30, 2019, respectively.
Provision for unfunded lending commitment losses totaled $10,000 and $(40,000)
for the three months ended June 30, 2020  and June 30, 2019, respectively.  The
changes in the provision for unfunded lending commitments is primarily due to
adjustment to qualitative factors resulting from the downturn in economic
conditions associated with the COVID-19 pandemic.

The provision for unfunded lending commitment losses is included in other non-interest expense in the Condensed Consolidated Statements of Income.


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INDEX

Non-Interest Income



Non-interest income was down 6.6% for the six months ended June 30, 2020 from
the same period in 2019, decreasing from $3,530,000 to $3,297,000.  Non-interest
income was down 1.4% for the three months ended June 30, 2020 from the same
period in 2019, decreasing from $1,671,000 to $1,648,000.

The decrease was primarily due to decreases in service charges on deposit
accounts, mortgage brokerage income, loan servicing income, debit card income,
and other income, which was partially offset by an increase in gains on sales of
loans held-for-sale.  The decrease in service charges on deposit accounts was
primarily a result of the COVID-19 pandemic and the Bank's decision to waive
overdraft/NSF fees for all business and consumer customers for an initial period
of 60 days which began in March and was later extended into the third quarter.
This assistance has resulted in increased fee waiver activity, reducing reported
service charge income.  The decrease in mortgage brokerage income was primarily
a result of decreased mortgage brokerage volume. The decrease in loan servicing
income was primarily due to impairment expense recognized on mortgage servicing
rights asset.  The decrease in debit card income was primarily due to a decrease
in transaction volumes.  The decrease in other income year to date was primarily
due to a gain on sale of land recognized during the six months ended June 30,
2019 that was not repeated during the same period in 2020.  The increase in
gains on sales of loans held-for-sale was primarily due to an increase in loan
origination volumes as a result of the recent decline in interest rates and
uptick in refinancing activity.

Non-Interest Expenses

Total non-interest expenses were up 1.5% for the six months ended June 30, 2020 from the same period in 2019, increasing from $16,823,000 to $17,077,000.



The increase was primarily due to increases in salaries and employee benefits,
occupancy and equipment, and data processing, which was partially offset by a
decrease in other real estate owned expense.  The increase in salaries and
employee benefits was primarily due to an increase in the number of full-time
equivalent employees.  The increase in occupancy and equipment expense was
primarily due to rent expense and other expenses associated with the opening of
an administrative office space and branch during the second half of 2019.  The
increase in data processing expense was primarily due to costs associated with
enhanced IT infrastructure and the conversion of our online banking platform
during the first half of 2020.  The decrease in other real estate owned expense
was due to a writedown on an other real estate owned property during the six
months ended June 30, 2019.

Total non-interest expenses were down 3.4% for the three months ended June 30, 2020 from the same period in 2019, decreasing from $8,805,000 to $8,507,000.



The decrease was primarily due to a decrease in other real estate owned expense,
which was partially offset by increases in occupancy and equipment and data
processing.  The decrease in other real estate owned expense was due to a
writedown on an other real estate owned property during the three months ended
June 30, 2019.  The increase in occupancy and equipment expense was primarily
due to rent expense and other expenses associated with the opening of an
administrative office space and branch during the second half of 2019.  The
increase in data processing expense was primarily due to costs associated with
enhanced IT infrastructure and the conversion of our online banking platform
during the first half of 2020.

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INDEX

The following table sets forth other non-interest expenses by category for the three and six months ended June 30, 2020 and 2019.



                                                                 (in thousands)
                                              Three           Three
                                             months          months        Six months      Six months
                                              ended           ended           ended           ended
                                            June 30,        June 30,        June 30,        June 30,
                                              2020            2019            2020            2019
Other non-interest expenses
Provision for (reversal of) unfunded
loan commitments                           $        10     $       (40 )   $       110     $        40
FDIC assessments                                   130              80             130             170
Contributions                                       32              61              81             127
Legal fees                                         125             159             209             231
Accounting and audit fees                          114             114             228             224
Consulting fees                                    120             186             194             264
Postage expense                                     44              47              66              74
Telephone expense                                   31              31              59              64
Public relations                                    30              82              92             130
Training expense                                    16              47              43              81
Loan origination expense                            65              32             110              82
Computer software depreciation                      17              22              34              54
Sundry losses                                       15              63              79             117
Loan collection expense                             68               7             102             (45 )
Interchange fees                                   107             150             242             259
Other non-interest expense                         313             324             573             651

Total other non-interest expenses $ 1,237 $ 1,365 $ 2,352 $ 2,523





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 30.1% for the six months
ended June 30, 2020 from the same period in 2019, decreasing from $2,813,000 to
$1,967,000, and decreased 22.8% for the three months ended June 30, 2020 from
the same period in 2019, decreasing from $1,277,000 to $986,000.  The decrease
in provision for income taxes was primarily due to a decrease in pre-tax income.

