First Northwest Bancorp (FNWB) stock intrinsic value fair value estimate & owner earnings analysis

First Northwest Bancorp is the holding company for First Federal Savings and Loan Association of Port Angeles. It runs twelve branches and five business centers in Washington State (Clallam, Jefferson, Kitsap, Whatcom and King counties, plus a business center in Snohomish County), taking deposits and making real estate and business loans. The King County branch is scheduled to close on April 30, 2026. Net interest income was $57.3 million in 2025 and total shareholders' equity was $157.3 million on about 9.5 million shares, roughly $16.60 of book value per share. How we measured earnings. We start from operating cash flow, remove working-capital swings and stock compensation, and deduct only the capital spending needed to stand still. On that basis the company generated between roughly -$0.35 and $1.85 per share over the last ten years, with 2018 through 2023 clustered around $0.6 to $1.5. Two adjustments matter. Cash flow for a bank adds back the provision for loan losses, even though those losses are real; the provision was $16.7 million in 2024 and $7.3 million in 2025, so 2024's $1.85 per share flatters the business. Cash flow in 2023 likewise adds back a $5.4 million loss on securities sales. We therefore did not simply use the median of the stored series. We built the level from the 2025 income statement: about $57.3 million of net interest income plus $11.6 million of other income, less $61.3 million of expenses once the $5.7 million legal settlement is set aside, less a normal level of credit costs. That gives roughly $0.60 per share, well below the cash-flow median of about $1.37 for 2018 to 2023. Net income was only about $0.3 million in the first half of 2026, so the recent quarters do not show earnings returning to the older, higher level. What went wrong. In 2024 several borrowers tied to Water Station Management entered bankruptcy, and the bank was hit by large credit losses and litigation. Nonperforming assets were $24.0 million at the end of 2025 versus $30.5 million a year earlier. In 2025 the bank paid $5.74 million to settle claims in the bankruptcy, of which about $3.3 million of fees were paid directly by its insurer and $1.7 million was reimbursed. It keeps a $30.6 million unsecured claim in that bankruptcy, but has recorded nothing for it because recovery is uncertain, and we assume nothing for it either. Two lawsuits remain open. As disclosed in the company's 2025 annual report, 3|5|2 Capital, a bond investor in Water Station Management, sued in June 2025 for at least $106.9 million plus punitive damages; its complaint alleges that the bank aided and abetted an alleged fraud by Water Station Management, and the bank disputes these allegations and has filed counterclaims. Socotra REIT I sued in October 2025 over a $7.7 million loan, seeking unspecified damages. The 3|5|2 claim is large relative to the $157 million of equity, and it is the main reason for the wide range of outcomes below. Growth. Owner earnings fell from $1.85 per share in 2024 to -$0.35 in 2025, and year one of our base case sits above that trailing figure. The reason is dated and in the filing: the 2025 result absorbed the one-time $5.74 million settlement paid in the third quarter of 2025, and compensation expense had already fallen to $28.8 million from $32.7 million. We credit no growth. Loan and revenue growth in past years did not translate into higher earnings, and cost savings from branch closures are already in the starting level rather than added on top. Earnings are held flat at the starting level for as long as the deposit franchise lasts. Bear case: $0.50 per share. Credit costs stay elevated at about $5 million a year against $22.6 million of nonaccrual loans, leaving about $0.30 per share of earnings, worth about $5.00 per share, and the 3|5|2 lawsuit is resolved with a $40 million payment (about $4.50 per share). We chose $40 million as roughly a third of the claim, above the $5.74 million paid in the earlier settlement, to reflect the size of the exposure; it is a judgement, not a figure in the filing. Base case: $9.10 per share. Earnings of about $0.60 per share continue flat, worth about $10.00, less about $0.90 per share for an $8 million cost to resolve the litigation and legal fees, similar in scale to the earlier settlement plus the roughly $3.7 million rise in professional fees seen in 2025. Bull case: $16.50 per share. Credit costs return to the 2018 to 2023 average of about $2 million a year, legal fees normalize and the lawsuits are dismissed, restoring earnings of about $1.00 per share, worth about $16.70 before rounding down. That is close to book value, and we do not credit anything above it, since nothing named in the filings supports higher earnings. What would make this wrong. Upside: a favorable outcome on the $30.6 million unsecured claim, which we value at zero. Downside: the 3|5|2 claim being decided against the bank at close to its full amount, which would exceed our bear case. This estimate is based on filings through the second quarter of 2026. We could not fully reconcile why cash flow exceeded net income by so much in 2023 and 2024 beyond the provision and securities-loss add-backs described above.