FIRST NORTHERN COMMUNITY BANCORP (Form: 10-K, Received: 03/15/2007 17:30:38)

Exhibit 10.15

FIRST NORTHERN BANK OF DIXON

SALARY CONTINUATION AGREEMENT

THIS SALARY CONTINUATION AGREEMENT is entered into as of this 1st day of June, 2006, (“Effective Date”) by and between First Northern Bank of Dixon, a California-chartered, FDIC-insured bank with its main office in Dixon, California (the “Bank”), and Patrick Day, Senior Vice President (the “Executive”).

WHEREAS , the Bank desires that the Executive continue in its employ,

WHEREAS , to encourage the Executive to remain an employee of the Bank, the Bank is willing to provide salary continuation benefits to the Executive, payable out of the Bank’s general assets,

WHEREAS , none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in §18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of the Bank, is contemplated insofar as the Bank is concerned.

NOW THEREFORE , in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Whenever used in this Agreement, the following terms shall have the meanings specified:

1.1 “Cause” shall have the meaning set forth in Section 5.1

1.2 “Change in Control” means any of the following events occurs:

(a) Merger : First Northern Community Bancorp merges into or consolidates with another corporation, or merges another corporation into First Northern Community Bancorp, and as a result less than 50% of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of First Northern Community Bancorp immediately before the merger or consolidation,

(b) Acquisition of Significant Share Ownership : a report on Schedule 13D or another form or schedule (other than Schedule 13G) is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 20% or more of a class of First Northern Community Bancorp’s voting securities, but this clause (b) shall not apply to beneficial ownership of First Northern Community Bancorp voting shares held in a fiduciary capacity by an entity of which First Northern Community Bancorp directly or indirectly beneficially owns 50% or more of its outstanding voting securities or voting shares held by an employee benefit plan maintained for the benefit of First Northern Bank of Dixon’s employees, or

(c) Change in Board Composition : during any period of two consecutive years, individuals who constitute First Northern Community Bancorp’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of First Northern Community Bancorp’s Board of Directors; provided, however, that for purposes of this clause (c) each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least two-thirds of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period.

1.3 “Disability” means the Executive suffers a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive totally and permanently disabled. The Executive must submit proof to the Bank of the carrier’s or Social Security Administration’s determination upon the request of the Bank.

1.4 “Good Reason” for purposes of this Agreement shall be defined as:

(a) a material reduction in Executive’s title or responsibilities;

(b) a reduction in base salary as in effect on the date of a Change in Control of the Bank;

(c) the relocation of the Executive’s principal executive office so that Executive’s one-way commute distance from Executive’s residence is increased by more than forty (40) miles;

(d) the adverse and substantial alteration in the nature and quality of the office space within which the Executive performs his duties, including the size and location thereof, as well as the secretarial and administrative support provided to the Executive;

(e) the failure by the Bank to continue to provide the Executive with compensation and benefits substantially similar to those provided to him under any of the employee benefit plans in which the Executive becomes a participant, or the taking of any action by the Bank which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by him at the time of the Change in Control; or

(f) the failure of the Bank to obtain a satisfactory agreement from any successor or assign of the Bank to assume and agree to perform this Agreement, as contemplated in Section 7.5 hereof.

1.5 “Normal Retirement Age” means age 65 .

1.6 “Normal Retirement Date” means the later of the date the executive attains Normal Retirement Age or the Executive’s Termination of Employment with the Bank.

1.7 “Person” means an individual, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or other entity.

1.8 “Plan Year” means the calendar year ending on December 31.

1.9 “Termination of Employment” means the Executive shall have ceased to be employed by the Bank for any reason whatsoever, excepting a leave of absence approved by the Bank. For purposes of this Agreement, if there is a dispute over the employment status of the Executive or the date of termination of the Executive’s employment, the Bank shall have the sole and absolute right to decide the dispute, unless a Change in Control shall have occurred within 24 months before termination of employment.

ARTICLE 2

LIFETIME BENEFITS

2.1 Normal Retirement Benefit . Upon the Executive’s Termination of Employment at on a Normal Retirement Date, for reasons other than death, the Bank shall pay to the Executive the benefit described in this Section 2.1 instead of any other benefit under this Agreement.

2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is $50,000.

2.1.2 Payment of Benefit. Beginning with the month after the Executive’s Normal Retirement Date, the Bank shall pay the annual benefit to the Executive in 12 equal monthly installments on the first day of each month. The annual benefit shall be paid to the Executive for 10 years.

2.2 Early Termination Benefit . Upon the Executive’s voluntary Termination of Employment prior to a Normal Retirement, the Bank shall not pay any benefits under this agreement to the Executive or the Executive’s Beneficiaries.

2.3 Disability Benefit . If the Executive terminates employment because of Disability before a Normal Retirement Date, the Bank shall pay to the Executive the benefit described in this Section 2.3 instead of any other benefit under this Agreement.

2.3.1 Amount of Benefit. The benefit under this Section 2.3 is $50,000 multiplied by (1) a fraction the numerator of which is the number of full calendar years and months between the executive’s date of hire and the Executive’s Termination of Employment and the denominator of which is the number of full calendar years and months between the Executive’s date of hire and the earliest possible Normal Retirement Date, and (2) an interest discount factor determined using an 8.3% interest rate reflecting the number of full calendar years and months that benefit payments commence prior to age 65.

2.3.2 Payment of Benefit. Beginning with the month after Termination of Employment due to Disability, the Bank shall pay the Disability Annual Benefit amount to the Executive in 12 equal monthly installments on the first day of each month. The annual benefit shall be paid to the Executive for 10 years.

2.4 Change-in-Control Benefit . If the Executive’s employment with the Bank terminates involuntarily within 24 months after the first occurrence of a Change in Control or in the event the Executive terminates employment voluntarily for Good Reason within 24 months of such Change in Control, the Bank shall pay to the Executive the benefit described in this Section 2.4 instead of any other benefit under this Agreement. However, no benefits shall be payable under this Agreement if the Executive’s employment is terminated under Article 5 of this Agreement.

2.4.1 Amount of Benefit: The Change-in-Control Benefit under this Section 2.4 is $345,712 multiplied by an interest discount factor calculated using an interest rate equal to the 10-year US Treasury bill rate at the Plan Year ending immediately before the date on which the Termination of Employment occurs and reflecting the number of full calendar years and months that the benefit payment occurs prior to age 65.

2.4.2 Payment of Benefit: The Bank shall pay the Change-in-Control benefit under Section 2.4 of this Agreement to the Executive in one lump sum within three days after the Executive’s Termination of Employment.

ARTICLE 3

DEATH BENEFITS

If the Executive dies prior to Termination of Employment and before the Executive’s Normal Retirement Age, the Bank shall pay to the Executive’s beneficiary(ies) a lump sum payment equal to $750,000 in lieu of any other benefit payable hereunder.

If the Executive dies prior to Termination of Employment and on or after the Executive’s Normal Retirement Age, the Bank shall pay to the Executive’s beneficiary(ies) the benefit described in Section 2.1 assuming the Executive had retired on the Executive’s date of death, commenced payments and lived to receive all such payments.

If the Executive dies following Termination of Employment, the Bank shall pay to the Executive’s beneficiary(ies) the remaining benefit payments that the Executive would have received had the Executive lived to receive all benefits payable under this agreement.

ARTICLE 4

BENEFICIARIES

4.1 Beneficiary Designations . The Executive shall designate a beneficiary or beneficiaries by filing a written designation with the Bank. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will be effective only if signed by the Executive and accepted by the Bank during the Executive’s lifetime. The Executive’s beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive’s estate.

4.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incapacitated, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incapacitated person or incapable person. The Bank may require such proof of incapacity, minority or guardianship as the Bank deems appropriate before distribution of the benefit. Distribution shall completely discharge the Bank from all liability for such benefit.

ARTICLE 5

GENERAL LIMITATIONS

5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any benefit under this Agreement if the Bank terminates the Executive’s employment for:

(a) Gross negligence or gross neglect of duties,

(b) Commission of a felony or commission of a misdemeanor involving moral turpitude, or

(c) Fraud, disloyalty, dishonesty, or willful violation of any law or significant Bank policy committed in connection with the Executive’s employment and, in the Bank’s sole judgment, resulting in an adverse effect on the Bank.

5.2 Suicide or Misstatement. The Bank shall not pay any benefit under this Agreement if the Executive commits suicide within two years after the date of this Agreement and while employed at the Bank, or if the Executive has made or makes any material misstatement of fact on any application for life insurance purchased by the Bank.

5.3 Removal. If the Executive is removed from office or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

5.4 Insolvency. If the Commissioner of the California Department of Financial Institutions appoints the Federal Deposit Insurance Corporation as receiver for the Bank under California Financial Code §3220-3225, all obligations under this Agreement shall terminate as of the date of the Bank’s declared insolvency.

ARTICLE 6

CLAIMS AND REVIEW PROCEDURES

6.1 Claims Procedure. A person or beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:

6.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Bank a written claim for the benefits.

6.1.2 Timing of Bank Response. The Bank shall respond to such claimant within 90 days after receiving the claim. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

6.1.3 Notice of Decision. If the Bank denies part or all of the claim, the Bank shall notify the claimant in writing of such denial. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

6.1.3.1 The specific reasons for the denial ,

6.1.3.2 A reference to the specific provisions of the Agreement on which the denial is based,

6.1.3.3 A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

6.1.3.4 An explanation of the Agreement’s review procedures and the time limits applicable to such procedures, and

6.1.3.5 A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

6.2 Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows:

6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Bank’s notice of denial, must file with the Bank a written request for review.

6.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Bank shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

6.2.3 Considerations on Review. In considering the review, the Bank shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

6.2.4 Timing of Bank Response. The Bank shall respond in writing to such claimant within 60 days after receiving the request for review. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

6.2.5 Notice of Decision. The Bank shall notify the claimant in writing of its decision on review. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

6.2.5.1 The specific reason for the denial,

6.2.5.2 A reference to the specific provisions of the Agreement on which the denial is based,

6.2.5.3 A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits, and

6.2.5.4 A statement of the claimant’s right to bring a civil action under ERISA Section 502(a)

ARTICLE 7

MISCELLANEOUS

7.1 Binding Effect. This Agreement shall bind the Executive and the Bank, and their beneficiaries, survivors, executors, successors, administrators and transferees.

