FIRST NORTHERN COMMUNITY BANCORP

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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This report may include forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our forecasts and expectations. See Part I, Item 1A. “Risk Factors,” and the other risks described in our 2023 Annual Report on Form 10-K and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and the other risks described in our Quarterly Reports on Form 10-Q for factors to be considered when reading any forward-looking statements in this filing.

Current wording

This report may include forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our forecasts, if any, and expectations. See Part I, Item 1A. “Risk Factors,” and the other risks described in our 2024 Form 10-K and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q and the other risks described in our Quarterly Reports on Form 10-Q for factors to be considered when reading any forward-looking statements in this filing.

Previous wording

This report and other reports or statements which we may release may include forward-looking statements, which are subject to the “safe harbor” created by section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our Securities and Exchange Commission (SEC) filings, press releases, news articles and when we are speaking on behalf of the Company. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words “believe,” “expect,” “target,” “anticipate,” “intend,” “plan,” “seek,” “strive,” “estimate,” “potential,” “project,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or “may.” These forward-looking statements are intended to provide investors with additional information with which they may assess our future potential. All of these forward-looking statements are based on assumptions about an uncertain future and are based on information available to us at the date of these statements. We do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date any forward-looking statements are made.

Current wording

This report and other reports or statements which we may release may include forward-looking statements, which are subject to the “safe harbor” created by section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our Securities and Exchange Commission (SEC) filings, press releases, news articles and when we are speaking on behalf of the Company. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words “believe,” “expect,” “target,” “anticipate,” “intend,” “plan,” “seek,” “strive,” “estimate,” “potential,” “project,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or “may.” These forward-looking statements are intended to provide investors with additional information with which they may assess our future potential. All of these forward-looking statements are based on assumptions about an uncertain future and are based on information available to us at the date of these statements. We do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date any forward-looking statements are made, except as may be required by law.

Previous wording

Readers of this document should not rely on any forward-looking statements, which reflect only our management’s belief as of the date of this report. There are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in our forward-looking statements. Many of these factors are beyond our ability to control or predict and could have a material adverse effect on our financial condition and results of operations or prospects. Such risks and uncertainties include, but are not limited to those listed in Item 1A “Risk Factors” of Part II of this Form 10-Q, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I of this Form 10-Q and “Risk Factors” and “Supervision and Regulation” in our 2023 Annual Report on Form 10-K, and in our other reports to the SEC.

Current wording

Readers of this document should not rely on any forward-looking statements, which reflect only our management’s belief as of the date of this report. There are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in our forward-looking statements. Many of these factors are beyond our ability to control or predict and could have a material adverse effect on our financial condition and results of operations or prospects. Such risks and uncertainties include, but are not limited to those listed in Item 1A “Risk Factors” of Part II of this Form 10-Q, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I of this Form 10-Q and "Risk Factors" and “Supervision and Regulation” in our 2024 Form 10-K, and in our other reports to the SEC.

Previous wording

This overview of Management’s Discussion and Analysis highlights selected information in this report and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting policies and estimates, you should carefully read this entire report and any other reports to the Securities and Exchange Commission (“SEC”), together with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

This overview of Management’s Discussion and Analysis highlights selected information in this report and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting estimates, you should carefully read this entire report and any other reports to the Securities and Exchange Commission (“SEC”), together with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our 2024 Form 10-K for the year ended December 31, 2024.

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Significant results and developments during the third quarter and year-to-date 2024 included:

Current wording

Significant results and developments for the Company during the first quarter 2025 included:

Previous wording

The Company recorded net income of $14,188,000 for the nine months ended September 30, 2024, representing a decrease of $484,000, or 3.3%, from net income of $14,672,000 for the same period in 2023. The Company recorded net income of $5,488,000 for the three months ended September 30, 2024, representing an increase of $869,000, or 18.8%, from net income of $4,619,000 for the same period in 2023.

Current wording

The Company recorded net income of $3,671,000 for the three months ended March 31, 2025, representing a decrease of $605,000 from net income of $4,276,000 for the same period in 2024.

Previous wording

The following tables present a summary of the results for the three and nine months ended September 30, 2024 and 2023, and a summary of financial condition at September 30, 2024 and December 31, 2023.

