What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-10 compared with 2022-03-14 · 421 added, 452 removed, 1304 unchanged (40% of the section changed)

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Report on Internal Control over Financial Reporting

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Consolidated Statements of Income for Years Ended December 31, 2022 and 2021

Consolidated Statements of Comprehensive Income for Years Ended December 31, 2021 and 2020

Consolidated Statements of Comprehensive Income (Loss) for Years Ended December 31, 2022 and 2021

Consolidated Statement of Stockholders’ Equity for Years Ended December 31, 2022 and 2021

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Based on this assessment, management of the Company has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2022.

/s/ Louise A.

/s/ Jeremiah Z.

President/Chief Executive Officer/Director

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Northern

Community Bancorp and subsidiary (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively

referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of

December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of First Northern Community Bancorp and subsidiary (the

“Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated

financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of its

operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express

an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect

to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in

accordance with the standards of the PCAOB.

Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal

control over financial reporting in accordance with the standards of the PCAOB.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in

the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

believe that our audits provide a reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial

statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1)

relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our

opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial

statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,

or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate

opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

As described in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for loan losses balance was $14.0 million as of December 31, 2021.

The allowance for loan losses is maintained to provide for

estimated losses inherent in existing loans on evaluations of collectability and prior loss experience.

Individual loans identified as impaired are reviewed and measured for impairment, while all other loans, that are not identified as impaired, are

collectively evaluated for impairment.

The evaluations take into consideration internal and external factors such as trends in portfolio volume, maturity and composition, overall portfolio quality, loan concentrations, levels of and trends in

charge-offs and recoveries, current and anticipated economic conditions that may affect the borrowers’ ability to pay, and national and local economic trends and conditions.

We identified management’s risk rating of loans and the estimation of qualitative factors, both of which are used in the allowance for loan losses calculation, as a critical audit matter.

The Company manages risk ratings through

the analysis of initial credit requests and ongoing examination of outstanding loans and delinquencies, with particular attention to portfolio dynamics and loan mix.

Determination of the risk rating involves significant management judgement.

qualitative factors consist of management’s analysis of the level of risks inherent in the loan portfolio, which are related to the risks of the Company’s general lending activity, including the risk of losses that are attributable to national or

local economic or industry trends which have occurred but have not yet been recognized in past loan charge-off history, and the risk of losses attributable to general attributes of the Company’s loan portfolio and credit administration.

management’s judgments regarding the determination of risk ratings and qualitative factors applied to the allowance for loan losses involved a high degree of subjectivity.

As described in Notes 1

and 4 to the consolidated financial statements, the Company’s allowance for loan losses balance was $14.8 million as of December 31, 2022.

The allowance for loan losses is maintained to provide for estimated losses inherent in existing loans based

on evaluations of collectability and prior loss experience.

The allowance consists of specific and general components.

Specific reserves are recorded to recognize impairments on individually evaluated loans.

The general component covers loans

evaluated collectively, and the estimate is determined using historical losses adjusted for qualitative and environmental factors.

The qualitative and environmental factors used to adjust historical loss rates by loan type consist of the risks of

the Company’s general lending activity, including risk of losses that are attributable to national or local economic or industry trends which have occurred but have yet been recognized in past loan charge-off history, and risk of losses

attributable to general attributes of the Company’s loan portfolio and credit administration.

We identified management’s estimation of qualitative and environmental factors as a critical audit matter.

The qualitative and environmental factors include current

economic conditions, concentrations of credit, nature and volume of the loan portfolio, trends in delinquent loans and special assets, values of underlying collateral, results of external loan reviews and regulatory examinations, changes in lending

policies and procedures, experience of lending staff, changes in competition and regulatory requirements, and other internal and external factors as determined by management.

Each qualitative and environmental factor is assigned a value to reflect

improving, stable, or declining economic conditions based on management’s best judgement using relevant information available at the time of evaluation.

Auditing management’s judgments regarding the determination of qualitative and environmental

factors applied to the allowance for loan losses involved a high degree of subjectivity.

The primary procedures we performed to address this critical audit matter included:

Testing the design, implementation, and operating effectiveness of controls relating to management’s review of loans and assignment of risk ratings.

Evaluating the appropriateness of the methodology and assumptions used in the calculation of the allowance for loan losses and testing the calculation itself, including completeness and accuracy of the data, application of the loan

risk ratings determined by management, application of the qualitative factors determined by management, and recalculation of the allowance for loan losses balance.

Testing a risk-based targeted selection of loans to gain substantive evidence that the Company is appropriately risk rating the loans in accordance with its policies and that the risk ratings for the loans

are appropriate.

Evaluating management’s analysis and supporting documentation related to the qualitative factors, performing a sensitivity analysis over the qualitative thresholds established by management, performing

substantive analytical procedures on the year-end allowance balance, and testing whether the qualitative factors used in the calculation of the allowance for loan losses are supported by the analysis provided by management.

Obtained management’s analysis and supporting documentation related to the qualitative and environmental factors and tested whether the qualitative and

environmental factors used in the calculation of the allowance for loan losses are supported by the documentation provided by management.

Tested the mathematical accuracy of the allowance for loan losses calculation, including completeness and accuracy of the data used in the calculation, sources

of data and application of the qualitative and environmental factors within the calculation.

Performed a sensitivity analysis over the qualitative and environmental factor thresholds established by management.

/s/ MOSS ADAMS LLP

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Total Deposits

Federal Home Loan Bank advances

Interest payable and other liabilities

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16,000,000 shares authorized;

13,848,904 and 13,634,463

shares issued and outstanding at December 31, 2021 and 2020 , respectively

14,652,584 and 13,848,904 shares issued and

outstanding at December 31, 2022 and 2021 , respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive (loss) income, net

Accumulated other comprehensive loss, net

Total Stockholders’ Equity

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Net interest income

(Reversal of) provision for loan losses

Net interest income after (reversal of) provision for loan losses

Provision (reversal of provision) for loan losses

Net interest income after provision (reversal of provision) for loan losses

Non-interest income:

Service charges on deposit accounts

(Losses) gains on sales/calls of available-for-sale securities

Losses on sales of available-for-sale securities

Gains on sales of loans held-for-sale

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Directors fees

Other real estate owned (recovery) expense

Other expense

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AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive (Loss) Income

Years Ended December 31, 2022 and 2021

(in thousands)

Other comprehensive (loss) income, net of tax:

Unrealized holding (losses) gains on securities arising during the current period, net of tax effect of ($ 4,082 ) and $ 2,358 for the years

ended December 31, 2021 and 2020 ,

Reclassification adjustment due to losses (gains) realized on sales of securities, net of tax effect of $ 64 and ($ 85 ) for the years ended

December 31, 2021 and 2020 ,

Officers’ retirement plan equity adjustments, net of tax effect of $ 276 and ($ 280 ) for the years ended December 31, 2021 and 2020 , respectively

Other comprehensive loss, net of tax:

Unrealized holding losses on securities arising during the current

period, net of tax effect of ($ 18,348 ) and ($ 4,082 ) for the years ended December 31, 2022 and 2021 , respectively

Reclassification adjustment due to losses realized on sales of

securities, net of tax effect of $ 44 and $ 64 for the years ended December 31, 2022 and 2021 , respectively

Officers’ retirement plan equity adjustments, net of tax effect

of $ 443 and $ 276

for the years ended December 31, 2022 and 2021 , respectively

Directors’ retirement plan equity adjustments, net of tax effect of $ 28 and $ 16 for the years ended

December 31, 2022 and 2021 ,

Total other comprehensive (loss) income, net of tax effect of ($ 3,726 ) and $ 1,978 for the years ended December 31, 2021 and 2020 , respectively

Comprehensive income

Total other comprehensive loss, net of tax effect of ($ 17,833 ) and ($ 3,726 ) for the years ended December 31, 2022 and 2021 , respectively

Comprehensive (loss) income

See accompanying notes to consolidated financial statements.

