First Northern Community Bancorp — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; balance-sheet comparisons are to December 31, 2021. The company’s subsidiary, First Northern Bank of Dixon, is a California-chartered community bank serving Northern California’s Sacramento Valley region.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $14.2 million | $11.8 million | $38.9 million | $34.8 million |
| Net interest margin | 3.12% | 2.58% | 2.92% | 2.68% |
| Net income | $4.6 million | $4.5 million | $11.2 million | $11.0 million |
| Diluted EPS | $0.33 | $0.32 | $0.80 | $0.77 |
- Q3 interest and dividend income was $14.5 million; deposit interest expense was $0.3 million. The loan-loss provision was $0.3 million, versus a $1.8 million provision reversal in Q3 2021.
- For the first nine months, non-interest income declined 8.4% to $5.5 million, mainly from lower gains on mortgage loan sales as higher rates slowed originations and refinancing. Non-interest expense rose 4.6% to $28.3 million.
- At September 30, total assets were $1.933 billion, net loans $971.2 million, investment securities $608.0 million, deposits $1.800 billion, and stockholders’ equity $113.4 million. Loans grew 13.9% and deposits 4.1% from year-end 2021.
- Cash and cash equivalents were $264.4 million, down $81.5 million from year-end. Nine-month cash from operations was $13.0 million; investing used $165.7 million and financing provided $71.2 million. The loan-to-deposit ratio was 54.0%, versus 49.4% at year-end.
- No FHLB advances were outstanding at September 30. The company reported $122.0 million of unsecured bank credit lines and $356.7 million of remaining FHLB borrowing capacity, subject to collateral requirements. The Bank’s capital ratios exceeded well-capitalized requirements: leverage 8.50%, common equity Tier 1 and Tier 1 risk-based 14.29%, and total risk-based 15.54%.
Changes, asset quality, and unusual items
- Loan growth was concentrated in commercial real estate: CRE balances rose to $646.4 million from $526.9 million at year-end. Approximately 65% of loans were CRE; management also disclosed substantial overall real-estate exposure.
- The allowance for loan losses was $14.8 million, or 1.50% of loans, compared with $14.0 million, or 1.61%, at year-end. Nine-month net recoveries were $81,000. Non-accrual loans declined to $8.5 million from $10.2 million; non-performing assets were $8.9 million, or 0.5% of assets.
- Available-for-sale securities had $72.8 million of gross unrealized losses at September 30, versus $8.7 million at year-end. Nine-month other comprehensive loss was $49.1 million after tax, contributing to accumulated other comprehensive loss of $53.3 million and a decline in equity. Management attributed the securities losses primarily to rising interest rates, stated the securities were investment grade, and reported no other-than-temporary impairment; it did not intend, and did not expect to be required, to sell before recovery.
- PPP loans fell to $0.5 million from $37.3 million at year-end. PPP fee recognition also declined, while higher rates increased interest income on bank balances and securities and supported margin expansion.
- Cash flows reflect substantial loan originations and securities purchases. The filing reports no cash dividend on common stock in the foreseeable future as a forward-looking expectation.
Outlook, risks, and contingencies
- The filing provides no numerical earnings or margin guidance. Management discusses interest-rate, economic, credit, liquidity, and regulatory uncertainty; actual results may differ from forward-looking statements.
- Key stated risks include concentration in real-estate-secured lending, especially commercial real estate; deterioration in Northern California property values or economic conditions; inflation and higher rates; borrower and collateral performance; and possible future increases in credit-loss provisions. The allowance is estimate-dependent.
- The company planned to adopt the current expected credit loss standard (CECL) on January 1, 2023 and was evaluating the financial-statement effect; the filing does not provide a clear estimate of the adoption adjustment.
- Undisbursed loan commitments were $203.3 million and performance standby letters of credit $2.7 million; the reserve for unfunded commitments was $0.7 million. Management reported no material pending litigation and no material change in market-risk disclosures.
- Subsequent event: On November 5, 2022, the Bank agreed to acquire three Columbia State Bank branches in Colusa, Orland, and Willows, California. The transaction is expected to assume approximately $128 million of deposits and acquire approximately $4 million of loans; final consideration depends on closing balances.
Important facts for investors to verify
- How rising rates affect deposit pricing, loan yields, net interest margin, and deposit retention.
- Whether unrealized securities losses recover, deepen, or affect liquidity or capital if securities must be sold.
- CRE concentration, borrower performance, collateral valuations, non-performing loans, and allowance adequacy as the portfolio grows.
- The eventual CECL adoption impact and the final cost, closing conditions, and integration effects of the three-branch acquisition.
- Liquidity and funding capacity under stress, including availability of stated credit lines and FHLB capacity, which are subject to conditions.