Stock-based Compensation

6 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

Employee Benefits

Employee Stock Ownership Plan

In connection with the Conversion, the Company established an ESOP for eligible employees of the Company and the Bank. Employees of the Company and the Bank who have been credited with at least 1,000 hours of service during a 12-month period are eligible to participate in the ESOP.

Pursuant to the Plan, the ESOP purchased in the open market 8% of the common stock issued in the Conversion for a total of 1,048,029 shares at an average price of $12.45 per share with funds borrowed from the Company. It is anticipated that the Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to the Company over a period of 20 years. At December 31, 2016, the weighted average interest rate paid on the ESOP loan payable was 2.46% per annum.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and allocated to ESOP participants on a pro rata basis as principal and interest payments are made annually by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP assets. Payments of principal and interest are due annually on June 30. No payment of principal or interest was made during the six months endedDecember 31, 2016.

As shares are committed to be released from collateral, the Company reports compensation expense equal to the average daily market prices of the shares and the shares become outstanding for EPS computations. The compensation expense is accrued monthly throughout the year. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.

Compensation expense related to the ESOP for the three months ended December 31, 2016 and 2015 was $172,000 and $159,000, respectively. For the six months endedDecember 31, 2016 and 2015 compensation expense related to the ESOP was $368,000 and $307,000, respectively.

Shares held by the ESOP as of the dates indicated are as follows:

	December 31, 2016		June 30, 2016
	(Dollars in thousands)
Allocated shares	70,356		70,356
Committed to be released shares	26,424		—
Unallocated shares	951,249		977,673
Total ESOP shares	1,048,029		1,048,029
Fair value of unallocated shares	$	14,839	$	12,456

Stock-based Compensation

On November 16, 2015, the Company's shareholders approved the First Northwest Bancorp 2015 Equity Incentive Plan (the "EIP"), which provides for the grant of incentive stock options, non-qualified stock options, restricted stock and restricted stock units to eligible participants. The cost of awards under the EIP generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the EIP is 1,834,050. The EIP provides for the use of authorized but unissued shares or shares that have been reacquired by First Northwest to fund share-based awards.

During the six months endedDecember 31, 2016, 402,500 shares of restricted stock were awarded and no stock options were granted. There were no awards or related expenses during the three and six months endedDecember 31, 2015. Awarded shares of restricted stock vest over five years from the date of grant as long as the eligible participant remains in service to the Company. The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

For the three and six months endedDecember 31, 2016, total compensation expense for the EIP was $254,000 and $510,000, respectively.

Included in the above compensation expense for the three and six months endedDecember 31, 2016, was directors' compensation of $98,000 and $190,000, respectively.

The following table provides a summary of changes in non-vested restricted stock awards for the three and six months endedDecember 31, 2016:

	For the Three Months Ended
	December 31, 2016
		Weighted-Average
		Grant Date
	Shares	Fair Value
Non-vested at October 1, 2016	390,000	$	12.70
Granted	—
Vested	—
Forfeited	—
Non-vested at December 31, 2016	390,000
Expected to vest assuming a 3% forfeiture rate over the vesting term	378,300

	For the Six Months Ended
	December 31, 2016
			Weighted-Average
			Grant Date
	Shares		Fair Value
Non-vested at July 1, 2016	—
Granted	402,500		$	12.70
Vested	—
Forfeited	(12,500	)	12.70
Non-vested at December 31, 2016	390,000
Expected to vest assuming a 3% forfeiture rate over the vesting term	378,300

As of December 31, 2016, there was $4.5 million of total unrecognized compensation costs related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately 4.5 years.