A Northern California community bank recorded its first yearly loss in at least 55 years after its new chief executive decided to take action against some stubborn bad assets.

Dixon-based First Northern Bank, which earned $1.9 million in 1995, posted a net loss of $2.7 million for 1996 after adding $8.3 million to its loan-loss reserve and charged off $4.5 million.

"We wanted to make sure that we had adequately provided for things that we wrote down and for things identified in the portfolio," said Owen J. Onsum, who is also president of the $265 million-asset bank.

If it hadn't taken the charges, the bank would have earned $2.9 million before taxes.

In response to the problems, Mr. Onsum, who took over the bank Jan. 1, has reorganized its credit department, putting all loan-related functions under a new senior credit officer. And to stress its confidence in the bank's recovery, the board declared a 4% stock dividend payable March 31 to shareholders of record Feb. 28.

The 87-year-old bank remains overcapitalized, with a Tier 1 leverage capital ratio of 9.17%.

First Northern's decision to respond to its loan problems comes several years after most banks in the state took similar steps. The loss also comes at a time when the rest of the industry is reporting record earnings nationwide.

First Northern has been struggling for several years with its nonperforming assets, which rose to 11% of total assets in 1994. Officials had worked them down to just 6.6% last Sept. 30, but reserves covered only 55% of the bad assets.

The bank has still been able to churn out returns on assets of almost 1% until this year.

"It's a pretty strong, well-positioned bank," said Don Crowley, an analyst at Smith & Crowley, a consulting and investment banking firm in Lafayette, Calif. "But the area around Sacramento has been weak for several years and has not shown the bounce we've seen in other parts of California."

Mr. Onsum said that the bank should have recognized and disposed of some of the problem loans and foreclosed real estate long ago instead of holding on to them. Before this move, the bank had only $4.3 million in its reserve, but now has provided for complete coverage for some assets.

"There's been a continuing deterioration of real estate in California, and we may have been slow in recognizing it," Mr. Onsum said. "We probably could have recognized some of it before, but we wanted to make sure we wouldn't be recognizing any of it in the future."

First Northern's earnings were on a roller-coaster ride in 1996. The bank earned money in the first and third quarters, but lost money in the other two.

Mr. Onsum, who has worked at the bank for 25 years, including 14 as executive vice president, took the helm this year. He succeeded John Hamel, who retired but remains a director.

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