☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of ~~July 31, 2019,~~August 4, 2020, there were ~~10,919,932~~10,302,737 shares of common stock, ~~$.01~~$0.01 par value per share, outstanding.

FIRST NORTHWEST BANCORP

FORM 10-Q

TABLE OF CONTENTS



PART 1 - FINANCIAL INFORMATION
	Page
Item 1 - Financial Statements (Unaudited)	3

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	3733

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	5449

Item 4 - Controls and Procedures	5449

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	5550

Item 1A - Risk Factors	5550

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	5550

Item 3 - Defaults Upon Senior Securities	5551

Item 4 - Mine Safety Disclosures	5551

Item 5 - Other Information	5551

Item 6 - Exhibits	5652

SIGNATURES	5753

As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to First Northwest Bancorp ("First Northwest") and its consolidated subsidiary, unless the context indicates otherwise. When we refer to “First Federal” or the “Bank” in this report, we are referring to First Federal Savings and Loan Association of Port Angeles, the wholly owned subsidiary of First Northwest Bancorp.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share information) (Unaudited)

	June 30, 2020			December 31, 2019
ASSETS

Cash and due from banks	$	16,346		$	13,519
Interest-bearing deposits in banks		33,242			35,220
Investment securities available for sale, at fair value		364,273			315,580
Loans held for sale		3,111			503
Loans receivable (net of allowance for loan losses of $12,109 and $9,628)		986,351			878,437
Federal Home Loan Bank (FHLB) stock, at cost		6,074			6,034
Accrued interest receivable		5,360			3,931
Premises and equipment, net		14,188			14,342
Mortgage servicing rights, net		1,098			871
Bank-owned life insurance, net		37,482			30,027
Prepaid expenses and other assets		11,334			8,872

Total assets	$	1,478,859		$	1,307,336


LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits	$	1,170,325		$	1,001,645
Borrowings		112,379			112,930
Accrued interest payable		253			373
Accrued expenses and other liabilities		18,184			14,392
Advances from borrowers for taxes and insurance		1,403			1,145

Total liabilities		1,302,544			1,130,485

Shareholders' Equity
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding		—			—
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,432,963 shares at June 30, 2020, and 10,731,639 shares at December 31, 2019		103			107
Additional paid-in capital		98,421			102,017
Retained earnings		86,633			86,156
Accumulated other comprehensive income (loss), net of tax		717			(1,539	)
Unearned employee stock ownership plan (ESOP) shares		(9,559	)		(9,890	)

Total shareholders' equity		176,315			176,851

Total liabilities and shareholders' equity	$	1,478,859		$	1,307,336

ASSETS June 30, 2019 December 31, 2018

Cash and due from banks $ 15,275
$ 15,430
Interest-bearing deposits in banks 13,547
10,893
Investment securities available for sale, at fair value 250,051
262,967
Investment securities held to maturity, at amortized cost 37,990
43,503
Loans held for sale 2,516
—
Loans receivable (net of allowance for loan losses of $9,731 and $9,533) 873,958
863,852
Federal Home Loan Bank (FHLB) stock, at cost 6,773
6,927
Accrued interest receivable 4,094
4,048
Premises and equipment, net 14,719
15,255
Mortgage servicing rights, net 955
1,044
Bank-owned life insurance, net 29,607
29,319
Prepaid expenses and other assets 8,225
5,520

Total assets $ 1,257,710
$ 1,258,758

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits $ 933,265
$ 940,260
Borrowings 131,337
136,552
Accrued interest payable 389
521
Accrued expenses and other liabilities 15,067
8,071
Advances from borrowers for taxes and insurance 1,251
1,090

Total liabilities 1,081,309
1,086,494

Shareholders' Equity
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding —
—
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,925,181 shares at June 30, 2019, and 11,170,018 shares at December 31, 2018 109
112
Additional paid-in capital 104,064
105,825
Retained earnings 83,795
81,607
Accumulated other comprehensive loss, net of tax (1,347 ) (4,731 )
Unearned employee stock ownership plan (ESOP) shares (10,220 ) (10,549 )

Total shareholders' equity 176,401
172,264

Total liabilities and shareholders' equity $ 1,257,710
$ 1,258,758

See selected notes to the consolidated financial statements.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data) (Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020			2019		2020			2019
INTEREST INCOME
Interest and fees on loans receivable	$	10,236		$	10,473	$	20,072		$	20,565
Interest on mortgage-backed securities		740			1,192		1,699			2,449
Interest on investment securities		1,316			969		2,385			1,979
Interest on deposits and other		8			58		76			125
FHLB dividends		55			88		102			176

Total interest income		12,355			12,780		24,334			25,294
INTEREST EXPENSE
Deposits		2,041			2,068		4,179			3,992
Borrowings		201			1,036		635			2,026

Total interest expense		2,242			3,104		4,814			6,018

Net interest income		10,113			9,676		19,520			19,276
PROVISION FOR LOAN LOSSES		1,500			255		2,766			590

Net interest income after provision for loan losses		8,613			9,421		16,754			18,686
NONINTEREST INCOME
Loan and deposit service fees		765			995		1,646			1,900
Mortgage servicing fees, net of amortization		(172	)		54		(157	)		99
Net gain on sale of loans		2,001			88		2,384			175
Net gain on sale of investment securities		661			57		1,266			57
Increase in cash surrender value of bank-owned life insurance		627			145		955			288
Other income		227			84		333			155

Total noninterest income		4,109			1,423		6,427			2,674

NONINTEREST EXPENSE
Compensation and benefits		5,966			4,753		11,327			9,326
Data processing		769			667		1,459			1,298
Occupancy and equipment		1,345			1,140		2,696			2,248
Supplies, postage, and telephone		284			242		495			470
Regulatory assessments and state taxes		223			195		397			364
Advertising		377			229		649			372
Professional fees		354			331		754			629
FDIC insurance premium		70			77		70			154
FHLB prepayment penalty		—			—		210			—
Other expense		894			638		1,607			1,211

Total noninterest expense		10,282			8,272		19,664			16,072

INCOME BEFORE PROVISION FOR INCOME TAXES		2,440			2,572		3,517			5,288

PROVISION FOR INCOME TAXES		464			493		668			1,002

NET INCOME	$	1,976		$	2,079	$	2,849		$	4,286

Basic and diluted earnings per common share	$	0.21		$	0.21	$	0.30		$	0.43

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
INTEREST INCOME
Interest and fees on loans receivable $ 10,093
$ 8,952
$ 20,025
$ 17,535
Interest on mortgage-backed securities 1,192
1,237
2,449
2,534
Interest on investment securities 969
973
1,979
1,835
Interest on deposits and other 58
41
125
86
FHLB dividends 88
78
176
137

Total interest income 12,400
11,281
24,754
22,127
INTEREST EXPENSE
Deposits 2,068
1,125
3,992
2,110
Borrowings 1,036
997
2,026
1,886

Total interest expense 3,104
2,122
6,018
3,996

Net interest income 9,296
9,159
18,736
18,131
PROVISION FOR LOAN LOSSES 255
395
590
705

Net interest income after provision for loan losses 9,041
8,764
18,146
17,426
NONINTEREST INCOME
Loan and deposit service fees 1,375
915
2,440
1,808
Mortgage servicing fees, net of amortization 54
70
99
132
Net gain on sale of loans 88
150
175
317
Net gain on sale of investment securities 57
13
57
135
Increase in cash surrender value of bank-owned life insurance 145
149
288
298
Other income 84
108
155
197

Total noninterest income 1,803
1,405
3,214
2,887

NONINTEREST EXPENSE
Compensation and benefits 4,753
4,745
9,326
9,556
Data processing 667
677
1,298
1,305
Occupancy and equipment 1,140
1,127
2,248
2,229
Supplies, postage, and telephone 242
243
470
474
Regulatory assessments and state taxes 195
155
364
281
Advertising 229
290
372
614
Professional fees 331
458
629
780
FDIC insurance premium 77
79
154
155
Other 638
524
1,211
1,179

Total noninterest expense 8,272
8,298
16,072
16,573

INCOME BEFORE PROVISION FOR INCOME TAXES 2,572
1,871
5,288
3,740

PROVISION FOR INCOME TAXES 493
345
1,002
691

NET INCOME $ 2,079
$ 1,526
$ 4,286
$ 3,049

Basic and diluted earnings per share $ 0.21
$ 0.15
$ 0.43
$ 0.29

See selected notes to the consolidated financial statements.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

(In thousands) (Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019

NET INCOME	$	1,976		$	2,079		$	2,849		$	4,286

Other comprehensive income:
Unrealized holding gains arising during the period		12,018			2,313			4,121			4,343
Income tax provision related to unrealized holding gains		(2,523	)		(487	)		(865	)		(914	)
Reclassification adjustment for gains on sales of securities realized in income		(661	)		(57	)		(1,266	)		(57	)
Income tax provision related to reclassification adjustment on sales of securities		139			12			266			12

Other comprehensive income, net of tax		8,973			1,781			2,256			3,384

COMPREHENSIVE INCOME	$	10,949		$	3,860		$	5,105		$	7,670

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018

NET INCOME $ 2,079
$ 1,526
$ 4,286
$ 3,049

Other comprehensive income (loss), net of tax
Unrealized gain on securities:
Unrealized holding gain (loss), net of tax provision (benefit) of $487, $(290), $914, and $(841), respectively 1,826
(1,100 ) 3,429
(3,178 )
Reclassification adjustment for net (gain) loss on sales of securities realized in income, net of taxes of $(12), $3, $(12), and $(23), respectively (45 ) 11
(45 ) (85 )

Other comprehensive income (loss), net of tax 1,781
(1,089 ) 3,384
(3,263 )

COMPREHENSIVE INCOME (LOSS) $ 3,860
$ 437
$ 7,670
$ (214 )

See selected notes to the consolidated financial statements.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Months Ended June 30, ~~2019~~2020 and ~~2018~~

2019

(Dollars in thousands, except share information) (Unaudited)

	Common Stock						Additional Paid-in			Retained			Unearned ESOP			Accumulated Other Comprehensive (Loss)			Total Shareholders'
	Shares			Amount			Capital			Earnings			Shares			Income, Net of Tax			Equity

BALANCE, March 31, 2019		10,992,181		$	110		$	104,374		$	82,436		$	(10,385	)	$	(3,128	)	$	173,407

Net income											2,079									2,079
Common stock repurchased		(63,000	)		(1	)		(628	)		(392	)								(1,021	)
Restricted stock award forfeitures		(4,000	)		—			—												—
Other comprehensive income, net of tax																	1,781			1,781
Share-based compensation								270												270
ESOP shares committed to be released								48						165						213
Cash dividends declared and paid ($0.03 per share)											(328	)								(328	)

BALANCE, June 30, 2019		10,925,181		$	109		$	104,064		$	83,795		$	(10,220	)	$	(1,347	)	$	176,401


BALANCE, March 31, 2020		10,432,963		$	104		$	99,479		$	85,549		$	(9,725	)	$	(8,256	)	$	167,151

Net income											1,976									1,976
Common stock repurchased		(130,237	)		(1	)		(1,301	)		(370	)								(1,672	)
Restricted stock award forfeitures net of grants		23,500			—			—												—
Other comprehensive income, net of tax																	8,973			8,973
Share-based compensation								251												251
ESOP shares committed to be released								(8	)					166						158
Cash dividends declared and paid ($0.05 per share)											(522	)								(522	)

BALANCE, June 30, 2020		10,326,226		$	103		$	98,421		$	86,633		$	(9,559	)	$	717		$	176,315

	Common Stock						Additional Paid-in			Retained			Unearned ESOP			Accumulated Other Comprehensive (Loss)			Total Shareholders'
	Shares			Amount			Capital			Earnings			Shares			Income, Net of Tax			Equity

BALANCE, December 31, 2018		11,170,018		$	112		$	105,825		$	81,607		$	(10,549	)	$	(4,731	)	$	172,264

Net income											4,286									4,286
Common stock repurchased		(240,837	)		(3	)		(2,405	)		(1,439	)								(3,847	)
Restricted stock award forfeitures		(4,000	)		—			—												—
Other comprehensive income, net of tax																	3,384			3,384
Share-based compensation								553												553
ESOP shares committed to be released								91						329						420
Cash dividends declared and paid ($0.06 per share)											(659	)								(659	)

BALANCE, June 30, 2019		10,925,181		$	109		$	104,064		$	83,795		$	(10,220	)	$	(1,347	)	$	176,401


BALANCE, December 31, 2019		10,731,639		$	107		$	102,017		$	86,156		$	(9,890	)	$	(1,539	)	$	176,851

Net income											2,849									2,849
Common stock repurchased		(418,513	)		(4	)		(4,181	)		(1,317	)								(5,502	)
Restricted stock award grants net of forfeitures		13,100			—			—												—
Other comprehensive income, net of tax																	2,256			2,256
Share-based compensation								555												555
ESOP shares committed to be released								30						331						361
Cash dividends declared and paid ($0.10 per share)											(1,055	)								(1,055	)

BALANCE, June 30, 2020		10,326,226		$	103		$	98,421		$	86,633		$	(9,559	)	$	717		$	176,315

Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive (Loss) Income, Net of Tax Total Shareholders' Equity
Shares Amount

BALANCE, March 31, 2018 11,577,394
$ 116
$ 109,354
$ 78,822
$ (11,043 ) $ (3,747 ) $ 173,502

Net income 1,526
1,526
Common stock repurchased (88,900 ) (1 ) (886 ) (581 ) (1,468 )
Restricted stock award forfeitures (5,000 ) —
—
—
Other comprehensive loss, net of tax (1,089 ) (1,089 )
Share-based compensation 259
259
ESOP shares committed to be released 53
164
217

BALANCE, June 30, 2018 11,483,494
$ 115
$ 108,780
$ 79,767
$ (10,879 ) $ (4,836 ) $ 172,947

BALANCE, March 31, 2019 10,992,181
$ 110
$ 104,374
$ 82,436
$ (10,385 ) $ (3,128 ) $ 173,407

Net income 2,079
2,079
Common stock repurchased (63,000 ) (1 ) (628 ) (392 ) (1,021 )
Restricted stock award forfeitures (4,000 ) —
—
—
Other comprehensive income, net of tax 1,781
1,781
Share-based compensation 270
270
ESOP shares committed to be released 48
165
213
Cash dividends declared and paid ($0.03 per share) (328 ) (328 )

BALANCE, June 30, 2019 10,925,181
$ 109
$ 104,064
$ 83,795
$ (10,220 ) $ (1,347 ) $ 176,401

See selected notes to the consolidated financial statements.