7.2 Amendments and Termination. This Agreement may be amended or terminated only by a written agreement signed by the Bank and the Executive.

7.3 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank’s right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive’s right to terminate employment at any time.

7.4 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner.

7.5 Successors; Binding Agreement. By an assumption agreement in form and substance satisfactory to the Executive, the Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform this Agreement if no such succession had occurred. The Bank’s failure to obtain such an assumption agreement before the succession becomes effective shall be considered a breach of this Agreement and shall entitle the Executive to the Change-in-Control benefit provided in Section 2.4.

7.6 Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

7.7 Applicable Law. Except to the extent preempted by the laws of the United States of America, the validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws of such state.

7.8 Unfunded Arrangement. The Executive and his beneficiary(ies) are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to which the Executive and beneficiary have no preferred or secured claim.

7.9 Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.

7.10 Administration. The Bank shall have the powers that are necessary to administer this Agreement, including but not limited to the power to:

(a) interpret the provisions of the Agreement,

(b) establish and revise the method of accounting for the Agreement,

(d) establish rules and prescribe forms necessary or desirable to administer the Agreement.

7.11 Named Fiduciary. The Bank shall be the named fiduciary and plan administrator under this Agreement. The named fiduciary may delegate to others certain aspects of the management and operational responsibilities of the plan, including the employment of advisors and the delegation of ministerial duties to qualified individuals.

7.12 Severability. If for any reason any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with the law, continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the remainder of such provision, not held so invalid, and the remainder of such provision, together with all other provisions of this Agreement shall, to the full extent consistent with the law, continue in full force and effect.

7.13 Headings. The headings of Sections herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement.

7.14 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

(a) If to the Bank, to: Board of Directors First Northern Bank of Dixon 195 North First Street P.O. Box 547 Dixon, California 95620

(b) If to the Executive, to:

and to such other or additional person or persons as either party shall have designated to the other party in writing by like notice.

7.15 Payment of Legal Fees. The Bank is aware that upon the occurrence of a Change in Control, then current management of the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement would be frustrated. It is the intention of the Bank that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder, and it is the intention of the Bank that the Executive not be forced to negotiate settlement of his rights under this Agreement under threat of incurring such expenses. Accordingly, if after a Change in Control occurs it should appear to the Executive that (a) the Bank has failed to comply with any of its obligations under this Agreement, or (b) the Bank or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish or to recover from the Executive the benefits intended to be provided to the Executive hereunder, the Bank irrevocably authorizes the Executive from time to time to retain counsel of his choice at the expense of the Bank as provided in this Section 7.15, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Bank or any director, officer, stockholder or other person affiliated with the Bank, in any jurisdiction. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by the Bank on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with such counsel’s customary practices, up to a maximum aggregate amount of $250,000. The Bank’s obligation to pay the Executive’s legal fees provided by this Section 7.15 operates separately from, and in addition to, any legal fee reimbursement obligation the Bank or the Bank’s parent First Northern Community Bancorp may have with the Executive by virtue of any separate employment, severance, or other agreement between the Executive and the Bank or First Northern Community Bancorp.

7.16 Internal Revenue Code Section 280G Gross Up.

(a) If as a result of a Change in Control the Executive becomes entitled to acceleration of benefits under this Salary Continuation Agreement or under any other plan or agreement of or with the Bank or First Northern Community Bancorp (together, the “Total Benefits”), and if any of the Total Benefits will be subject to the Excise Tax as set forth in Sections 280G and 4999 of the Internal Revenue Code of 1986 (the “Excise Tax”), the Bank shall pay to the Executive the following additional amounts, consisting of (1) a payment equal to the Excise Tax payable by the Executive on the Total Benefits under Section 4999 of the Internal Revenue Code (the “Excise Tax Payment”), and (2) a payment equal to the amount necessary to provide the Excise Tax Payment net of all income, payroll and excise taxes. Together, the additional amounts described in clauses (1) and (2) are referred to in this Agreement as the “Gross-Up Payment Amount.” Payment of the Gross-Up Payment Amount shall be made in addition to the amount set forth in Section 2.4 hereof.

(b) For purposes of determining whether any of the Total Benefits will be subject to the Excise Tax and the amount of such Excise Tax,

(1) any other payments or benefits received or to be received by the Executive (whether under the terms of this Agreement or any other agreement, or other plan or arrangement with the Bank or First Northern Community Bancorp, any person whose actions result in a Change in Control or any person affiliated with First Northern Community Bancorp or such person) in connection with a Change in Control or the Executive’s termination of employment shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Internal Revenue Code, and all “excess parachute payments,” within the meaning of Section 280G(b)(1), shall be treated as subject to the Excise Tax, unless in the opinion of the certified public accounting firm that is retained by the First Northern Community Bancorp as of the date immediately before the Change in Control (the “Accounting Firm”), such other payments or benefits (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4) of the Internal Revenue Code, or are otherwise not subject to the Excise Tax,

(2) the amount of the Total Benefits which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Benefits reduced by the amount of such Total Benefits that in the opinion of the Accounting Firm are not parachute payments, or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (1) above), and

(3) the value of any noncash benefits or any deferred payment or benefit shall be determined by First Northern Community Bancorp’s Accounting Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Internal Revenue Code.

(c) For purposes of determining the Gross-Up Payment Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment Amount is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the date of termination of employment, net of the reduction in federal income taxes that could be obtained from deduction of state and local taxes (calculated by assuming that any reduction under Section 68 of the Internal Revenue Code in the amount of itemized deductions allowable to the Executive applies first to reduce the amount of state and local income taxes that would otherwise be deductible by the Executive, and applicable federal FICA and Medicare withholding taxes).

(d) If the Excise Tax is later determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall, when the amount of such reduction in Excise Tax is finally determined, repay to the Bank the portion of the Gross-Up Payment Amount attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment Amount being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or local income tax deduction). If the Excise Tax is later determined to be more than the amount taken in account hereunder at the time of termination of the Executive’s employment (including any payment the existence or amount of which cannot be determined at the time the Gross-Up Payment Amount is paid), the Bank shall make an additional Gross-Up Payment Amount to the Executive of the excess (plus any interest, penalties or additions payable by the Executive on the excess) when the amount of the excess is finally determined.

7.17 Accounting Firm Gross-Up Determination.

(a) Subject to the provisions of Section 7.16, all determinations required to be made under this Section 7.17, including whether and when a Gross-Up Payment Amount is required, the Gross-Up Payment Amount and the assumptions used to arrive at such determination shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to the Bank and the Executive within 15 business days after receipt of notice from the Bank or the Executive that there has been a Gross-Up Payment Amount, or such earlier time as is requested by the Bank (the “Determination”).

(b) If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder).

(c) All fees and expenses of the Accounting Firm shall be borne solely by First Northern Community Bancorp or the Bank and First Northern Community Bancorp or the Bank shall enter into any agreement requested by the Accounting Firm in connection with the performance of its services hereunder.

(d) If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion to such effect, and to the effect that failure to report Excise Tax, if any, on the Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty.

(e) Determinations by the Accounting Firm shall be binding upon the Bank and the Executive.

(f) As a result of the uncertainty in determining whether any of the Total Benefits will be subject to the Excise Tax at the time of the Determination, it is possible that a Gross-Up Payment Amount will not have been made by the Bank that should have been made (an “Underpayment”), or that a Gross-Up Payment Amount will have been made that should not have been made (an “Overpayment”). If the Executive is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred, and the Underpayment (together with interest at the rate provided in Section 1274(d)(2)(B) of the Internal Revenue Code) shall be promptly paid by the Bank to or for the benefit of the Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made, and the Overpayment (together with interest at the rate provided in Section 1274(d)(2)(B) of the Internal Revenue Code) shall be promptly paid by the Executive to or for the benefit of the Bank. If his expenses are reimbursed by the Bank, the Executive shall cooperate with any reasonable requests by the Bank in any contests or disputes with the Internal Revenue Service concerning the Excise Tax.

7.18 Termination or Modification of Agreement by Reason of Changes in the Law, Rules or Regulations. The Bank is entering into this agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If said assumptions should materially change and said change has a material detrimental effect on this Agreement, then the Bank reserves the right to terminate or modify this Agreement accordingly, subject to obtaining the written consent of the Executive, which shall not be unreasonably withheld.

7.19 Advice of Counsel. Before signing this Agreement, Executive either (i) consulted with and obtained advice from Executive’s independent legal counsel in respect to the legal nature and operations of this Agreement, including its impact on Executive’s rights, privileges and obligations, or (ii) freely and voluntarily decided not to have the benefit of such consultation and advice with legal counsel.

IN WITNESS WHEREOF , the Executive and a duly authorized Bank officer have signed this Agreement as of the day and year first written above.

THE EXECUTIVE :		THE BANK :
		FIRST NORTHERN BANK OF DIXON

		By:
Patrick Day
		Its:

BENEFICIARY DESIGNATION

FIRST NORTHERN BANK OF DIXON

SALARY CONTINUATION AGREEMENT

Patrick Day

I designate the following as beneficiary of any death benefits under this Salary Continuation Agreement:

Primary: _________________________

Contingent: _______________________

Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement .

I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or if I have named my spouse as beneficiary and our marriage is subsequently dissolved.

Signature:
	Patrick Day

Date:

Accepted by the Bank this _________ day of ______________, 200__.

By:

Title:

Exhibit 10.16

FIRST NORTHERN BANK

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

SECTION 1

PURPOSE AND EFFECTIVE DATE

The purpose of the First Northern Bank Supplemental Executive Retirement Plan (the “Plan”) is to provide retirement income benefits to certain highly compensated employees of First Northern Bank of Dixon, a California-chartered, FDIC-insured bank with it main office in Dixon, California (“Company”) and its Subsidiaries that supplement such employees’ Social Security benefits and benefits provided under the First Northern Bank of Dixon Profit Sharing/401(k) Plan and specified other employee benefit plans maintained by the Company.

The Plan shall be effective as of December 21, 2006. Amendments that may be made to the Plan from time to time shall apply to individuals participating in this Plan who perform work as Employees after the effective date applicable to such amendments.