Off-Balance Sheet Commitments

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



                                           (in thousands)

                                June 30, 2020       December 31, 2019

Undisbursed loan commitments   $       196,073     $           198,534
Standby letters of credit                2,974                   2,455
Commitments to sell loans                6,688                   1,240
                               $       205,735     $           202,229



The reserve for unfunded lending commitments amounted to $950,000 and $840,000
as of June 30, 2020 and December 31, 2019, 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.

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INDEX

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 by loan category at June 30, 2020
and December 31, 2019:

                                       At June 30, 2020

At December 31, 2019


                             Gross        Guaranteed         Net          Gross         Guaranteed         Net
(in thousands)

Commercial                 $     450     $        170     $     280     $      266     $        170     $      96
Commercial real estate         5,708               39         5,669            466               45           421
Agriculture                    9,145                -         9,145              -                -             -
Residential mortgage             170                -           170            172                -           172
Residential construction           -                -             -              -                -             -
Consumer                         883                -           883            253                -           253
Total non-accrual loans    $  16,356     $        209     $  16,147     $    1,157     $        215     $     942

See Note 2 of the Notes to Condensed Consolidated Financial Statements for discussion on the Bank's policy election as a result of the CARES Act.



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 $16,356,000 at June 30, 2020 and were comprised of
four commercial loans totaling $450,000, four commercial real estate loans
totaling $5,708,000, three agriculture loans totaling $9,145,000, one
residential mortgage loan totaling $170,000, and seven consumer loans totaling
$883,000.  Non-accrual loans amounted to $1,157,000 at December 31, 2019 and
were comprised of three commercial loans totaling $266,000, two commercial real
estate loans totaling $466,000, one residential mortgage loan totaling $172,000
and four consumer loans totaling $253,000. If the loan is considered collateral
dependent, it is generally the Company's policy to charge-off the portion of any
non-accrual loan that the Company does not expect to collect by writing the loan
down to the estimated net realizable value of the underlying collateral.

                                       45

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INDEX


Loans for which it is probable that payment of interest and principal will not
be made in accordance with the contractual terms of the loan agreement are
considered impaired.  Non-performing impaired loans totaled $16,356,000 and
$1,157,000 as of June 30, 2020 and December 31, 2019, respectively.  The
increase in non-performing impaired loans from December 31, 2019 to June 30,
2020 was primarily due to two commercial real estate loans comprising one
lending relationship and three agriculture loans comprising one lending
relationship.  A restructuring of a loan can constitute a TDR if the Company for
economic or legal reasons related to the borrower's financial difficulties
grants a concession to the borrower that it would not otherwise consider.  A
loan that is restructured as a TDR is considered an impaired loan.  Performing
impaired loans, which consisted of loans modified as TDRs, totaled $2,669,000
and $3,318,000 at June 30, 2020 and December 31, 2019, respectively.  The
Company expects to collect all principal and interest due from performing
impaired loans.  These loans are not on non-accrual status.  The majority of the
non-performing impaired loans, in management's opinion, were adequately
collateralized based on recently obtained appraised property values or were
guaranteed by a governmental entity.  See "Allowance for Loan Losses" below for
additional information.  No assurance can be given that the existing or any
additional collateral will be sufficient to secure full recovery of the
obligations owed under these loans.

On March 22, 2020, the federal bank regulatory agencies issued joint guidance
advising that the agencies have confirmed with the staff of the Financial
Accounting Standards Board that short-term modifications due to COVID-19 made on
a good faith basis to borrowers who were current prior to relief, are not TDRs.
The CARES Act also provided relief from TDR classification for certain COVID-19
loan modifications.  The Bank elected not to classify modifications that meet
the criteria under either the CARES Act or the criteria specified by the
regulatory agencies as TDRs.

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, increased $15,205,000 or 1,614%
to $16,147,000 during the first six months of 2020.  Non-performing assets, net
of guarantees, represented 1.0% of total assets at June 30, 2020.