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY~~

~~For the Six Months Ended June 30, 2019 and 2018~~

~~(Dollars in thousands, except share information) (Unaudited)~~

Table of Contents

Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive (Loss) Income, Net of Tax Total Shareholders' Equity
Shares Amount

BALANCE, December 31, 2017 11,785,507
$ 118
$ 111,106
$ 78,602
$ (11,208 ) $ (1,573 ) $ 177,045

Net income 3,049
3,049
Common stock repurchased (297,013 ) (3 ) (2,966 ) (1,884 ) (4,853 )
Restricted stock award forfeitures (5,000 ) —
—
—
Other comprehensive loss, net of tax (3,263 ) (3,263 )
Share-based compensation 532
532
ESOP shares committed to be released 108
329
437

BALANCE, June 30, 2018 11,483,494
$ 115
$ 108,780
$ 79,767
$ (10,879 ) $ (4,836 ) $ 172,947

BALANCE, December 31, 2018 11,170,018
$ 112
$ 105,825
$ 81,607
$ (10,549 ) $ (4,731 ) $ 172,264

Net income 4,286
4,286
Common stock repurchased (240,837 ) (3 ) (2,405 ) (1,439 ) (3,847 )
Restricted stock award forfeitures (4,000 ) —
—
—
Other comprehensive income, net of tax 3,384
3,384
Share-based compensation 553
553
ESOP shares committed to be released 91
329
420
Cash dividends declared and paid ($0.06 per share) (659 ) (659 )

BALANCE, June 30, 2019 10,925,181
$ 109
$ 104,064
$ 83,795
$ (10,220 ) $ (1,347 ) $ 176,401

FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

	Six Months Ended June 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,849		$	4,286
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		675			667
Amortization and accretion of premiums and discounts on investments, net		954			920
(Accretion) amortization of deferred loan fees, net		(767	)		486
Amortization of mortgage servicing rights, net		347			119
Additions to mortgage servicing rights, net		(574	)		(27	)
Net increase (decrease) on the valuation allowance on mortgage servicing rights		—			(3	)
Provision for loan losses		2,766			590
Allocation of ESOP shares		361			420
Share-based compensation		555			553
Gain on sale of loans, net		(2,384	)		(175	)
Gain on sale of securities available for sale, net		(1,266	)		(57	)
Increase in cash surrender value of life insurance, net		(955	)		(288	)
Origination of loans held for sale		(79,472	)		(10,432	)
Proceeds from loans held for sale		79,248			8,091
Change in assets and liabilities:
Increase in accrued interest receivable		(1,429	)		(46	)
Increase in prepaid expenses and other assets		(2,659	)		(3,606	)
Decrease in accrued interest payable		(120	)		(132	)
Increase in accrued expenses and other liabilities		3,792			6,996

Net cash from operating activities		1,921			8,362

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale		(166,253	)		—
Proceeds from maturities, calls, and principal repayments of securities available for sale		26,296			12,860
Proceeds from sales of securities available for sale		94,432			3,558
Proceeds from maturities, calls, and principal repayments of securities held to maturity		—			5,433
(Purchase) redemption of FHLB stock		(40	)		154
Purchase of bank-owned life insurance		(6,500	)		—
Net increase in loans receivable		(110,316	)		(11,182	)
Purchase of premises and equipment, net		(521	)		(131	)

Net cash from investing activities		(162,902	)		10,692

See selected notes to the consolidated financial statements.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

Six Months Ended June 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,286
$ 3,049
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 667
662
Amortization and accretion of premiums and discounts on investments, net 920
965
Amortization (accretion) of deferred loan fees, net 486
(78 )
Amortization of mortgage servicing rights, net 119
92
Additions to mortgage servicing rights, net (27 ) (98 )
Net (decrease) increase on the valuation allowance on mortgage servicing rights (3 ) —
Provision for loan losses 590
705
Allocation of ESOP shares 420
437
Share-based compensation 553
532
Gain on sale of loans, net (175 ) (317 )
Gain on sale of securities available for sale, net (57 ) (108 )
Gain on sale of securities held to maturity, net —
(27 )
Increase in cash surrender value of life insurance, net (288 ) (298 )
Origination of loans held for sale (10,432 ) (11,684 )
Proceeds from loans held for sale 8,091
11,227
Change in assets and liabilities:
Increase in accrued interest receivable (46 ) (154 )
Increase in prepaid expenses and other assets (3,606 ) (147 )
(Decrease) increase in accrued interest payable (132 ) 49
Increase in accrued expenses and other liabilities 6,996
1,406

Net cash from operating activities 8,362
6,213

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale —
(37,681 )
Proceeds from maturities, calls, and principal repayments of securities available for sale 12,860
13,348
Proceeds from sales of securities available for sale 3,558
54,704
Proceeds from maturities, calls, and principal repayments of securities held to maturity 5,433
5,542
Proceeds from sales of securities held to maturity —
2,702
Redemption of FHLB stock 154
502
Proceeds from sale of real estate owned and repossessed assets —
46
Net increase in loans receivable (11,182 ) (42,958 )
Purchase of premises and equipment, net (131 ) (1,712 )

Net cash from investing activities 10,692
(5,507 )

	Six Months Ended June 30,
	2020			2019
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	$	168,680		$	(6,995	)
Proceeds from long-term FHLB advances		30,000			—
Repayment of long-term FHLB advances		(30,000	)		—
Net decrease in short-term FHLB advances		(551	)		(5,215	)
Net increase in advances from borrowers for taxes and insurance		258			161
Dividends paid		(1,055	)		(659	)
Repurchase of common stock		(5,502	)		(3,847	)

Net cash from financing activities		161,830			(16,555	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		849			2,499

CASH AND CASH EQUIVALENTS, beginning of period		48,739			26,323

CASH AND CASH EQUIVALENTS, end of period	$	49,588		$	28,822

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings	$	4,933		$	6,151
Income taxes	$	—		$	990

NONCASH INVESTING ACTIVITIES
Unrealized gain on securities available for sale	$	2,855		$	4,286
Loans transferred to real estate owned and repossessed assets, net of deferred loan fees and allowance for loan losses	$	403		$	160
Lease liabilities arising from obtaining right-of-use assets	$	902		$	—

See selected notes to the consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

Six Months Ended June 30,
2019 2018
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits $ (6,995 ) $ 8,294
Net decrease in FHLB short-term advances (5,215 ) (17,829 )
Net increase (decrease) in advances from borrowers for taxes and insurance 161
(235 )
Dividends paid (659 ) —
Repurchase of common stock (3,847 ) (4,853 )

Net cash from financing activities (16,555 ) (14,623 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,499
(13,917 )

CASH AND CASH EQUIVALENTS, beginning of period 26,323
36,801

CASH AND CASH EQUIVALENTS, end of period $ 28,822
$ 22,884

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings $ 6,151
$ 3,947

Income taxes $ 990
$ 250

NONCASH INVESTING ACTIVITIES
Unrealized gain (loss) on securities available for sale $ 4,286
$ (4,127 )

Loans transferred to real estate owned and repossessed assets, net of deferred loan fees and allowance for loan losses $ 160
$ 102

~~See selected notes to the consolidated financial statements.~~

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

Note 1 - Basis of Presentation and Critical Accounting Policies

Organization and Nature of business - First Northwest Bancorp, a Washington corporation, became the holding company of First Federal Savings and Loan Association of Port Angeles on January 29, 2015, upon completion of the Bank's conversion from a mutual to stock form of organization (the "Conversion"). In connection with the Conversion, the Company issued an aggregate of 12,167,000 shares of common stock at an offering price of $10.00 per share for gross proceeds of $121.7 million. An additional 933,360 shares of Company common stock and $400,000 in cash were contributed to the First Federal Community Foundation ("Foundation"), a charitable foundation that was established in connection with the Conversion, resulting in the issuance of a total of 13,100,360 shares. The Company received $117.6 million in net proceeds from the stock offering of which $58.4 million were contributed to the Bank upon Conversion.

Pursuant to the Bank's Plan of Conversion (the "Plan") adopted by its Board of Directors, and as approved by its members, the Company established an employee stock ownership plan ("ESOP"). On December 18, 2015, the ESOP completed its open market purchases, with funds borrowed from the Company, of 8% of the common stock issued in the Conversion for a total of 1,048,029 shares.

First Northwest's business activities generally are limited to passive investment activities and oversight of its investment in First Federal. Accordingly, the information set forth in this report, including the consolidated unaudited financial statements and related data, relates primarily to the Bank.

The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses in Western Washington State with offices in Clallam, Jefferson, Kitsap, King, and Whatcom counties. These services include deposit and lending transactions that are supplemented with borrowing and investing activities.

Basis of presentation - The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2018.~~2019. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements in accordance with GAAP have been included. ~~The Company changed its fiscal year from June 30 to December 31 effective December 31, 2017.~~ Operating results for the three and six months ended June 30, ~~2019,~~2020, are not necessarily indicative of the results that may be expected for future periods.

In preparing the unaudited interim consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for loan losses ("ALLL"), fair value of financial instruments, and deferred tax assets and liabilities.

Principles of consolidation - The accompanying consolidated financial statements include the accounts of First Northwest Bancorp and its wholly owned subsidiary, First Federal. All material intercompany accounts and transactions have been eliminated in consolidation.

Subsequent Events - The Company has evaluated subsequent events for potential recognition and disclosure and ~~determined there are no such events or transactions requiring recognition or disclosure.~~

has included additional information where appropriate.

Recently adopted accounting pronouncements

In ~~February 2016, the~~ August 2018, FASB issued ASU No. ~~2016-02,~~ ~~Leases. ASU 2016-02 is intended~~2018-13,Disclosure Framework — Changes to ~~increase transparency~~the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and ~~comparability among organizations by requiring~~adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance eliminates certain disclosure requirements for fair value measurements: the ~~recognition~~amount of ~~lease assets~~ and ~~lease liabilities on~~reasons for transfers between Level 1 and Level 2 of the ~~balance sheet~~fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure ~~of key information about leasing arrangements. The ASU requires a lessee to recognize on~~requirements for public entities: changes in unrealized gains and losses for the ~~balance sheet assets~~

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. Unlike current GAAP, which requires that only capital leases be recognized on the balance sheet, the ASC requires that both types of leases by recognized on the balance sheet. For public companies, this update is effective for interim and annual periods beginning after December 15, 2018. The adoption of ASU No. 2016-02 effective January 1, 2019 resulted in a right-of-use asset and corresponding lease obligation liability of $3,919,000. The Corporation chose the effective date as the date of initial application. Consequently, prior period ~~financial information has not been updated or restated. The right-of-use asset is~~ included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. Furthermore, this guidance modifies certain requirements which will involve disclosing: transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3assets and liabilities, and information about the ~~lease obligation liability is included in other liabilities on the June 30, 2019, consolidated balance sheet.~~

~~In August 2017, FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815).~~ ~~This ASU was issued to provide investors better insight to an entity’s risk management hedging strategies by permitting companies to recognize the economic results~~measurement uncertainty of its hedging strategies in its financial statements. The amendments in this ASU permit hedge accounting for hedging relationships involving non-financial risk and interest rate risk by removing certain limitations in cash flow andLevel 3 fair value ~~hedging relationships. In addition, the ASU requires an entity to present the earnings effect~~measurements as of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. This ASU is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. Adoption of ASU 2017-12 did not have a material impact on the Company’s consolidated financial statements.

~~In June 2018, FASB issued ASU No. 2018-07,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~. These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, ~~Revenue from Contracts with Customers~~.reporting date. This guidance is effective for public companies in fiscal years beginning after December 15, ~~2018, and interim periods beginning after December 15, 2020. Early~~2019, with early adoption ~~is permitted but not earlier than the adoption of Topic 606. Adoption of this~~permitted. This ASU did not ~~have a material effect on the Company's consolidated financial statements as it has not historically issued share-based payments in exchange for goods or services to be consumed within its operations.~~

~~In July 2018, FASB issued ASU No. 2018-09,~~ ~~Codification Improvements~~. These amendments provide clarifications and corrections to certain ASC subtopics including the following: 220-10 (Income Statement - Reporting Comprehensive Income - Overall), 470-50 (Debt - Modifications and Extinguishments), 480-10 (Distinguishing Liabilities from Equity - Overall), 718-740 (Compensation - Stock Compensation - Income Taxes), 805-740 (Business Combinations - Income Taxes), 815-10 (Derivatives and Hedging - Overall), and 820-10 (Fair Value Measurement - Overall). Some of the amendments in ASU 2018-09 do not require transition guidance and will be effective upon issuance; however, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. Adoption of ASU 2018-09 did not have a material impact on the Company's consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In ~~October~~August 2018, ~~the~~ FASB issued ASU No. ~~2018-16~~ ~~Derivatives and Hedging (Topic 815)~~2018-15,Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, ~~Inclusion of~~to provide guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The ASU aligns the ~~Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate~~accounting for ~~Hedge Accounting Purposes~~. The amendments in this ASU permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The amendments in this ASU are required to be adopted concurrentlysuch costs with the ~~amendments~~guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of such arrangements that are service contracts and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized. This ASU, ~~2017-12. For public companies, this would be~~which is effective for ~~fiscal years, and interim periods within those~~ fiscal years beginning after December 15, ~~2018. Adoption of ASU 2018-16~~ 2019, did not have a material impact on the ~~Company's consolidated~~Company’s financial statements.

