FIRST NORTHERN COMMUNITY BANCORP [FNRN] Filings

10-Q 1 ef20029681_10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number 000-30707

FIRST NORTHERN COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

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

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

707 -678-3041

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbols(s)		Name of each exchange on which registered
None		Not Applicable		Not Applicable

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒

No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐

No ☒

The number of shares of Common Stock outstanding as of August 5, 2024 was 15,396,989.

FIRST NORTHERN COMMUNITY BANCORP

INDEX

	Page
PART I – Financial Information	3

ITEM I. – Financial Statements (Unaudited)	3

Condensed Consolidated Balance Sheets (Unaudited)	3

Condensed Consolidated Statements of Income (Unaudited)	4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)	5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	6

Condensed Consolidated Statements of Cash Flows (Unaudited)	7

Notes to Condensed Consolidated Financial Statements	8

ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31

ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	49

ITEM 4. – CONTROLS AND PROCEDURES	49

PART II – OTHER INFORMATION	49

ITEM 1. – LEGAL PROCEEDINGS	49

ITEM 1A. – RISK FACTORS	49

ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES	51

ITEM 4. – MINE SAFETY DISCLOSURES	51

ITEM 5. – OTHER INFORMATION	51

ITEM 6. – EXHIBITS	52

SIGNATURES	53

Index

PART I – FINANCIAL INFORMATION

FIRST NORTHERN COMMUNITY BANCORP

ITEM I. – FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)	June 30, 2024			December 31, 2023

Assets

Cash and cash equivalents	$	181,783		$	149,211
Certificates of deposit		16,860			19,710
Investment securities – available-for-sale, at estimated fair value, net of allowance for credit losses of $0; amortized cost of $611,056 at June 30, 2024 and $620,314 at December 31, 2023		561,074			572,357
Loans, net of allowance for credit losses of $17,024 at June 30, 2024 and $16,596 at December 31, 2023		1,049,148			1,052,465
Loans held-for-sale		267			—
Stock in Federal Home Loan Bank and other equity securities, at cost		10,518			10,518
Premises and equipment, net		9,549			9,962
Core deposit intangible		3,727			4,141
Interest receivable and other assets		55,089			53,468

Total Assets	$	1,888,015		$	1,871,832

Liabilities and Stockholders’ Equity

Liabilities:

Demand deposits	$	746,004		$	744,799
Interest-bearing transaction deposits		371,226			380,477
Savings and MMDA’s		430,927			431,472
Time, $250,000 or less		124,079			109,373
Time, over $250,000		34,823			26,323
Total deposits		1,707,059			1,692,444

Interest payable and other liabilities		15,229			20,143

Total Liabilities		1,722,288			1,712,587
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Common stock, no par value; 32,000,000 shares authorized; 15,419,573 shares issued and outstanding at June 30, 2024 and 15,482,332 shares issued and outstanding at December 31, 2023		122,776			123,235
Additional paid-in capital		977			977
Retained earnings		77,128			68,760
Accumulated other comprehensive loss, net		(35,154	)		(33,727	)
Total Stockholders’ Equity		165,727			159,245

Total Liabilities and Stockholders’ Equity	$	1,888,015		$	1,871,832

See notes to unaudited condensed consolidated financial statements.

Index

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)	Three months ended June 30, 2024			Three months ended June 30, 2023			Six months ended June 30, 2024			Six months ended June 30, 2023
Interest and dividend income:
Loans	$	13,830		$	13,722		$	27,305		$	25,099
Due from banks interest bearing accounts		2,084			2,503			3,799			4,903
Investment securities
Taxable		3,088			2,673			5,933			5,356
Non-taxable		261			220			513			493
Other earning assets		267			165			523			343
Total interest and dividend income		19,530			19,283			38,073			36,194
Interest expense:
Deposits		3,552			1,501			6,733			2,431
Total interest expense		3,552			1,501			6,733			2,431
Net interest income		15,978			17,782			31,340			33,763
Provision for credit losses		1,050			2,600			750			2,600
Net interest income after provision for credit losses		14,928			15,182			30,590			31,163
Non-interest income:
Service charges on deposit accounts		437			411			865			823
Gains on sales of loans held-for-sale		5			13			5			31
Investment and brokerage services income		137			130			276			251
Mortgage brokerage income		11			—			20			10
Loan servicing income		66			66			133			130
Debit card income		705			727			1,364			1,381
Losses on sales/calls of available-for-sale securities		(38	)		(66	)		(80	)		(64	)
Gain on bargain purchase		—			—			—			1,405
Other income		161			225			408			412
Total non-interest income		1,484			1,506			2,991			4,379
Non-interest expenses:
Salaries and employee benefits		5,593			6,471			12,264			13,276
Occupancy and equipment		1,183			1,057			2,310			2,074
Data processing		966			997			1,986			2,016
Stationery and supplies		82			69			142			169
Advertising		86			65			194			211
Directors’ fees		86			85			155			151
Amortization of core deposit intangible		203			226			414			377
Other expense		2,100			1,397			4,061			3,377
Total non-interest expenses		10,299			10,367			21,526			21,651
Income before provision for income taxes		6,113			6,321			12,055			13,891
Provision for income taxes		1,689			1,757			3,355			3,838

Net income	$	4,424		$	4,564		$	8,700		$	10,053

Basic earnings per common share	$	0.29		$	0.30		$	0.57		$	0.66
Diluted earnings per common share	$	0.29		$	0.30		$	0.57		$	0.66

See notes to unaudited condensed consolidated financial statements.