SECTION 2

DEFINITIONS

2.01 Actuarial Equivalent. “Actuarial Equivalent” (or “Actuarially Equivalent”) means a benefit having the same value as another benefit which such benefit replaces based upon the mortality table and discount rate used by the Company to determine such value.

2.02 Board. “Board” means the Board of the Company.

2.03 Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.04 Compensation Committee. “Compensation Committee” means the Compensation Committee of the Board.

2.05 Disability. “Disability” means a physical or mental impairment which has been determined by the Social Security Administration to have rendered the Participant totally and permanently disabled. The term “Disability” shall be interpreted in a manner consistent with Section 409A of the Code. The Participant must submit such evidence as the Plan Administrator deems necessary to verify the Participant’s Disability.

2.06 Disability Retirement Date. “Disability Retirement Date” means the date on which a Participant has been deemed to have incurred a Disability while in active employment of the Company.

2.07 Early Retirement Date. “Early Retirement Date” means the first date on which a Participant terminates employment with the Company after completing at least ten (10) years of Service, reaching (5) years of Participation Service, and attaining age fifty-five (55), but prior to the Participant’s Normal Retirement Date.

2.08 ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

2.09 Final Average Compensation. “Final Average Compensation” means the result of (a) plus (b) as defined below:

(a)

The aggregate of a Participant’s salary during the final three full calendar years of Service, divided by thirty-six (36).

(b)

The average of the ratios for each of the final seven (7) full calendar years of Service of the participant’s annual bonus paid over the Participant’s salary paid, then multiplied by the amount in (a) above. In the event the Participant does not have seven (7) full calendar years of Service, zero will be used as the ratio for each full year not served.

2.10 Normal Retirement Age. “Normal Retirement Age” means age 65.

2.11 Normal Retirement Date. “Normal Retirement Date” means the date the Participant retires on or after their Normal Retirement Age.

2.12 Participant. “Participant” means an employee of the Company who satisfies the requirements of Section 3 of the Plan.

2.13 Participation Date. “Participation Date” means the date an employee of the Company is approved by the Compensation Committee of the Board to be a Participant of this Plan. If an employee participated in a supplemental arrangement preceding this Plan, the Participation Date will be the date the Participant was approved to participate in the preceding plan.

2.14 Participation Service. “Participation Service” means the period of Service starting with the Participation Date and continuing through the termination of such employment, including paid leaves of absence, but excluding any unpaid leaves of absence or other unpaid breaks in service except to the extent required to be included under applicable law.

2.15 Plan Administrator. “Plan Administrator” means the Company.

2.16 Profit Sharing Benefit. “Profit Sharing Benefit” means as of any calculation date the monthly benefit payable monthly over the same period as the benefit payable from this Plan that is Actuarially Equivalent to a hypothetical account balance equal to the sum of (a) and (b) below:

(a)

The annual amounts contributed by the Company (excluding any amounts deferred by the Participant) to the First Northern Bank Profit Sharing/401(k) Plan (or any other defined contribution arrangement in which the Participant received contributions from the Company), plus

(b)

Interest on the hypothetical amounts in (a) above assuming the amounts were contributed on December 31st of each year and interest was earned at the Treasury Rate for such calendar year. In the event interest is projected beyond the period of active employment, the Treasury Rate in effect during the calendar year of termination will be used for such projection. In determining the benefit that is Actuarially Equivalent to the hypothetical balance, the Treasury Rate in effect during the calendar year of termination will be used.

2.17 Salary. “Salary” means with respect to any individual the sum of (i) the amount paid to such individual as base salary from the Company plus any base salary amounts deferred by such individual under the First Northern Bank Profit Sharing/401(k) Plan and under the First Northern Bank Voluntary Deferred Compensation Plan. Deferred amounts shall be considered to have been received at such times and in such amounts as would have applied if no deferral had been elected by the individual.

2.18 Separation from Service. “Separation from Service” means the Participant’s service as an executive and independent contractor to the Company and any member of a controlled group, as defined in Code section 414, terminates for any reason, other than because of a leave of absence approved by the Company or the Participant’s death.

2.19 Service. “Service” means the period during which an Employee is employed by the Company commencing with the Employee’s first day of employment and continuing through the termination of such employment, including paid leaves of absence, but excluding any unpaid leaves of absence or other unpaid breaks in service except to the extent required to be included under applicable law.

2.20 Social Security Benefit. “Social Security Benefit” means one-half of the estimated monthly primary insurance amount that an Employee is or would be entitled to receive commencing at age 65 under the Social Security Act, whether or not the Employee applies for or actually receives such benefit at such age or at any earlier or later age. The Social Security Benefit shall be calculated as of January 1st in the year of termination assuming level future earnings to age 65 and no future increases in CPI or National Average Wage. The Social Security Benefit shall be calculated assuming a Participant has earned amounts exceeding the Social Security taxable wage base in every year possible. Alternatively, the Participant may submit records from the Social Security Administration specifying actual social security earnings which will then be used.

2.21 Target Retirement Percentage. “Target Retirement Percentage" shall equal the following:

(a)

For the CEO - 2.5% multiplied by Service, but limited to 50%.

(b)

Other Participants - 2.0% multiplied by Service, but limited to 50%.

2.22 Treasury Rate. “Treasury Rate” means the three year average of the market yield on U.S. Treasury securities at a 10-year constant maturity. The Plan Administrator shall choose the U.S. Treasury rate to be used in the calculation of the Treasury Rate annually on or close to the 1st day of each calendar year. The Treasury Rate is applicable for the full calendar year. If the treasury rates used in the calculation of the Treasury Rate ceases to be available, then the Plan Administrator may select any comparable published rate as a replacement.

SECTION 3

PARTICIPATION AND VESTING

3.1 Eligibility. Eligibility to participate in the Plan is limited to a select group of management or highly compensated employees of the Company that are designated, from time to time, by the Board.

3.2 Participation. An employee’s participation in the Plan shall be effective upon notification of such person by Company of eligibility to participate, completion of a Participation Agreement by such person, and acceptance of the Participation Agreement by the Company. Except as modified by paragraph 3.3 below, participation in the Plan shall continue as long as the Participant is eligible to receive benefits under the Plan.

3.3 Change in Employment Status. If the Board determines that a Participant’s employment performance is no longer at a level which deserves reward through participation in this Plan, but does not terminate the Participant’s employment with the Company, participation herein and eligibility to receive benefits hereunder shall be limited. The benefit payable to such Participant upon eventual termination of employment shall be determined at the date of termination for eligibility and vesting determinations. However, the monthly benefit payable to the Participant shall be calculated based on the Participant’s Service and Final Average Compensation as of the date of the change in employment status.

3.4 Vesting. A Participant whose employment with Employer terminates because of Normal Retirement, Early Retirement, Disability, or Death shall be 100% vested in the benefits described herein. Upon any other termination of employment, the Participant and the Participant’s Beneficiaries shall not be eligible to receive any benefits under the Plan, except as may be provided in the Participation Agreement between the Company and the Participant.

3.5 Discharge for Cause. Notwithstanding any other provisions of this Plan, no benefit shall be paid hereunder if a Participant’s employment with the Company has been terminated for “cause.” A termination for cause is a termination based upon the occurrence of any one of the following events:

(a)

The Participant’s willful and intentional violation of any state or federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of the Company, or the rules or regulations of the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Company, which in the opinion of the Board has or might have a material adverse effect upon the Company;

(b)

The Participant’s conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Participant’s willful and intentional commission of a fraudulent or dishonest act; or

(c)

The Participant’s willful and intentional disclosure, without authority, of any secret or confidential information concerning the Company or any customer of the Company, or taking any action which the Board determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Company.

SECTION 4

BENEFITS

4.1 Normal Retirement Benefit. The Normal Retirement Benefit payable under this Plan to a Participant who retires on a Normal Retirement Date shall be a monthly benefit payable for 120 months plus 6 months for each full year of Service over 10 years (limited to 180 months total) and shall be equal to (a) less (b), but not less than zero:

(a)

The Participant’s Target Retirement Percentage multiplied by the Participant’s Final Average Compensation.

(b)

The sum of 1. and 2. below:

The Participant’s Social Security Benefit, multiplied by the ratio (limited to 1.0) of the Participant’s Service to 25; and

The Participant’s Profit Sharing Benefit on January 1st of the year of termination.

Benefit payments shall commence on the first day of the month after the month in which the Participant’s Separation from Service occurs. If when the Participant’s Separation from Service occurs the Participant is a specified employee within the meaning of Code section 409A, benefits for the first six months after Separation from Service shall be delayed and shall instead be paid on the first day of the seventh month after the month in which Separation from Service occurs. Should benefit payments be delayed due to the requirements of law or administration, the first payment will be the accumulated value of the delayed payments with interest to the payment date using the Treasury Rate, plus the payment due in that month.

4.2 Early Retirement Benefit. The Early Retirement Benefit payable under this Plan to a Participant who retires on an Early Retirement Date shall be a monthly benefit payable for 120 months plus 6 months for each full year of Service over 10 years (limited to 180 months total) and shall be equal to (a) less (b) less (c), but not less than zero:

(a)

The Participant’s Target Retirement Percentage multiplied by the Participant’s Final Average Compensation and further multiplied by the factor described in (d).

(b)

The Participant’s Social Security multiplied by the ratio (limited to 1.0) of the Participant’s Service to 25 and further multiplied by the factor described in (d); and

(c)

The Participant’s Profit Sharing Benefit on January 1st of the year of termination.

(d)

Early Commencement Factor - The early commencement factor is 1.0 minus the product of 0.41667% multiplied by the number of full calendar months that early retirement precedes the Participant’s Normal Retirement Age.

4.3 Disability Retirement Benefit. The Disability Retirement Benefit payable under this Plan is the same benefit that would be paid in 4.2 above with the following modifications: (1) the Early Commencement Factor described in (d) shall not be less than 0.50 and (2) the Participant shall be eligible for the benefit without regard to any age or service requirement. Benefit payments shall commence on the first day of the month after the month in which the Participant’s Separation from Service occurs. If when the Participant’s Separation from Service occurs the Participant is a specified employee within the meaning of Code section 409A, benefits for the first six months after Separation from Service shall be delayed and shall instead be paid on the first day of the seventh month after the month in which Separation from Service occurs Should benefit payments be delayed due to the requirements of law or administration, the first payment will be the accumulated value of the delayed payments with interest to the payment date using the Treasury Rate, plus the payment due in that month.