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Recently adopted regulatory rule~~

In ~~August 2018,~~ March 2020, the ~~Securities~~FASB issued ASU No.2020-03,Codification Improvements to Financial Instruments. The amendments represent clarification and ~~Exchange Commission issued~~improvements to the codification and correct unintended application. This standard was effective immediately upon issuance and its adoption did not have a ~~final rule that amends certain of its disclosure requirements. The rule simplifies various disclosure requirements for public companies including primarily that it (i) eliminates~~material effect on the requirement for public companies to disclose in their filings a schedule of earnings to fixed charges, (ii) requires an analysis of changes in stockholders’ equity for the current and comparative year-to-date interim periods in interim reports, and (iii) reduces the requirements for market price information disclosures in annual reports. These changes are effective for public companies beginning on November 5, 2018. The Company will be complying with these new requirements beginning with the Quarterly Report for the period ended March 31, 2019, on Form 10-Q.

Company’s financial statements.

Recently issued accounting pronouncements not yet adopted

Credit Losses

In June 2016, the FASB issued ASU No. ~~2016-13,~~ 2016-13,Financial Instruments - Credit Loss, which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model (CECL) will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU No. ~~2016-13~~2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Upon adoption, the Company will change processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for other-than-temporary impairment on investment securities available for sale will be replaced with an allowance approach.

Additional updates were issued in ASU No. ~~2019-04,~~ 2019-04,Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging (Topic ~~825)~~825), Financial Instruments. This ASU clarifies and improves guidance related to the previously issued standards on credit losses, hedging and recognition and measurement of financial instruments. The amendments provide entities with various measurement alternatives and policy elections related to accounting for credit losses and accrued interest receivable balances. Entities are also able to elect a practical expedient to separately disclose the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements. The amendments clarify that the estimated allowance for credit losses should include all expected recoveries of financial assets and trade receivables that were previously written off and expected to be written off. The amendments also allow entities to use projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments.

In addition, new updates were issued through ASU No. ~~2019-05,~~ 2019-05,Financial Instruments - Credit Losses (Topic ~~326)~~326): Targeted Transition Relief. This amendment allows entities to elect the fair value option on certain financial instruments. On adoption, an entity is allowed to irrevocably elect the fair value option on an instrument-by-instrument basis. This alternative is available for all instruments in the scope of Subtopic ~~326-20~~326-20 except for existing held-to-maturity debt securities. If an entity elects the fair value option, the difference between the instrument’s fair value and carrying amount is recognized as a cumulative-effect adjustment.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In November 2019, the FASB issued ASU 2019-10 which defers the effective date for this guidance for smaller reporting companies from the interim and annual periods beginning after December 15, 2020 to the interim and annual periods beginning after December 15, 2022. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Company plans to defer adoption of CECL until January 1, 2023.

The Company is evaluating the provisions of ASU No. ~~2016-13,~~2016-13, ASU No. ~~2019-04~~2019-04 and ASU No. ~~2019-05,~~2019-05, and will closely monitor developments and additional guidance to determine the potential impact on the Company’s consolidated financial statements. At this time, we cannot reasonably estimate the impact the implementation of ~~this ASU~~these ASUs will have on the Company's consolidated financial statements. The Company's internal project management team continues to review models, work with our ~~third-party~~third-party vendor, and discuss changes to processes and procedures to ensure the Company is fully compliant with the amendments at the adoption date.

Other Pronouncements

In ~~August 2018,~~ December 2019, FASB issued ASU No. ~~2018-13,~~ ~~Disclosure Framework — Changes~~2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies various aspects related to accounting for income taxes by removing certain exceptions to the ~~Disclosure Requirements for Fair Value Measurement~~ ~~which removes, modifies,~~general principles in Topic 740. The standard also clarifies and ~~adds certain disclosure requirements related~~amends existing guidance to fair value measurements in ASC 820. This guidance eliminates certain disclosure requirements for fair value measurements: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities: changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. Furthermore, this guidance modifies certain

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

requirements which will involve disclosing: transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. This ASU is not expected to have a material impact on the Company's consolidated financial statements.

~~In August 2018, FASB issued ASU No. 2018-15~~ ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ to provide guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The ASU aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of such arrangements that are service contracts and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized.improve consistent application. This ASU, which is effective for fiscal years beginning after December 15, ~~2019,~~ 2020, is not expected to have a material impact on the ~~Company’s~~Company's financial statements.

Early adoption is permitted.

In January 2020, the FASB issued ASU No.2020-01,Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The ASU, which is effective for fiscal years beginning after December 15, 2020, is not expected to have a material effect on the Company's financial statements.

In March 2020, the FASB issued ASU No.2020-04Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments are effective for the Company as of March 12, 2020 through December 31, 2022. The Company does not believe this standard will have a material impact on its financial statements.

Reclassifications - Certain amounts in the unaudited interim consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation with no effect on net income or shareholders' equity.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale ~~and held-to-maturity~~ at June 30, ~~2019~~2020 are summarized as follows:

Amortized Cost
Gross
Unrealized Gains

Gross
Unrealized Losses

Estimated
Fair Value
(In thousands)
Available for Sale
Municipal bonds $ 881
$ 51
$ —
$ 932
U.S. government agency issued asset-backed securities (ABS agency) 25,995
—
(559 ) 25,436
Corporate issued asset-backed securities (ABS corporate) 37,877
—
(667 ) 37,210
Corporate issued debt securities (Corporate debt) 9,986
—
(504 ) 9,482
U.S. Small Business Administration securities (SBA) 31,865
151
(41 ) 31,975
Mortgage-backed securities:
U.S. government agency issued mortgage-backed securities (MBS agency) 135,337
499
(597 ) 135,239
Corporate issued mortgage-backed securities (MBS corporate) 9,841
3
(67 ) 9,777

Total securities available for sale $ 251,782
$ 704
$ (2,435 ) $ 250,051

Held to Maturity
Municipal bonds $ 7,080
$ 71
$ —
$ 7,151
SBA 144
—
—
144
Mortgage-backed securities:
MBS agency 30,766
639
(25 ) 31,380

Total securities held to maturity $ 37,990
$ 710
$ (25 ) $ 38,675

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

			Gross		Gross			Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(In thousands)
Available for Sale
Municipal bonds	$	104,641	$	3,337	$	(368	)	$	107,610
U.S. government agency issued asset-backed securities (ABS agency)		63,220		662		(3,063	)		60,819
Corporate issued asset-backed securities (ABS corporate)		41,695		—		(1,891	)		39,804
Corporate issued debt securities (Corporate debt)		22,486		134		(192	)		22,428
U.S. Small Business Administration securities (SBA)		23,338		221		(12	)		23,547
Mortgage-backed securities:
U.S. government agency issued mortgage-backed securities (MBS agency)		100,113		2,578		(44	)		102,647
Corporate issued mortgage-backed securities (MBS corporate)		7,873		4		(459	)		7,418

Total securities available for sale	$	363,366	$	6,936	$	(6,029	)	$	364,273

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale ~~and held-to-maturity~~ at December 31, ~~2018,~~2019, are summarized as follows:

			Gross		Gross			Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(In thousands)
Available for Sale
Municipal bonds	$	39,524	$	125	$	(367	)	$	39,282
ABS agency		29,796		—		(938	)		28,858
ABS corporate		41,728		—		(873	)		40,855
Corporate debt		9,986		—		(343	)		9,643
SBA		28,423		72		(36	)		28,459
Mortgage-backed securities:
MBS agency		159,697		811		(341	)		160,167
MBS corporate		8,374		—		(58	)		8,316

Total securities available for sale	$	317,528	$	1,008	$	(2,956	)	$	315,580

There were 0 securities classified as held-to-maturity at June 30, 2020 and December 31, 2019.

Amortized Cost
Gross
Unrealized Gains

Gross
Unrealized Losses

Estimated
Fair Value
(In thousands)
Available for Sale
Municipal bonds $ 882
$ —
$ (13 ) $ 869
ABS agency 26,125
—
(373 ) 25,752
ABS corporate 37,897
—
(1,174 ) 36,723
Corporate debt 9,986
98
(196 ) 9,888
SBA 35,936
23
(289 ) 35,670
Mortgage-backed securities:
MBS agency 147,205
12
(3,762 ) 143,455
MBS corporate 10,953
—
(343 ) 10,610

Total securities available for sale $ 268,984
$ 133
$ (6,150 ) $ 262,967

Held to Maturity
Municipal bonds $ 11,919
$ 43
$ —
$ 11,962
SBA 302
—
(1 ) 301
Mortgage-backed securities:
MBS agency 31,282
40
(595 ) 30,727

Total securities held to maturity $ 43,503
$ 83
$ (596 ) $ 42,990

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FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of June 30, ~~2019:~~

Less Than Twelve Months Twelve Months or Longer Total
Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value
(In thousands)
Available for Sale
ABS agency $ —
$ —
$ (559 ) $ 25,436
$ (559 ) $ 25,436
ABS corporate —
—
(667 ) 37,210
(667 ) 37,210
Corporate debt (136 ) 4,864
(368 ) 4,618
(504 ) 9,482
SBA —
—
(41 ) 9,146
(41 ) 9,146
Mortgage-backed securities:
MBS agency —
—
(597 ) 82,736
(597 ) 82,736
MBS corporate —
—
(67 ) 7,259
(67 ) 7,259

Total available for sale $ (136 ) $ 4,864
$ (2,299 ) $ 166,405
$ (2,435 ) $ 171,269

Held to Maturity
Mortgage-backed securities:
MBS agency —
—
(25 ) 13,782
(25 ) 13,782

Total held to maturity $ —
$ —
$ (25 ) $ 13,782
$ (25 ) $ 13,782

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

2020:

	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale
Municipal bonds	$	(368	)	$	14,515	$	—		$	—	$	(368	)	$	14,515
ABS agency		(318	)		8,086		(2,745	)		23,025		(3,063	)		31,111
ABS corporate		(93	)		3,787		(1,798	)		36,017		(1,891	)		39,804
Corporate debt		(3	)		997		(189	)		4,811		(192	)		5,808
SBA		—			—		(12	)		4,020		(12	)		4,020
Mortgage-backed securities:
MBS agency		(44	)		13,994		—			7		(44	)		14,001
MBS corporate		(37	)		2,215		(422	)		3,750		(459	)		5,965

Total available for sale	$	(863	)	$	43,594	$	(5,166	)	$	71,630	$	(6,029	)	$	115,224

Less Than Twelve Months Twelve Months or Longer Total
Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value
(In thousands)
Available for Sale
Municipal bonds $ (8 ) $ 757
$ (5 ) $ 110
$ (13 ) $ 867
ABS agency (302 ) 23,286
(71 ) 2,466
(373 ) 25,752
ABS corporate (571 ) 14,527
(603 ) 22,196
(1,174 ) 36,723
Corporate debt —
—
(196 ) 4,791
(196 ) 4,791
SBA (44 ) 13,400
(245 ) 13,089
(289 ) 26,489
Mortgage-backed securities:
MBS agency (28 ) 17,996
(3,734 ) 120,617
(3,762 ) 138,613
MBS corporate —
—
(343 ) 10,610
(343 ) 10,610

Total available for sale $ (953 ) $ 69,966
$ (5,197 ) $ 173,879
$ (6,150 ) $ 243,845

Held to Maturity
SBA $ (1 ) $ —
$ —
$ 301
$ (1 ) $ 301
Mortgage-backed securities:
MBS agency (70 ) 6,241
(525 ) 18,073
(595 ) 24,314

Total held to maturity $ (71 ) $ 6,241
$ (525 ) $ 18,374
$ (596 ) $ 24,615

2019:

	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale
Municipal bonds	$	(367	)	$	29,928	$	—		$	—	$	(367	)	$	29,928
ABS agency		(59	)		3,855		(879	)		25,002		(938	)		28,857
ABS corporate		(31	)		3,848		(842	)		37,007		(873	)		40,855
Corporate debt		(17	)		4,983		(326	)		4,660		(343	)		9,643
SBA		—			—		(36	)		15,034		(36	)		15,034
Mortgage-backed securities:
MBS agency		(166	)		18,744		(175	)		47,463		(341	)		66,207
MBS corporate		—			—		(58	)		8,316		(58	)		8,316

Total available for sale	$	(640	)	$	61,358	$	(2,316	)	$	137,482	$	(2,956	)	$	198,840

The Company may hold certain investment securities in an unrealized loss position that are not considered other than temporarily impaired ("OTTI"). At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were 4733 and 6962 investment securities in an unrealized loss position, respectively.

We believe that the unrealized losses on our investment securities relate principally to the general change in interest rates, ~~and~~ market demand, and ~~not~~related volatility, rather than credit quality, that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend to sell the securities in an unrealized loss position and believes it is not likely it will be required to sell these investments prior to a market price recovery or maturity.

There were no0 OTTI losses during the three and six months ended June 30, ~~2019~~ 2020 and ~~2018.~~

2019.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; therefore, these securities are shown separately.