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Balance at December 31, 2020

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Stock dividend adjustment

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Stock options exercised, net

Stock repurchase and retirement

Balance at December 31, 2021

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Adjustments to reconcile net income to net cash provided by operating activities:

(Reversal of) provision for loan losses

Provision (Reversal of provision) for loan losses

Stock-based compensation

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Accretion and amortization of securities, net

Net loss (gain) on sale/call of available-for-sale securities

Net loss on sale/call of available-for-sale securities

Gain on sale of loans held-for-sale

Provision (benefit) for deferred income taxes

(Benefit) provision for deferred income taxes

Valuation adjustment on mortgage servicing rights

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Originations of loans held-for-sale

(Decrease) increase in deferred loan origination fees and costs, net

Decrease in deferred loan origination fees and costs, net

Amortization of operating lease right-of-use asset

Increase in interest receivable and other assets

Decrease in interest payable and other liabilities

Increase (decrease) in interest payable and other liabilities

Net cash provided by operating activities

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Purchase of certificates of deposit

(Purchases of) proceeds from redemption of stock in Federal Home Loan Bank and other equity securities, at

Net decrease (increase) in loans

Purchases of stock in Federal Home Loan Bank and other equity securities, at cost

Net (increase) decrease in loans

Purchases of bank premises and equipment, net

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Cash flows from financing activities:

Net increase in deposits

Proceeds from Federal Home Loan Bank advances

Net (decrease) increase in deposits

Principal payments on Federal Home Loan Bank advances

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Repurchases of common stock

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Summary of Significant Accounting Policies

First Northern Community Bancorp (the “Company”) is a bank holding company whose only subsidiary, First Northern Bank of Dixon (“Bank”), a California

state-chartered bank, conducts general banking activities, including collecting deposits and originating loans, and serves Solano, Yolo, Sacramento, Placer, El Dorado, and Contra Costa Counties.

All intercompany transactions between the Company and

the Bank have been eliminated in consolidation.

The consolidated financial statements also include the accounts of Yolano Realty Corporation, a wholly-owned subsidiary of the Bank.

Yolano Realty Corporation was formed in September 2009 for the

purpose of managing selected other real estate owned properties.

Yolano Realty Corporation was an inactive subsidiary in 2021.

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America.

the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.

Actual results

could differ from those estimates applied in the preparation of the accompanying consolidated financial statements.

For the Company, the most significant accounting estimates are the allowance for loan losses, recognition and measurement of impaired

loans, other-than-temporary impairment of securities, fair value measurements, share based compensation, valuation of mortgage servicing rights and deferred tax asset realization.

A summary of the significant accounting policies applied in the

preparation of the accompanying consolidated financial statements follows.

Northern Community Bancorp (the “Company”) is a bank holding company whose only subsidiary, First Northern Bank of Dixon (“Bank”), a California state-chartered bank, conducts general banking activities, including collecting deposits and originating

loans, and serves Solano, Yolo, Sacramento, Placer, El Dorado, and Contra Costa Counties.

All intercompany transactions between the Company and the Bank have been eliminated in consolidation.

The consolidated financial statements also include the

accounts of Yolano Realty Corporation, a wholly-owned subsidiary of the Bank.

Yolano Realty Corporation was formed in September 2009 for the purpose of managing selected other real estate owned properties.

Yolano Realty Corporation was an inactive

subsidiary in 2022.

accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that

affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.

Actual results could differ from those estimates applied in the preparation of the accompanying consolidated financial

For the Company, the most significant accounting estimates are the allowance for loan losses, recognition and measurement of impaired loans, other-than-temporary impairment of securities, fair value measurements, share based compensation,

valuation of mortgage servicing rights and deferred tax asset realization.

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.

Cash Equivalents

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recover its amortized cost basis.

If, by contrast, the Company does not intend to sell the security and will not be required to sell the security prior to recovery of the amortized cost basis, the Company recognizes only the credit loss component of

other-than-temporary impairment in earnings.

If, by contrast, the Company does not intend to sell the security and is not more likely than not to be required to sell the security prior to recovery of the amortized cost basis, the Company recognizes only the

credit loss component of other-than-temporary impairment in earnings.

The credit loss component is calculated as the difference between the security’s amortized cost basis and the present value of its expected future cash flows.

The remaining difference between the

security’s fair value and the present value of the future expected cash flows is deemed to be due to factors that are not credit related and is recognized in other comprehensive income.

The remaining

difference between the security’s fair value and the present value of the future expected cash flows is deemed to be due to factors that are not credit related and is recognized in other comprehensive income.

Federal Home Loan Bank Stock and Other Equity Securities, at Cost

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ownership is restricted and it lacks a market (liquidity).

FHLB stock and other securities are recorded at cost.

FHLB stock and other equity securities are recorded at cost.

Loans are reported at the principal amount outstanding, net of deferred loan fees and costs and the allowance for loan losses.

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discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal or when a loan becomes contractually past due by ninety days or more with respect to interest or principal.

When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period

interest income.

Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal

and interest.

Accrual of interest on loans that are troubled debt restructurings commence after a sustained period of performance.

When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income.

accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

interest on loans that are troubled debt restructurings commence after a sustained period of performance.

Interest is generally accrued on such loans in accordance with the new terms.

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process, periodically review the Bank’s allowance for loan losses.

Such agencies may require the Bank to recognize additional allowance based on their judgment about information available to them at the time of their examination.

Such agencies may require the Bank to provide for additional allowance based on their judgment about information available to them at the time of their examination.

Premises and Equipment

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Leasehold improvements are depreciated over the estimated useful lives of the improvements or the terms of the related leases, whichever is shorter.

The useful lives used in

computing depreciation are as follows:

useful lives used in computing depreciation are as follows:

Buildings and improvements

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circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company currently has no identifiable intangible

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be

recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Assets to be disposed of are reported at the lower of the

carrying amount or fair value less costs to sell.

Pension Benefit Plans

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Revenue from Contracts with Customers

The following are descriptions of the Company’s sources of Non-interest income within the scope of Topic 606, Revenue from Contracts with Customers (Topic 606) :

The following are descriptions of the Company’s sources of Non-interest income within the scope of the FASB’s Accounting Standards

Codification Topic 606, Revenue from Contracts with Customers (Topic 606) :

Service charges on deposit accounts

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Gain or Loss on Sale of Loans and Servicing Rights

Transfers and servicing of financial assets and extinguishments of liabilities are accounted for and reported based on consistent

application of a financial-components approach that focuses on control.

Transfers and servicing of financial assets are accounted for and reported based on consistent application of a financial-components

approach that focuses on control.

Transfers of financial assets that are sales are distinguished from transfers that are secured borrowings.

A sale is recognized when the transaction closes and the proceeds are

other than beneficial interests in the assets sold.

A sale is recognized when the transaction closes and the proceeds are other than beneficial interests in the

A gain or loss is recognized to the extent that the sales proceeds and the fair value of the servicing asset exceed or are less than the book value of the loan.

The Company recognizes a gain and a related asset for the fair value of the rights to service loans for others when loans are sold.

Company sold substantially all of its conforming long-term residential mortgage loans originated during the years ended December 31, 2021

The Company recognizes an asset for the fair value of the rights to service loans for others when loans are sold on a servicing-retained

The Company sold substantially all of its conforming long-term residential mortgage loans originated during the years ended December 31, 2022

and 2021, for cash proceeds equal to the fair value of the loans.

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common stock and restricted stock awards.