4.4 Benefits Payable Upon Death. If a Participant dies while actively employed, the benefit payable to the Participant’s Beneficiary shall be the same benefit and paid for the same duration as the benefit the Participant would have received had the Participant become eligible for benefits under section 4.3 above on the date of the Participant’s death and then died before receiving the first payment. The benefit shall be paid to the Beneficiary at the same time the benefit would have been paid to the Participant under section 4.3, disregarding the potential six-month delay required under Code section 409A for separation-from-service benefits paid to a specified employee. If a Participant dies after termination of employment, the Participant’s Beneficiary shall be entitled to receive benefits in the same amount and for the same duration that the Participant would have received had the Participant survived to receive all payments due. The benefit shall be paid to the Beneficiary at the same time the benefit would have been paid to the Participant, disregarding the potential six-month delay required under Code section 409A for separation-from-service benefits paid to a specified employee.

4.5 Income Tax Withholding. The Company shall withhold from any amount paid under this Plan any and all federal, state and local income taxes and any other taxes that are required to be withheld from such payment under applicable law.

4.6 FICA Tax Withholding. The Company shall withhold from a Participant’s other compensation and/or from the first payments to be made under this Plan, the Participant’s share of FICA and other employment taxes imposed on the value of the benefits payable from this Plan when such taxes, in the sole judgment of the Company, are required to be withheld under applicable law. If any law provides the Company discretion as to the timing of tax withholding, the Company shall have the sole right determine when taxes shall be withheld.

4.7 Unfunded Status and Source of Benefit Payments. The Plan is intended to be unfunded for purposes of both ERISA and the Code. The Plan does not require any segregated or separate assets. The benefits provided under the Plan shall be paid solely from the general assets of the Company.

SECTION 5

BENEFICIARY DESIGNATION

5.1 Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person or persons as their Beneficiary or Beneficiaries (both primary as well as secondary). Each Beneficiary designation shall be in a written form prescribed by the Plan Administrator, and will be effective only when filed with the Plan Administrator during the Participant’s lifetime.

5.2 Amendments; Marital Status. A Participant may change Beneficiary designation without the consent of any designated Beneficiary by filing a new Beneficiary designation with the Plan Administrator. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If a Participant’s compensation is community property, any Beneficiary designation shall be valid or effective only as permitted under applicable law.

5.3 No Participant Designation. In the absence of an effective Beneficiary designation, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, the Participant’s designated Beneficiary shall be deemed to be the Participant’s estate.

5.4 Effect of Payment. The payment to the deemed Beneficiary shall completely discharge the Company’s obligations under this Plan.

SECTION 6

ADMINISTRATION

6.1 Administration. This Plan shall be administered by the Plan Administrator. The Plan Administrator is authorized to interpret this Plan and make all determinations which it deems necessary or advisable for its administration, which interpretations and determinations shall be conclusive on all affected parties, unless and until reversed, amended or withdrawn by the Plan Administrator. This Plan shall be administered as an unfunded employee pension benefit plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, and is not intended to meet the qualification requirements of Section 401 of the Code or the requirements of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA.

6.2 Agents and Specialists. The Plan Administrator may appoint one or more persons or agents to aid it in carrying out its duties as Plan Administrator and a named fiduciary, and may delegate such of its powers and duties or powers as it deems desirable to such persons or agents. Such persons and agents may be, but are not required to be, officers of the Company or other Employees. The Plan Administrator may employ such counsel, auditors, actuaries and other specialists and such clerical, medical and other services as the Plan Administrator may require in carrying out the provisions of the Plan.

6.3 Application for Benefits. The Plan Administrator may require any applicant for a retirement benefit under this Plan to furnish it with such documents, data or information as the Plan Administrator may consider reasonably necessary or desirable. To the greatest extent possible, it is the intent of the Plan and its administrative procedures that any benefits payable to a Participant or Beneficiary be processed automatically by the Plan Administrator without the necessity of the Participant or Beneficiary filing any formal claim for benefits, other than such elections or notifications as may be required under the Plan.

6.4 Claims Procedure.

(a)

If a Participant or beneficiary believes he or she is entitled to benefits under the Plan and that such benefits have been denied to him or her, such Participant or beneficiary shall file a claim to benefits in writing with the Plan Administrator, setting forth the reason for and including any evidence supporting such claim. The Plan Administrator shall review any such claim and shall render a decision with respect thereto and shall notify the claimant of such decision within ninety (90) days following the Plan Administrator’s receipt of such claim, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim. In no event shall any such extension exceed ninety (90) days following the end of the initial ninety (90)-day period (i.e., the total period may not exceed one hundred eighty (180) days). If the Plan Administrator extends the time for processing a claim, the Plan Administrator shall give the claimant written notice of the extension within ninety (90) days of the Plan Administrator’s receipt of the claim. The notice of extension shall indicate the special circumstances requiring the extension of time and the date by which the Plan Administrator expects to render a decision on the claim. If the Plan Administrator denies any benefit claim, notice of the denial shall set forth the following information in a manner calculated to be understood by the claimant:

The specific reason or reasons for the denial;

Reference to the specific Plan provisions on which the denial is based;

A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

A description of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA if the appeal is denied.

(b)

Any denial of a claim to benefits may be appealed by a Participant or beneficiary for a reexamination of the claim by the Plan Administrator. Any such appeal must be filed in writing with the Plan Administrator within ninety (90) days following the Participant’s receipt of the written notice of denial. The written notice of appeal shall set forth grounds on which the appeal for reexamination of the claim is based. If written notice of the appeal is not submitted to the Plan Administrator within such ninety (90)-day period, the Plan Administrator’s original decision on the claim will become final. In the event such an appeal is timely filed, the Plan Administrator shall reexamine the claim and shall afford the participant or beneficiary an opportunity to present written comments, documents, records and other information relating to such claim. In such event, the claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits. The Plan Administrator’s review on appeal shall take into account all comments, documents, records and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision of the Plan Administrator with respect to any claim appealed to it for reexamination shall be made within a reasonable time, but not later than sixty (60) days after receipt of the request for review, unless the Plan Administrator determines that special circumstances require an extension of time for processing the appeal. In no event shall any such extension exceed sixty (60) days following the end of the initial sixty (60)-day period (i.e., the total period may not exceed one hundred twenty (120) days). If the Plan Administrator extends the time for processing an appeal, the Plan Administrator shall give the claimant written notice of the extension within sixty (60) days of the Plan Administrator’s receipt of the claim. The notice of extension shall indicate the special circumstances requiring the extension of time and the date by which the Plan Administrator expects to render a decision on the appeal. If the Plan Administrator denies any benefit claim on appeal, notice of the denial shall set forth the following information in a manner calculated to be understood by the claimant:

The specific reason or reasons for the denial;

Reference to the specific Plan provisions on which the denial is based;

A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits; and

A statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA.

(c)

The determination of the Plan Administrator with respect to any claim or appeal filed hereunder shall be conclusive and binding on all affected parties.

(d)

It is the duty of a Participant or beneficiary to keep the Plan Administrator or the Company informed of his or her current address and of any other changes in status or other factors which may affect his or her entitlement to benefits under this Plan and the processing of any claim in accordance with the automatic procedures contemplated in the Plan. In the event the Plan Administrator or Company is not kept so informed and as a result the claim to benefits cannot be processed automatically, the participant or beneficiary must file a claim to benefits in writing in accordance with the procedures set forth in Section 6.4(a) above.

SECTION 7

MISCELLANEOUS

7.1 Applicable Law. All matters respecting the validity, effect, interpretation and administration of this Plan shall be determined in accordance with ERISA, as it applies to unfunded employee pension benefit plans maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, and, to the extent state law is not pre-empted by ERISA, the laws of the State of California applicable to contracts wholly executed and performed in such state.

7.2 Amendment or Discontinuance of the Plan. The Company expects to continue this Plan, but reserves the right to amend or terminate it in whole or in part at any time, to any extent and in any manner that the Company in its sole discretion may consider advisable, necessary or desirable. Each such amendment or termination shall be adopted by action of the Board taken at a duly held meeting of the Board, taken by written consent of the Board or taken in any other manner permitted under the Company’s articles of incorporation or bylaws or permitted under corporate law applicable to the Company. The Board may delegate (by reference to a specific amendment or class of amendments or otherwise) to any officer of the Company the authority to adopt any amendment or amendments (but not any plan termination) on behalf of the Board. Each amendment shall be duly adopted and in full force and effect when the action of the Board adopting such amendment is taken (if such amendment is adopted by the Board) or when signed by an officer of the Company who has authority to do so pursuant to the provisions of this Section

7.2 (if such amendment is adopted by such an officer). Upon any termination or partial termination of this Plan, the rights of all affected Participants and their Beneficiaries to benefits then accrued under this Plan shall be fully vested and non-forfeitable. No amendment or termination of this Plan shall adversely affect the rights of a Participant with respect to his or her accrued benefit under the Plan determined as of the date of adoption of the amendment with such accrued benefit being determined based on the benefit due to the participant on the amendment date had no amendment been adopted and the Participant had voluntarily terminated their employment. For the purpose of this section 7.2, the accrued benefit shall be determined assuming the date of amendment or discontinuance of the Plan is an Early Retirement Date for each Participant, disregarding the Early Retirement Date conditions stated in section 2.07.

7.3 Attorneys’ Fees and Costs. If any legal action or other proceeding is brought to collect any payment, to enforce any right, or to clarify any right under this Plan, the successful or prevailing party or parties shall be entitled to recover reasonable attorney’s fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

7.4 No Trust or Fiduciary Relationship Created. Nothing contained in this Plan, and no action taken pursuant to the provisions of this Plan, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company or the Plan Administrator and any Participant or Beneficiary.

7.5 No Guarantee of Employment. No provision in this Plan shall be deemed or construed to impair or affect in any manner whatsoever the right of the Company in its discretion at any time to employ persons as Employees, to discharge or terminate the Service of any Participant or Employee, or to retire any Participant or Employee, and every such right shall remain with the Company as if this Plan were not in existence and had not been established.