Current wording

The following tables present a summary of the results for the three months ended March 31, 2025 and 2024, and a summary of our financial condition at March 31, 2025 and December 31, 2024:

Previous wording

Following is an analysis of changes in interest income and expense (dollars in thousands) for the three months ended September 30, 2024 over the three months ended September 30, 2023, the nine months ended September 30, 2024 over the nine months ended September 30, 2023, and the three months ended September 30, 2024 over the three months ended June 30, 2024. Changes not solely due to interest rate or volume have been allocated proportionately to interest rate and volume.

Current wording

Following is an analysis of changes in interest income and expense (dollars in thousands) for the three months ended March 31, 2025 over the three months ended March 31, 2024 and the three months ended March 31, 2025 over the three months ended December 31, 2024. Changes not solely due to interest rate or volume have been allocated proportionately to interest rate and volume.

Previous wording

The assets of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a $14,707,000, or 9.9%, increase in cash and cash equivalents, a $466,000, or 2.4%, decrease in certificates of deposit, a $60,047,000, or 10.5%, increase in investment securities available-for-sale, and a $10,161,000, or 1.0%, decrease in net loans held-for-investment from December 31, 2023 to September 30, 2024. The increase in cash and cash equivalents was primarily due to an increase in deposit balances coupled with a decrease in loans due to proceeds from loan payoffs, net of loan originations, which was partially offset by an increase in investment securities due to net purchases of investment securities. The decrease in certificates of deposits was due to net maturities and repayments of certificates of deposit. The decrease in net loans held-for-investment was primarily due to net payoffs of agriculture, residential mortgage, and residential construction loans, which was partially offset by net originations of commercial, commercial real estate and consumer loans.

Current wording

The assets of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a $7,731,000, or 6.5%, decrease in cash and cash equivalents, a $3,315,000, or 0.5%, increase in investment securities available-for-sale, and a $6,057,000, or 0.6%, decrease in net loans held-for-investment from December 31, 2024 to March 31, 2025. The decrease in cash and cash equivalents was primarily due to a decrease in deposit balances and increase in investment securities due to purchases of available-for-sale securities, which was partially offset by a decrease in loans due to loan payoffs. The increase in investment securities was due to purchases of available-for-sale securities, which was partially offset by paydowns and maturities of available-for-sale securities. The decrease in net loans held-for-investment was primarily due to payoffs of commercial real estate and agriculture loans, which was partially offset by originations of commercial loans.

Previous wording

The liabilities of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect an increase in total deposits of $39,598,000, or 2.3%, from December 31, 2023 to September 30, 2024. The overall increase in total deposits was primarily due to seasonal fluctuations due to changes in market conditions and monetary policy.

Current wording

The liabilities of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a decrease in total deposits of $25,282,000, or 1.5%, from December 31, 2024 to March 31, 2025. The overall decrease in total deposits was primarily due to seasonal fluctuations due to changes in market conditions and monetary policy.

Previous wording

Interest income on loans for the nine months ended September 30, 2024 was up 9.0% from the same period in 2023, increasing from $38,197,000 to $41,620,000, and was up 9.3% for the three months ended September 30, 2024 over the same period in 2023, increasing from $13,098,000 to $14,315,000. The increase in interest income on loans for the nine months ended September 30, 2024 as compared to the same period a year ago was primarily due to an increase in average balance of loans coupled with an 18 basis point increase in yield on loans. The increase in interest income on loans for the three months ended September 30, 2024 as compared to the same period a year ago was primarily due to an increase in average balance of loans coupled with a 39 basis point increase in yield on loans.

Current wording

Interest income on loans for the three months ended March 31, 2025 was up 0.9% from the same period in 2024, increasing from $13,475,000 to $13,602,000. The increase in interest income on loans for the three months ended March 31, 2025 as compared to the same period a year ago was primarily due to a 13 basis point increase in yield on loans, which was partially offset by a decrease in average balance of loans.

Previous wording

Interest income on interest-bearing due from banks for the nine months ended September 30, 2024 was down 20.8% from the same period in 2023, decreasing from $6,411,000 to $5,077,000, and was down 12.7% for the three months ended September 30, 2024 over the same period in 2023, decreasing from $1,870,000 to $1,632,000. The decrease in interest income on interest-bearing due from banks for the nine months ended September 30, 2024 as compared to the same period a year ago was primarily due to a decrease in average balances of interest-bearing due from banks, which was partially offset by a 42 basis point increase in yield on interest-bearing due from banks. The decrease in interest income on interest-bearing due from banks for the three months ended September 30, 2024 as compared to the same period a year ago was primarily due to a decrease in average balances of interest-bearing due from banks, which was partially offset by a 12 basis point increase in yield on interest-bearing due from banks.