Holders of restricted stock also receive dividends at the same rate as common shareholders, subject to vesting restrictions, and they both share equally in undistributed

earnings.There are no unvested share-based payment awards that contain nonforfeitable rights to dividends.

Holders of restricted stock also receive dividends at the same rate as common shareholders, subject to vesting restrictions, and they both share equally in undistributed earnings.

There are no unvested share-based payment awards that contain nonforfeitable rights to dividends.

See Note 14 of Notes to Consolidated Financial Statements.

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earnings balance.

The December 31, 2020 and 2019 balances included in the Consolidated Balance Sheets and Statement of Stockholders’ Equity have not been adjusted to retroactively reflect the stock dividends, but instead show the

historical rollforward of stock dividends declared.

The December 31, 2021 and 2020 balances included in the Consolidated Balance Sheets and Statement of Stockholders’ Equity have not been adjusted to retroactively reflect the stock dividends, but instead show the historical rollforward of

stock dividends declared.

Segment Reporting

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community banking as its only segment.

Business Combinations

The Company accounts for acquisitions of businesses using the acquisition method of accounting.

Under the acquisition method, assets acquired and liabilities assumed are recorded at their estimated fair values at the date

of acquisition.

Management utilizes various valuation techniques including discounted cash flow analyses to determine these fair values.

Any excess of the purchase price over amounts allocated to the acquired assets, including identifiable

intangible assets, and liabilities assumed is recorded as goodwill.

Impact of Recently Issued Accounting Standards

The CARES Act was passed

by Congress and signed into law on March 27, 2020.

Section 4013 of the CARES Act provides that a financial institution may elect to not apply GAAP requirements to loan modifications related to the COVID-19 pandemic that would otherwise be

categorized as a TDR, and suspends the determination of loan modifications related to the COVID-19 pandemic from being treated as TDRs.

The relief from TDR guidance applies to modifications of loans that were not more than 30 days past due as of

December 31, 2019, and modifications that occurred beginning on March 1, 2020 until the earlier of:

sixty days after the date on which the national emergency related to the COVID-19 outbreak is terminated or December 31, 2020.

The suspension of TDR

accounting and reporting guidance may not be applied to any adverse impact on the credit of a borrower that is not related to the COVID-19 pandemic.

In December 2020, the Consolidated Appropriations Act, 2021

was signed into law.

Section 541 of this legislation, “Extension of Temporary Relief From Troubled Debt Restructurings and Insurer Clarification,” extends Section 4013 of the CARES Act to the earlier of January 1, 2022 or 60 days after the

termination of the national emergency declaration relating to COVID-19.

Future TDRs are indeterminable and will depend on future developments, which are highly uncertain and cannot be predicted,

including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic .

On April 3, 2020, the SEC

Office of the Chief Accountant issued a public statement communicating that for eligible entities that elect to apply Section 4013 of the CARES Act, the SEC staff would not object that this is in accordance with GAAP for the periods for which such

elections are available.

In June 2020, the American Institute of Certified Public Accountants published Q&A Section 2130.41 regarding a technical question regarding the recognition of interest income on Section 4013 loans which provided

multiple permitted policy elections regarding the recognition of interest on Section 4013 restructured loans.

The Bank has continued to actively assist its communities by providing temporary loan relief under

Section 4013 of the CARES Act.

This relief included loan modifications which include forbearance programs (both full payment deferrals and interest only payments) to customers who have been negatively impacted by the pandemic.

For loans that have

been provided temporary full payment deferrals, the Bank has made a policy election to cease recognition of interest income during the term of the payment deferrals (generally three to six months ).

Upon completion of the forbearance period, the foregone

interest over the deferral period is capitalized as deferred interest and recognized as an adjustment to the effective interest rate over the life of the loan using the effective yield method.

Loans that were provided interest only payment relief

will continue to accrue interest over the interest only period provided that the loans continue to perform as agreed.

This policy election does not impact the Bank’s existing policies regarding non-accrual determinations if reasonable doubt exists

as to the full and timely collection of interest or principal or when a loan becomes contractually past due by ninety days or more with

respect to interest or principal regardless of whether a loan was modified under Section 4013 of the CARES Act.

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 as TDRs that meet the criteria under either the CARES Act or the criteria specified by the regulatory agencies as TDRs.

In March 2020, the FASB issued ASU 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842).

This ASU adds an SEC paragraph pursuant

to the issuance of SEC Staff Accounting Bulletin No.

119 on loan losses to the FASB Codification Topic 326.

This ASU also updates the SEC section of the Codification for the change in the effective date of Topic 842.

This ASU was effective upon

addition to the FASB Codification.

The Company adopted ASU 2016-02, Leases (Topic 842) on January 1, 2019.

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) is effective on January 1, 2023 for smaller reporting companies with less

than $250 million in public float as defined in the SEC's rules.

The Company is a smaller reporting company.

The Company will apply the amendment's provisions as a

cumulative-effect adjustment to retained earnings at the beginning of the first period the amendment is effective.

The Company has formed a team that is working on an implementation plan to adopt the amendment.

The implementation plan will

include developing policies, procedures and internal controls over the model.

The Company is also working with a software vendor to measure expected losses required by the amendment.

The Company is currently evaluating the effects that the

adoption of this amendment will have on its consolidated financial statements and expects that the portfolio composition and economic conditions at the time of adoption will influence the accounting adjustment made at the time the amendment is

March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments.

The amendments in ASU 2020-03 make narrow-scope improvements to various aspects of the financial instruments guidance, including the current expected

credit losses (CECL) standard issued in 2016.

The ASU is part of the FASB’s ongoing Codification improvement project aimed at clarifying specific areas of accounting guidance to help avoid unintended application.

The items addressed in that

project generally are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities.

Effective dates for each amendment vary.

The Company does not expect the adoption of

this update to have a significant impact on the Company's consolidated financial statements.

March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848).

The FASB issued ASU 2016-13 Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss

methodology that is referred to as the current expected credit loss (CECL) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables

and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in

certain leases.

In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt

securities, based on management’s intent to sell the security or likelihood the Company will be required to sell the security, before recovery of the amortized cost basis.

The Company will apply the amendment’s provisions as a cumulative-effect

adjustment to retained earnings at the beginning of the first period the amendment is effective.

ASU 2016-13 is effective for the Company as of January 1, 2023.

Management has taken steps to prepare for the implementation requirements of this

standard, such as developing policies, procedures and internal controls over the model and working with a software vendor to measure expected losses required by the amendment.

Based on the loan portfolio composition, characteristics and quality

of the loan portfolio as of December 31, 2022, and the current economic environment, management estimates that the total allowance for loan losses and reserve for unfunded commitments will increase from approximately $ 15,492 to approximately $ 16,658

to $ 18,324 , or an increase of $ 1,166

The estimated decline in equity, net of tax, will range from $ 855 to $ 2,076 .

The economic conditions, forecasts and

assumptions used in the model could be significantly different in future periods.

The impact of the change in the allowance on our results of operations in a provision for credit losses will depend on the current period net charge-offs, level of

loan originations, and change in mix of the loan portfolio.

As time progresses and the results of economic conditions require model assumption inputs to change, further refinements to the estimation process may also be identified.

In March 2020, the FASB issued

ASU 2020-04, Reference Rate Reform (Topic 848).

This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

This ASU provides optional expedients and exceptions

for contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform.

This ASU provides optional expedients and exceptions for contracts, hedging

relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform.

This ASU was effective for all entities as of March 12, 2020 through December 31, 2022.

As of January 1, 2022, the Company is no longer originating LIBOR based loans and are originating new loans using the Secured Overnight Financing Rate (SOFR).

For existing LIBOR based loans, the Company is monitoring the development and

reporting of fallback indices.