                                    At June 30, 2020

At December 31, 2019


                          Gross        Guaranteed         Net          Gross        Guaranteed         Net
(dollars in
thousands)

Non-accrual loans       $  16,356     $        209     $  16,147     $   1,157     $        215     $     942
Loans 90 days past
due and still
accruing                        -                -             -             -                -             -

Total non-performing
loans                      16,356              209        16,147         1,157              215           942
Other real estate
owned                           -                -             -             -                -             -
Total non-performing
assets                  $  16,356     $        209     $  16,147     $  

1,157     $        215     $     942

Non-performing loans
(net of guarantees)
to total loans                                               1.6 %                                        0.1 %
Non-performing assets
(net of guarantees)
to total assets                                              1.0 %                                        0.1 %
Allowance for loan
and lease losses to
non-performing loans
(net of guarantees)                                         84.4 %                                    1,311.7 %



The Company had no loans 90 days or more past due and still accruing at June 30, 2020 and December 31, 2019.



Excluding the non-performing loans cited previously, loans totaling $8,818,000
and $8,749,000 were classified as substandard or doubtful loans, representing
potential problem loans at June 30, 2020 and December 31, 2019, respectively.
In Management's opinion, the potential loss related to these problem loans was
sufficiently covered by the Bank's existing loan loss reserve (Allowance for
Loan Losses) at June 30, 2020 and December 31, 2019.  The ratio of the Allowance
for Loan Losses to total loans at June 30, 2020 and December 31, 2019 was 1.36%
and 1.58%, 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 June 30, 2020 and
December 31, 2019.

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Allowance for Loan Losses



The Company's Allowance for Loan Losses is maintained at a level believed by
management to be adequate to provide for loan and other credit losses that can
be reasonably anticipated.  The allowance 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 as well as considers current
economic conditions, loan loss experience, and other factors in determining the
adequacy of the reserve balance.  The allowance for loan losses is based on
estimates, and actual losses may vary from current estimates.

The following table summarizes the Allowance for Loan Losses of the Company during the six months ended June 30, 2020 and 2019, and for the year ended December 31, 2019:



                   Analysis of the Allowance for Loan Losses
               (Amounts in thousands, except percentage amounts)

                                                         Six months ended           Year ended
                                                             June 30,              December 31,
                                                       2020           2019             2019

Balance at beginning of period                       $  12,356      $  12,822     $       12,822
Provision for loan losses                                1,450              -                  -
Loans charged-off:
Commercial                                                (184 )         (150 )             (638 )
Commercial Real Estate                                       -              -                  -
Agriculture                                                  -              -                (98 )
Residential Mortgage                                         -              -                  -
Residential Construction                                     -              -                  -
Consumer                                                   (13 )          (15 )              (43 )

Total charged-off                                         (197 )         (165 )             (779 )

Recoveries:
Commercial                                                  12             83                209
Commercial Real Estate                                       -              -                  -
Agriculture                                                  -              -                  -
Residential Mortgage                                         -             72                 74
Residential Construction                                     -             21                 21
Consumer                                                    10              5                  9

Total recoveries                                            22            181                313

Net charge-offs                                           (175 )           16               (466 )

Balance at end of period                             $  13,631      $  12,838     $       12,356

Ratio of net charge-offs to average loans
outstanding during the period (annualized)               (0.04 %)        0.00 %            (0.06 %)
Allowance for loan losses
To total loans at the end of the period                   1.36 %         1.72 %             1.58 %
To non-performing loans, net of guarantees at the
end of the period                                         84.4 %        814.1 %          1,311.7 %



The decrease in the ratio of allowance to total loans from December 31, 2019 to
June 30, 2020 was primarily due to PPP loans of approximately $232 million
outstanding as of June 30, 2020, which are fully guaranteed by the SBA.  The
increase in the provision for loan losses during the three and six months ended
June 30, 2020 compared to the same period in 2019 was due to an increase in net
charge-offs, coupled with adjustments to qualitative factors resulting from the
downturn in economic conditions associated with the COVID-19 pandemic.

The decrease in the ratio of allowance for loan losses to non-performing loans,
net of guarantees from December 31, 2019 to June 30, 2020 was primarily due to
the increase in non-performing loans.  The increase in non-performing impaired
loans from December 31, 2019 to June 30, 2020 was primarily due to two
commercial real estate loans comprising one lending relationship and three
agriculture loans comprising one lending relationship.

