First Northern Community Bancorp 10-Q Summary
Business Context and Reporting Period
Company: First Northern Community Bancorp (California)
Reporting Period: Quarterly period ended June 30, 2009 (Six months ended June 30, 2009)
Filing Date: August 7, 2009
The Company operates as a bank holding company with its subsidiary, First Northern Bank of Dixon, serving the Sacramento Valley region of Northern California. The Company is an accelerated filer and a smaller reporting company.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Net Income (Loss) | $1,029,000 | $(804,000) |
| Net Income Available to Common Shareholders | $734,000 | $(804,000) |
| Diluted EPS | $0.08 | $(0.09) |
| Total Assets | $715,041,000 | $661,375,000 |
| Total Loans (Net) | $486,850,000 | $516,968,000 |
| Total Deposits | $616,618,000 | $573,775,000 |
| Net Interest Income | $14,446,000 | $16,701,000 |
| Net Interest Margin | 4.77% | 5.43% |
| Provision for Loan Losses | $2,267,000 | $6,422,000 |
| Allowance for Loan Losses | $14,177,000 | $12,096,000 |
| Stockholders' Equity | $80,002,000 | $62,029,000 |
Material Changes vs. Prior Period
- Profitability Turnaround: The Company returned to profitability, recording net income of $1.03 million for the six months ended June 30, 2009, compared to a net loss of $0.80 million in the same period in 2008. This represents a 228% improvement.
- Provision Reduction: The provision for loan losses decreased significantly by 64.7% to $2.3 million, driven by stabilization in collateral values and repayment abilities in the residential construction sector.
- Deposit Growth: Total deposits increased by $42.8 million (7.5%) to $616.6 million, attributed to depositor movement from troubled financial institutions and the stock market.
- Loan Portfolio Contraction: Net loans decreased by $30.1 million (5.8%) to $486.9 million, primarily due to decreases in commercial, agricultural, and real estate construction loans.
- Capital Injection: Stockholders' equity increased by $18.0 million, largely due to the issuance of $16.8 million in preferred stock to the U.S. Treasury under the Capital Purchase Program (CPP).
- Net Interest Margin Compression: Net interest margin declined from 5.43% to 4.77% due to a decrease in interest yields on loans and securities, partially offset by lower interest costs.
Guidance, Outlook, Risks, and Unusual Items
- Capital Purchase Program (CPP): On March 13, 2009, the Company issued 17,390 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, to the U.S. Treasury for $17.39 million. The stock pays a 5% dividend for the first five years, rising to 9% thereafter. The transaction included a warrant to purchase 352,977 shares of common stock at $7.39. This capital qualifies as Tier 1 capital.
- Dividend Restrictions: As a condition of the CPP, the Company is restricted from increasing common stock cash dividends above the last declared rate without Treasury approval and is subject to limitations on stock repurchases.
- Asset Quality: Non-accrual loans totaled $15.5 million (2.83% of total loans) at June 30, 2009, up from $13.5 million at year-end 2008. The majority of impaired loans are considered adequately collateralized.
- California Fiscal Risk: The Company has accepted California Registered Warrants (IOUs) totaling approximately $100,000 due to the state's budget impasse. This exposes the Company to credit risk regarding the State of California's repayment ability.
- Other Real Estate Owned (OREO): OREO balances decreased to $3.2 million from $4.4 million at year-end 2008, due to write-downs and sales.
Investor Verification Checklist
- Preferred Stock Terms: Verify the impact of the 5% (rising to 9%) preferred dividend obligation on future earnings available to common shareholders.
- Non-Performing Assets: Monitor the trend of non-accrual loans ($15.5M) and the adequacy of the allowance for loan losses ($14.2M) relative to the concentration in residential construction.
- Net Interest Margin: Assess the sustainability of the 4.77% margin in a low-interest-rate environment and the ability to manage funding costs.
- California Exposure: Evaluate the potential impact of the State of California's credit rating downgrade and budget crisis on the Company's liquidity and asset quality.
- Stock Repurchase Plan: Note that the Company's stock repurchase program expired on June 21, 2009, and future repurchases are restricted by the CPP agreement.