January 1, 2022, the Company is no longer originating LIBOR based loans and are originating new loans using the Secured Overnight Financing Rate (SOFR).

For existing LIBOR based loans, the Company is monitoring the development and reporting of

fallback indices.

The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The ASU also amends the expedients and exceptions in Topic

848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

An entity may elect to apply ASU 2021-01 on contract modifications that

change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within

the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.

An entity may elect to apply ASU 2021-01 to eligible hedging relationships existing as of the beginning of

the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

The Company is in the process of evaluating the provisions of this ASU

but does not expect it to have a material impact on the Company's consolidated financial statements.

This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

An entity may elect to

apply ASU 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or

prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.

An entity may elect to apply ASU 2021-01 to

eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

Company is in the process of evaluating the provisions of this ASU but does not expect it to have a material impact on the Company’s consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.

ASU 2022-06 defers the sunset

date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The Company does not expect this ASU to have a material impact on the Company’s consolidated

financial statements.

In March 2022, the FASB issued

ASU 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent

with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain

modifications of receivables made to borrowers experiencing financial difficulty.

For public business entities, these amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and

net investment in leases within the scope of Subtopic 326-20.

This ASU is effective on January 1, 2023, the same effective date as ASU 2016-13.

The Company is currently evaluating the effects that the adoption of these amendments will have on its

consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

These amendments clarify that a contractual restriction on the sale of an

equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

This ASU is effective for fiscal years, including interim periods within those fiscal years, beginning

after December 15, 2023.

The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

Cash and Due from Banks

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No decline in value was considered “other-than-temporary” during 2022.

One hundred sixty-eight securities, all considered investment grade, which had a fair value of $ 389,464 and a total unrealized loss of $ 7,514 have been in an unrealized loss position for less than

twelve months as of December 31, 2021.

Twenty-two securities, all considered investment grade, which had a fair value of $ 41,453 and total unrealized loss of $ 1,163 ,

have been in an unrealized loss position for more than twelve months as of December 31, 2021.

The unrealized losses on the Company's investment securities were caused by market conditions for these types of investments, particularly changes in

risk-free interest rates.

The Company does not intend to sell the securities and has concluded it is not more likely than not that it will be required to sell these securities prior to recovery of their anticipated cost basis.

Therefore, the Company

does not consider these investments to be other than temporarily impaired as of December 31, 2021.

Four hundred securities, all considered investment grade, which had a fair value of $ 275,604

and a total unrealized loss of $ 14,760 have been in an unrealized loss position for less than twelve months as of December 31, 2022.

One hundred seventy-one securities, all considered investment grade, which had a fair value of $ 327,817 and total unrealized loss of $ 51,034 , have been in an unrealized loss

position for more than twelve months as of December 31, 2022.

The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates.

Company does not intend to sell the securities and has concluded it is not more likely than not that it will be required to sell these securities prior to recovery of their anticipated cost basis.

Therefore, the Company does not consider these

investments to be other than temporarily impaired as of December 31, 2022.

The fair value of investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the

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qualified independent third parties, purchase invoices, or other appropriate documentation.

Paycheck Protection Program (“PPP”) loans outstanding included in Commercial loans totaled $ 37 million and $ 155 million as of December 31, 2021 and December

31, 2020, respectively.

Paycheck Protection Program (“PPP”) loans outstanding included in Commercial loans totaled $ 0.5 million and $ 37.3 million as of December 31, 2022 and

December 31, 2021, respectively.

Commercial real estate loans generally fall into two

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Agricultural loans primarily are susceptible to changes in market demand for specific commodities.

This may be exacerbated by, among other things, industry changes, changes in the individual financial capacity of the business owner, general economic conditions and changes in business cycles, as well as adverse weather conditions such as drought or

fire, or floods.

Problem agricultural loans are generally identified by periodic review of financial information that may include financial statements, tax returns, crop budgets, payment history, and crop inspections.

Based on this information, the Company

may decide to take any of several courses of action, including demand for repayment, requiring the borrower to provide a significant principal payment and/or additional collateral or requiring similar support from guarantors.

Notwithstanding, when

repayment becomes unlikely based on the borrower’s income and cash flow, repossession or foreclosure of the underlying collateral may become necessary.

Based on this information, the

Company may decide to take any of several courses of action, including demand for repayment, requiring the borrower to provide a significant principal payment and/or additional collateral or requiring similar support from guarantors.

Notwithstanding,

when repayment becomes unlikely based on the borrower’s income and cash flow, repossession or foreclosure of the underlying collateral may become necessary.

Residential mortgage loans, which are secured by real estate, are primarily susceptible to

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In general, non-payment is usually due to loss of employment and will follow general economic trends in the economy, particularly the upward movements in the unemployment

rate, loss of collateral value, and demand shifts.

rate, loss of collateral value, inflation and demand shifts.

Collateral values may be determined by appraisals obtained through Bank-approved, licensed appraisers, qualified independent third parties, purchase invoices, or other

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Residential Construction

Non-accrual loans amounted to $ 10,197 at December 31, 2021, and were comprised of two commercial loans totaling $ 133 , one commercial real estate loan totaling $ 555 , three agriculture loans totaling $ 8,712 , one residential mortgage loan totaling $ 138 , and four consumer loans totaling $ 659 .

Non-accrual loans amounted to $ 15,211 at December 31, 2020, and were comprised of four commercial loans totaling $ 363 , three commercial real estate loans totaling $ 4,875 , three agriculture loans totaling $ 9,130 , one residential mortgage loan totaling $ 153 , and five

consumer loans totaling $ 690 .

All non-accrual

loans are considered impaired and are measured for impairment based upon the present value of future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of collateral, if the loan is

collateral dependent.

If the measurement of the non-accrual loan is less than the recorded investment in the loan, an impairment is recognized through the establishment of a specific reserve sufficient to cover expected losses and/or a charge-off

against the allowance for loan losses.

If the loan is considered to be 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.

There were no commitments to lend additional funds to borrowers

whose loans were on non-accrual status at December 31, 2021 and December 31, 2020.

Loans with deferrals granted under Section 4013 of the CARES Act are not considered past due if performing in accordance with the forbearance agreement and/or reported as nonaccrual if

deemed collectible during the deferral period.

See Note 1 for discussion on policy election on loan modifications under Section 4013 of the CARES Act.

Non-accrual loans amounted to $ 8,176 at December 31, 2022, and were comprised of three agriculture loans totaling $ 7,416 , one residential mortgage loan totaling $ 123 , and four consumer loans totaling $ 637 .

Non-accrual loans amounted to $ 10,197

at December 31, 2021, and were comprised of two

commercial loans totaling $ 133 , one commercial real estate loan totaling $ 555 , three agriculture loans totaling $ 8,712 , one residential mortgage loan totaling $ 138 , and four consumer loans totaling $ 659 .

Impaired Loans

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worse and an aggregate exposure of $ 500 or more.

Once identified as impaired, impaired loans are measured individually for impairment using

one of three methods:

Once identified, impaired loans are measured individually for impairment using one of

three methods:

present value of expected cash flows discounted at the loan’s effective interest rate;

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or fair value of collateral if the loan is collateral dependent.

In general, any portion of the recorded

investment in a collateral dependent loan in excess of the fair value of the collateral that can be identified as uncollectible, and is, therefore, deemed a confirmed loss, is promptly charged-off against the allowance for loan losses.

If the measurement of a non-accrual loan is

less than the recorded investment in the loan, an impairment is recognized through the establishment of a specific reserve sufficient to cover expected losses and/or a charge-off against the allowance for loan losses.

In general, any portion of the

recorded investment in a collateral dependent loan in excess of the fair value of the collateral that can be identified as uncollectible, and is, therefore, deemed a confirmed loss, is promptly charged-off against the allowance for loan losses.