Current wording

Interest income on interest-bearing due from banks for the three months ended March 31, 2025 was down 52.6% from the same period in 2024, decreasing from $1,532,000 to $727,000. The decrease was primarily due to a decrease in average interest-bearing due from banks balance coupled with an 81 basis point decrease in interest-bearing due from yields.

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The Company had no Federal Funds sold balances during the three and nine months ended September 30, 2024 and September 30, 2023.

Current wording

The Company had no Federal Funds sold balances during the three months ended March 31, 2025 and March 31, 2024.

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Non-interest income was down 13.4% for the three months ended September 30, 2024 from the same period in 2023, decreasing from $1,776,000 to $1,538,000. The decrease was primarily due to decreases in other income and losses on sales of securities.

Current wording

Non-interest income was down 3.6% for the three months ended March 31, 2025 from the same period in 2024, decreasing from $1,507,000 to $1,453,000. The decrease was primarily due to a decrease in other income, primarily bank owned life insurance income.

Previous wording

Total non-interest expenses were up 0.5% for the three months ended September 30, 2024 from the same period in 2023, increasing from $10,883,000 to $10,934,000. The decrease was primarily due to a decrease in salaries and employee benefits, which was partially offset by an increase in occupancy and equipment and data processing expense. The decrease in salaries and employee benefits was primarily due to a decrease in full-time equivalent employees. The increase in occupancy and equipment and data processing expense was primarily due to increases in service contracts partially due to a full year of additional processing related to new branches acquired in the first quarter of 2023.

Current wording

Total non-interest expenses were up 3.2% for the three months ended March 31, 2025 from the same period in 2024, increasing from $11,227,000 to $11,590,000. The increase was primarily due to increases in consulting fees, which was partially offset by a decrease in salaries and employee benefits. The increase in consulting fees was primarily due to staffing searches. The decrease in salaries and employee benefits was primarily due to decreases in stock compensation, contingent compensation and profit sharing expense, which was partially offset by an increase in group insurance expense.

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The following table sets forth other non-interest expenses by category for the three and nine months ended September 30, 2024 and 2023.

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The following table sets forth other non-interest expenses by category for the three months ended March 31, 2025 and 2024.

Previous wording

The Company’s tax rate, the Company’s income before taxes and the amount of tax relief provided by non-taxable earnings affect the Company’s provision for income taxes. Provision for income taxes increased 0.6% for the nine months ended September 30, 2024 from the same period in 2023, increasing from $5,486,000 to $5,517,000, and increased 31.2% for the three months ended September 30, 2024 from the same period in 2023, increasing from $1,648,000 to $2,162,000. The effective tax rate was 28.0% and 27.2% for the nine months ended September 30, 2024 and September 30, 2023, respectively. The effective tax rate was 28.3% and 26.3% for the three months ended September 30, 2024 and September 30, 2023, respectively.

Current wording

The Company’s tax rate, the Company’s income before taxes and the amount of tax relief provided by non-taxable earnings affect the Company’s provision for income taxes. Provision for income taxes decreased 22.9% for the three months ended March 31, 2025 from the same period in 2024, decreasing from $1,666,000 to $1,285,000 primarily due to a decrease in pre-tax income. The effective tax rate was 25.9% and 28.0% for the three months ended March 31, 2025 and March 31, 2024, respectively.

Previous wording

The reserve for unfunded lending commitments amounted to $950,000 and $1,150,000 as of September 30, 2024 and December 31, 2023, respectively. The reserve for unfunded lending commitments is included in other liabilities on the Condensed Consolidated Balance Sheets. See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q, “Financial Instruments with Off-Balance Sheet Risk,” for additional information.

Current wording

The reserve for unfunded lending commitments amounted to $950,000 and $700,000 as of March 31, 2025 and December 31, 2024, respectively. The reserve for unfunded lending commitments is included in other liabilities on the condensed consolidated balance sheets. See Note 7 of the notes to condensed consolidated financial statements of this Form 10-Q, "Commitments and Contingencies,"

Previous wording

The following table summarizes the Company’s non-accrual loans net of guarantees of the State of California and U.S. Government by loan category at September 30, 2024 and December 31, 2023:

Current wording

The following tables summarize the Company’s non-accrual loans net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored enterprises, by loan category at March 31, 2025 and December 31, 2024:

Previous wording

Non-accrual loans amounted to $4,015,000 at September 30, 2024 and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $466,000, two agriculture loans totaling $2,380,000, four residential mortgage loans totaling $469,000 and three consumer loans totaling $561,000. Non-accrual loans amounted to $3,998,000 at December 31, 2023 and were comprised of two agriculture loans totaling $2,871,000, three residential mortgage loans totaling $424,000 and four consumer loans totaling $703,000.