Index

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)	Three months ended June 30, 2024		Three months ended June 30, 2023			Six months ended June 30, 2024			Six months ended June 30, 2023
Net income	$	4,424	$	4,564		$	8,700		$	10,053
Other comprehensive income (loss), net of tax:
Unrealized holding (losses) gains arising during the period, net of tax effect of $4 and $(1,570) for the three months ended June 30, 2024 and June 30, 2023, respectively, and $(621) and $952 for the six months ended June 30, 2024 and June 30, 2023, respectively		7		(3,736	)		(1,483	)		2,278
Less: reclassification adjustment due to losses realized on sales of securities, net of tax effect of $11 and $20 for the three months ended June 30, 2024 and June 30, 2023, respectively, and $24 and $19 for the six months ended June 30, 2024 and June 30, 2023, respectively		27		46			56			45
Other comprehensive income (loss), net of tax	$	34	$	(3,690	)	$	(1,427	)	$	2,323

Comprehensive income	$	4,458	$	874		$	7,273		$	12,376

See notes to unaudited condensed consolidated financial statements.

Index

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)

	Common Stock						Additional Paid-in		Retained			Accumulated Other Comprehensive Income (Loss),
	Shares			Amounts			Capital		Earnings			net of tax			Total

Balance at December 31, 2022		14,652,584		$	116,099		$	977	$	54,492		$	(46,528	)	$	125,040
Cumulative change from adoption of ASU 2016-13 on January 1, 2023										(916	)					(916	)
Balance at January 1, 2023 (as adjusted for adoption of accounting standard)		14,652,584			116,099			977		53,576			(46,528	)		124,124
Net income										5,489						5,489
Other comprehensive income, net of taxes													6,013			6,013
Stock dividend adjustment		3,525			296					(296	)					—
Cash in lieu of fractional shares		(164	)							(7	)					(7	)
Stock-based compensation					192											192
Common shares issued related to restricted stock grants		72,242			—											—
Stock options exercised, net of swapped shares		11,000			—											—
Stock repurchase and retirement		(3,580	)		(26	)										(26	)
Balance at March 31, 2023		14,735,607		$	116,561		$	977	$	58,762		$	(40,515	)	$	135,785
Net income										4,564						4,564
Other comprehensive loss, net of taxes													(3,690	)		(3,690	)
Stock-based compensation					188											188
Common shares issued related to restricted stock grants		1,500			—											—
Stock repurchase and retirement		(16,474	)		(117	)										(117	)
Balance at June 30, 2023		14,720,633		$	116,632		$	977	$	63,326		$	(44,205	)	$	136,730


Balance at December 31, 2023		15,482,332		$	123,235		$	977	$	68,760		$	(33,727	)	$	159,245
Net income										4,276						4,276
Other comprehensive loss, net of taxes													(1,461	)		(1,461	)
Stock dividend adjustment		2,671			325					(325	)					—
Cash in lieu of fractional shares		(148	)							(7	)					(7	)
Stock-based compensation					296											296
Common shares issued related to restricted stock grants, net of restricted stock reversals		57,489			—											—
Stock options exercised, net of swapped shares		8,387			—											—
Balance at March 31, 2024		15,550,731		$	123,856		$	977	$	72,704		$	(35,188	)	$	162,349
Net income										4,424						4,424
Other comprehensive income, net of taxes													34			34
Stock-based compensation					159											159
Common shares issued related to restricted stock grants		4,470														—
Stock repurchase and retirement		(137,500	)		(1,239	)										(1,239	)
Stock options exercised, net of swapped shares		1,872			—											—
Balance at June 30, 2024		15,419,573		$	122,776		$	977	$	77,128		$	(35,154	)	$	165,727

See notes to unaudited condensed consolidated financial statements.

Index

FIRST NORTHERN COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	(in thousands)
	Six months ended June 30, 2024			Six months ended June 30, 2023
Cash Flows From Operating Activities
Net income	$	8,700		$	10,053
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		532			480
Accretion and amortization of investment securities premiums and discounts, net		505			1,150
(Decrease) increase in deferred loan origination fees and costs, net		(36	)		553
Amortization of core deposit intangible		414			377
Provision for credit losses		750			2,600
Stock-based compensation		455			380
Losses on sales/calls of available-for-sale securities		80			64
Amortization of operating lease right-of-use asset		510			536
Gains on sales of loans held-for-sale		(5	)		(31	)
Proceeds from sales of loans held-for-sale		1,699			1,945
Originations of loans held-for-sale		(1,961	)		(2,925	)
Gain on bargain purchase		—			(1,405	)
Changes in assets and liabilities:
(Increase) decrease in interest receivable and other assets		(1,533	)		828
Decrease in interest payable and other liabilities		(4,914	)		(1,617	)
Net cash provided by operating activities		5,196			12,988

