FIRST NORTHERN COMMUNITY BANCORP

Previous wording

At June 30, 2024, real estate mortgage (excluding loans held-for-sale) and construction loans (residential and other) comprised approximately 90% and 3%, respectively, of the principal amount of total loans in the Bank’s portfolio. At June 30, 2024, all of the Bank’s real estate mortgage and construction loans were secured fully or in part by deeds of trust on underlying real estate. Most of the Company’s customers, including its loan customers, are located in the State of California.

Current wording

At September 30, 2024, loans secured by real estate comprised approximately 87% of the total loans in the Bank’s portfolio. At September 30, 2024, all of the Bank’s real estate mortgage and construction loans were secured fully or in part by deeds of trust on underlying real estate. Most of the Company’s customers, including its loan customers, are located in the State of California.

Previous wording

The California Department of Insurance enforces some safeguards to temporarily shield homeowners from the cancellation or non-renewal of home insurance policies in high-risk areas, particularly those prone to wildfires. In addition, the California Fair Access to Insurance Requirements (FAIR) Plan, a state-established risk pool, operates as an insurer of last resort, providing temporary coverage for California homeowners unable to obtain (generally at increased premium cost) such coverage from a traditional insurance carrier; however, enrollment in the FAIR Plan as a percentage of the total number of residential insurance policies in California has steadily increased over the past five years, particularly in counties with the highest wildfire risk, threatening the ongoing stability of the Plan. In late 2023, following the California Governor’s declaration of a State of Emergency regarding property insurance, the Insurance Commissioner of the State of California introduced a comprehensive package of executive actions aimed at insurance reform; however, there can be no assurance that these regulatory actions will increase insurance availability or stabilize and strengthen California’s insurance market.

Current wording

The California Department of Insurance enforces some safeguards to temporarily shield homeowners from the cancellation or non-renewal of home insurance policies in high-risk areas, particularly those prone to wildfires. In addition, the California Fair Access to Insurance Requirements (FAIR) Plan, a state-established risk pool, operates as an insurer of last resort, providing temporary coverage for California homeowners unable to obtain (generally at increased premium cost) such coverage from a traditional insurance carrier; however, enrollment in the FAIR Plan as a percentage of the total number of residential insurance policies in California has steadily increased over the past five years, particularly in counties with the highest wildfire risk, threatening the ongoing stability of the Plan. In late 2023, following the California Governor’s declaration of a State of Emergency regarding property insurance, the Insurance Commissioner of the State of California introduced a comprehensive package of executive actions aimed at insurance reform. In August 2024, the California Department of Insurance issued proposed regulations intended to cause insurance companies to write more policies in wildfire distressed areas of California as a condition for using forward-looking wildfire modeling designed to more accurately assess wildfire risks and to reverse FAIR Plan growth. There can be no assurance that these regulatory actions will increase insurance availability or stabilize and strengthen California’s insurance market.

Previous wording

The Bank’s allowance for credit losses on loans was approximately $17.0 million, or 1.60% of total loans, at June 30, 2024, compared to $16.6 million, or 1.55% of total loans, at December 31, 2023, and 250.2% of total non-performing loans net of guaranteed portions at June 30, 2024, compared to 199.1% of total non-performing loans, net of guaranteed portions at December 31, 2023. Provision for credit losses totaling $1.1 and $2.6 million for the three month periods ended June 30, 2024 and June 30, 2023, respectively. Provision for credit losses totaling $0.8 and $2.6 million for the six month periods ended June 30, 2024 and June 30, 2023, respectively.

Current wording

The Bank’s allowance for credit losses on loans was approximately $16.4 million, or 1.55% of total loans, at September 30, 2024, compared to $16.6 million, or 1.55% of total loans, at December 31, 2023, and 418.5% of total non-performing loans net of guaranteed portions at September 30, 2024, compared to 199.1% of total non-performing loans, net of guaranteed portions at December 31, 2023. Reversal of provision for credit losses totaling $550 thousand and provision for credit losses totaling $500 thousand for the three-month periods ended September 30, 2024 and September 30, 2023, respectively. Provision for credit losses totaling $200 thousand and $3.1 million for the nine-month periods ended September 30, 2024 and September 30, 2023, respectively.

Previous wording

The Bank’s primary lending focus has historically been commercial (including agricultural), construction, and real estate mortgage. At June 30, 2024, real estate mortgage (excluding loans held-for-sale) and construction loans (residential and other) comprised approximately 90% and 3%, respectively, of the total loans in the Bank’s portfolio. At June 30, 2024, all of the Bank’s real estate mortgage and construction loans and approximately 1% of its commercial loans were secured fully or in part by deeds of trust on underlying real estate. The Company’s dependence on real estate increases the risk of loss in both the Bank’s loan portfolio and its holdings of other real estate owned if economic conditions in Northern California were to deteriorate. Deterioration of the real estate market in Northern California would have a material adverse effect on the Company’s business, financial condition, and results of operations.

Current wording

The Bank’s primary lending focus has historically been commercial (including agricultural), construction, and real estate mortgage. At September 30, 2024, loans secured by real estate comprised approximately 87% of the total loans in the Bank’s portfolio. At September 30, 2024, all of the Bank’s real estate mortgage and construction loans and approximately 1% of its commercial loans were secured fully or in part by deeds of trust on underlying real estate. The Company’s dependence on real estate increases the risk of loss in both the Bank’s loan portfolio and its holdings of other real estate owned if economic conditions in Northern California were to deteriorate. Deterioration of the real estate market in Northern California would have a material adverse effect on the Company’s business, financial condition, and results of operations.