	June 30, 2020
	Available-for-Sale
	Amortized Cost		Estimated Fair Value
	(In thousands)
Mortgage-backed securities:
Due within one year	$	—	$	—
Due after one through five years		8,574		8,791
Due after five through ten years		218		219
Due after ten years		99,194		101,055

Total mortgage-backed securities		107,986		110,065

All other investment securities:
Due within one year		—		—
Due after one through five years		3,034		3,112
Due after five through ten years		54,171		52,943
Due after ten years		198,175		198,153

Total all other investment securities		255,380		254,208

Total investment securities	$	363,366	$	364,273

	December 31, 2019
	Available-for-Sale
	Amortized Cost		Estimated Fair Value
	(In thousands)
Mortgage-backed securities:
Due within one year	$	—	$	—
Due after one through five years		13,360		13,391
Due after five through ten years		6,261		6,257
Due after ten years		148,450		148,835

Total mortgage-backed securities		168,071		168,483

All other investment securities:
Due within one year		—		—
Due after one through five years		2,043		2,084
Due after five through ten years		58,460		57,680
Due after ten years		88,954		87,333

Total all other investment securities		149,457		147,097

Total investment securities	$	317,528	$	315,580

June 30, 2019
Available-for-Sale Held-to-Maturity
Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
(In thousands)
Mortgage-backed securities:
Due within one year $ —
$ —
$ —
$ —
Due after one through five years 7,122
7,156
421
425
Due after five through ten years 11,341
11,312
1,768
1,749
Due after ten years 126,715
126,548
28,577
29,206

Total mortgage-backed securities 145,178
145,016
30,766
31,380

All other investment securities:
Due within one year —
—
—
—
Due after one through five years —
—
794
812
Due after five through ten years 28,628
28,143
6,430
6,483
Due after ten years 77,976
76,892
—
—

Total all other investment securities 106,604
105,035
7,224
7,295

Total investment securities $ 251,782
$ 250,051
$ 37,990
$ 38,675

Table of Contents

December 31, 2018
Available-for-Sale Held-to-Maturity
Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
(In thousands)
Mortgage-backed securities:
Due within one year $ —
$ —
$ —
$ —
Due after one through five years 7,204
7,089
578
569
Due after five through ten years 11,862
11,637
2,035
1,978
Due after ten years 139,092
135,339
28,669
28,180

Total mortgage-backed securities 158,158
154,065
31,282
30,727

All other investment securities:
Due within one year —
—
—
—
Due after one through five years —
—
734
741
Due after five through ten years 19,564
19,362
6,728
6,743
Due after ten years 91,262
89,540
4,759
4,779

Total all other investment securities 110,826
108,902
12,221
12,263

Total investment securities $ 268,984
$ 262,967
$ 43,503
$ 42,990

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Sales of securities available-for-sale for the periods shown are summarized as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
	(In thousands)					(In thousands)
Proceeds from sales	$	54,359		$	3,558	$	94,432		$	3,558
Gross realized gains		867			57		1,504			57
Gross realized losses		(206	)		—		(238	)		—

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(In thousands)
Proceeds from sales $ 3,558
$ 21,845
$ 3,558
$ 54,704
Gross realized gains 57
69
57
233
Gross realized losses —
(83 ) —
(125 )

During the six months ended June 30, 2018, the Bank sold certain held to maturity investments that had substantially reached maturity, allowing us to sell the securities without tainting the remaining held to maturity securities portfolio. The held-to-maturity designation of the remaining securities is unchanged. Gross proceeds on the sale of these securities totaled $2,702,000 with gross realized gains and losses of $32,000 and $5,000, respectively.

Note 3 - Loans Receivable

Loans receivable consisted of the following at the dates indicated:

June 30, 2019 December 31, 2018
(In thousands)
Real Estate:
One-to-four family $ 331,748
$ 336,178
Multi-family 68,440
82,331
Commercial real estate 250,250
253,235
Construction and land 63,741
54,102
Total real estate loans 714,179
725,846

Consumer:
Home equity 37,194
37,629
Auto and other consumer 112,583
87,357
Total consumer loans 149,777
124,986

Commercial business loans 15,098
18,898

Total loans 879,054
869,730

Less:
Net deferred loan fees 103
292
Premium on purchased loans, net (4,738 ) (3,947 )
Allowance for loan losses 9,731
9,533

Total loans receivable, net $ 873,958
$ 863,852

		June 30, 2020			December 31, 2019
	��	(In thousands)
Real Estate:
One-to-four family		$	325,349		$	306,014
Multi-family			103,279			96,098
Commercial real estate			267,233			255,722
Construction and land			58,153			37,187
Total real estate loans			754,014			695,021

Consumer:
Home equity			33,696			35,046
Auto and other consumer			109,214			112,119
Total consumer loans			142,910			147,165

Commercial business loans			99,477			41,571

Total loans			996,401			883,757

Less:
Net deferred loan fees			1,842			206
Premium on purchased loans, net			(3,901	)		(4,514	)
Allowance for loan losses			12,109			9,628

Total loans receivable, net		$	986,351		$	878,437

Allowance for Loan Losses. The Company maintains a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables summarize changes in the ALLL and loan portfolio by segment and impairment method for the periods shown:

	At or For the Three Months Ended June 30, 2020
	One-to-				Commercial		Construction		Home			Auto and other			Commercial
	four family		Multi-family		real estate		and land		equity			consumer			business		Unallocated		Total
	(In thousands)
ALLL:
Beginning balance	$	3,396	$	923	$	2,722	$	592	$	449		$	2,317		$	250	$	181	$	10,830
Provision for (recapture of) loan losses		383		205		299		146		(20	)		157			213		117		1,500
Charge-offs		—		—		—		—		—			(240	)		—		—		(240	)
Recoveries		1		—		—		—		—			18			—		—		19
Ending balance	$	3,780	$	1,128	$	3,021	$	738	$	429		$	2,252		$	463	$	298	$	12,109

	At or For the Six Months Ended June 30, 2020
	One-to-				Commercial		Construction		Home			Auto and other			Commercial
	four family		Multi-family		real estate		and land		equity			consumer			business		Unallocated		Total
	(In thousands)
ALLL:
Beginning balance	$	3,024	$	888	$	2,243	$	399	$	454		$	2,261		$	208	$	151	$	9,628
Provision for (recapture of) loan losses		702		240		778		337		(26	)		333			255		147		2,766
Charge-offs		—		—		—		—		—			(374	)		—		—		(374	)
Recoveries		54		—		—		2		1			32			—		—		89
Ending balance	$	3,780	$	1,128	$	3,021	$	738	$	429		$	2,252		$	463	$	298	$	12,109

	At June 30, 2020
	One-to-				Commercial		Construction		Home		Auto and other		Commercial
	four family		Multi-family		real estate		and land		equity		consumer		business		Unallocated		Total
	(In thousands)
Total ALLL	$	3,780	$	1,128	$	3,021	$	738	$	429	$	2,252	$	463	$	298	$	12,109
General reserve		3,734		1,128		3,021		737		421		2,096		463		298		11,898
Specific reserve		46		—		—		1		8		156		—		—		211

Total loans	$	325,349	$	103,279	$	267,233	$	58,153	$	33,696	$	109,214	$	99,477	$	—	$	996,401
Loans collectively evaluated (1)		321,575		102,982		266,076		58,016		33,402		108,318		99,170		—		989,539
Loans individually evaluated (2)		3,774		297		1,157		137		294		896		307		—		6,862

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.

At or For the Three Months Ended June 30, 2019

One-to-
four family
Multi-family
Commercial
real estate

Construction
and land

Home
equity

Auto and other
consumer

Commercial
business
Unallocated Total
(In thousands)
ALLL:
Beginning balance $ 3,441
$ 769
$ 2,337
$ 700
$ 467
$ 1,678
$ 191
$ 176
$ 9,759
Provision for loan losses (25 ) (118 ) 20
11
(22 ) 416
(20 ) (7 ) 255
Charge-offs —
—
—
—
—
(362 ) —
—
(362 )
Recoveries 1
—
—
—
20
58
—
—
79
Ending balance $ 3,417
$ 651
$ 2,357
$ 711
$ 465
$ 1,790
$ 171
$ 169
$ 9,731

Table of Contents

At or For the Six Months Ended June 30, 2019

One-to-
four family
Multi-family
Commercial
real estate

Construction
and land

Home
equity

Auto and other
consumer

Commercial
business
Unallocated Total
(In thousands)
ALLL:
Beginning balance $ 3,297
$ 762
$ 2,289
$ 585
$ 480
$ 1,611
$ 334
$ 175
$ 9,533
Provision for loan losses 117
(111 ) 68
126
(36 ) 593
(161 ) (6 ) 590
Charge-offs —
—
—
—
—
(548 ) (4 ) —
(552 )
Recoveries 3
—
—
—
21
134
2
—
160
Ending balance $ 3,417
$ 651
$ 2,357
$ 711
$ 465
$ 1,790
$ 171
$ 169
$ 9,731

At June 30, 2019

One-to-
four family
Multi-family
Commercial
real estate

Construction
and land

Home
equity

Auto and other
consumer

Commercial
business
Unallocated Total
(In thousands)
Total ALLL $ 3,417
$ 651
$ 2,357
$ 711
$ 465
$ 1,790
$ 171
$ 169
$ 9,731
General reserve 3,381
650
2,347
710
458
1,740
164
169
9,619
Specific reserve 36
1
10
1
7
50
7
—
112

Total loans $ 331,748
$ 68,440
$ 250,250
$ 63,741
$ 37,194
$ 112,583
$ 15,098
$ —
$ 879,054
Loans collectively evaluated ⁽¹⁾
328,739
68,331
248,320
63,676
36,793
112,343
14,800
—
873,002
Loans individually evaluated ⁽²⁾
3,009
109
1,930
65
401
240
298
—
6,052

⁽¹⁾ Loans collectively evaluated for general reserves.
⁽²⁾ Loans individually evaluated for specific reserves.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At or For the Three Months Ended June 30, 2018

One-to-
four family
Multi-family
Commercial
real estate

Construction
and land

Home
equity

Auto and other
consumer

Commercial
business
Unallocated Total
ALLL: (In thousands)
Beginning balance $ 3,167
$ 647
$ 2,053
$ 679
$ 744
$ 948
$ 709
$ 37
$ 8,984
Provision for loan losses (102 ) 194
107
(166 ) (110 ) 476
6
(10 ) 395
Charge-offs (16 ) —
—
—
—
(134 ) —
—
(150 )
Recoveries 1
—
—
1
8
42
1
—
53
Ending balance $ 3,050
$ 841
$ 2,160
$ 514
$ 642
$ 1,332
$ 716
$ 27
$ 9,282

At or For the Six Months Ended June 30, 2018

One-to-
four family
Multi-family
Commercial
real estate

Construction
and land

Home
equity

Auto and other
consumer

Commercial
business
Unallocated Total
ALLL: (In thousands)
Beginning balance $ 3,061
$ 648
$ 1,847
$ 648
$ 787
$ 712
$ 265
$ 792
$ 8,760
Provision for loan losses 3
193
313
(135 ) (161 ) 807
450
(765 ) 705
Charge-offs (16 ) —
—
—
—
(257 ) —
—
(273 )
Recoveries 2
—
—
1
16
70
1
—
90
Ending balance $ 3,050
$ 841
$ 2,160
$ 514
$ 642
$ 1,332
$ 716
$ 27
$ 9,282

At December 31, 2018

One-to-
four family
Multi-family
Commercial
real estate

Construction
and land

Home
equity

Auto and other
consumer

Commercial
business
Unallocated Total
(In thousands)
Total ALLL $ 3,297
$ 762
$ 2,289
$ 585
$ 480
$ 1,611
$ 334
$ 175
$ 9,533
General reserve 3,262
761
2,281
584
474
1,552
168
175
9,257
Specific reserve 35
1
8
1
6
59
166
—
276

Total loans $ 336,178
$ 82,331
$ 253,235
$ 54,102
$ 37,629
$ 87,357
$ 18,898
$ —
$ 869,730
Loans collectively evaluated ⁽¹⁾
333,062
82,221
251,263
54,058
37,002
87,113
18,453
—
863,172
Loans individually evaluated ⁽²⁾
3,116
110
1,972
44
627
244
445
—
6,558

⁽¹⁾ Loans collectively evaluated for general reserves.
⁽²⁾ Loans individually evaluated for specific reserves.

	At or For the Three Months Ended June 30, 2019
	One-to-						Commercial		Construction		Home			Auto and other			Commercial
	four family			Multi-family			real estate		and land		equity			consumer			business			Unallocated			Total
	(In thousands)
ALLL:
Beginning balance	$	3,441		$	769		$	2,337	$	700	$	467		$	1,678		$	191		$	176		$	9,759
(Recapture of) provision for loan losses		(25	)		(118	)		20		11		(22	)		416			(20	)		(7	)		255
Charge-offs		—			—			—		—		—			(362	)		—			—			(362	)
Recoveries		1			—			—		—		20			58			—			—			79
Ending balance	$	3,417		$	651		$	2,357	$	711	$	465		$	1,790		$	171		$	169		$	9,731

	At or For the Six Months Ended June 30, 2019
	One-to-					Commercial		Construction		Home			Auto and other			Commercial
	four family		Multi-family			real estate		and land		equity			consumer			business			Unallocated			Total
	(In thousands)
ALLL:
Beginning balance	$	3,297	$	762		$	2,289	$	585	$	480		$	1,611		$	334		$	175		$	9,533
Provision for (recapture of) loan losses		117		(111	)		68		126		(36	)		593			(161	)		(6	)		590
Charge-offs		—		—			—		—		—			(548	)		(4	)		—			(552	)
Recoveries		3		—			—		—		21			134			2			—			160
Ending balance	$	3,417	$	651		$	2,357	$	711	$	465		$	1,790		$	171		$	169		$	9,731

	At December 31, 2019
	One-to-				Commercial		Construction		Home		Auto and other		Commercial
	four family		Multi-family		real estate		and land		equity		consumer		business		Unallocated		Total
	(In thousands)
Total ALLL	$	3,024	$	888	$	2,243	$	399	$	454	$	2,261	$	208	$	151	$	9,628
General reserve		2,993		887		2,235		399		439		2,119		203		151		9,426
Specific reserve		31		1		8		—		15		142		5		—		202

Total loans	$	306,014	$	96,098	$	255,722	$	37,187	$	35,046	$	112,119	$	41,571	$	—	$	883,757
Loans collectively evaluated (1)		303,026		95,991		253,839		37,158		34,775		111,271		41,308		—		877,368
Loans individually evaluated (2)		2,988		107		1,883		29		271		848		263		—		6,389

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.

