First Northwest Bancorp’s Q1 Surge: Sustainable Turnaround or Temporary Rally?

First Northwest Bancorp (FNWB) delivered a striking performance in Q1 2025, reporting a GAAP EPS of $0.17 and revenue of $17.94 million—both handily beating expectations. The results marked a sharp reversal from Q4 2024, when the bank posted a loss of $2.8 million, and raised questions about whether this quarter’s success signals a durable recovery or a fleeting rebound.

Financial Performance: A Strong Quarter, but with Caveats

FNWB’s Q1 EPS of $0.17 exceeded the Zacks Consensus Estimate of $0.12 by 41.67%, while its revenue of $17.94 million beat estimates by 12.82%. These figures outperformed even the prior-year quarter’s $16.12 million in revenue. The turnaround was driven by operational improvements and one-time gains. A 14% reduction in nonperforming loans lowered credit costs, while a strategic shift in deposits—brokers’ deposits fell by $45 million, and core deposits rose by $23 million—drove the cost of funds down to 2.67%.

However, a significant portion of the profit stemmed from non-recurring items: $1.1 million from bank-owned life insurance, $846,000 from debt extinguishment, and $315,000 from an equity investment conversion. Excluding these, the core EPS would have been lower, suggesting that sustainable growth may still hinge on recurring revenue streams.

Analyst Outlook: Bullish but Cautious

Analysts are cautiously optimistic. The average price target of $12.50 implies a 22% upside from the $10.24 closing price on April 12, 2025, while GuruFocus’s $14.35 fair value estimate suggests a 40% potential gain. The Zacks Rank of #1 (“Strong Buy”) reflects favorable earnings revisions, though the broader Banks – West sector ranks in the bottom 42% of all Zacks industries—a reminder that regional banks face headwinds like elevated interest rates and competitive pressures.

The declared $0.07 dividend, payable in May, signals confidence in liquidity, while management’s mention of stock buybacks hints at a focus on shareholder returns. However, investors should monitor whether Q2 results can sustain the momentum, particularly given the absence of one-time gains and the need to demonstrate consistent revenue growth.

Sector Risks and the Path Forward

The regional banking sector remains under pressure. While FNWB’s deposit management and loan quality improvements are laudable, the industry’s struggles with net interest margins and customer retention persist.

FNWB’s management has emphasized cost control and asset quality as priorities. If these efforts continue, the bank could outperform peers. The consensus FY2025 estimates of $0.59 EPS and $68.8 million in revenue are achievable if the core business stabilizes.

Conclusion: A Promising Start, but Proof Remains Pending

First Northwest Bancorp’s Q1 results are undeniably strong, reflecting both operational improvements and favorable one-time events. The 41.67% earnings surprise and 12.82% revenue beat underscore management’s ability to pivot quickly. However, the sustainability of this performance depends on two factors:

1. Recurring Revenue Growth: The bank must demonstrate that its core operations—lending, fee income, and deposit management—can generate consistent profits without relying on one-time gains.

2. Sector Resilience: While FNWB’s Zacks Rank is bullish, the broader regional banking sector’s struggles (as reflected in its bottom-42% industry ranking) could drag down its prospects.

If the bank can maintain its cost discipline, improve net interest margins, and grow loans organically, its current $10.24 share price could indeed approach the $14.35 fair value estimate. Yet investors must remain vigilant: the Q1 rebound may be a sign of resilience, but it is not yet proof of a lasting turnaround.

The next quarter’s results, due April 24, 2025, will be critical. Until then, FNWB offers a compelling risk-reward trade-off for investors willing to bet on a regional bank’s ability to navigate a challenging environment.