Impaired loans, segregated by loan class, as of December 31, 2022 and 2021, were as follows:

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additional funds on existing TDR loans as of December 31, 2022.

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.

In December 2020, the Consolidated Appropriations Act, 2021 was signed into law.

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.

Loans modified as troubled debt restructurings during the years ended December 31, 2022 and 2021, were as follows:

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Pre-modification

There were no loans modified

as TDRs during the year ended December 31, 2020.

Year Ended December 31, 2021

Pre-modification

Loan modifications generally involve reductions in the interest rate, payment extensions, forgiveness of principal, or forbearance.

No loans were modified as a TDR within the previous 12 months that subsequently defaulted during the years ended December 31, 2022 and 2021.

The Company considers

a loan to be in payment default when it is 90 days or more past due.

The Company considers a

loan to be in payment default when it is 90 days or more past due.

Credit Quality Indicators

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borrower/guarantor may or may not be cooperative in repayment of the debt.

Recovery prospects are unknown at this time, but we are still actively engaged in the collection of the loan.

Recovery prospects are unknown, but the Company is actively engaged in the collection of the loan.

Inactive Charge-Off.

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Provision for loan losses

Net (charge-offs)/ recoveries

Net charge-offs

Ending Balance

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Balance as of December 31, 2020

Provision for loan losses

Reversal of provision for loan losses

Net (charge-offs)/ recoveries

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At December 31, 2022 and December 31, 2021 , the estimated fair market value of the Company’s mortgage servicing rights asset was $ 2,101 and $ 1,531 , respectively.

The changes in fair value of mortgage servicing rights during 2021 was primarily due to new

originations and changes in prepayment speeds.

The changes in fair value of mortgage servicing rights during 2020 was primarily due to changes in prepayment speeds.

The changes in fair value of mortgage servicing rights during 2022 and 2021 were

primarily due to new originations and changes in estimated prepayment speeds.

The Company received contractually specified servicing fees of $ 509 and $ 530 for the years ended December 31, 2022 and 2021, respectively.

Contractually specified servicing fees are included in Other Income on the Consolidated Statements of Income.

Contractually specified servicing

fees are included in Other Income on the Consolidated Statements of Income.

Premises and Equipment

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Deferred tax assets, net (see Note 18)

Operating lease right of use asset

Operating lease right-of-use asset (see Note 9)

Prepaid and other

Short-Term and Long-Term Borrowings

Short-term borrowings totaled $ 0 and $ 5,000 as of December 31, 2021 and December 31, 2020, respectively.

This consisted of an advance with the FHLB through its COVID-19 Relief and Recovery

Advances Program.

The advance had a 0 % interest rate and matured in the second quarter of 2021.

The advance was secured under terms of a

blanket collateral agreement by a pledge of FHLB stock and certain other qualifying collateral such as commercial and mortgage loans.

As of December 31, 2021, the Company had a remaining collateral borrowing capacity with the FHLB of $ 306,597 and, at such date, also had unsecured formal lines of credit totaling $ 122,000 with correspondent banks.

The Company had no Federal Funds

purchased during the years ended December 31, 2021 and 2020.

The Company had no long-term borrowings

during the years ended December 31, 2021 and 2020.

The Company leases eleven branch and

administrative locations under operating leases expiring on various dates through 2030.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease

For lease agreements entered into or reassessed after the adoption of Topic 842, the Company combines lease and nonlease components.

The Company had no secured borrowings and no Federal Funds purchased at December 31, 2022

and December 31, 2021.

Additional short-term borrowings available to the Company

consist of a line of credit and advances with the Federal Home Loan Bank (“FHLB”) secured under terms of a blanket collateral agreement by a pledge of FHLB stock and all loans.

At December 31, 2022, the Company had a current collateral borrowing

capacity with the FHLB of $ 365,786 and, at such date, also had unsecured formal lines of credit totaling $ 122,000 with correspondent banks.

The Company had no long-term borrowings at December

31, 2022 and 2021.

The Company leases eleven branch and administrative

locations under operating leases expiring on various dates through 2031.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term.

agreements entered into or reassessed after the adoption of Topic 842, the Company combines lease and nonlease components.

The Bank had no financing leases as of December 31, 2022.

Most leases include options to renew, with renewal terms that can extend the lease term from 3 to 10 years.

The exercise of lease renewal options is at the Company’s sole

The exercise of lease renewal options is at the

Company’s sole discretion.

Most leases are currently in the extension period.

For the remaining leases with options to renew, the Company has not included the extended lease terms in the calculation of lease liabilities as the options are not reasonably certain

of being exercised.

For the remaining leases with options to renew, the Company has not included the extended lease terms in the calculation of lease liabilities as the options are not

reasonably certain of being exercised.

Certain lease agreements include rental payments that are adjusted periodically for inflation.

The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

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

The Company had right-of-use assets totaling $ 5,138

and $ 5,913 as of December 31, 2021 and December 31, 2020, respectively.

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

The Company had right-of-use assets totaling $ 4,905 and $ 5,138 as of December 31, 2022 and December 31, 2021, respectively.

Right-of-use assets are included in Interest receivable and other assets on the Consolidated Balance Sheets.

The Company had lease liabilities totaling $ 5,664 and $ 6,453 as of December 31, 2021

and December 31, 2020, respectively.

Lease liabilities are included in Interest payable and other liabilities on the Consolidated

Balance Sheets.

The Company recognized lease expenses totaling $ 1,172 and $ 1,275 for the years ended December 31, 2021 and December 31, 2020, respectively.

The Company had lease liabilities totaling $ 5,422 and $ 5,664 as of December 31, 2022 and December 31, 2021,

respectively.

Lease liabilities are included in Interest payable and other liabilities on the Consolidated Balance Sheets.

recognized lease expenses totaling $ 1,154 and $ 1,172

for the years ended December 31, 2022 and December 31, 2021, respectively.

Lease expense is included in Occupancy and Equipment expense on the Consolidated Statements of Income.

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The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit in addition to entering into commitments to sell loans in conjunction with our mortgage banking activities.

financial instruments include commitments to extend credit in the form of loans or through standby letters of credit in addition to entering into commitments to sell loans in conjunction with our mortgage banking activities.

These instruments

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financial instruments.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and

standby letters of credit is represented by the contractual notional amount of those instruments.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of

credit is represented by the contractual notional amount of those instruments.

The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent

future cash requirements.

Commitments generally

have fixed expiration dates or other termination clauses and may require payment of a fee.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash

requirements.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation.

held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Collateral held varies

but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.

The credit risk

involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The credit risk involved in issuing

letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Bank issues both financial and performance standby letters of credit.

The financial standby letters of credit are primarily

to guarantee payment to third parties.

The financial standby letters of credit are primarily to guarantee payment

to third parties.

At December 31, 2022, there were no financial standby letters of credit outstanding.

performance standby letters of credit are typically issued to municipalities as specific performance bonds.

At December 31, 2021, there

was $ 2,305 issued in performance standby letters of credit and the Bank carried no liability.

The performance standby letters of

credit are typically issued to municipalities as specific performance bonds.

At December 31, 2022, there was $ 1,930 issued in performance standby letters of credit and the Bank carried no liability.

The Bank has experienced no draws on these letters of credit and does not expect to in the future;

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Commitments to extend credit and standby letters of credit bear similar credit risk characteristics as outstanding loans.

As of December 31, 2021, the

Company had no off-balance sheet derivatives requiring additional disclosure.

The Company may enter into interest rate lock commitments in connection with its mortgage banking activities to fund residential

mortgage loans within specified times in the future.

These commitments expose the Company to the risk that the price of the loan underlying the interest rate lock commitment might decline from the inception of the interest rate lock to the funding

of the mortgage loan.