Cash Flows From Investing Activities
Proceeds from calls or maturities of available-for-sale securities		42,785			15,265
Proceeds from sales of available-for-sale securities		2,932			16,986
Principal repayments on available-for-sale securities		35,155			36,202
Purchases of available-for-sale securities		(72,199	)		(35,941	)
Proceeds from maturities of certificates of deposit		5,430			1,963
Purchases of certificates of deposit		(2,580	)		(2,207	)
Net decrease (increase) in loans		2,603			(46,730	)
Purchases of Federal Home Loan Bank stock and other equity securities, at cost		—			(1,078	)
Purchases of premises and equipment		(119	)		(506	)
Cash and cash equivalents acquired in acquisition		—			103,425
Net cash provided by investing activities		14,007			87,379

Cash Flows From Financing Activities
Net increase (decrease) in deposits		14,615			(82,828	)
Cash dividends paid in lieu of fractional shares		(7	)		(7	)
Repurchases of common stock		(1,239	)		(143	)
Net cash provided by (used in) by financing activities		13,369			(82,978	)

Net increase in Cash and Cash Equivalents		32,572			17,389
Cash and Cash Equivalents, beginning of period		149,211			187,417
Cash and Cash Equivalents, end of period	$	181,783		$	204,806

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	7,151		$	2,000
Income taxes		4,520			—
Supplemental disclosures of non-cash investing and financing activities:
Stock dividend distributed		6,392			5,652
Unrealized holding (losses) gains on available for sale securities, net of taxes		(1,427	)		2,323
Market value of shares tendered in-lieu of cash to pay for exercise of options		348			81
Recognition of right-of-use assets obtained in exchange for operating lease liabilities		—			245
Non-cash assets acquired (liabilities assumed) in acquisition:
Total assets acquired		—			12,612
Total liabilities assumed		—			(115,916	)

See notes to unaudited condensed consolidated financial statements.

Index

FIRST NORTHERN COMMUNITY BANCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023 and December 31, 2023

1.	BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of First Northern Community Bancorp (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for any interim period are not necessarily indicative of results expected for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. All material intercompany balances and transactions have been eliminated in consolidation.

2.	ACCOUNTING POLICIES

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Accounting Standards Adopted in 2024

On January 1, 2024, the Company adopted Accounting Standards Updated (ASU) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. Adoption of ASU 2022-03 did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In January 2021, the Financial Accounting Standards Board (FASB) issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The Company is in the process of evaluating the provisions of this ASU but does not expect it to have a material impact on the Company’s consolidated financial statements.

In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (JV) Formations: Recognition and Initial Measurement. The guidance requires newly formed JVs to apply a new basis of accounting to all of its contributed net assets, which results in the JV initially measuring its contributed net assets under ASC 805-20, Business Combinations. The new guidance would be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted. The Company is evaluating the accounting and disclosure requirements of this update and the impact of adopting the new guidance on the consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company has determined that its current business and operations consist of a single business segment and single reporting unit. The Company is currently evaluating the impact on the Company's consolidated financial statements as the Company has a single reportable segment.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Among other things, these amendments provide additional transparency into an entity’s income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The standard requires that public business entities disclose, on an annual basis, specific categories in the rate reconciliation and additional information for reconciling items meeting a certain quantitative threshold. The amendments also require that entities disclose on an annual basis: 1) income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and 2) the income taxes paid (net of refunds received) disaggregated by individual jurisdictions exceeding 5% of total income taxes paid (net of refunds received). The amendments are effective for public business entities for annual periods beginning after December 15, 2024. The Company is evaluating the accounting and disclosure requirements of this update and the impact of adopting the new guidance on the consolidated financial statements.

In March 2024, the FASB issued guidance within ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The amendments in the ASU apply to companies that provide employees and non-employees with profits interest and similar awards to align compensation with a company’s operating performance and provide those holders with the opportunity to participate in future profits and/or equity appreciation of the company. The purpose of the ASU is to clarify the application of the scope guidance in Accounting Standards Codification (ASC) paragraph 718-10-15-3 in determining if a profit interest award should be accounted for in accordance with Topic 718: Compensation—Stock Compensation. The amendment in ASC paragraph 718-10-15-3 is solely intended to improve the overall clarity and does not change the guidance. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If a company adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes the interim period. The amendments should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) on a prospective basis. The Company has evaluated this ASU and does not expect the adoption to have a material impact on the Company’s Consolidated Financial Statements, as the Company does not typically provide these types of awards.

Index

3.	INVESTMENT SECURITIES

The amortized cost, unrealized gains and losses and estimated fair values of investments in debt and other securities at June 30, 2024 are summarized as follows:

	Amortized cost		Unrealized gains		Unrealized losses			Estimated fair value		ACL
Investment securities available-for-sale:
U.S. Treasury securities	$	86,949	$	34	$	(2,447	)	$	84,536