Current wording

Non-accrual loans amounted to $13,845,000 at March 31, 2025 and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $5,282,000, seven agriculture loans totaling $7,603,000, three residential mortgage loans totaling $196,000 and four consumer loans totaling $625,000. Non-accrual loans amounted to $11,212,000 at December 31, 2024 and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $7,993,000 two agriculture loans totaling $2,236,000, three residential mortgage loans totaling $202,000 and four consumer loans totaling $642,000.

Previous wording

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The ACL on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. It is generally the Company’s policy that if the value of the underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken.

Current wording

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The allowance for credit losses, or ACL, on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. It is generally the Company’s policy that if the value of the underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken.

Previous wording

As the following table illustrates, total non-performing assets, net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored agencies, decreased $4,410,000, or 52.9%, to $3,924,000 during the first nine months of 2024. Non-performing assets, net of guarantees, represented 0.2% of total assets at September 30, 2024.

Current wording

As the following table illustrates, total non-performing assets, net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored enterprises, increased $2,882,000, or 26.0%, to $13,955,000 during the first three

Previous wording

The Company had one loan totaling $48,000 that was 90 days or more past due and still accruing as of September 30, 2024. The Company had two loans totaling $4,336,000 that were 90 days or more past due and still accruing as of December 31, 2023.

Current wording

The Company had $73,000 and $0 loans 90 days or more past due and still accruing interest at March 31, 2025 and December 31, 2024, respectively.

Previous wording

Excluding the non-performing loans, net of guaranteed loans cited previously, loans totaling $13,876,000 and $12,327,000 were classified as substandard or doubtful loans, representing potential problem loans at September 30, 2024 and December 31, 2023, respectively. Management believes that the allowance for credit losses at September 30, 2024 and December 31, 2023 appropriately reflected expected credit losses in the loan portfolio at that date. The ratio of the allowance for credit losses to total loans was 1.55% at each of the periods ended September 30, 2024 and December 31, 2023.

Current wording

Excluding non-performing loans, loans totaling $15,958,000 and $11,643,000 were classified as substandard loans, representing potential problem loans at March 31, 2025 and December 31, 2024, respectively. Management believes that the allowance for credit losses at March 31, 2025 and December 31, 2024 appropriately reflected expected credit losses inherent in the loan portfolio at that date. The ratio of the allowance for credit losses to total loans at March 31, 2025 and December 31, 2024 was 1.56% and 1.49%, respectively.

Previous wording

Other real estate owned (“OREO”) consists of property that the Company has acquired by deed in lieu of foreclosure or through foreclosure proceedings, and property that the Company does not hold title to but is in actual control of, known as in-substance foreclosure. The estimated fair value of the property is determined prior to transferring the balance to OREO. The balance transferred to OREO is the estimated fair value of the property less estimated cost to sell. Impairment may be deemed necessary to bring the book value of the loan equal to the appraised value. Appraisals or loan officer evaluations are then conducted periodically thereafter charging any additional impairment to the appropriate expense account. The Company had no OREO as of September 30, 2024 and December 31, 2023.

Current wording

Other real estate owned (“OREO”) consists of property that the Company has acquired by deed in lieu of foreclosure or through foreclosure proceedings, and property that the Company does not hold title to but is in actual control of, known as in-substance foreclosure. OREO also consists of property held by the Company that is no longer intended for future development. The estimated fair value of the property is determined prior to transferring the balance to OREO. The balance transferred to OREO is the estimated fair value of the property less estimated cost to sell. Impairment may be deemed necessary to bring the book value of the loan equal to the appraised value. Appraisals or loan officer evaluations are then conducted periodically thereafter charging any additional impairment to the appropriate expense account. The Company had OREO totaling $1,241,000 and $0 as of March 31, 2025 and December 31, 2024, respectively. OREO as of March 31, 2025 represented land, transferred from premises and equipment, that the Company determined is no longer intended for future development.