As of December 31, 2022, the Company had no off-balance sheet derivatives requiring additional disclosure.

The Company may enter into interest rate lock commitments in connection with its mortgage banking activities to fund residential mortgage loans

within specified times in the future.

These commitments expose the Company to the risk that the price of the loan underlying the interest rate lock commitment might decline from the inception of the interest rate lock to the funding of the mortgage

To protect against this risk, the Company may enter into commitments to sell loans to economically hedge the risk of potential changes in the value of the loans that would result from the commitment.

These commitments totaled

$ 1,500 and $ 1,052 at

December 31, 2021 and 2020, respectively.

Mortgage loans sold to investors may be sold with servicing rights retained, for which the Company makes only standard legal representations and warranties as to meeting certain underwriting and collateral

documentation standards.

These commitments totaled $ 0 and $ 1,500 at December 31, 2022 and

2021, respectively.

In the past two years, the Company has not had to repurchase any loans due to deficiencies in underwriting or loan documentation.

Management believes that any liabilities that may result from such recourse provisions are

not significant.

Management believes that any liabilities that may result from such recourse provisions are not significant.

Commitments and Contingencies

At December 31, 2021, the aggregate

maturities for time deposits were as follows:

At December 31, 2022, the aggregate maturities for time

deposits were as follows:

Year ending December 31:

The Company is subject to various legal proceedings in the normal course of its business.

In the opinion of management, after having consulted with legal

counsel, the outcome of the pending legal proceedings should not have a material adverse effect on the consolidated financial condition or results of operations of the Company.

In the opinion of management, after having consulted with legal counsel, the

outcome of the pending legal proceedings should not have a material adverse effect on the consolidated financial condition or results of operations of the Company.

Capital Adequacy and Restriction on Dividends

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum

capital requirements can initiate mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s and the Bank's consolidated financial statements.

Under capital adequacy

guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet

items as calculated under regulatory accounting practices.

Failure to meet minimum capital

requirements can initiate mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s and the Bank’s consolidated financial statements.

Under capital adequacy guidelines and

the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as

calculated under regulatory accounting practices.

The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

Quantitative measures established by regulation to help ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios

(set forth in the table below).

Quantitative measures established by regulation to help ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the

table below).

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

regulatory capital framework for U.S.

banking organizations and to conform this framework to the guidelines published by the Basel Committee known as the Basel III Global Regulatory Framework for Capital and Liquidity.

The Basel Committee is a committee of banking supervisory

authorities from major countries in the global financial system which formulates broad supervisory standards and guidelines relating to financial institutions for implementation on a country-by-country basis.

These rules adopted by the FRB and the

other federal banking agencies (the U.S.

Basel III Capital Rules) replaced the federal banking agencies’ general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules, in accordance with certain transition

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.

Banks, such as First Northern, became subject to the final rules on January 1, 2015.

The final rules implement higher minimum capital requirements, include

a new common equity Tier 1 capital requirement, and establish criteria that instruments must meet in order to be considered common equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital.

The final rules provide for increased minimum

capital ratios as follows:

The final rules implement higher minimum capital requirements, include a new common

equity Tier 1 capital requirement, and establish criteria that instruments must meet in order to be considered common equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital.

The final rules provide for increased minimum capital ratios as

(a) a common equity Tier 1 capital ratio of 4.5%;

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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).

Under these rules, in order to avoid certain

limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its

minimum risk-based capital requirements (equal to 2.5% of total risk-weighted assets).

The capital conservation buffer is designed to absorb losses during periods of economic stress.

Pursuant to the EGRRCPA, the FRB adopted a final rule, effective August 31, 2018, amending the Small Bank Holding Company and Savings and Loan Holding

Company Policy Statement (the “policy statement”) to increase the consolidated assets threshold to qualify to utilize the provisions of the policy statement from $1 billion to $3 billion.

Bank holding companies, such as the Company, are subject to

capital adequacy requirements of the FRB;

however, bank holding companies which are subject to the policy statement are not subject to compliance with the regulatory capital requirements until they hold $3 billion or more in consolidated total

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.

Pursuant to the EGRRCPA, the FRB adopted a final rule, effective August 31, 2018, amending the Small Bank Holding Company and Savings and Loan Holding Company Policy

Statement (the “policy statement”) to increase the consolidated assets threshold to qualify to utilize the provisions of the policy statement from $1 billion to $3 billion.

Bank holding companies, such as the Company, are subject to capital adequacy

requirements of the FRB;

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.

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 will be 8.5 percent through calendar year 2021 and 9 percent thereafter.

applicable to all non-advanced approaches FDIC-supervised institutions with less than $10 billion in total consolidated assets.

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.

the present time, the Company and the Bank do not intend to elect to use the CBLR framework.

present time, the Company and the Bank do not intend to elect to use the CBLR framework.

Management believes, as of December 31, 2022, that the Bank met all capital adequacy requirements to which it is subject.

As of December 31, 2021, the most

recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

As of December 31, 2022, the most recent

notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

To be categorized as “well capitalized” the Bank must meet the minimum ratios as set forth below.

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hereof, there have been no conditions or events since that notification that management believes have changed the institution’s category.

The Bank had Tier I Leverage, Common Equity Tier 1, Tier I Risk-Based and Total Risk-Based capital above the “well capitalized” levels at December 31, 2021

and 2020, respectively, as set forth in the following table (calculated in accordance with the Basel III capital rules):

The Bank had Tier I Leverage, Common Equity Tier 1, Tier I Risk-Based and Total Risk-Based capital above the “well capitalized” levels at December 31, 2022 and 2021,

respectively, as set forth in the following table (calculated in accordance with the Basel III capital rules):

Tier 1 Leverage Capital (to Average Assets)

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requirement excludes the capital conservation buffer of 2.50%.

Cash dividends declared by the Bank are restricted under California State banking laws to the lesser of the Bank’s retained earnings or the Bank’s net

income for the latest three fiscal years, less dividends previously declared during those periods.

Cash dividends declared by the Bank are restricted under California State banking laws to the lesser of the Bank’s retained earnings or the Bank’s net income for the

latest three fiscal years, less dividends previously declared during those periods.

Fair Value Measurement

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Quoted Prices

Assets (Level 1)

Treasury securities

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Quoted Prices

Assets (Level 1)

Treasury securities

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Assets Recorded at Fair Value on a Non-recurring Basis

Assets measured at fair value on a non-recurring basis are included in the table below by level within the fair value hierarchy as of December 31, 2021 and 2020.

December 31, 2021

Impaired loans

Mortgage servicing rights

Total assets at fair value

There were no assets measured at fair value on a non-recurring basis as of December 31, 2022.

Assets measured at fair value on a non-recurring basis are included in the table below by level within the fair value hierarchy as of December 31, 2021.

December 31, 2021

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Total assets at fair value

There were no liabilities measured at

fair value on a recurring or non-recurring basis at December 31, 2021 and 2020.

Key methods and assumptions used in measuring the fair value of impaired loans and mortgage servicing rights as of December 31, 2021 and 2020, were as follows:

There were no liabilities measured at fair value on a

recurring or non-recurring basis at December 31, 2022 and 2021.

Key methods and assumptions used in measuring the fair value of impaired loans and mortgage servicing rights as of December 31, 2021, were as follows:

Assumption Inputs

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Collateral, market, income, enterprise, liquidation, and discounted cash flows

External appraised values, management assumptions regarding market trends or other relevant factors, selling costs generally ranging from 6 % to 10 %, or the amount

and timing of cash flows based on the loan's effective interest rate.

External appraised values, management assumptions regarding market trends or other relevant factors, selling costs generally ranging from 6 % to 10 %, or the amount and

timing of cash flows based on the loan’s effective interest rate.