7.6 Prohibition against Certain Payments. Notwithstanding any provision of the Plan to the contrary, no Participant shall be entitled to receive, and the Company shall not pay, any amount under this Plan that is prohibited by Federal Deposit Insurance Corporation Rules and Regulations, 12 CFR Part 359 (Golden Parachute and Indemnification Payments).

7.7 Indemnification. The Company, through insurance or otherwise, shall indemnify and defend any Board member, Company officer, Employee, Plan Administrator, and agent or representative of any Plan Administrator to whom the Plan Administrator has delegated administrative or fiduciary duties against any and all claims, losses, damages, expenses, including counsel fees, incurred by the person or agent and any liability, including any amounts paid in settlement with the Company’s approval, arising from the action or failure to act of the person or agent or Company, except when the same is judicially determined to be attributable to the gross negligence or willful misconduct of such person or agent. The right of indemnity described in the preceding sentence shall be conditioned upon (a) the timely receipt of notice by the Company of any claim asserted against the person or agent, which notice, in the event of a lawsuit shall be given within ten (10) days after receipt by the person or agent of the complaint, and (b) the receipt by the Company of an offer from person or agent of an opportunity to participate in the settlement or defense of such claim.

7.8 Assignments Prohibited. The interest hereunder, whether vested or not, of any Participant, contingent annuitant, or beneficiary shall not be subject to alienation, assignment, encumbrance, attachment, garnishment, execution, sequestration or other legal or equitable process, or transferability by operation of law in event of bankruptcy, insolvency or otherwise.

IN WITNESS WHEREOF , the Company has caused this Plan to be duly executed for and on behalf of the Company by its duly authorized officers on this the 21st day of December, 2006.

	FIRST NORTHERN BANK

	By:

	Title:

PARTICIPATION AGREEMENT

FOR

OWEN J. ONSUM

This Participation Agreement is entered into as of this 31st day of December, 2006, by and between First Northern Bank of Dixon, a California-chartered, FDIC-insured bank with it main office in Dixon, California (“Company”) and Owen J. Onsum (the “Executive”).

Whereas , the Executive has contributed substantially to the success of the Company and its parent corporation, First Northern Community Bancorp, and the Company desires that the Executive continue its employ,

Whereas , the Board has in accordance with Section 3.1 of the First Northern Bank of Dixon Supplemental Executive Retirement Plan (the “Plan”) nominated the Executive for Eligibility in such Plan,

Whereas , the Executive wishes to accept Participation in the Plan and freely acknowledges that such acceptance irrevocably replaces the Executive’s Salary Continuation Agreement dated January 1, 2002, and executed January 2 ^nd , 2002, and any amendments thereto, between the Executive and the Company,

Whereas , the Company wishes, for the benefit of the Executive, to amend certain provisions of the Plan as they apply to the Executive through the execution of this Participation Agreement and acknowledges that this Participation Agreement shall be terminated or amended only by a written agreement signed by the Company and the Executive except as specified in 3.1 below,

Now Therefore, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Executive is a Participant in the Plan and further agree as follows:

SECTION 1

DEFINITIONS

Terms used in this Participation Agreement are used as defined in the Plan. In addition, the following terms shall have the meanings given in this Participation Agreement.

1.1 Change-in-Control . “Change-in-Control” means the first to occur of any of the following events:

(a)

Merger - First Northern Community Bancorp merges into or consolidates with another corporation, or merges another corporation into First Northern Community Bancorp, and as a result less than 50% of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of First Northern Community Bancorp immediately before the merger or consolidation,

(b)

Acquisition of Significant Share Ownership - A report on Schedule 13D or another form or schedule (other than Schedule 13G) is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 20% or more of a class of First Northern Community Bancorp’s voting securities, but this clause (b) shall not apply to beneficial ownership of First Northern Community Bancorp voting shares held in a fiduciary capacity by an entity of which First Northern Community Bancorp directly or indirectly beneficially owns 50% or more of its outstanding voting securities or voting shares held by an employee benefit plan maintained for the benefit of First Northern Bank of Dixon’s employees, or

(c)

Change in Board Composition - During any period of two consecutive years, individuals who constitute First Northern Community Bancorp’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of First Northern Community Bancorp’s Board of Directors; provided, however, that - for purposes of this clause (c) - each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least two-thirds of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period.

1.2 Good Reason . “Good Reason” shall be defined as any of the following:

(a)

A material reduction in the Executive’s title or responsibilities; or

(b)

A reduction in base salary as in effect on the date of Change in Control; or

(c)

The relocation of the Executive’s principal executive office so that Executive’s one-way commute distance from Executive’s residence is increased by more than forty (40) miles; or

(d)

The adverse and substantial alternation in the nature and quality of the office space within which the Executive performs duties on behalf of the Company, including the size and location thereof, as well as the secretarial and administrative support provided to the Executive; or

(e)

The failure by the Company to continue to provide the Executive with compensation and benefits substantially similar to those provided under any of the employee benefit plans in which the Executive becomes a participant, or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed at the time of Change in Control; or

(f)

The failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Agreement.

SECTION 2

AMENDMENTS

This section, solely for the purpose of benefits earned by this Executive, amends certain sections of the First Northern Bank Supplemental Executive Retirement Plan.

2.1 Amendments Following a Change in Control - If the Executive’s employment with the Bank terminates within 24 months after any Change in Control or in the event the Executive terminates employment voluntarily for Good Reason within 24 months after any Change-in-Control, the following benefit shall be payable to the Executive in lieu of any other benefits payable under the Plan:

Change in Control Benefit - the benefit payable to the Executive shall be the greater of the payments described in (1), (2), and (3) below:

A lump sum payment of $768,372 adjusted at the rate equal to 4.37% per year for the period of time between January 1, 2007, and the payment date.

A lump sum payment Actuarially Equivalent to the benefit determined under Section 4.1 of the Plan with the following changes: (a) the Target Retirement Percentage used shall be the Target Retirement Percentage assuming Service to age 65, and (b) the Profit Sharing Benefit and Social Security Benefit shall be determined as of the 1 ^st of the year of termination. The lump sum payment shall be determined using the Treasury Rate in effect on the date of termination and shall be discounted for the period of time the lump sum payment precedes the date the Participant attains age 65.

A lump sum payment Actuarially Equivalent to the benefit the Participant would receive from the Plan without regard to this Section 2.1. The lump sum payment shall be determined using the Treasury Rate in effect on the date of termination.

The Company shall pay this Change in Control Benefit to the Executive within three days after the Executive’s Separation from Service. If when the Participant’s Separation from Service occurs the Participant is a specified employee within the meaning of Code section 409A, the lump-sum benefit shall be delayed and shall instead be paid on the first day of the seventh month after the month in which Separation from Service occurs, with interest to the payment date using the Treasury Rate.

2.2 Vested Benefit - Any increase in the value of benefits payable to the Executive under any section of the Plan or this Participation Agreement over the value that would have been provided under the Salary Continuation Agreement which this Participation Agreement replaces shall be vested as follows: 25% on December 31, 2006, 50% on December 31, 2007, 75% on December 31, 2008, and 100% on December 31, 2009. In determining the increase in value, the assumptions currently in use to account from this plan under GAAP shall be used.

2.3 One Benefit Only . Despite anything to the contrary in the Plan or in this Participation Agreement, the Executive and Beneficiary are entitled to one benefit only, which shall be determined by the first event to occur that is dealt with by the Plan and this Participation Agreement. Subsequent occurrence of events dealt with by the Plan and this Participation Agreement shall not entitle the Executive or Beneficiary to other or additional benefits under the Plan or this Participation Agreement.

2.4 Amendment of Death Benefit - If the Executive dies while actively employed and before the attainment of Normal Retirement Age, the benefit payable to the Executive’s beneficiary shall be $1,666,667. This benefit shall be paid in a lump sum as soon as administratively feasible.

If the Executive dies while actively employed and on or after attainment of Normal Retirement Age, the benefit payable to the Executive’s beneficiary shall be the same benefit the beneficiary would have received had the Executive retired on the date of death, commenced Normal Retirement Benefits and died before receiving the first payment.

If the Executive dies after termination of employment, then the Executive shall receive the benefit described in Section 4.4 of the Plan.

The benefit payable under this section 2.4 shall be paid in lieu of any other benefit payable under the Plan or this Participation Agreement. The Executive acknowledges that this amendment replaces all endorsed death benefit agreements dated prior to this Participation Agreement and that the effect of this amendment is that the Executive and the Executive’s beneficiaries no longer have any interest in any life insurance contract owned by First Northern Bank.

SECTION 3

MISCELLANEOUS

3.1 Amendments and Termination . This Participation Agreement may be amended or terminated only by a written agreement signed by the Bank and the Executive. For the purpose of determining benefits for the Executive, any amendment or termination of the Plan shall be effective for the Executive only by a written agreement signed by the Company and the Executive. However, the Executive and Company agree that the Company, in its sole discretion, may amend the Plan and this Participation Agreement to reduce the impact on the Company’s earnings of any changes made by the Financial Accounting Standards Board to pension accounting standards. The Company may change the manner of benefit accrual for the Executive if, in the opinion of the Company, the changes to the Plan and this Participation Agreement produce an expense recognition pattern closer to the pattern of expense recognition expected prior to the change in accounting standards. In no event will the benefit provided to the Executive at Normal Retirement Age be reduced.

3.2 Binding Effect . This Participation Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and trustees.

3.3 Agreement To Insure . The Company may, in its sole discretion, decide to purchase a life insurance policy or policies on the life of the Executive in order to informally fund or otherwise offset the costs incurred by the Plan. The Executive agrees to complete all forms and undergo any insurance underwriting that the Company may request from time to time during the Executive’s active employment. In addition, the Executive hereby acknowledges that the Executive, Beneficiaries, or the Executive’s estate hold no claim to any part of the value of or rights provided by such policies.

In Witness Whereof, the Executive and a duly authorized Company officer have signed this Participation Agreement as of the day and year shown below.

The Executive:		The Company:
		First Northern Bank Of Dixon

Owen J. Onsum
		By:

		Its:

PARTICIPATION AGREEMENT

FOR

LOUISE WALKER

SECTION 1

DEFINITIONS

Terms used in this Participation Agreement are used as defined in the Plan. In addition, the following terms shall have the meanings given in this Participation Agreement.