Previous wording

The following table summarizes the ACL of the Company during the nine months ended September 30, 2024 and 2023, and for the year ended December 31, 2023:

Current wording

The following table summarizes transactions affecting the Company's ACL during the three months ended March 31, 2025 and 2024, and for the year ended December 31, 2024:

Previous wording

The Company obtains deposits primarily from the communities it serves. The Company believes that no material portion of its deposits has been obtained from or is dependent on any one person or industry. The Company accepts deposits in excess of $250,000 from customers. These deposits are priced to remain competitive.

Current wording

The Company obtains deposits primarily from the communities it serves. The Company believes that no material portion of its deposits has been obtained from or is dependent on any one person or industry. The Company accepts deposits in excess of $250,000 (the current FDIC insurance limit) from customers. These deposits are priced to remain competitive.

Previous wording

Maturities of time certificates of deposit of over $250,000 outstanding at September 30, 2024 and December 31, 2023 are summarized as follows:

Current wording

Maturities of time certificates of deposits of over $250,000 or more outstanding at March 31, 2025 and December 31, 2024 are summarized as follows:

Previous wording

Approximately 40% and 37% of our deposits were uninsured as of September 30, 2024 and December 31, 2023, respectively.

Current wording

Approximately 39% and 40% of our deposits were uninsured by the FDIC as of the periods ended March 31, 2025 and December 31, 2024, respectively.

Previous wording

In order to serve our market area and comply with banking regulations, the Company must maintain adequate liquidity and adequate capital. Liquidity refers to the Company’s ability to provide funds at an acceptable cost to meet loan demand and deposit withdrawals, as well as contingency plans to meet unanticipated funding needs or loss of funding sources. These objectives can be met from either the asset or liability side of the balance sheet.

Current wording

In order to serve our market area and comply with banking regulations, the Company must maintain adequate liquidity and adequate capital. Liquidity refers to the Company’s ability to provide funds at an acceptable cost to meet loan and other credit demand and deposit withdrawals, as well as contingency plans to meet unanticipated funding needs or loss of funding sources. These objectives can be addressed from either the asset or liability side of the balance sheet.

Previous wording

Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally summarized as investing activities in the Condensed Consolidated Statements of Cash Flows. For the nine months ended September 30, 2024, net liquidity used in investing activities totaled $35,296,000.

Current wording

Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally summarized as investing activities in the Condensed Consolidated Statement of Cash Flows. For the three months ended March 31, 2025, net liquidity provided by investing activities totaled $15,413,000.

Previous wording

The Company’s available-for-sale investment securities plus cash and cash equivalents in excess of reserve requirements and certificates of deposit totaled $815,566,000 on September 30, 2024, which was 42.2% of assets at that date. This was an increase of $74,288,000 from $741,278,000 and 39.6% of assets as of December 31, 2023. The Company’s investment securities are generally shorter term in nature to provide ongoing cash flows for liquidity needs and/or reinvestment for interest rate risk management. On September 30, 2024, the effective duration of our investment securities was 3.06 with projected principal cashflow of $50,012,000 for the remainder of 2024 available for reinvestment or liquidity needs. The Company had no held-to-maturity securities as of September 30, 2024 and December 31, 2023.

Current wording

The Company’s available-for-sale investment securities plus cash and cash equivalents in excess of reserve requirements and certificates of deposit totaled $764,466,000 on March 31, 2025, which was 40.8% of assets at that date. This was a decrease of $4,909,000 from $769,375,000 and 40.7% as of December 31, 2024. The Company’s investment securities are generally shorter term in nature to provide ongoing cash flows for liquidity needs and/or reinvestment for interest rate risk management. On March 31, 2025, the effective duration of our investment securities was 3.17 with projected principal cashflow of $129,242,000 for the remainder of 2025 available for reinvestment or liquidity needs. The Company had no held-to-maturity securities as of March 31, 2025 and December 31, 2024.

Previous wording

Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding. These activities are included under financing activities in the Condensed Consolidated Statements of Cash Flows. As of September 30, 2024, the Company had $0 in borrowings outstanding. For the nine months ended September 30, 2024, net liquidity provided by financing activities totaled $36,796,000, primarily due to a net increase in deposits. While these sources of funds are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market conditions.

Current wording

Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding. These activities are included under financing activities in the Condensed Consolidated Statement of Cash Flows. As of March 31, 2025, the Company had $0 in borrowings outstanding. For the three months ended March 31, 2025, net liquidity used in financing activities totaled $26,564,000 primarily as a result of a decrease in deposits. While these sources of funds are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other liquidity sources, will depend on future economic and market conditions.

