First Northern Community Bancorp's Q1 2025 Results: A Mixed Bag Amid Sector Challenges

First Northern Community Bancorp (NASDAQ: FNCL) reported net income of $3.7 million for the first quarter of 2025, marking a 14.2% decline compared to the same period in 2024, when it earned $4.3 million. While the results reflect ongoing challenges in the banking sector, including rising provisions for loan losses and declining deposits, First Northern also demonstrated resilience in its net interest margin and capital position. Here’s what investors need to know.

Key Financials and Trends

• Net Income Decline: The $3.7 million net income for Q1 2025 translates to $0.23 diluted EPS, down from $0.26 in Q1 2024. The drop was driven by a $550,000 increase in provisions for credit losses (now $850,000 vs. a $300,000 reversal in 2024). This reflects heightened caution around credit quality amid economic uncertainty.
• Loan Portfolio Dynamics: Total net loans fell 0.6% year-over-year to $1.04 billion, pressured by declines in commercial real estate and agricultural lending. However, commercial loans grew, signaling a strategic shift toward higher-yielding assets.
• Deposit Decline: Total deposits dropped 2.0% to $1.67 billion, reflecting broader trends in the sector where competition for deposits has intensified.

Bright Spots in the Report

While the top-line figures are disappointing, two areas stand out:
1. Improved Net Interest Margin (NIM): The NIM rose to 3.64% (annualized) in Q1 2025 from 3.49% in 2024, a 15 basis-point improvement. This was achieved through higher yields on securities and disciplined deposit pricing, despite a rise in the cost of funds to 0.86%.
2. Strong Capital Position: Stockholders’ equity grew 6.5% year-over-year to $187.8 million, boosting the book value per share to $11.81. The company remains “well capitalized,” exceeding regulatory requirements.

Comparisons to Peers Highlight Operational Challenges

First Northern’s performance contrasts with peers like First Business Financial Services (FBIZ), which reported 9% loan growth and improved asset quality in Q1 2025, and Sound Financial Bancorp (SFBC), which saw rising nonperforming loans but maintained stability. Meanwhile, First Northern’s 66.62% efficiency ratio (up from 57.34% in Q4 2024) suggests higher operational costs, potentially due to the stock dividend paid in March 2025 or one-time expenses.

Strategic Priorities and Risks

• Growth Initiatives: Management emphasized cross-selling opportunities and expanding commercial lending, which could offset declines in real estate and agricultural portfolios.
• Risk Factors: Rising interest rates and economic softness could further pressure loan demand and credit quality. The increase in provisions underscores this risk.

Conclusion: A Cautionary Buy

First Northern’s Q1 2025 results are a mixed bag. While the declining net income and deposits are concerning, the improved NIM and robust capital position provide a foundation for stability. Investors should monitor:
- Loan Growth: Can the bank reverse its loan contraction?
- Deposit Management: How will it compete for funds in a high-rate environment?
- Credit Quality: Will provisions remain elevated, or can asset quality stabilize?

At its current valuation, First Northern’s book value of $11.81 per share offers a cushion, but the 14% net income drop suggests caution. For now, the stock may appeal to investors seeking a regional bank with a strong balance sheet but willing to tolerate near-term headwinds.

In a sector where margin resilience is key, First Northern’s 15 basis-point NIM improvement is a positive sign. However, without a clear path to reversing deposit and loan declines, its prospects remain tied to broader macroeconomic trends.

Final Take: Hold for now, but keep an eye on Q2 updates.