Impaired loans. A loan is considered impaired when First Federal has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan. In the process of identifying loans as impaired, management takes into consideration factors that include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case-by-case basis after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. Impairment is measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying troubled debt restructuring ("TDR") loans.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of loans individually evaluated for impairment by portfolio segment at the dates indicated:

	June 30, 2020						December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With no allowance recorded:
One-to-four family	$	316	$	344	$	—	$	297	$	332	$	—
Multi-family		297		297		—		—		—		—
Commercial real estate		1,157		1,311		—		1,240		1,320		—
Construction and land		110		142		—		—		33		—
Home equity		62		119		—		45		110		—
Auto and other consumer		—		270		—		251		548		—
Commercial business		307		307		—		—		—		—
Total		2,249		2,790		—		1,833		2,343		—

With an allowance recorded:
One-to-four family	$	3,458	$	3,669	$	46		2,691		2,911		31
Multi-family		—		—		—		107		107		1
Commercial real estate		—		—		—		643		643		8
Construction and land		27		27		1		29		29		—
Home equity		232		292		8		226		286		15
Auto and other consumer		896		1,174		156		597		690		142
Commercial business		—		—		—		263		263		5
Total		4,613		5,162		211		4,556		4,929		202

Total impaired loans:
One-to-four family		3,774		4,013		46		2,988		3,243		31
Multi-family		297		297		—		107		107		1
Commercial real estate		1,157		1,311		—		1,883		1,963		8
Construction and land		137		169		1		29		62		—
Home equity		294		411		8		271		396		15
Auto and other consumer		896		1,444		156		848		1,238		142
Commercial business		307		307		—		263		263		5
Total	$	6,862	$	7,952	$	211	$	6,389	$	7,272	$	202

June 30, 2019 December 31, 2018
Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance
(In thousands)
With no allowance recorded:
One-to-four family $ 188
$ 222
$ —
$ 306
$ 339
$ —
Commercial real estate 1,274
1,346
—
1,308
1,374
—
Construction and land —
—
—
—
1
—
Home equity 57
161
—
330
478
—
Auto and other consumer (7 ) 504
—
—
276
—
Commercial business —
—
—
—
3
—
Total 1,512
2,233
—
1,944
2,471
—

With an allowance recorded:
One-to-four family 2,821
3,088
36
2,810
3,085
35
Multi-family 109
109
1
110
110
1
Commercial real estate 656
656
10
664
663
8
Construction and land 65
99
1
44
71
1
Home equity 344
410
7
297
364
6
Auto and other consumer 247
247
50
244
244
59
Commercial business 298
298
7
445
445
166
Total 4,540
4,907
112
4,614
4,982
276

Total impaired loans:
One-to-four family 3,009
3,310
36
3,116
3,424
35
Multi-family 109
109
1
110
110
1
Commercial real estate 1,930
2,002
10
1,972
2,037
8
Construction and land 65
99
1
44
72
1
Home equity 401
571
7
627
842
6
Auto and other consumer 240
751
50
244
520
59
Commercial business 298
298
7
445
448
166
Total $ 6,052
$ 7,140
$ 112
$ 6,558
$ 7,453
$ 276

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of loans individually evaluated for impairment by portfolio segment at the dates indicated:

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2019
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(In thousands)
With no allowance recorded:
One-to-four family $ 189
$ 3
$ 246
$ 5
Commercial real estate 1,278
13
1,288
25
Home equity 55
9
190
17
Auto and other consumer —
9
—
11
Total 1,522
34
1,724
58

With an allowance recorded:
One-to-four family 2,827
69
2,829
112
Multi-family 109
1
110
3
Commercial real estate 658
8
660
15
Construction and land 66
3
59
3
Home equity 307
8
303
13
Auto and other consumer 311
6
287
9
Commercial business 302
5
315
10
Total 4,580
100
4,563
165

Total impaired loans:
One-to-four family 3,016
72
3,075
117
Multi-family 109
1
110
3
Commercial real estate 1,936
21
1,948
40
Construction and land 66
3
59
3
Home equity 362
17
493
30
Auto and other consumer 311
15
287
20
Commercial business 302
5
315
10
Total $ 6,102
$ 134
$ 6,287
$ 223

	Three Months Ended				Six Months Ended
	June 30, 2020				June 30, 2020
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)				(In thousands)
With no allowance recorded:
One-to-four family	$	153	$	9	$	130	$	9
Multi-family		198		—		148		—
Commercial real estate		1,205		—		1,218		15
Construction and land		36		—		18		—
Home equity		48		1		46		—
Auto and other consumer		—		12		—		14
Commercial business		102		—		51		—
Total		1,742		22		1,611		38

With an allowance recorded:
One-to-four family		2,932		71		2,804		112
Multi-family		170		—		237		—
Commercial real estate		429		—		536		—
Construction and land		28		2		28		2
Home equity		246		5		247		10
Auto and other consumer		765		20		727		29
Commercial business		175		—		219		—
Total		4,745		98		4,798		153

Total impaired loans:
One-to-four family		3,085		80		2,934		121
Multi-family		368		—		385		—
Commercial real estate		1,634		—		1,754		15
Construction and land		64		2		46		2
Home equity		294		6		293		10
Auto and other consumer		765		32		727		43
Commercial business		277		—		270		—
Total	$	6,487	$	120	$	6,409	$	191

Interest income recognized on a cash basis on impaired loans for the three and six months ended June 30, ~~2019,~~2020, was ~~$94,000~~$56,000 and ~~$183,000,~~$126,000, respectively.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the average recorded investment in loans individually evaluated for impairment and the related interest income recognized for the periods shown:

Three Months Ended Six Months Ended
June 30, 2018 June 30, 2018
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(In thousands)
With no allowance recorded:
One-to-four family $ 407
$ 6
$ 408
$ 10
Commercial real estate 2,720
13
2,554
26
Construction and land 2,486
—
2,487
—
Home equity 356
9
358
9
Auto and other consumer —
5
—
9
Total 5,969
33
5,807
54

With an allowance recorded:
One-to-four family 2,779
62
3,080
102
Multi-family 113
1
114
3
Commercial real estate 785
7
790
17
Construction and land 49
3
50
4
Home equity 268
6
277
11
Auto and other consumer 116
4
108
5
Commercial business 862
33
769
36
Total 4,972
116
5,188
178

Total impaired loans:
One-to-four family 3,186
68
3,488
112
Multi-family 113
1
114
3
Commercial real estate 3,505
20
3,344
43
Construction and land 2,535
3
2,537
4
Home equity 624
15
635
20
Auto and other consumer 116
9
108
14
Commercial business 862
33
769
36
Total $ 10,941
$ 149
$ 10,995
$ 232

	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)				(In thousands)
With no allowance recorded:
One-to-four family	$	189	$	3	$	246	$	5
Commercial real estate		1,278		13		1,288		25
Home equity		55		9		190		17
Auto and other consumer		—		9		—		11
Total		1,522		34		1,724		58

With an allowance recorded:
One-to-four family		2,827		69		2,829		112
Multi-family		109		1		110		3
Commercial real estate		658		8		660		15
Construction and land		66		3		59		3
Home equity		307		8		303		13
Auto and other consumer		311		6		287		9
Commercial business		302		5		315		10
Total		4,580		100		4,563		165

Total impaired loans:
One-to-four family		3,016		72		3,075		117
Multi-family		109		1		110		3
Commercial real estate		1,936		21		1,948		40
Construction and land		66		3		59		3
Home equity		362		17		493		30
Auto and other consumer		311		15		287		20
Commercial business		302		5		315		10
Total	$	6,102	$	134	$	6,287	$	223

Interest income recognized on a cash basis on impaired loans for the three and six months ended June 30, ~~2018,~~2019, was ~~$111,000~~$94,000 and ~~$194,000,~~$183,000, respectively.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the recorded investment in nonaccrual loans by class of loan at the dates indicated:

June 30, 2019 December 31, 2018
(In thousands)
One-to-four family $ 685
$ 759
Commercial real estate 123
133
Construction and land 65
44
Home equity 148
369
Auto and other consumer 240
245
Commercial business 30
173

Total nonaccrual loans $ 1,291
$ 1,723

	June 30, 2020		December 31, 2019
	(In thousands)
One-to-four family	$	1,543	$	698
Multi-family		297		—
Commercial real estate		35		109
Construction and land		137		29
Home equity		140		112
Auto and other consumer		896		848
Commercial business		308		—

Total nonaccrual loans	$	3,356	$	1,796

Past due loans.Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. There were no0 loans past due 90 days or more and still accruing interest at June 30, ~~2019~~2020 and December 31, ~~2018.~~

2019.

The following table presents past due loans, net of partial loan charge-offs, by class, as of June 30, ~~2019:~~

2020:

	30-59 Days		60-89 Days		90 Days or More		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total Loans
	(In thousands)
Real Estate:
One-to-four family	$	1,594	$	1,127	$	444	$	3,165	$	322,184	$	325,349
Multi-family		—		—		297		297		102,982		103,279
Commercial real estate		—		76		—		76		267,157		267,233
Construction and land		—		—		—		—		58,153		58,153
Total real estate loans		1,594		1,203		741		3,538		750,476		754,014

Consumer:
Home equity		78		—		36		114		33,582		33,696
Auto and other consumer		772		520		566		1,858		107,356		109,214
Total consumer loans		850		520		602		1,972		140,938		142,910

Commercial business loans		—		—		307		307		99,170		99,477

Total loans	$	2,444	$	1,723	$	1,650	$	5,817	$	990,584	$	996,401

30-59 Days
Past Due 60-89 Days
Past Due 90 Days or More
Past Due Total
Past Due Current Total Loans
(In thousands)
Real Estate:
One-to-four family $ 685
$ —
$ 100
$ 785
$ 330,963
$ 331,748
Multi-family —
—
—
—
68,440
68,440
Commercial real estate —
—
—
—
250,250
250,250
Construction and land —
—
31
31
63,710
63,741
Total real estate loans 685
—
131
816
713,363
714,179

Consumer:
Home equity 145
—
25
170
37,024
37,194
Auto and other consumer 795
158
15
968
111,615
112,583
Total consumer loans 940
158
40
1,138
148,639
149,777

Commercial business loans —
—
30
30
15,068
15,098

Total loans $ 1,625
$ 158
$ 201
$ 1,984
$ 877,070
$ 879,054

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents past due loans, net of partial loan charge-offs, by class, as of December 31, ~~2018:~~

30-59 Days
Past Due 60-89 Days
Past Due 90 Days or More
Past Due Total
Past Due Current Total Loans
(In thousands)
Real Estate:
One-to-four family $ 289
$ 176
$ 164
$ 629
$ 335,549
$ 336,178
Multi-family —
—
—
—
82,331
82,331
Commercial real estate —
—
—
—
253,235
253,235
Construction and land 35
14
31
80
54,022
54,102
Total real estate loans 324
190
195
709
725,137
725,846

Consumer:
Home equity 97
30
9
136
37,493
37,629
Auto and other consumer 471
92
—
563
86,794
87,357
Total consumer loans 568
122
9
699
124,287
124,986

Commercial business loans 923
—
—
923
17,975
18,898

Total loans $ 1,815
$ 312
$ 204
$ 2,331
$ 867,399
$ 869,730

2019:

	30-59 Days		60-89 Days		90 Days or More		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total Loans
	(In thousands)
Real Estate:
One-to-four family	$	928	$	92	$	116	$	1,136	$	304,878	$	306,014
Multi-family		—		—		—		—		96,098		96,098
Commercial real estate		—		—		—		—		255,722		255,722
Construction and land		38		—		—		38		37,149		37,187
Total real estate loans		966		92		116		1,174		693,847		695,021

Consumer:
Home equity		299		24		—		323		34,723		35,046
Auto and other consumer		1,423		370		614		2,407		109,712		112,119
Total consumer loans		1,722		394		614		2,730		144,435		147,165

Commercial business loans		—		115		—		115		41,456		41,571

Total loans	$	2,688	$	601	$	730	$	4,019	$	879,738	$	883,757

Credit quality indicator. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss; risk ratings 6,7, and 8 in our ~~8-point~~8-point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that First Federal will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When First Federal classifies problem assets as either substandard or doubtful, it may establish a specific allowance to address the risk specifically or allow the loss to be addressed in the general allowance. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities but that, unlike specific allowances, have not been specifically allocated to ~~particular~~certain problem assets. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose First Federal to ~~sufficient~~enough risk to warrant classification as substandard or doubtful but do possess identified weaknesses are designated as either watch or special mention assets; risk ratings 4 and 5 in our risk rating system, respectively. Loans not otherwise classified are considered pass graded loans and are rated ~~1-3~~1-3 in our risk rating system.