Mortgage servicing rights

Discounted cash flows

Present value of expected future cash flows was estimated using a

weighted average discount rate factor of 9.50 % and 10.00 % as of December 31, 2021

and December 31, 2020, respectively .

A weighted average constant prepayment rate of 15.73 % and 20.22 %

as of December 31, 2021 and December 31, 2020, respectively, was utilized.

Present value of expected future cash flows was estimated using a weighted average discount rate

factor of 9.50 % as of December 31, 2021 .

A weighted average constant prepayment rate of 15.73 % as of December 31, 2021 was

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

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Investment securities available-for-sale are recorded at fair value on a recurring basis.

Fair value measurement is based upon quoted market prices, if

If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating,

prepayment assumptions, and other factors such as credit loss assumptions.

Fair value measurement is based upon quoted market prices, if available.

quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment

assumptions, and other factors such as credit loss assumptions.

Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S.

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Those impaired loans not requiring charge-off or specific allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

At December 31, 2021, certain impaired loans were considered collateral dependent and were evaluated based on the fair value of the underlying collateral

securing the loan.

Impaired loans where a charge-off is recorded based on the fair value of collateral require classification in the fair value hierarchy.

When a loan is evaluated based on the fair value of the underlying collateral securing the

loan, the Company records the impaired loan as non-recurring Level 3 given the valuation includes significant unobservable assumptions.

At December 31, 2021, certain impaired loans were considered collateral dependent and were evaluated based on the fair value of the underlying collateral securing the

At December 31, 2022, there were no impaired loans that were considered collateral dependent.

Impaired loans where a charge-off is

recorded based on the fair value of collateral require classification in the fair value hierarchy.

When a loan is evaluated based on the fair value of the underlying collateral securing the loan, the Company records the impaired loan as non-recurring

Level 3 given the valuation includes significant unobservable assumptions.

Mortgage Servicing Rights

Mortgage servicing rights (MSRs) are subject to impairment testing.

mortgage servicing rights are initially measured and recorded at fair value at the time loans are sold.

The fair value of MSRs is determined based on the price that would be received to sell the MSRs in an orderly transaction between market

participants at the measurement date.

All mortgage servicing rights are

initially measured and recorded at fair value at the time loans are sold.

The fair value of MSRs is determined based on the price that would be received to sell the MSRs in an orderly transaction between market participants at the measurement date.

Subsequent fair value measurements are determined using a discounted cash flow model.

In order to determine the fair value of the mortgage servicing rights, the present value of expected future cash flows is

Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income.

At December 31, 2021, the discount rate and constant prepayment rate used in measuring the fair

value of the Company’s MSRs was 9.50 % and 15.73 % , respectively.

In order to determine the fair value of the mortgage servicing rights, the present value of expected future cash flows is estimated.

Assumptions used include

market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income.

The model used to calculate the fair value of the Company’s MSRs is periodically validated.

The model assumptions and the MSRs fair value estimates are also compared to observable trades of similar portfolios as

well as to MSR broker valuations and industry surveys, as available.

If the valuation model reflects a value less than the carrying value, MSRs are adjusted to fair value through a valuation allowance as determined by the model.

The model assumptions and the MSRs fair value estimates are also compared to observable trades of similar portfolios as well as to MSR broker

valuations and industry surveys, as available.

If the valuation model reflects a value less than the carrying value, MSRs are adjusted to fair value through a valuation

allowance as determined by the model.

As such, the Company classifies MSRs subjected to non-recurring fair value adjustments as Level 3.

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Financial liabilities:

Federal Home Loan Bank advances

Interest payable

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument and expected

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument and expected exit prices.

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

Because no market exists for a significant portion of the

Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

These estimates are

subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.

Because no market exists for a significant portion of the Company’s

financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

These estimates are subjective in

nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.

Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future

business and the value of assets and liabilities that are not considered financial instruments.

Other significant assets and liabilities that are not considered financial assets or liabilities include deferred tax liabilities and premises and

In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and

the value of assets and liabilities that are not considered financial instruments.

Other significant assets and liabilities that are not considered financial assets or liabilities include deferred tax liabilities and premises and equipment.

addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

Outstanding Shares and Earnings Per Share

All income per share amounts have been adjusted to give retroactive effect to stock dividends and stock splits, including the 5 % stock dividend declared on January 27, 2022 ,

payable on March 25, 2022 , to shareholders of record as of February 28, 2022 .

All income per share amounts have been adjusted to give retroactive effect to stock dividends and stock splits, including the 5 % stock dividend declared on January 26, 2023 , payable on March 24, 2023 , to shareholders of record as of February 28, 2023 .

Earnings Per Share

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to shareholders of record as of February 28, 2023 .

The Company has one stock option plan.

Under the 2016 Stock Incentive Plan (the "Plan"), the Company may grant option grants, stock

appreciation rights, restricted stock, or stock units to an employee for an amount up to 50,000 total shares in any calendar year.

In January 2020, the Company’s Board of Directors amended the Plan to increase the maximum number of shares of options, stock appreciation rights, restricted

stock, or stock units and performance based awards that any participant may receive under the Plan in any calendar year from 25,000 to 50,000 .

With respect to awards granted to non-employee directors under the

Plan during the term of the Plan, the total number of shares of common stock which may be issued upon exercise or settlement of such awards is 100,000 shares and no outside director may receive option grants, stock appreciation rights, restricted stock or stock units for more than 3,000 shares total in any calendar year.

There are 851,496 shares authorized under the 2016 Stock Incentive Plan.

The 2016 Stock

Incentive Plan will terminate on March 15, 2026.

Under the Company’s 2016 Stock Incentive Plan (the “Plan”), the Company may grant option grants, stock appreciation rights, restricted stock, or stock units to an employee for an amount up to 50,000 total shares in any calendar year.

With respect to awards granted to

non-employee directors under the Plan during the term of the Plan, the total number of shares of common stock which may be issued upon exercise or settlement of such awards is 100,000 shares and no outside director may receive option grants, stock appreciation rights,

restricted stock or stock units for more than 3,000

shares total in any calendar year.

There are 894,071

shares authorized under the Plan.

The Plan will terminate on March 15, 2026.

The Compensation Committee of the Board of Directors is authorized to prescribe the terms and conditions of each option, including exercise price,

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Options expire 10 years after the date of grant.

Options are granted

with an exercise price of the fair value of the related common stock on the date of grant.

Stock option activity for the Company’s Stock Incentive Plan during the year ended December 31, 2021, was as follows:

Options are granted with an exercise price of the fair value of the related common stock on the date of grant.

Stock option activity under the Plan during the year ended December 31, 2022, was as follows:

Stock Options

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Stock options vested and currently exercisable:

The weighted average grant date fair value per share of options granted during the years ended December 31, was $ 0 in 2021 and $ 1.28 in 2020.

The weighted average grant date fair value per share of options granted during the years ended December 31, 2022 was $ 2.22 .

There were no options granted in 2021.

The intrinsic value of options exercised during the years ended December 31, was $ 125 in 2022 and $ 63 in 2021.

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and $ 182 in 2021.

At December 31, 2021, the range of

exercise prices for all outstanding options ranged from $ 3.35 to $ 10.72 .

At December 31, 2022, outstanding

options had a weighted average exercise price of $ 8.41 .

As of December 31, 2022, there was $ 157 of total unrecognized compensation related to non-vested stock options.

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The restricted shares awarded

become fully vested after one to four years

of continued employment or service from the date of grant.

Restricted shares are forfeited if officers and employees terminate prior to the lapsing of restrictions.

become fully vested after four years of continued employment or service from the date of grant.

