First Northern Community Bancorp — Q3 2021 Form 10-Q
Business context and reporting period. First Northern is a California bank holding company whose subsidiary, First Northern Bank of Dixon, primarily serves the Sacramento Valley region. This unaudited filing covers the three and nine months ended September 30, 2021; balance-sheet comparisons are with December 31, 2020. Unless noted, amounts below are in millions.
Financial performance and condition
| Metric | Q3 2021 / Sept. 30, 2021 | Comparable period / Dec. 31, 2020 |
|---|---|---|
| Net income | $4.51; diluted EPS $0.33 | Q3 2020: $3.43; diluted EPS $0.25 |
| Net income, nine months | $10.99; diluted EPS $0.81 | Nine months 2020: $8.81; diluted EPS $0.65 |
| Net interest income, nine months | $34.77 | $34.96 in 2020 |
| Net interest margin | 2.58% Q3; 2.68% nine months | 3.16% Q3 2020; 3.29% nine months 2020 |
| Total assets | $1,924.5 | $1,655.4 |
| Loans, net, including held-for-sale | $825.6 | $885.0 |
| Available-for-sale securities | $617.1 | $435.1 |
| Deposits | $1,749.7 | $1,478.2 |
| Cash and cash equivalents | $415.6 | $267.2 |
- For the first nine months, operating cash flow was $19.3 million, investing cash outflow was $135.0 million, and financing cash inflow was $264.1 million. Cash increased $148.5 million.
- At September 30, the company had no FHLB advances outstanding, versus $5.0 million at year-end 2020. Available borrowing capacity included $298.8 million from the FHLB, subject to collateral, and $122 million in unsecured correspondent-bank lines.
- The Bank’s reported capital ratios exceeded “well-capitalized” thresholds: leverage 8.05%, common equity Tier 1 and Tier 1 risk-based 16.34%, and total risk-based 17.59%.
Material changes versus prior periods
- Net income rose 31.7% year over year in Q3 and 24.8% for the nine-month period. Lower credit-loss provision expense helped results: the company recorded a $1.8 million Q3 reversal and a $1.5 million nine-month reversal, compared with provisions of $0.8 million and $2.25 million, respectively, in 2020.
- Net interest margin fell year over year despite lower deposit costs. Management attributed pressure to lower yields on loans and securities and reduced PPP fee recognition; loan interest income also declined. Nine-month net interest income was down 0.5%.
- Deposits increased 18.4% from year-end, while total net loans including held-for-sale declined 6.7%. Management attributed the loan decline principally to $198 million of SBA PPP forgiveness/payoff payments, partly offset by new PPP lending and commercial real estate loan purchases.
- Available-for-sale securities grew 41.8%. Nine-month other comprehensive loss was $5.16 million, principally reflecting unrealized securities losses; accumulated other comprehensive income moved from $5.04 million at year-end to a $0.12 million loss.
- Non-accrual loans declined to $12.0 million from $15.2 million at year-end; net non-performing assets were 0.6% of total assets. The allowance for loan losses fell to $14.0 million, or 1.67% of loans, from $15.4 million, or 1.73%.
Management commentary, outlook, and risks
- Management linked the allowance reversal to lower specific reserves on impaired loans to one borrower and improved economic-condition qualitative factors. It cautioned that actual losses may differ from estimates and future reserve increases may be necessary.
- The bank had $72 million of PPP loans outstanding at September 30, down from $155 million at year-end, and had received $198 million in SBA forgiveness payments during the nine months. Management expected a significant portion of remaining PPP loans to be forgiven during 2021; unearned PPP fees were $3.9 million.
- COVID-19 impacts and uncertainty remain risks. Management highlighted real-estate lending concentration: approximately 76% of loans were secured by real estate; commercial real estate exposures included retail (10.5%), restaurants (1.6%), and hospitality/hotels (0.9%) of that portfolio. Drought, fire, economic conditions, collateral values, interest rates, and regulatory or cybersecurity developments are also identified risks.
- Four loans totaling $9.6 million were modified as TDRs during Q3, including three agricultural loans totaling $9.13 million. Total TDR loans were $10.55 million at quarter-end, with $0.91 million in specific reserves.
- No formal earnings or financial guidance is provided in the supplied filing text. The filing states management did not expect to pay a cash dividend on common stock in the foreseeable future. A repurchase program authorized up to 547,203 shares through June 14, 2023; 214,883 shares had been repurchased by September 30, 2021.
- Management reported disclosure controls and procedures were effective as of September 30, 2021, with no material quarterly change in internal controls. No material pending legal proceeding was reported.
Important facts for investors to verify
- Whether earnings remain resilient as the benefit from credit-loss reversals and PPP fees fades, particularly with net interest margin below prior-year levels.
- Current status and collateral support for the $9.13 million agricultural non-accrual/TDR exposure, and any subsequent changes in non-performing loans, reserves, or charge-offs.
- Deposit stability and the deployment or yield of substantial cash and securities balances, including sensitivity to interest-rate movements and securities valuation losses.
- Actual PPP forgiveness and fee-recognition timing, and whether loan growth offsets the runoff of PPP balances.
- Use of the remaining share-repurchase authorization, capital and liquidity levels, and any change to the stated dividend outlook.