1.1 Change-in-Control . “Change-in-Control” means the first to occur of any of the following events:

(d)

(e)

(f)

1.2 Good Reason . “Good Reason” shall be defined as any of the following:

(g)

A material reduction in the Executive’s title or responsibilities; or

(h)

A reduction in base salary as in effect on the date of Change in Control; or

(i)

The relocation of the Executive’s principal executive office so that Executive’s one-way commute distance from Executive’s residence is increased by more than forty (40) miles; or

(j)

(k)

(l)

The failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Agreement.

SECTION 2

AMENDMENTS

This section, solely for the purpose of benefits earned by this Executive, amends certain sections of the First Northern Bank Supplemental Executive Retirement Plan.

Change in Control Benefit - the benefit payable to the Executive shall be the greater of the payments described in (1), (2), and (3) below:

A lump sum payment of $313,397 adjusted at the rate equal to 4.37% per year for the period of time between January 1, 2007, and the payment date.

2.4 Amendment of Death Benefit - If the Executive dies while actively employed and before the attainment of Normal Retirement Age, the benefit payable to the Executive’s beneficiary shall be $1,333,333. This benefit shall be paid in a lump sum as soon as administratively feasible.

If the Executive dies after termination of employment, then the Executive shall receive the benefit described in Section 4.4 of the Plan.

If a Participant dies after termination of employment, the Participant’s Beneficiary shall be entitled to receive benefits in the same amount and for the same duration that the Participant would have received had the Participant survived to receive all payments due. The benefit shall be paid to the Beneficiary at the same time the benefit would have been paid to the Participant, disregarding the potential six-month delay required under Code section 409A for separation-from-service benefits paid to a specified employee.

SECTION 3

MISCELLANEOUS

3.2 Binding Effect . This Participation Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and trustees.

In Witness Whereof, the Executive and a duly authorized Company officer have signed this Participation Agreement as of the day and year shown below.

The Executive:		The Company:
		First Northern Bank of Dixon

Louise Walker
		By:

		Its:

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

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

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, no par value (Title of Class)

PART I	Page

Item 1. Business	3

Item 1A. Risk Factors	14

Item 1B. Unresolved Staff Comments	19

Item 2. Properties	19

Item 3. Legal Proceedings	19

Item 4. Submission of Matters to a Vote of Security Holders	19

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters	19

Item 6. Selected Financial Data	21

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation	22

Item 7A. Quantitative and Qualitative Disclosures about Market Risk	41

Item 8. Financial Statements and Supplementary Data	43

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	79

Item 9A. Controls and Procedures	79

Item 9B. Other Information	80

PART III

Item 10. Directors and Executive Officers of the Registrant and Corporate Governance	80

Item 11. Executive Compensation	80

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81

Item 13. Certain Relationships and Related Transactions and Director Independence	81

Item 14. Principal Accountant Fees and Services	81

PART IV

Item 15. Exhibits and Financial Statement Schedules	82

Signatures	84

	The Company
						Well			Minimum
	Actual					Capitalized			Capital
	Capital		Ratio			Ratio			Requirement

Leverage	$	62,400		9.1	%		5.0	%		4.0	%
Tier 1 Risk-Based		62,400		11.1	%		6.0	%		4.0	%
Total Risk-Based		69,078		12.3	%		10.0	%		8.0	%

	The Bank
						Well			Minimum
	Actual					Capitalized			Capital
	Capital		Ratio			Ratio			Requirement

Leverage	$	61,719		9.0	%		5.0	%		4.0	%
Tier 1 Risk-Based		61,719		11.0	%		6.0	%		4.0	%
Total Risk-Based		68,397		12.2	%		10.0	%		8.0	%

QUARTER/YEAR	HIGH*	LOW*

4th Quarter 2006	$25.53	$21.46
3rd Quarter 2006	$25.46	$23.58
2nd Quarter 2006	$27.36	$24.62
1st Quarter 2006	$27.12	$22.47

4th Quarter 2005	$22.34	$20.47
3rd Quarter 2005	$22.25	$20.25
2nd Quarter 2005	$23.04	$14.24
1st Quarter 2005	$14.68	$11.75

Shareholder Record Date	Dividend Percentage	Date Payable

February 28, 2007	6%	March 30, 2007
February 28, 2006	6%	March 31, 2006
February 28, 2005	6%	March 31, 2005

	(a)	(b)	(c)	(d)
Period	Total number of shares purchased	Average price paid per share	Total Number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
October 1 - October 31, 2006	16,599	$25.24	16,599	138,380
November 1 - November 30, 2006	11,360	$24.86	11,360	127,020
December 1 - December 31, 2006	2,119	$23.16	2,119	124,901
Total	30,078	$24.95	30,078	124,901

	2006			2005			2004			2003			2002

Interest Income and Loan Fees	$	48,070		$	40,902		$	31,619		$	30,326		$	28,941
Interest Expense		(9,426	)		(5,729	)		(3,426	)		(3,109	)		(4,237	)
Net Interest Income		38,644			35,173			28,193			27,217			24,704
Provision for Loan Losses		(735	)		(600	)		(207	)		(2,153	)		(676	)
Net Interest Income after Provision for Loan Losses		37,909			34,573			27,986			25,064			24,028
Other Operating Income		5,289			5,720			5,214			7,160			4,972
Other Operating Expense		(29,219	)		(26,813	)		(22,943	)		(22,868	)		(20,411	)
Income before Taxes		13,979			13,480			10,257			9,356			8,589
Provision for Taxes		(5,169	)		(4,792	)		(3,550	)		(3,245	)		(2,871	)
Net Income	$	8,810		$	8,688		$	6,707		$	6,111		$	5,718

Basic Income Per Share	$	1.04		$	1.02		$	.78		$	.71		$	.65

Diluted Income Per Share	$	0.99		$	0.98		$	.76		$	.69		$	.64

Total Assets	$	685,225		$	660,647		$	629,503		$	559,441		$	495,876

Total Investments	$	76,273		$	48,788		$	55,154		$	50,235		$	69,958

Total Loans, including loans held-for-sale, net	$	480,009		$	460,501		$	433,421		$	380,491		$	356,018

Total Deposits	$	603,682		$	581,781		$	557,186		$	498,849		$	442,241

Total Equity	$	61,990		$	56,802		$	51,901		$	46,972		$	43,442

Weighted Average Shares of Common Stock outstanding used for Basic Income Per Share Computation ¹		8,468,643			8,531,880			8,585,409			8,608,209			8,749,315

Weighted Average Shares of Common Stock outstanding used for Diluted Income Per Share Computation ¹		8,882,925			8,881,596			8,809,916			8,799,158			8,999,552

Return on Average Total Assets		1.32	%		1.35	%		1.14	%		1.18	%		1.25	%

Net Income/Average Equity		14.90	%		16.17	%		13.73	%		13.56	%		13.71	%

Net Income/Average Deposits		1.49	%		1.52	%		1.28	%		1.32	%		1.40	%

Average Loans/Average Deposits		81.20	%		79.44	%		75.81	%		79.25	%		73.99	%

Average Equity to Average Total Assets		8.87	%		8.37	%		8.32	%		8.69	%		9.11	%

	2006 Over 2005									2005 Over 2004
	Volume			Interest Rate			Change			Volume			Interest Rate			Change

Increase (Decrease) in Interest Income:

Loans & Banker’s Acceptance	$	1,983		$	4,291		$	6,274		$	3,882		$	3,595		$	7,477

Investment Securities		787			(74	)		713			(81	)		(216	)		(297	)

Federal Funds Sold		(347	)		746			399			63			1,552			1,615

Loan Fees		(218	)		—			(218	)		488			—			488

	$	2,205		$	4,963		$	7,168		$	4,352		$	4,931		$	9,283

Increase (Decrease) in Interest Expense:

Deposits:
Interest-Bearing Transaction Deposits	$	180		$	876		$	1,056		$	17		$	406		$	423

Savings & MMDAs		(6	)		1,540			1,534			88			1,298			1,386

Time Certificates		(83	)		1,322			1,239			(66	)		506			440

Borrowed Funds		(97	)		(35	)		(132	)		21			33			54

	$	(6	)	$	3,703		$	3,697		$	60		$	2,243		$	2,303
Increase (Decrease) in Net Interest Income	$	2,211		$	1,260		$	3,471		$	4,292		$	2,688		$	6,980

	Within One Year					After One But Within Five Years					After Five But Within Ten Years
Security	Amount		Yield			Amount		Yield			Amount		Yield

U.S. Treasury Securities	$	—		—		$	253		5.00	%	$	—		—
Securities of U.S. Government Agencies and Corporations		6.907		3.16	%		20,708		4.38	%		4,088		5.26	%
Obligations of State & Political Subdivisions		5,356		7.12	%		8,534		7.37	%		5,712		6.72	%
Mortgage Backed Securities		35		7.10	%		11,996		5.14	%		—		—

TOTAL	$	12,298		4.90	%	$	41,491		5.22	%	$	9,800		6.11	%

	After Ten Years					Other					Total
Security	Amount		Yield			Amount		Yield			Amount		Yield

U.S. Treasury Securities	$	—		—		$	—		—		$	253		5.00	%
Securities of U.S. Government Agencies and Corporations		—		—			—		—			31,703		4.23	%
Obligations of State & Political Subdivisions		10,591		6.27	%		—		—			30,193		6.82	%
Mortgage Backed Securities		—		—			—		—			12,031		5.15	%
Other Securities		—		—			2,093		5.13	%		2,093		5.13	%

TOTAL	$	10,591		6.27	%	$	2,093		5.13	%	$	76,273		5.43	%

	December 31,
	2006					2005					2004

	Balance		Percent			Balance		Percent			Balance		Percent

Commercial	$	97,268		20.5	%		87,091		19.1	%	$	89,721		20.9	%
Agriculture		38,607		8.1	%		32,808		7.2	%		32,910		7.7	%
Real Estate Mortgage		227,552		47.9	%		228,524		50.1	%		216,846		50.4	%
Real Estate Construction		106,752		22.4	%		103,422		22.7	%		85,584		19.9	%
Installment		5,370		1.1	%		4,216		0.9	%		4,641		1.1	%

TOTAL	$	475,549		100.0	%	$	456,061		100.0	%	$	429,702		100.0	%

Maturing	Fixed Rate		Variable Rate		Total

Within one year	$	52,221	$	174,338	$	226,559
After one year through five years		44,208		110,925		155,133
After five years		18,169		75,688		93,857

