First Northwest plunges as dividend suspension, loan losses raise capital concerns
Regional bank misses earnings by 79% as nonperforming loans surge 69% and reserve coverage weakens
First Northwest Bancorp shares fell sharply Thursday after the regional bank suspended its dividend and reported a worse-than-expected earnings performance marked by deteriorating loan quality and weakening reserve coverage.
The Washington-based bank reported fourth-quarter earnings per share of $0.04, missing analyst estimates of $0.19 by 79%, according to data from Nasdaq. While revenue of $18.4 million topped expectations by 6.6%, the positive result was overshadowed by multiple red flags that raised questions about the bank's asset quality and capital management strategy.
The most significant surprise came from First Northwest's Board of Directors, which decided not to declare a dividend for the quarter. The move ends a streak of shareholder returns, as the bank had paid a quarterly dividend of $0.07 per share in the same period last year. The company stated it will evaluate future dividend decisions based on long-term strategic goals, framing the suspension as part of a "disciplined approach to capital management."
Of greater concern to investors and analysts, however, was the rapid deterioration in the bank's credit portfolio. Nonperforming loans jumped 69% quarter-over-quarter, increasing by $9.2 million to reach $22.6 million at December 31, 2025, according to the company's earnings release. The surge was driven by a single $6.3 million commercial real estate loan and four commercial business loans totaling $4.7 million that transitioned into nonaccrual status during the quarter.
The sharp rise in troubled loans coincided with a significant weakening in the bank's allowance for credit losses coverage. The allowance-to-nonperforming-loans ratio dropped to 75% from 121% in the prior quarter, indicating that reserves may not be adequate to cover potential losses if economic conditions worsen. The bank recorded a $466,000 provision for credit losses in Q4, compared to a $620,000 recapture—or reduction in reserves—in the third quarter.
"The combination of dividend suspension, rising nonperforming loans, and declining reserve coverage is a triple negative for a regional bank," said banking industry analysts who reviewed the results. "Investors typically view dividend cuts as a last resort, and when paired with deteriorating asset quality, it raises legitimate questions about management's visibility into future credit challenges."
The bank reported net income of $382,000 for the quarter, down 52% from $802,000 in the third quarter, though representing an improvement from a $2.8 million net loss in the fourth quarter of 2024. Despite the earnings decline, some operational metrics showed improvement. Net interest margin increased to 3.00% from 2.91% in the prior quarter, while the cost of deposits dropped to 2.12% from 2.20% as higher-rate certificates of deposit matured.
First Northwest also announced it will permanently close its Bellevue branch on April 30, 2026, a move expected to reduce annual operating expenses by approximately $900,000. The bank's risk-based capital ratios remained stable at 13.6%, and brokered deposits decreased by $17.9 million, or 17.1%, to $86.5 million.
The stock's decline Thursday adds pressure on a company that was already trading below book value. At current levels, First Northwest's price-to-book ratio stands at 0.62, with shares down significantly from their 52-week high of $12.01. The stock had been struggling in 2025, with trailing twelve-month earnings per share at negative $0.84, though two analysts maintain buy ratings with an average target price of $12.75, according to market data.
The dividend suspension and rising loan losses come at a challenging time for regional banks, which have faced increased scrutiny and pressure from higher interest rates that have compressed net interest margins and elevated borrowing costs. For First Northwest, the fourth-quarter results will likely intensify investor focus on management's ability to stabilize credit quality and restore shareholder returns in the coming quarters.