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Deposits



Deposits are one of the Company's primary sources of funds.  At June 30, 2020,
the Company had the following deposit mix: 28.2% in savings and MMDA deposits,
3.6% in time deposits, 24.9% in interest-bearing transaction deposits and 43.3%
in non-interest-bearing transaction deposits.  At December 31, 2019, the Company
had the following deposit mix: 30.2% in savings and MMDA deposits, 4.7% in time
deposits, 27.9% in interest-bearing transaction deposits and 37.2% in
non-interest-bearing transaction deposits.  Non-interest-bearing transaction
deposits increase the Company's net interest income by lowering its cost of
funds.

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.

Maturities of time certificates of deposits of over $250,000 outstanding at June 30, 2020 and December 31, 2019 are summarized as follows:



                                          (in thousands)
                               June 30, 2020       December 31, 2019
Three months or less          $         2,882     $             4,738
Over three to twelve months             7,240                   5,104
Over twelve months                      3,452                   6,035
Total                         $        13,574     $            15,877


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 is
measured by various ratios; in management's opinion, the most common is the
ratio of net loans to deposits (including loans held-for-sale).  This ratio was
68.3% on June 30, 2020.  In addition, on June 30, 2020, the Company had the
following short-term investments (based on remaining maturity and/or next
repricing date):  $22,451,000 in securities due within one year or less; and
$60,440,000 in securities due in one to five years.

To meet unanticipated funding requirements, the Company maintains short-term
unsecured lines of credit with other banks which totaled $122,000,000 at June
30, 2020.  Additionally, the Company has a line of credit with the FHLB, with a
remaining borrowing capacity at June 30, 2020 of $323,091,000; 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 on Banking Supervision ("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 new rules on January 1,
2015.  The new 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 Tier1 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.

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Pursuant to the Economic Growth Regulatory Relief and Consumer Protection Act
(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 November 2019, the bank regulatory agencies jointly adopted a final rule,
that became effective January 1, 2020, that provided for a simple measure of
capital adequacy for certain community banking organizations, consistent with
the EGRRCPA.  Under the rule, depository institutions and depository institution
holding companies that have less than $10 billion in total consolidated assets,
such as the Company and the Bank, and that meet other qualifying criteria,
including a leverage ratio (equal to tier 1 capital divided by average total
consolidated assets) of greater than 9 percent, are eligible to opt into the
community bank leverage ratio framework.  In April 2020, the federal bank
regulatory agencies issued an interim final rule that made temporary changes to
the community bank leverage ratio framework, pursuant to the CARES Act.  As of
the second quarter 2020, a banking organization with a leverage ratio of 8
percent or greater (and that meets other qualifying criteria) may elect to use
the community bank leverage ratio framework. The temporary changes to the
community bank leverage ratio framework implemented by this interim final rule
will cease to be effective as of the earlier of the termination date of the
national emergency concerning the coronavirus disease declared by the President
on March 13, 2020, or December 31, 2020. Concurrently, the federal bank
regulatory agencies issued an interim final rule that provides for a transition
from the temporary 8 percent community bank leverage ratio requirement to the 9
percent community bank leverage ratio requirement under the final rule.  Under
the transition rule, the community bank leverage ratio will be 8 percent in the
second quarter through fourth quarter of calendar year 2020, 8.5 percent in
calendar year 2021, and 9 percent thereafter.  Qualifying community banking
organizations that elect to use the community bank leverage ratio framework and
that maintain a leverage ratio of greater than 8 percent (subject to transition
to 9 percent beginning after calendar year 2021) will be considered to have
satisfied the generally applicable risk-based and leverage capital requirements
in the agencies' capital rules and, if applicable, will be considered to have
met the well-capitalized ratio requirements for purposes of the FDIA. At the
present time, the Company does not intend to elect to use the community bank
leverage framework.

As of June 30, 2020, 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 June 30, 2020.

                                                            (amounts in 

thousands except percentage amounts)



                                                                   Actual                         Well Capitalized
                                                                                                       Ratio
                                                       Capital                Ratio                 Requirement
Leverage                                             $   134,712                    8.75 %                      5.0 %
Common Equity Tier 1                                 $   134,712                   15.43 %                      6.5 %
Tier 1 Risk-Based                                    $   134,712                   15.43 %                      8.0 %
Total Risk-Based                                     $   145,668                   16.69 %                     10.0 %



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