Additionally, First Federal categorizes loans as performing or nonperforming based on payment activity. Loans that are more than 90 days past due and nonaccrual loans are considered nonperforming.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table represents the internally assigned grade as of June 30, ~~2019,~~2020, by class of loans:

Pass Watch Special Mention Substandard Total
(In thousands)
Real Estate:
One-to-four family $ 326,047
$ 3,761
$ 1,136
$ 804
$ 331,748
Multi-family 68,028
303
109
—
68,440
Commercial real estate 242,070
3,821
3,026
1,333
250,250
Construction and land 62,102
1,527
47
65
63,741
Total real estate loans 698,247
9,412
4,318
2,202
714,179

Consumer:
Home equity 36,119
648
154
273
37,194
Auto and other consumer 110,265
1,668
356
294
112,583
Total consumer loans 146,384
2,316
510
567
149,777

Commercial business loans 13,015
87
1,635
361
15,098

Total loans $ 857,646
$ 11,815
$ 6,463
$ 3,130
$ 879,054

	Pass		Watch		Special Mention		Substandard		Total
	(In thousands)
Real Estate:
One-to-four family	$	318,430	$	4,197	$	1,813	$	909	$	325,349
Multi-family		102,982		—		—		297		103,279
Commercial real estate		256,775		7,117		2,133		1,208		267,233
Construction and land		45,547		12,384		74		148		58,153
Total real estate loans		723,734		23,698		4,020		2,562		754,014

Consumer:
Home equity		32,724		697		126		149		33,696
Auto and other consumer		103,857		2,654		1,776		927		109,214
Total consumer loans		136,581		3,351		1,902		1,076		142,910

Commercial business loans		97,960		51		—		1,466		99,477

Total loans	$	958,275	$	27,100	$	5,922	$	5,104	$	996,401

The following table represents the internally assigned grade as of December 31, ~~2018,~~2019, by class of loans:

	Pass		Watch		Special Mention		Substandard		Total
	(In thousands)
Real Estate:
One-to-four family	$	301,312	$	2,685	$	1,148	$	869	$	306,014
Multi-family		95,694		—		107		297		96,098
Commercial real estate		251,531		97		2,800		1,294		255,722
Construction and land		35,897		1,184		77		29		37,187
Total real estate loans		684,434		3,966		4,132		2,489		695,021

Consumer:
Home equity		34,260		470		89		227		35,046
Auto and other consumer		107,327		3,243		594		955		112,119
Total consumer loans		141,587		3,713		683		1,182		147,165

Commercial business loans		39,653		376		263		1,279		41,571

Total loans	$	865,674	$	8,055	$	5,078	$	4,950	$	883,757

Pass Watch Special Mention Substandard Total
(In thousands)
Real Estate:
One-to-four family $ 330,476
$ 3,767
$ 957
$ 978
$ 336,178
Multi-family 82,221
—
110
—
82,331
Commercial real estate 244,919
6,281
663
1,372
253,235
Construction and land 51,480
2,578
—
44
54,102
Total real estate loans 709,096
12,626
1,730
2,394
725,846

Consumer:
Home equity 36,559
465
123
482
37,629
Auto and other consumer 85,579
1,310
151
317
87,357
Total consumer loans 122,138
1,775
274
799
124,986

Commercial business loans 16,520
1,733
472
173
18,898

Total loans $ 847,754
$ 16,134
$ 2,476
$ 3,366
$ 869,730

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table represents the credit risk profile based on payment activity as of June 30, ~~2019,~~2020, by class of loans:

Nonperforming Performing Total
(In thousands)
Real Estate:
One-to-four family $ 685
$ 331,063
$ 331,748
Multi-family —
68,440
68,440
Commercial real estate 123
250,127
250,250
Construction and land 65
63,676
63,741

Consumer:
Home equity 148
37,046
37,194
Auto and other consumer 240
112,343
112,583

Commercial business 30
15,068
15,098

Total loans $ 1,291
$ 877,763
$ 879,054

	Nonperforming		Performing		Total
	(In thousands)
Real Estate:
One-to-four family	$	1,543	$	323,806	$	325,349
Multi-family		297		102,982		103,279
Commercial real estate		35		267,198		267,233
Construction and land		137		58,016		58,153

Consumer:
Home equity		140		33,556		33,696
Auto and other consumer		896		108,318		109,214

Commercial business		308		99,169		99,477

Total loans	$	3,356	$	993,045	$	996,401

The following table represents the credit risk profile based on payment activity as of December 31, ~~2018,~~2019, by class of loans:

Nonperforming Performing Total
(In thousands)
Real Estate:
One-to-four family $ 759
$ 335,419
$ 336,178
Multi-family —
82,331
82,331
Commercial real estate 133
253,102
253,235
Construction and land 44
54,058
54,102

Consumer:
Home equity 369
37,260
37,629
Auto and other consumer 245
87,112
87,357

Commercial business 173
18,725
18,898

Total loans $ 1,723
$ 868,007
$ 869,730

	Nonperforming		Performing		Total
	(In thousands)
Real Estate:
One-to-four family	$	698	$	305,316	$	306,014
Multi-family		—		96,098		96,098
Commercial real estate		109		255,613		255,722
Construction and land		29		37,158		37,187

Consumer:
Home equity		112		34,934		35,046
Auto and other consumer		848		111,271		112,119

Commercial business		—		41,571		41,571

Total loans	$	1,796	$	881,961	$	883,757

Troubled debt restructuring. A TDR is a loan to a borrower who is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that First Federal is granting the borrower a concession of some kind. First Federal has granted a variety of concessions to borrowers in the form of loan modifications. The modifications are generally related to the loan's interest rate, term and payment amount or a combination thereof.

~~Upon identifying a receivable~~

The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020, ("CARES Act") provided guidance around the modification of loans as a ~~TDR loan, First Federal classifies~~result of the ~~loan~~COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as ~~impaired for purposes of determining the allowance for loan losses. This requires the loan to initially be evaluated individually for impairment, generally based on the expected cash flows~~defined under the ~~new~~CARES Act prior to any relief, are not TDRs. This includes short-term (i.e., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, ~~discounted~~or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the ~~loan’s original effective interest rates. For TDR~~time a modification program is implemented. As of June 30, 2020, the Company had approved COVID-19 pandemic related loan modifications for 297 loans ~~that subsequently default,~~aggregating to $128.4 million, or 12.9% of loans receivable. Loan modifications in accordance with the ~~method of~~CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining ~~impairment~~whether or not a loan is ~~generally the fair value of the collateral less estimated selling costs.~~

~~TDR loans may~~deemed to be ~~upgraded in their classification and placed on accrual status once there~~impaired.

The following table is a ~~sustained period~~summary of ~~repayment performance, usually six months or longer, and there is a reasonable assurance that repayment will continue. First Federal allows reclassification~~information with respect to total COVID-19 loan modifications as of a troubled debt restructuring back into the general loan pool (as a non-troubled debt restructuring) if the borrower is able to refinance the loan at then-current market rates and meet all of the underwriting criteria of First Federal

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~required of other borrowers. The refinance must be based on the borrower’s ability to repay the debt and no special concessions of rate and/or term are granted to the borrower.~~

June 30, 2020 (dollars in thousands):

	Count		Balance		Percent

Real Estate:
One-to-four family		38	$	11,157		8.7	%
Multi-family		8		25,150		19.6
Commercial real estate		37		70,800		55.1
Construction and land		13		6,939		5.4
Total real estate loans		96		114,046		88.8

Consumer:
Home equity		8		784		0.6
Auto and other consumer		182		9,620		7.5
Total consumer loans		190		10,404		8.1

Commercial business loans		11		3,970		3.1

Total loans		297	$	128,420		100.0	%

The following table is a summary of information pertaining to TDR loans included in impaired loans at the dates indicated:

	June 30, 2020		December 31, 2019
	(In thousands)
Total TDR loans	$	2,495	$	3,544
Allowance for loan losses related to TDR loans		31		41
Total nonaccrual TDR loans		110		81

June 30, 2019 December 31, 2018
(In thousands)
Total TDR loans $ 3,744
$ 3,745
Allowance for loan losses related to TDR loans 48
43
Total nonaccrual TDR loans 134
84

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There were 0 newly restructured and renewals or modifications of existing TDR loans that occurred during the three and six months ended June 30, 2020 or June 30, 2019.

There were 0 TDR loans which incurred a payment default within 12 months of the restructure date during three and six months ended June 30, 2020.

The following table presents newly restructured and renewals or modifications of existing TDR loans by class that occurred during the three and six months ended June 30, 2019, by type of concession granted.

Number of Contracts Rate Modification Term Modification Combination Modification Total Modifications
(Dollars in thousands)
Pre-modification outstanding recorded investment
One- to four-family 1
$ —
$ 50
$ —
$ 50

Post-modification outstanding recorded investment
One- to four-family 1
$ —
$ 51
$ —
$ 51

	Number		Rate		Term		Combination		Total
	of Contracts		Modification		Modification		Modification		Modifications
			(Dollars in thousands)
Pre-modification outstanding recorded investment
One- to four-family		1	$	—	$	50	$	—	$	50

Post-modification outstanding recorded investment
One- to four-family		1	$	—	$	51	$	—	$	51

The following is a summary of TDR loans which incurred a payment default within 12 months of the restructure date during the three and six months ended June 30, ~~2019.~~

Number
of Contracts

Rate
Modification

Term
Modification
Combination
Modification
Total
Modifications
(Dollars in thousands)
TDR loans that subsequently defaulted
One- to four-family 1
$ —
$ —
$ 48
$ 48

~~There were no newly restructured and renewals or modifications of existing TDR loans by class that occurred during the three months ended June 30, 2018, by type of concession granted.~~

~~The following table presents newly restructured and renewals or modifications of existing TDR loans by class that occurred during the six months ended June 30, 2018, by type of concession granted.~~

Number
of Contracts

Rate
Modification

Term
Modification
Combination
Modification
Total
Modifications
(Dollars in thousands)
Pre-modification outstanding recorded investment
One- to four-family 2
$ —
$ —
$ 180
$ 180

Post-modification outstanding recorded investment
One- to four-family 2
$ —
$ —
$ 179
$ 179

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~There were no TDR loans which incurred a payment default within 12 months of the restructure date during the three and six months ended June 30, 2018.~~

No2019.

	Number		Rate		Term		Combination		Total
	of Contracts		Modification		Modification		Modification		Modifications
			(Dollars in thousands)
TDR loans that subsequently defaulted
One- to four-family		1	$	—	$	—	$	48	$	48

NaN additional funds were committed to be advanced in connection with impaired loans at June 30, ~~2019.~~

2020.

The following table presents TDR loans by class at the dates indicated by accrual and nonaccrual status.

	June 30, 2020						December 31, 2019
	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total
	(In thousands)
One-to-four family	$	2,231	$	110	$	2,341	$	2,290	$	81	$	2,371
Multi-family		—		—		—		107		—		107
Commercial real estate		—		—		—		643		—		643
Home equity		154		—		154		160		—		160
Commercial business		—		—		—		263		—		263

Total TDR loans	$	2,385	$	110	$	2,495	$	3,463	$	81	$	3,544

June 30, 2019 December 31, 2018
Accrual Nonaccrual Total Accrual Nonaccrual Total
(In thousands)
One-to-four family $ 2,324
$ 134
$ 2,458
$ 2,358
$ 84
$ 2,442
Multi-family 109
—
109
110
—
110
Commercial real estate 656
—
656
663
—
663
Home equity 253
—
253
258
—
258
Commercial business 268
—
268
272
—
272

Total TDR loans $ 3,610
$ 134
$ 3,744
$ 3,661
$ 84
$ 3,745

Note 4 - Deposits

The aggregate amount of time deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limit, currently ~~$250,000,~~$250,000, at June 30, ~~2019~~2020 and December 31, ~~2018, was $87.8~~2019, were $94.0 million and ~~$107.0~~$93.5 million, respectively. Deposits and weighted-average interest rates at the dates indicated are as follows:

	June 30, 2020			December 31, 2019
	Amount		Weighted-Average Interest Rate	Amount		Weighted-Average Interest Rate
	(Dollars in thousands)
Savings		$ 175,749	0.53%		$ 168,983	0.86%
Transaction accounts		339,151	0.01%		276,496	0.03%
Money market accounts		330,261	0.44%		248,086	0.46%
Certificates of deposit		325,164	1.57%		308,080	1.85%

		$ 1,170,325	0.64%		$ 1,001,645	0.84%

June 30, 2019 December 31, 2018
Amount Weighted-Average Interest Rate Amount Weighted-Average Interest Rate
(Dollars in thousands)
Savings $ 164,190
0.94% $ 143,412
0.74%
Transaction accounts 260,701
0.06% 262,152
0.05%
Money market accounts 251,002
0.43% 273,344
0.43%
Certificates of deposit 257,372
2.11% 261,352
1.86%

$ 933,265
0.88% $ 940,260
0.77%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Maturities of certificates at the dates indicated are as follows:

June 30, 2019 December 31, 2018
(In thousands)
Within one year or less $ 179,950
$ 148,119
After one year through two years 50,195
78,966
After two years through three years 14,079
20,934
After three years through four years 4,441
6,759
After four years through five years 8,707
6,574
After five years —
—

$ 257,372
$ 261,352

	June 30, 2020		December 31, 2019
	(In thousands)
Within one year or less	$	240,053	$	241,127
After one year through two years		60,814		42,274
After two years through three years		9,353		11,167
After three years through four years		8,540		6,593
After four years through five years		6,404		6,919
After five years		—		—

	$	325,164	$	308,080

Brokered certificates of deposits of ~~$13.7~~$86.3 million and $51.6 million are included in the June 30, 2020 and December 31, 2019 certificate of deposits ~~total. As needed, we will increase our portfolio of these brokered deposits as a source of additional funding in future periods.~~

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

totals above, respectively.

Deposits at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, included ~~$56.2~~$76.9 million and ~~$80.0~~$57.4 million, respectively, in public fund deposits. Investment securities with a carrying value of ~~$43.1~~$43.2 million and ~~$47.6~~$35.5 million were pledged as collateral for these deposits at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. This exceeds the minimum collateral requirements established by the Washington Public Deposit Protection Commission.

Interest on deposits by type for the periods shown was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)				(In thousands)
Savings	$	269	$	372	$	609	$	688
Transaction accounts		4		36		23		72
Money market accounts		400		313		756		633
Certificates of deposit		1,368		1,347		2,791		2,599

	$	2,041	$	2,068	$	4,179	$	3,992

Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
(In thousands)
Savings $ 372
$ 28
$ 688
$ 44
Transaction accounts 36
9
72
13
Insured money market accounts 313
282
633
497
Certificates of deposit 1,347
806
2,599
1,556

$ 2,068
$ 1,125
$ 3,992
$ 2,110

Note 5 - Federal Taxes on Income

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

Under current Federal income tax regulations, charitable contribution deductions are limited to 10% of taxable income. Due to this limitation, the Company currently has a valuation allowance of $1.2 million for financial statement reporting purposes related to its contribution to the Foundation. The contribution carryforward and related valuation allowance will expire in 2020. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates whether its deferred tax assets will be realized and adjusts the amount of its valuation allowance, if necessary.