Total	$	114,598	$	360,951	$	475,549

	2006					2005					2004

	Average Balance		Percent			Average Balance		Percent			Average Balance		Percent
ASSETS
Cash and Due From Banks	$	29,934		4.49	%	$	31,287		4.87	%	$	37,542		6.40	%
Investment Securities:
U.S. Government Securities		31,968		4.80	%		20,279		3.16	%		15,745		2.68	%
Obligations of States & Political
Subdivisions		23,688		3.56	%		27,045		4.21	%		32,899		5.60	%
Other Securities		11,201		1.68	%		3,065		0.48	%		3,277		0.56	%
Federal Funds Sold		61,904		9.29	%		81,948		12.75	%		77,169		13.15	%
Loans ¹		478,908		71.87	%		452,646		70.45	%		395,883		67.43	%
Other Assets		28,750		4.31	%		26,211		4.08	%		24,551		4.18	%
Total Assets	$	666,353		100.00	%	$	642,481		100.00	%	$	587,066		100.00	%

LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
Demand	$	187,766		28.18	%	$	184,171		28.67	%	$	158,676		27.03	%
Interest-Bearing Transaction Deposits		95,180		14.28	%		73,990		11.52	%		63,619		10.84	%
Savings & MMDAs		190,036		28.52	%		190,562		29.65	%		174,539		29.73	%
Time Certificates		116,787		17.53	%		121,067		18.84	%		125,366		21.35	%
Borrowed Funds		11,350		1.70	%		14,320		2.23	%		13,681		2.33	%
Other Liabilities		6,113		0.92	%		4,627		0.72	%		2,332		0.40	%
Stockholders' Equity		59,121		8.87	%		53,744		8.37	%		48,853		8.32	%
Total Liabilities & Stockholders’ Equity	$	666,353		100.00	%	$	642,481		100.00	%	$	587,066		100.00	%

	2006							2005							2004

Assets	Average Balance		Interest Income/ Expense		Yields Earned/ Rates Paid			Average Balance		Interest Income/ Expense		Yields Earned/ Rates Paid			Average Balance		Interest Income/ Expense		Yields Earned/ Rates Paid

Securities:
U.S. Government	$	31,968	$	1,299		4.06	%	$	20,279	$	767		3.78	%	$	15,745	$	747		4.74	%

Obligations of States And Political Subdivisions ¹		23,688		1,311		5.53	%		27,045		1,577		5.83	%		32,899		1,892		5.75	%

Other Securities		11,201		580		5.18	%		3,065		133		4.34	%		3,277		135		4.12	%

Total Investment Securities		66,857		3,190		4.77	%		50,389		2,477		4.92	%		51,921		2,774		5.34	%

Federal Funds Sold		61,904		2,986		4.82	%		81,948		2,587		3.16	%		77,169		972		1.26	%

Loans ²		478,908		39,082		8.16	%		452,646		32,808		7.25	%		395,883		25,331		6.40	%

Loan Fees		—		2,812		0.59	%		—		3,030		0.67	%		—		2,542		0.64	%

Total Loans, Including Loan Fees		478,908		41,894		8.75	%		452,646		35,838		7.92	%		395,883		27,873		7.04	%

Total Earning Assets		607,669	$	48,070		7.91	%		584,983	$	40,902		6.99	%		524,973	$	31,619		6.02	%

Cash and Due from Banks		29,934							31,287							37,542

Premises and Equipment		8,188							7,743							7,531

Interest Receivable and Other Assets		20,562							18,468							17,020

Total Assets	$	666,353						$	642,481						$	587,066

	2006							2005							2004

Liabilities and Stockholders' Equity	Average Balance		Interest Income/ Expense		Yields Earned/ Rates Paid			Average Balance		Interest Income/ Expense		Yields Earned/ Rates Paid			Average Balance		Interest Income/ Expense		Yields Earned/ Rates Paid

Interest-Bearing Deposits:
Interest-Bearing Transaction Deposits	$	95,180	$	1,568		1.65	%	$	73,990	$	512		0.69	%	$	63,619	$	89		0.14	%

Savings & MMDAs		190,036		3,813		2.01	%		190,562		2,279		1.20	%		174,539		893		0.51	%

Time Certificates		116,787		3,682		3.15	%		121,067		2,443		2.02	%		125,366		2,003		1.60	%

Total Interest-Bearing Deposits		402,003		9,063		2.25	%		385,619		5,234		1.36	%		363,524		2,985		0.82	%

Borrowed Funds		11,350		363		3.20	%		14,320		495		3.46	%		13,681		441		3.22	%

Total Interest-Bearing Deposits and Funds		413,353		9,426		2.28	%		399,939		5,729		1.43	%		377,205		3,426		0.91	%

Demand Deposits		187,766		—		—			184,171		—		—			158,676		—		—

Total Deposits and Borrowed Funds		601,119	$	9,426		1.57	%		584,110	$	5,729		0.98	%		535,881	$	3,426		0.64	%

Accrued Interest and Other Liabilities		6,113							4,627							2,332

Stockholders' Equity		59,121							53,744							48,853

Total Liabilities and Stockholders' Equity	$	666,353						$	642,481						$	587,066

Net Interest Income and Net Interest Margin ¹			$	38,644		6.36	%			$	35,173		6.01	%			$	28,193		5.37	%

Net Interest Spread ²						5.63	%						5.56	%						5.11	%

	December 31, 2006					December 31, 2005					December 31, 2004

	Allocation of Allowance for Loan Losses Balance		Loans as a % of Total Loans			Allocation of Allowance for Loan Losses Balance		Loans as a % of Total Loans			Allocation of Allowance for Loan Losses Balance		Loans as a % of Total Loans
Loan Type:

Commercial	$	2,037		20.5	%	$	1,779		19.1	%	$	1,727		20.9	%

Agriculture		1,133		8.1	%		1,518		7.2	%		1,484		7.7	%

Real Estate Mortgage		3,016		47.9	%		3,003		50.1	%		2,767		50.4	%

Real Estate Construction		1,535		22.4	%		1,001		22.7	%		668		19.9	%

Installment		640		1.1	%		616		0.9	%		801		1.1	%

Total	$	8,361		100.0	%	$	7,917		100.0	%	$	7,445		100.0	%

	December 31, 2003					December 31, 2002

	Allocation of Allowance for Loan Losses Balance		Loans as a % of Total Loans			Allocation of Allowance for Loan Losses Balance		Loans as a % of Total Loans
Loan Type:

Commercial	$	1,881		24.1	%	$	2,377		24.6	%

Agriculture		1,746		8.9	%		974		10.2	%

Real Estate Mortgage		2,181		47.2	%		279		46.0	%

Real Estate Construction		621		18.5	%		2,472		17.3	%

Installment		577		1.3	%		528		1.9	%

Total	$	7,006		100.0	%	$	6,630		100.0	%

Three months or less	$	28,729

Over three months through twelve months		32,355

Over twelve months		5,215

Total	$	66,299

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Deposits without a stated maturity (a)	$	490,246		490,246		—		—		—
Certificates of Deposit (a)		113,436		104,675		5,534		3,227		—
Short-Term Borrowings (a)		858		858		—		—		—
Long-Term Borrowings (b)		10,654		511		10,143		—		—
Operating Leases		6,545		1,212		2,333		1,265		1,735
Purchase Obligations		1,454		1,454		—		—		—
Total	$	623,193		598,956		18,010		4,492		1,735

	Maturities by period
Commitments	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Commitments to extend credit
Commercial	$	67,969		62,181		2,719		1,784		1,285
Agriculture		25,496		23,076		19		2,401		—
Real Estate Mortgage		58,220		3,983		5,608		24,018		24,611
Real Estate Construction		43,644		33,454		7,956		—		2,234
Installment		2,871		1,503		1,338		30		—
Standby Letters of Credit		12,222		12,220		2		—		—
Total	$	210,422		136,417		17,642		28,233		28,130

	2006		2005

Undisbursed loan commitments	$	198,200	$	203,101
Standby letters of credit		12,222		14,077
Commitments to sell loans		700		—

	$	211,122	$	217,178

	Expected Maturity/Repricing/Principal Payment
In Thousands	Within 1 Year			1 Year to 3 Years			3 Years to 5 Years			After 5 Years			Total Balance			Fair Value
Interest-Sensitive Assets:
Federal funds sold	$	62,470			—			—			—			62,470			62,470
Average interest rate		5.31	%		—			—			—			5.31	%		—
Fixed rate investments	$	12,298			27,799			13,692			22,484			76,273			76,273
Average interest rate		4.90	%		5.22	%		5.22	%		6.09	%		5.43	%		—
Fixed rate loans ⁽¹⁾	$	52,221			23,571			20,637			18,169			114,598			114,665
Average interest rate		6.87	%		7.30	%		7.72	%		6.88	%		7.11	%		—
Variable rate loans ⁽¹⁾	$	174,338			63,695			47,230			75,688			360,951			361,283
Average interest rate		8.97	%		8.16	%		8.13	%		7.56	%		8.42	%		—
Loans held-for-sale	$	4,460			—			—			—			4,460			4,460
Average interest rate		6.35	%		—			—			—			6.35	%		—

Interest-Sensitive Liabilities:
NOW account deposits ⁽²⁾	$	30,453			9,992			6,929			70,246			117,620			96,703
Average interest rate		1.10	%		1.10	%		1.10	%		1.10	%		1.10	%		—
Money market deposits ⁽²⁾	$	37,513			6,431			5,359			57,875			107,178			90,573
Average interest rate		1.25	%		1.25	%		1.25	%		1.25	%		1.25	%		—
Savings deposits ⁽²⁾	$	23,783			8,834			6,795			28,538			67,950			59,681
Average interest rate		1.65	%		1.65	%		1.65	%		1.65	%		1.65	%		—
Ce r tificates of deposit	$	104,673			5,535			3,228			—			113,436			113,563
Average interest rate		3.60	%		3.65	%		4.25	%		—			3.62	%		—

Borrowed funds ⁽³⁾	$	858			10,123			—			—			10,981			10,528
Average interest rate		5.38	%		2.91	%		—			—			3.11	%		—