Restricted shares are forfeited if

officers and employees terminate prior to the lapsing of restrictions.

The following table presents information about non-vested restricted stock awards outstanding for the year ended December 31, 2022:

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Employee Stock Purchase Plan

The total number of shares authorized, number of shares purchased and stock price have been adjusted to give retroactive effect to stock dividends and

stock splits, including the 5 % stock dividend declared on January 27, 2022 , payable March 25, 2022 , to shareholders of record as of February 28, 2022 .

The Company has an Employee Stock Purchase Plan (“ESPP”).

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There are 358,911 shares authorized under the ESPP, which include authorized but unissued shares under the 2006 Amended ESPP.

The 2016 ESPP will expire on March 16, 2026.

ESPP will expire on March 16, 2026.

The ESPP is implemented by participation periods of not more than twenty-seven months each.

The Board of Directors determines the commencement date and duration of each participation period.

An eligible employee is one who has been continually employed for

at least ninety ( 90 ) days prior to commencement of a participation period.

Under the terms of the ESPP, employees can choose to have up to

10 percent of their compensation withheld to purchase the Company’s common stock each participation period.

The purchase price of the stock

is 85 percent of the lower of the fair value on the last trading day before the Date of Participation or the fair value on the last

trading day during the participation period.

Approximately 40 percent of eligible employees are participating in the ESPP in the current

participation period, which began November 24, 2021 and will end November 23, 2022.

Under the ESPP, at the annual stock purchase date of November 23, 2021, there were $ 97 in contributions, and 13,272 shares were purchased at a price of $ 7.32 .

An eligible employee is one who has been continually employed for at least ninety ( 90 ) days prior to commencement of a participation period.

Under the terms of the ESPP, employees can choose to have up to 10 percent of their compensation withheld to purchase the Company’s common stock each participation period.

The purchase price of the stock is 85 percent of the lower of the fair value on the last trading day before the Date of Participation or the fair value on the last trading day during the

participation period.

Approximately 40 percent of eligible employees are participating in the ESPP in the current participation period,

which began November 24, 2022 and will end November 23, 2023.

Under the ESPP, at the annual stock purchase date of November 23, 2022, there were $ 116 in contributions, and 17,353 shares were purchased at a price

For the year ended December 31, 2022

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benefits expense in the consolidated statements of income.

The total number of shares authorized, number of shares purchased and stock price have been adjusted to give retroactive effect to stock dividends and

stock splits, including the 5 % stock dividend declared on January 26, 2023 , payable March 24, 2023 , to shareholders of record as of February 28, 2023 .

Profit Sharing Plan

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Employees who have completed 1,000 hours of service and are actively employed on the last day of the plan year are eligible.

Under the terms of this plan, a portion of the Bank’s profits, as determined by the

Board of Directors, will be set aside and maintained in a trust fund for the benefit of qualified employees.

Under the terms of this plan, a portion of the Bank’s profits, as determined by

the Board of Directors, will be set aside and maintained in a trust fund for the benefit of qualified employees.

Contributions to the plan, included in salaries and employee benefits in the consolidated statements of income, were $ 2,387 and $ 2,037 in 2022 and 2021, respectively.

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Interest cost

Plan (gain) loss

Benefits paid

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Minimum benefit obligation at year end

(Decrease) increase in minimum liability included in other comprehensive income (loss)

Decrease increase in minimum liability included in

other comprehensive loss

Assumptions used to determine benefit obligations at December 31

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DIRECTORS’ RETIREMENT PLAN

Pension Benefit Plans

On July 19, 2001, the Company and the Bank approved an unfunded non-contributory defined benefit pension plan (“ Directors’ Retirement Plan ”) and related split dollar plan for the directors of the Bank.

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Interest cost

Plan (gain) loss

Benefits paid

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Accrued benefit liability

Accumulated other comprehensive loss

Accumulated other comprehensive (gain) loss

Net amount recognized

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Minimum benefit obligation at year end

(Decrease) increase in minimum liability included in other comprehensive income (loss)

Decrease in minimum liability included in other comprehensive loss

Assumptions used to determine benefit obligations at December 31

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value of the related insurance policies as of December 31, 2022 and 2021 totaled $ 2,820 and $ 2,749 , respectively.

The net decrease in accrued liability for the 2001 Executive Deferral Plan totaled $ 28 and $ 26 during the years ended December 31, 2021 and 2020, respectively.

net decrease was due to payments totaling $ 35 for each of the years ended December 31, 2021 and 2020, which was partially offset by

interest accrued totaling $ 7 and $ 9

during the years ended December 31, 2021 and 2020.

Interest expense for the 2001 Executive Deferral Plan for the years ended December 31, 2021 and 2020 totaled $ 7 and $ 9 , respectively.

The net decrease in accrued liability for the 2001 Executive Deferral Plan totaled $ 28 for each of the years ended December 31, 2022 and 2021.

The net decrease was due to payments totaling $ 35 for each of the years ended December 31, 2022 and 2021, which was partially offset by interest accrued totaling $ 7

during each of the years ended December 31, 2022 and 2021.

Interest expense for the 2001 Executive Deferral Plan totaled $ 7 for each of

the years ended December 31, 2022 and 2021.

DIRECTOR ELECTIVE DEFERRED FEE PLAN — 2001 DIRECTOR DEFERRAL PLAN

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Mortgage servicing rights

Investment securities unrealized gain

Right of Use Asset

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Cash surrender value of life insurance

Other tax credits

Effective income tax rate

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On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic.

The CARES Act, among other things, permits NOL carryovers and carrybacks

to offset 100% of taxable income for taxable years beginning before 2021.

In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid

income taxes.

The CARES Act, among other things, permits net operating loss carryovers

and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

In addition, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to

generate a refund of previously paid income taxes.

The Company has evaluated the impact of the CARES Act and determined that none of the changes would result in a material income tax benefit to the Company.

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Unrealized Gains

retirement plan

Comprehensive

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Recognition of right-of-use assets obtained in exchange for operating lease liabilities

Market value of shares tendered in-lieu of cash to pay for exercise of options

Parent Company Financial Information

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Income tax benefit

Income (loss) before undistributed earnings of subsidiary

(Loss) income before undistributed earnings of subsidiary

Equity in undistributed earnings of subsidiary

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Outstanding balance, end of year

Subsequent Events

On November 5, 2022, the Bank entered into a Purchase and Assumption Agreement (the “Purchase Agreement”) with Columbia State Bank, a Washington state-chartered commercial bank (“Columbia”) and a

wholly-owned subsidiary of Columbia Banking System, Inc., to acquire three branches of Columbia located in

the California towns of Colusa, Orland and Willows.

On January 20, 2023 the Company completed the acquisition of these branches.

This acquisition enabled the Company to extend its existing footprint.

Pursuant to the Purchase Agreement, the Bank acquired

these branches for consideration in an amount equal to 3.15 % of the average daily closing balance of the deposits for the period

commencing thirty calendar days prior to the closing date and concluding on the date preceding the closing date plus the net book values of certain assets of Columbia and accrued interest and fees with respect to the acquired loans.

At the closing

of the acquisition, and subject to the terms of the Purchase Agreement, the Bank assumed the deposit liabilities related to certain accounts.

The aggregate deposits assumed totaled approximately $ 116 million, and the aggregate principal balance of the loans acquired totaled approximately $ 4 million.

Given the close proximity between the transaction closing

date and the Company’s Annual Report on Form 10-K, the preliminary purchase price allocation has not yet been completed.

Management expects to complete the initial accounting for the acquisition, including the estimated fair values, later in the

first quarter of 2023.

As a result, the estimated fair values of the assets acquired and liabilities assumed, the valuation techniques and inputs used to measure and develop the fair values and any goodwill recorded will be disclosed in the

Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data