Effective January 1, 2018, the corporate U.S. statutory federal income tax rate was reduced from 35% to 21% under the Tax Cuts and Jobs Act. The Company completed its accounting under ASC 740 in December 2017 for all material deferred tax assets and liabilities with provisional amounts recorded for immaterial items.

The effective tax rates were 18.9% and ~~18.5%~~18.9% for the six months ended June 30, ~~2019~~ 2020 and ~~2018,~~2019, respectively. The effective tax rates differ from the statutory maximum federal tax rate for ~~2019~~2020 and ~~2018~~2019 of 21%, largely due to the nontaxable earnings on bank owned life insurance and tax-exempt interest income earned on certain investment securities and loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6 - Earnings per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. In addition, nonvested share-based payment awards

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share.

The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the three and six months ended June 30, ~~2019~~ 2020 and ~~2018.~~

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
(In thousands, except share data)
Numerator:
Net income $ 2,079
$ 1,526
$ 4,286
$ 3,049

Denominator:
Basic weighted average common shares outstanding 9,856,423
10,329,680
9,916,423
10,412,704
Dilutive restricted stock grants 100,664
126,666
90,907
120,526
Diluted weighted average common shares outstanding 9,957,087
10,456,346
10,007,330
10,533,230

Basic earnings per share $ 0.21
$ 0.15
$ 0.43
$ 0.29

Diluted earnings per share $ 0.21
$ 0.15
$ 0.43
$ 0.29

2019.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands, except share data)				(In thousands, except share data)
Numerator:
Net income	$	1,976	$	2,079	$	2,849	$	4,286

Denominator:
Basic weighted average common shares outstanding		9,373,253		9,856,423		9,488,197		9,916,423
Dilutive restricted stock grants		34,870		100,664		40,011		90,907
Diluted weighted average common shares outstanding		9,408,123		9,957,087		9,528,208		10,007,330

Basic earnings per share	$	0.21	$	0.21	$	0.30	$	0.43

Diluted earnings per share	$	0.21	$	0.21	$	0.30	$	0.43

Unallocated ESOP shares are not included as outstanding for either basic or diluted earnings per share calculations. As of June 30, ~~2019~~ 2020 and ~~2018,~~2019, there were ~~820,556~~767,522 and ~~873,445~~820,556 shares in the ESOP that remain unallocated, respectively.

Potential dilutive shares are excluded from the computation of EPS if their effect is anti-dilutive. There were no35,508 and 0 restricted stock award anti-dilutive weighted-average shares at for the three months ended June 30, ~~2019~~ 2020 and ~~2018,~~2019 respectively. There were 28,111 and 0 restricted stock award anti-dilutive weighted-average shares for the six months ended June 30, 2020 and 2019 respectively.

Note 7 - 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~~12-month period are eligible to participate in the ESOP.

Pursuant to the Plan, the ESOP purchased shares in the open market with funds borrowed from First Northwest. The Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to First Northwest over a period of 20 years, bearing estimated interest at 2.46%. 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. An annual principal and interest payment of $835,000 was made by the ESOP during the six months ended June 30, ~~2019.~~

2020.

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.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Compensation expense related to the ESOP for the three months ended June 30, ~~2019~~ 2020 and ~~2018,~~2019, was $109,000 and $120,000, ~~and $217,000,~~ respectively. ~~For the six months ended June 30, 2019 and 2018 compensation~~Compensation expense related to the ESOP for the six months ended June 30, 2020 and 2019, was $260,000 and $327,000, ~~and $437,000,~~ respectively.

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Shares issued to the ESOP as of the dates indicated are as follows:

	June 30, 2020		December 31, 2019
	(Dollars in thousands)
Allocated shares		280,507		227,473
Committed to be released shares		—		26,514
Unallocated shares		767,522		794,042

Total ESOP shares issued		1,048,029		1,048,029

Fair value of unallocated shares	$	9,533	$	14,396

June 30, 2019 December 31, 2018
(Dollars in thousands)
Allocated shares 227,473
174,584
Committed to be released shares —
26,442
Unallocated shares 820,556
847,003

Total ESOP shares issued 1,048,029
1,048,029

Fair value of unallocated shares $ 13,334
$ 12,561

Note 8 - Stock-based Compensation

~~On November 16, 2015,~~

In May 2020, the Company's shareholders approved the First Northwest Bancorp ~~2015~~2020 Equity Incentive Plan ~~(the "2015~~("2020 EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock ~~and~~shares or restricted stock units, and performance share awards to eligible ~~participants.~~ participants through May 2030. The cost of awards under the ~~2015~~2020 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 ~~2015~~2020 EIP is ~~1,834,050. The 2015 EIP provides for the use of authorized but unissued shares or shares that have been reacquired by First Northwest to fund share-based awards.~~520,000. At June 30, ~~2019,~~2020, there were ~~1,316,550~~520,000 total shares available for grant under the ~~2015~~2020 EIP, ~~including 76,014 shares~~all of which are available to be granted as restricted ~~stock.~~

shares.

As a result of the approval of the 2020 EIP, the First Northwest Bancorp 2015 Equity Incentive Plan (the "2015 EIP") was frozen and 0 additional awards will be made. At June 30, 2020, there were 0 shares available for grant under the 2015 EIP. At this date, there were 277,400 shares granted under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.

During the three and six months ended June 30, ~~2019~~2020, 27,500 and ~~2018, no~~62,600 shares of restricted stock were awarded, respectively, and no0 stock options were granted. There were 0 shares of restricted stock awarded during the three and six months ended June 30, 2019. Awarded shares of restricted stock vest ratably over five years from the date of grant ~~as long as~~provided 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 grant date amortized over five years.

For the three months ended June 30, ~~2019~~ 2020 and ~~2018,~~2019, total compensation expense for the 2015 EIP was ~~$270,000~~$250,000 and ~~$259,000,~~$270,000, respectively. For the six months ended June 30, ~~2019~~ 2020 and ~~2018,~~2019, total compensation expense for the 2015 EIP was $555,000 and $553,000, ~~and $532,000,~~ respectively.

Included in the above compensation expense for the three months ended June 30, ~~2019~~ 2020 and ~~2018, was~~2019, directors' compensation ~~of $85,000~~was $86,000 and $85,000, respectively. For the six months ended June 30, ~~2019~~ 2020 and ~~2018,~~2019, directors' compensation was ~~$170,000~~$171,000 and $170,000, respectively.

The following ~~tables~~table provide a summary of changes in non-vested restricted stock awards for the ~~periods~~period shown:

	For the Three Months Ended
	June 30, 2020
	Shares			Weighted-Average Grant Date Fair Value
Non-vested at April 1, 2020		253,900		$	15.05
Granted		27,500			11.23
Forfeited		(4,000	)		14.61

Non-vested at June 30, 2020		277,400		$	14.68

	For the Six Months Ended
	June 30, 2020
	Shares			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2020		264,300		$	14.60
Granted		62,600			14.03
Forfeited		(49,500	)		13.41

Non-vested at June 30, 2020		277,400		$	14.68

For the Three Months Ended
June 30, 2019
Shares Weighted-Average Grant Date Fair Value
Non-vested at April 1, 2019 290,600
$ 13.72
Granted —
—
Vested —
—
Forfeited (4,000 ) 16.07

Non-vested at June 30, 2019 286,600
13.69

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FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the Six Months Ended
June 30, 2019
Shares Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2019 290,600
$ 13.72
Granted —
—
Vested —
—
Canceled (1) —
—
Forfeited (4,000 ) 16.07

Non-vested at June 30, 2019 286,600
13.69

(1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the total cost of the vested shares. The surrendered shares are canceled and are unavailable for reissue.

As of June 30, ~~2019,~~2020, there was ~~$2.9~~$3.1 million of total unrecognized compensation cost 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 ~~2.84~~3.42 years.

Note 9 - Fair Value Accounting and Measurement

Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or ~~third-party~~third-party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.

Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.

A ~~three-level~~three-level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.

Level 3 - Unobservable inputs.

The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.

Qualitative disclosures of valuation techniques -Securities available for sale: where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities.

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for ~~a particular~~an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets measured at fair value on a recurring basis at the dates indicated:

June 30, 2019
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs
(Level 1) (Level 2) (Level 3) Total
(In thousands)
Securities available-for-sale
Municipal bonds $ —
$ 932
$ —
$ 932
ABS agency —
25,436
—
25,436
ABS corporate —
37,210
—
37,210
Corporate debt —
9,482
—
9,482
SBA —
31,975
—
31,975
MBS agency —
135,239
—
135,239
MBS corporate —
9,777
—
9,777
$ —
$ 250,051
$ —
$ 250,051

December 31, 2018
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs
(Level 1) (Level 2) (Level 3) Total
(In thousands)
Securities available-for-sale
Municipal bonds $ —
$ 869
$ —
$ 869
ABS agency —
25,752
—
25,752
ABS corporate —
36,723
—
36,723
Corporate debt —
9,888
—
9,888
SBA —
35,670
—
35,670
MBS agency —
143,455
—
143,455
MBS corporate —
10,610
—
10,610
$ —
$ 262,967
$ —
$ 262,967

	June 30, 2020
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Securities available-for-sale
Municipal bonds	$	—	$	107,610	$	—	$	107,610
ABS agency		—		60,819		—		60,819
ABS corporate		—		39,804		—		39,804
Corporate debt		—		22,428		—		22,428
SBA		—		23,547		—		23,547
MBS agency		—		102,647		—		102,647
MBS corporate		—		7,418		—		7,418
	$	—	$	364,273	$	—	$	364,273

	December 31, 2019
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Securities available-for-sale
Municipal bonds	$	—	$	39,282	$	—	$	39,282
ABS agency		—		28,858		—		28,858
ABS corporate		—		40,855		—		40,855
Corporate debt		—		9,643		—		9,643
SBA		—		28,459		—		28,459
MBS agency		—		160,167		—		160,167
MBS corporate		—		8,316		—		8,316
	$	—	$	315,580	$	—	$	315,580

Assets and liabilities measured at fair value on a nonrecurring basis - Assets are considered to be valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the consolidated balance sheets. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.

Table of Contents

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:

June 30, 2019
Level 1 Level 2 Level 3 Total
(In thousands)
Impaired loans $ —
$ —
$ 6,052
$ 6,052

December 31, 2018
Level 1 Level 2 Level 3 Total
(In thousands)
Impaired loans $ —
$ —
$ 6,558
$ 6,558

	June 30, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Impaired loans	$	—	$	—	$	6,862	$	6,862

	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In thousands)
Impaired loans	$	—	$	—	$	6,389	$	6,389

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no0 impaired loans with discounts to appraisal disposition value or other unobservable inputs.

The following tables present the carrying value and estimated fair value of financial instruments at the dates indicated:

	June 30, 2020
					Fair Value Measurements Using:
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets
Cash and cash equivalents	$	16,346	$	16,346	$	16,346	$	—	$	—
Investment securities available for sale		364,273		364,273		—		364,273		—
Loans held for sale		3,111		3,111		—		3,111		—
Loans receivable, net		986,351		975,116		—		—		975,116
FHLB stock		6,074		6,074		—		6,074		—
Accrued interest receivable		5,360		5,360		—		5,360		—
Mortgage servicing rights, net		1,098		1,467		—		—		1,467

Financial liabilities
Demand deposits	$	845,161	$	845,161	$	845,161	$	—	$	—
Time deposits		325,164		328,123		—		328,123		—
Borrowings		112,379		113,919		—		113,919		—
Accrued interest payable		253		253		—		253		—

June 30, 2019
Carrying Amount Estimated Fair Value Fair Value Measurements Using:
Level 1 Level 2 Level 3
(In thousands)
Financial assets
Cash and cash equivalents $ 28,822
$ 28,822
$ 28,822
$ —
$ —
Investment securities available for sale 250,051
250,051
—
250,051
—
Investment securities held to maturity 37,990
38,675
—
38,675
—
Loans held for sale 2,516
2,516
—
2,516
—
Loans receivable, net 873,958
856,059
—
—
856,059
FHLB stock 6,773
6,773
—
6,773
—
Accrued interest receivable 4,094
4,094
—
4,094
—
Mortgage servicing rights, net 955
1,934
—
—
1,934

Financial liabilities
Demand deposits $ 675,893
$ 675,893
$ 675,893
$ —
$ —
Time deposits 257,372
257,629
—
257,629
—
Borrowings 131,337
132,099
—
132,099
—
Accrued interest payable 389
389
—
389
—

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FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2018
Carrying Amount Estimated Fair Value Fair Value Measurements Using:
Level 1 Level 2 Level 3
(In thousands)
Financial assets
Cash and cash equivalents $ 26,323
$ 26,323
$ 26,323
$ —
$ —
Investment securities available for sale 262,967
262,967
—
262,967
—
Investment securities held to maturity 43,503
42,990
—
42,990
—
Loans receivable, net 863,852
840,861
—
—
840,861
FHLB stock 6,927
6,927
—
6,927
—
Accrued interest receivable 4,048
4,048
—
4,048
—
Mortgage servicing rights, net 1,044
1,479
—
—
1,479

Financial liabilities
Demand deposits $ 678,908
$ 678,908
$ 678,908
$ —
$ —
Time deposits 261,352
259,549
—
259,549
—
Borrowings 136,552
137,153
—
137,153
—
Accrued interest payable 521
521
—
521
—

	December 31, 2019
					Fair Value Measurements Using:
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets
Cash and cash equivalents	$	48,739	$	48,739	$	48,739	$	—	$	—
Investment securities available for sale		315,580		315,580		—		315,580		—
Loans held for sale		503		503		—		503		—
Loans receivable, net		878,437		858,101		—		—		858,101
FHLB stock		6,034		6,034		—		6,034		—
Accrued interest receivable		3,931		3,931		—		3,931		—
Mortgage servicing rights, net		871		1,486		—		—		1,486

Financial liabilities
Demand deposits	$	693,565	$	693,565	$	693,565	$	—	$	—
Time deposits		308,080		308,819		—		308,819		—
Borrowings		112,930		113,076		—		113,076		—
Accrued interest payable		373		373		—		373		—

Financial assets and liabilities other than investment securities are not traded in active markets. Estimated fair values require subjective judgments and are approximate. The estimates of fair value in the previous table are not necessarily representative of amounts that could be realized in actual market transactions, or of the underlying value of the Company. The methods and assumptions used by the Company in estimating fair values of financial instruments as set forth below in accordance with ASC Topic 825,Financial Instruments, as amended by ASU ~~2016-01~~2016-01 requiring public entities to use the exit price notion effective January 1, 2018, are as follows:

Securities - Fair values for investment securities are primarily measured using information from a ~~third-party~~third-party pricing service. The pricing service uses pricing models based on market data. In the event that limited or less transparent information is provided by the ~~third-party~~third-party pricing service, fair value is estimated using secondary pricing services or non-binding ~~third-party~~third-party broker quotes.