Previous wording

Liquidity is also provided or used through the results of operating activities. For the nine months ended September 30, 2024, operating activities provided cash of $13,207,000.

Current wording

Liquidity is also provided or used through the results of operating activities, including from net income. For the three months ended March 31, 2025, operating activities provided cash of $3,420,000.

Previous wording

Liquidity is measured by various ratios, in management’s opinion, the most common being the ratio of net loans to deposits (including loans held-for-sale). This ratio was 60.2% and 62.2% as of September 30, 2024 and December 31, 2023, respectively.

Current wording

Liquidity is measured by various ratios, in management’s opinion, the most common being the ratio of net loans to deposits (including loans held-for-sale). This ratio was 62.2% and 61.6% as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

Loan demand during the remainder of 2024 will depend in part on economic and competitive conditions. The Company emphasizes the solicitation of non-interest-bearing demand deposits and money market checking accounts, which are the least sensitive to interest rates. The outlook for deposit balances during the remainder of 2024 is subject to actions by the Federal Reserve and heightened competition.

Current wording

Loan demand during 2025 will depend in part on economic and competitive conditions. The Company emphasizes the solicitation of non-interest-bearing demand deposits and money market checking accounts, which are the least sensitive to interest rates. The outlook for deposit balances during 2025 is subject to policies of and actions by the Federal Reserve and heightened competition.

Previous wording

To meet unanticipated funding requirements, the Company maintains short-term unsecured lines of credit with other banks which totaled $130,000,000 at September 30, 2024. Additionally, the Company has a line of credit with the FHLB, with a remaining borrowing capacity at September 30, 2024 of $394,192,000; credit availability is subject to certain collateral requirements.

Current wording

To meet unanticipated funding requirements, the Company maintains short-term unsecured lines of credit with other banks which totaled $130,000,000 at March 31, 2025. Additionally, the Company has a line of credit with the FHLB, with a remaining borrowing capacity at March 31, 2025 of $395,974,000; credit availability from the FHLB is subject to certain collateral requirements.

Previous wording

In July 2013, the FRB and the other U.S. federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations and to conform this framework to the guidelines published by the Basel Committee known as the Basel III Global Regulatory Framework for Capital and Liquidity. The Basel Committee is a committee of banking supervisory authorities from major countries in the global financial system which formulates broad supervisory standards and guidelines relating to financial institutions for implementation on a country-by-country basis. These rules adopted by the FRB and the other federal banking agencies (the U.S. Basel III Capital Rules) replaced the federal banking agencies’ general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules, in accordance with certain transition provisions.

Current wording

In July 2013, the Federal Reserve and the other U.S. federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations and to conform this framework to the guidelines published by the Basel Committee known as the Basel III Global Regulatory Framework for Capital and Liquidity. The Basel Committee is a committee of banking supervisory authorities from major countries in the global financial system which formulates broad supervisory standards and guidelines relating to financial institutions for implementation on a country-by-country basis. These rules adopted by the Federal Reserve and the other federal banking agencies (the U.S. Basel III Capital Rules) replaced the federal banking agencies’ general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules, in accordance with certain transition provisions.

Previous wording

Banks, such as First Northern, became subject to the final rules on January 1, 2015. The final rules implement higher minimum capital requirements, include a new common equity Tier 1 capital requirement, and establish criteria that instruments must meet in order to be considered common equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. The final rules provide for increased minimum capital ratios as follows: (a) a common equity Tier 1 capital ratio of 4.5%; (b) a Tier 1 capital ratio of 6%; (c) a total capital ratio of 8%; and (d) a Tier 1 leverage ratio to average consolidated assets of 4%. Under these rules, in order to avoid certain limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements (equal to 2.5% of total risk-weighted assets). The capital conservation buffer is designed to absorb losses during periods of economic stress.

Current wording

Banks, such as First Northern, became subject to the final rules on January 1, 2015. The final rules implemented higher minimum capital requirements, included a new common equity Tier 1 capital requirement, and established criteria that instruments must meet in order to be considered common equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. The final rules provide for increased minimum capital ratios as follows: (a) a common equity Tier 1 capital ratio of 4.5%; (b) a Tier 1 capital ratio of 6%; (c) a total capital ratio of 8%; and (d) a Tier 1 leverage ratio to average consolidated assets of 4%. Under these rules, in order to avoid certain limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements (equal to 2.5% of total risk-weighted assets). The capital conservation buffer is designed to absorb losses during periods of economic stress.