Interest-Sensitive Off-Balance Sheet Items:
Commitments to lend		—			—			—			—		$	198,200			1,487
Standby letters of credit		—			—			—			—		$	12,222			122

Management’s Report	Page 44

Reports of Independent Registered Public Accounting Firms	Page 45

Consolidated Balance Sheets as of December 31, 2006 and 2005	Page 47

Consolidated Statements of Operations for Years ended December 31, 2006, 2005, and 2004	Page 48

Consolidated Statements of Stockholders' Equity and Comprehensive Income for Years ended December 31, 2006, 2005, and 2004	Page 49

Consolidated Statements of Cash Flows for Years ended December 31, 2006, 2005, and 2004	Page 50

Notes to Consolidated Financial Statements	Page 51

	/s/ Owen J. Onsum

	Owen J. Onsum
	President/Chief Executive Officer/Director
	(Principal Executive Officer)


	/s/ Louise A. Walker

	Louise A. Walker
	Senior Executive Vice President/Chief Financial Officer
	(Principal Financial Officer)

	2006			2005
Assets

Cash and due from banks	$	35,531		$	35,507
Federal funds sold		62,470			87,185
Investment securities - available-for-sale (includes securities pledged to creditors with the right to sell or repledge of $3,935 and $3,963, respectively)		76,273			48,788
Loans, net		475,549			456,061
Loans held-for-sale		4,460			4,440
Premises and equipment, net		8,060			8,311
Other real estate owned		375			268
Other assets		22,507			20,087
Total assets	$	685,225		$	660,647

Liabilities and Stockholders' Equity
Deposits:
Demand	$	197,498		$	192,436
Interest-bearing transaction deposits		117,620			85,560
Savings and MMDAs		175,128			185,878
Time, under $100,000		47,137			51,921
Time, $100,000 and over		66,299			65,986
Total Deposits		603,682			581,781
FHLB advances and other borrowings		10,981			14,969
Accrued interest payable and other liabilities		8,572			7,095

Total Liabilities		623,235			603,845

Stockholders' Equity:
Common stock, no par value; 16,000,000 shares authorized; 7,980,952 and 7,558,759 shares issued and outstanding in 2006 and 2005, respectively;		45,726			36,100
Additional paid-in capital		977			977
Retained earnings		15,792			19,606
Accumulated other comprehensive (loss) income, net		(505	)		119
Total stockholders’ equity		61,990			56,802
Commitments and contingencies
Total liabilities and stockholders’ equity	$	685,225		$	660,647

	2006		2005		2004

Interest income:
Interest and fees on loans	$	41,894	$	35,838	$	27,873
Federal funds sold		2,986		2,587		972
Investment securities:
Taxable		2,554		1,915		2,164
Non-taxable		636		562		610
Total interest income		48,070		40,902		31,619
Interest expense:
Time deposits $100,000 and over		2,315		1,452		1,122
Other deposits		6,748		3,782		1,863
Other borrowings		363		495		441
Total interest expense		9,426		5,729		3,426
Net interest income		38,644		35,173		28,193
Provision for loan losses		735		600		207
Net interest income after provision for loan losses		37,909		34,573		27,986
Other operating income:
Service charges on deposit accounts		2,820		2,400		2,203
Net realized gains on available-for-sale securities		—		15		3
Net realized gains on loans held-for-sale		45		763		742
Net realized gains on other real estate owned		6		323		32
Other income		2,418		2,219		2,234
Total other operating income		5,289		5,720		5,214
Other operating expenses:
Salaries and employee benefits		17,455		15,916		13,545
Occupancy and equipment		3,673		3,236		3,042
Data processing		1,384		1,209		1,079
Stationery and supplies		524		481		486
Advertising		894		736		416
Directors fees		162		128		127
Other		5,127		5,107		4,248
Total other operating expenses		29,219		26,813		22,943
Income before income tax expense		13,979		13,480		10,257
Provision for income tax expense		5,169		4,792		3,550
Net income	$	8,810	$	8,688	$	6,707
Basic income per share	$	1.04	$	1.02	$	0.78
Diluted income per share	$	0.99	$	0.98	$	0.76

															Accumulated
										Additional					Other
	Common Stock						Comprehensive			Paid-in		Retained			Comprehensive
Description	Shares			Amounts			Income			Capital		Earnings			Income			Total
Balance at December 31, 2003		6,834,514		$	28,193					$	977	$	15,933		$	1,869		$	46,972

Comprehensive income:
Net income							$	6,707				$	6,707					$	6,707
Other comprehensive loss:
Unrealized holding losses arising during the current period, net of tax effect of $513								(770	)
Reclassification adjustment due to gains realized, net of tax effect of $1								2
Directors’ and officers’ retirement plan equity adjustments								(116	)
Total other comprehensive loss, net of tax effect of $512								2(884	)							(884	)		(884	)
Comprehensive income							$	5,823
6% stock dividend		410,214			5,537								(5,537	)					—
Cash in lieu of fractional shares													(12	)					(12	)
Stock-based compensation and related tax benefits					360														360
Common shares issued, including tax benefits		80,668			398														398
Stock repurchase and retirement		(123,062	)		(1,640	)													(1,640	)
Balance at December 31, 2004		7,202,334			32,848						977		17,091			985			51,901

Comprehensive income:
Net income							$	8,688					8,688						8,688
Other comprehensive loss:
Unrealized holding losses arising during the current period, net of tax effect of $615								(923	)
Reclassification adjustment due to gains realized, net of tax effect of $6								9
Directors’ and officers’ retirement plan equity adjustments								48
Total other comprehensive loss, net of tax effect of $609								(866	)							(866	)		(866	)
Comprehensive income							$	7,822
6% stock dividend		432,132			6,158								(6,158	)					—
Cash in lieu of fractional shares													(15	)					(15	)
Stock-based compensation and related tax benefits					554														554
Common shares issued, including tax benefits		99,262			394														394
Stock repurchase and retirement		(174,969	)		(3,854	)													(3,854	)
Balance at December 31, 2005		7,558,759			36,100						977		19,606			119			56,802

Comprehensive income:
Net income							$	8,810					8,810						8,810
Other comprehensive loss:
Unrealized holding losses arising during the current period, net of tax effect of $75								(112	)
Reclassification adjustment due to gains realized, net of tax effect of $-0-								—
Directors’ and officers’ retirement plan equity adjustments, net of tax effect of $341								(512	)
Total other comprehensive loss, net of tax effect of $416								(624	)							(624	)		(624	)
Comprehensive income							$	8,186
6% stock dividend		455,472			12,525								(12,525	)					—
Cash in lieu of fractional shares													(15	)					(15	)
Accrued compensation													(84	)					(84	)
Stock-based compensation and related tax benefits					817														817
Common shares issued, including tax benefits		122,399			472														472
Stock repurchase and retirement		(155,678	)		(4,188	)													(4,188	)
Balance at December 31, 2006		7,980,952		$	45,726					$	977	$	15,792		$	(505	)	$	61,990

Buildings and improvements		15 to 50 years
Furniture and equipment		3 to 10 years

	Amortized cost		Unrealized gains		Unrealized losses			Estimated market value
Investment securities available for sale:
U.S. Treasury securities	$	249	$	4	$	—		$	253
Securities of U.S. government agencies and corporations		31,887		82		(266	)		31,703
Obligations of states and political subdivisions		29,836		382		(25	)		30,193
Mortgage backed securities		12,084		23		(76	)		12,031
Total debt securities		74,056		491		(367	)		74,180
Other securities		2,093		—		—			2,093
	$	76,149	$	491	$	(367	)	$	76,273

	Amortized cost		Estimated market value

Due in one year or less	$	12,345		12,298
Due after one year through five years		41,556		41,491
Due after five years through ten years		9,640		9,800
Due after ten years		10,515		10,591
Other		2,093		2,093
	$	76,149		76,273

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses

Securities of U.S. government agencies and corporations	$	8,867	$	(59	)	$	14,740	$	(207	)	$	23,607	$	(266	)
Obligations of states and political subdivisions		3,929		(20	)		225		(5	)		4,154		(25	)
Mortgage backed securities		8,156		(76	)		—		—			8,156		(76	)
Total	$	20,952	$	(155	)	$	14,965	$	(212	)	$	35,917	$	(367	)

	2006		2005

Land	$	2,718	$	2,718
Buildings		4,484		4,454
Furniture and equipment		10,325		9,639
Leasehold improvements		1,539		1,465

		19,066		18,276
Less accumulated depreciation		11,006		9,965

	$	8,060	$	8,311

	2006		2005
Accrued interest	$	3,832	$	3,119
Software, net of amortization		346		421
Officer’s Life Insurance		9,995		9,159
Prepaid and other		2,900		2,872
Investment in Limited Partnerships		1,747		1,875
Deferred tax assets, net (see note 8)		3,687		2,641

	$	22,507	$	20,087

	For the Year Ended December 31,
	2006			2005			2004

Change in benefit obligation
Benefit obligation at beginning of year	$	1,079		$	885		$	596
Service cost		183			160			156
Interest cost		65			53			47
Amendments		798			—			—
Plan loss (gain)		(40	)		(19	)		86
Benefits Paid		(45	)		—			—
Benefit obligation at end of year	$	2,040		$	1,079		$	885

Change in plan assets
Employer Contribution	$	45		$	—		$	—
Benefits Paid		(45	)		—			—
Fair value of plan assets at end of year	$	—		$	—		$	—

Reconciliation of funded status
Funded status	$	(2,040	)	$	(1,079	)	$	(885	)
Unrecognized net plan loss (gain)		(19	)		21			40
Unrecognized prior service cost		933			148			161
Net amount recognized	$	(1,126	)	$	(910	)	$	(684	)

Amounts recognized in the consolidated balance sheets consist of:
Accrued benefit liability	$	(2,040	)	$	(1,079	)	$	(885	)
Intangible asset		—			148			161
Accumulated other comprehensive income		914			21			40
Net amount recognized	$	(1,126	)	$	(910	)	$	(684	)

Assumptions used to determine benefit obligations at December 31	2006			2005			2004

Discount rate used to determine net periodic benefit cost for years ended December 31		5.30	%		5.10	%		6.25	%

Discount rate used to determine benefit obligations at December 31		5.40	%		5.30	%		5.10	%

Future salary increases		6.00	%		—			—