Loans receivable, net - At June 30, ~~2019,~~2020, the fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans and leases would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.

Mortgage servicing rights, net - The estimated fair value of mortgage servicing rights is based on market prices for comparable mortgage servicing contracts when available. If no comparable contract is available, the estimated fair value is based on a valuation model that calculates the present value of estimated future net servicing income.

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~~Note 10 - Noninterest Income~~

On January 1, 2018, the Company adopted the amendments of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606. The Company has included the following table regarding the Company’s noninterest income for the periods presented.

~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(In thousands)
Noninterest income:
Loan fees (1) $ 482
$ 132
$ 721
$ 257
Deposit fees 463
369
910
761
Debit interchange income 27
37
49
69
Credit card interchange income 457
447
859
853
Investment securities gain (loss), net (1) 57
13
57
135
Gain on loan sales, net (1) 88
150
175
317
Increase in cash surrender value of BOLI (1) 145
149
288
298
Other income:

Investment services revenue 60
83
108
157
Gain or loss on subsidiary (1) 18
18
32
32
Remaining other income 6
7
15
8
Total other income 84
108
155
197

Total noninterest income $ 1,803
$ 1,405
$ 3,214
$ 2,887

(1) Not within scope of Topic 606

The Company recognizes revenue as it is earned and noted no impact to its revenue recognition policies as a result of the adoption of ASU 2014-09. The following is a discussion of key revenues within the scope of the new revenue guidance.

~~Deposit fees~~ - The Company earns fees from its deposit customers for account maintenance, transaction-based activity and overdraft services. Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts on a monthly basis. The performance obligation is satisfied and the fees are recognized on a monthly basis as the service period is completed. Transaction-based fees on deposit accounts are charged to deposit customers for specific services provided to the customer, such as non-sufficient funds fees, overdraft fees, and wire fees. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.

~~Debit interchange income~~ - Debit and Automated Teller Machine ("ATM") interchange income represent fees earned when a debit card issued by the Company is used. The Company earns interchange fees from debit cardholder transactions through card networks. In addition, the Company earns interchange fees for use of its ATM by customers of other banking institutions. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholder's debit card. Certain expenses directly associated with the credit and debit card are netted against interchange income.

~~Credit card interchange income~~- Credit card interchange income represents fees earned when a credit card issued by the Bank through a third-party vendor is used. Similar to the debit card interchange, the Bank earns an interchange fee for each transaction made with a Bank-branded credit card. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholder's credit card. Certain expenses directly related to the credit card interchange contract are netted against interchange income.

~~Investment services revenue~~ ~~- Commissions received on the sale of investment related products is determined by a percentage of underlying instruments sold and is recognized when the sale is finalized.~~

~~Sale of other real estate owned (OREO)~~ - Gains/losses on the sale of OREO are included in non-interest expense and are generally recognized when the performance obligation is complete. This is typically at delivery of control over the property to the buyer at time of each real estate closing.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q constitute ~~forward‑looking~~forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. ~~Forward‑looking~~Forward-looking statements include, but are not limited to:

~~statements of our goals, intentions and expectations;~~

~~statements regarding our business plans, prospects, growth and operating strategies;~~

~~statements regarding the quality of our loan and investment portfolios; and~~

~~estimates of our risks and future costs and benefits.~~

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the quality of our loan and investment portfolios;

•

estimates of our risks and future costs and benefits; and

•

statements concerning the potential effects of the COVID-19 pandemic on the Bank's business and financial results and conditions.

These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

~~changes in general economic conditions, either nationally or in our market area, that are worse than expected;~~

the credit risks of our lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets;

~~fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area;~~

~~a decrease in the secondary market demand for loans that we originate for sale;~~

~~management’s assumptions in determining the adequacy of the allowance for loan losses;~~

~~our ability to control operating costs and expenses;~~

~~whether our management team can implement our operational strategy, including but not limited to our loan growth;~~

our ability to successfully execute on merger and/or acquisition strategies and integrate any newly acquired assets, liabilities, customers, systems, and management personnel into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

•

developments and changes in Federal and state laws and regulations, such as the recently enacted Coronavirus Aid Relief and Economic Security Act (“CARES Act”) addressing the economic effects of the COVID-19 pandemic and increased regulation of the banking industry through legislative action and revised rules and standards applied by the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Washington Department of Financial Institutions;

•

changes in general economic conditions, either nationally or in our market area, that are worse than expected;

•

changes in policy and regulation as it pertains to the Small Business Administration’s Paycheck Protection Program (“PPP”) and the bank’s participation as a lender in the PPP and similar program and its effect on the Bank’s liquidity, financial results, business and customers, including the availability of program funds and the ability of customers to comply with the requirements and otherwise perform with respect to loans obtained under such programs.

•

fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area;

•

a decrease in the secondary market demand for loans that we originate for sale;

•

management’s assumptions in determining the adequacy of the allowance for loan losses;

•

our ability to control operating costs and expenses;

•

whether our management team can implement our operational strategy, including but not limited to our loan growth;

•

staffing needs and associated expenses in response to product demand or the implementation of corporate strategies, including our growth strategies related to the home lending center and new branches;

•

the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

•

changes in the levels of general interest rates, and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources;

•

increased competitive pressures among financial services companies;

•

our ability to attract and retain deposits;

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•

our ability to retain key members of our senior management team;

•

changes in consumer spending, borrowing and savings habits;

•

our ability to successfully manage our growth in compliance with regulatory requirements;

•

results of examinations of us by the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, the Federal Reserve Bank of San Francisco, or other regulatory authorities, which could result in restrictions that may adversely affect our liquidity and earnings;

•

changes in accounting policies and practices, as may be adopted by the financial institutions regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board;

•

disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;

•

inability of key third-party vendors to perform their obligations to us; and

•

other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019.

Further, statements about the potential effects of the COVID-19 pandemic on the Bank’s businesses and financial results and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Bank’s control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to ~~product demand or~~ the ~~implementation of corporate strategies, including our growth strategies related to the home lending center and new branches;~~

~~the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;~~

~~changes in the levels of general interest rates,~~pandemic, and the ~~relative differences between short~~direct and ~~long-term interest rates, deposit interest rates, our net interest margin and funding sources;~~

~~increased competitive pressures among financial services companies;~~

~~our ability to attract and retain deposits;~~

~~our ability to retain key members~~indirect impact of ~~our senior management team;~~

~~changes in consumer spending, borrowing and savings habits;~~

~~our ability to successfully manage our growth in compliance with regulatory requirements;~~

~~results of examinations of us by~~ the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, the Federal Reserve Bank of San Francisco, or other regulatory authorities, which could result in restrictions that may adversely affect our liquidity and earnings;

~~disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or~~pandemic on the ~~third-party vendors who perform several of our critical processing functions;~~

~~inability of key third-party vendors to perform their obligations to us;~~Bank, its customers and

third parties. These developments could have an adverse impact on our financial position and our results of operations.

Any of the ~~forward looking~~forward-looking statements that we make in this report and in other ~~public~~ statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot ~~foresee.~~anticipate or predict. Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. ~~In light of~~Due to these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.

General

First Northwest ~~Bancorp (the "Company")~~ is a bank holding company which primarily engages in the business activity of its subsidiary, First ~~Federal Savings and Loan Association of Port Angeles ("First Federal" or the "Bank").~~Federal. First Federal is a community-oriented financial institution serving ~~Western Washington. Our thirteen locations include~~Clallam, Jefferson, Kitsap, Whatcom, and King counties in Washington, through its Seattle lending center and ten full-service banking offices, two locations primarily serving our customers through the use of Interactive Teller Machines ("ITM"), and a Home Lending Center ("HLC"), which is focused on the origination of loans secured by one- to four-family residential properties.branches. Our business and operating strategy is focused on ~~diversifying our loan portfolio~~building sustainable earnings through hiring experienced bankers, geographic expansion, and diversifying our loan product mix, expanding our deposit product offerings ~~by upgrading~~that deliver value-added solutions, enhancing existing services and ~~use of technology,~~digital service delivery channels, and enhancing our infrastructure to support ~~our changing lending and deposit capabilities in order to meet~~ the changing needs and expectations of our customers.

We offer a wide range of products and services focused on the lending and depository needs of ~~the communities we serve.~~Western Washington. While we have a ~~large~~ concentration of first lien one- to four-family mortgage loans, we ~~have increased~~continue to increase our origination and portfolio balances of commercial real estate and multi-family real ~~estate,~~estate. We have also increased our auto and ~~construction~~consumer loans, ~~as well as engaging in~~through indirect ~~auto lending~~ and purchased auto loan ~~purchase~~ programs, in order to diversify our asset portfolio and increase interest income. We continue to originate one- to four-family residential mortgage loans and ~~may~~regularly sell conforming loans into the secondary market to increase noninterest income and ~~improve our~~manage interest rate ~~risk, or we may~~risk. We also retain one- to four-family first and second lien loans in our portfolio to ~~enhance~~generate interest income. We offer ~~traditional~~ consumer and business deposit products, including transaction accounts, savings and money market accounts, and certificates of deposit for individuals, businesses, and nonprofit organizations. Deposits are our primary source of funds for ~~our~~ lending and investing activities. We also borrow funds, typically from the Federal Home Loan Bank of Des Moines, to provide additional funding and interest rate risk management tools.

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First ~~Federal~~Northwest is ~~significantly~~ affected by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by ~~a number of~~several factors, including interest rates paid on competing time deposits, alternative investment options available ~~alternative investments,~~to our customers, account maturities, the number and quality of our deposit originators, digital delivery systems, marketing and promotion, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, our credit policies, the number and quality of our lenders and credit underwriters, digital delivery systems, and regional economic cycles.

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income earned on our loans and investments and interest expense paid on our deposits and borrowings. Changes in levels of interest rates and cash flows from existing assets and liabilities affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, mortgage banking income, earnings from bank-owned life insurance, investment services income, and gains and losses from sales of securities.

An offset to net interest income is the provision for loan losses, which represents the periodic charge to operations which is required to adequately provide for ~~probable~~ losses inherent in our loan ~~portfolio.~~portfolio through our allowance for loan losses. As credit metrics improve, such as a loan's risk rating, ~~improves,~~ property values increase, or recoveries of amounts previously charged off are received, a recapture of previously recognized provision for loan losses may be added to net ~~interest~~ income.

~~The noninterest~~

Noninterest expenses we incur in operating our business consist of salaries and employee ~~benefits and expenses,~~benefit costs, occupancy and equipment expenses, federal deposit insurance premiums and regulatory assessments, data processing expenses, advertising and promotion expenses, marketing and promotion expenses, expenses related to real estate and personal property owned and other miscellaneous expenses.

COVID-19 Pandemic. In late 2019 and early 2020, the COVID-19 pandemic manifested its impact on individuals, companies, and governmental entities around the world. It significantly impacted the global economy and created a challenging operating environment. As economic conditions deteriorated in mid-March 2020 as a result of the COVID-19 pandemic, we responded in several ways. Some of the key adjustments and developments include the following:

•	For our employees:

◦

Enhanced the ability of our employees to work remotely, adjusting branch operating hours and restricting lobby access in most cases.

◦

Provided significant support to employees by granting an increase in flexibility with paid leave, temporarily adjusting vacation policies, and increasing the cleaning of facilities to enable a safer environment for those employees that are not able to work from home.

◦

Increased compensation for hourly employees and providing additional compensation for exempt employees below the level of Senior Vice President.

•	For our customers and communities:

◦

Offering short-term loan payment and fee forbearance programs. Many borrowers requested and received temporary forbearance from obligations to assist them with the expected shortage in their near-term cash flow.

◦

Facilitating government programs like the Small Business Administration's Paycheck Protection Program ("SBA PPP") and Main Street Lending Program ("MSLP") established by the Federal Reserve.

◦

Investing in our communities. We plan to use a portion of the proceeds received from the SBA PPP loans and invest in the communities we serve.

•	For our shareholders and regulators:

	◦	Maintained our capital ratios at strong levels and materially increased our provision for loan losses to $2.8 million for the first half of 2020, compared to $669,000 for all of 2019.
	◦	Increasing on balance sheet liquidity, specifically Cash and Cash Equivalents increased by $849,000, a 1.7% increase over December 31, 2019. The investment portfolio, a secondary source of liquidity, increased by $48.7 million, or 16%, as well.

On March 23, 2020, the State of Washington announced the Stay Home, Stay Healthy order for all residents, resulting in the closing of businesses or a substantial reduction in business activity. Conditions have since improved in most of the counties within our footprint allowing many businesses to expand services or reopen under current guidelines. The sectors that continue to be most heavily impacted include hospitality; restaurant and food services; and lessors of commercial real estate to hospitality, restaurant, and retail establishments. At June 30, 2020, the Company’s exposure as a percent of the total loan portfolio to these industries was 5.1%, 0.2%, and 4.9%, respectively.

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The Company has worked with loan customers on loan deferral and forbearance plans. As of June 30, 2020, the Company had granted payment deferral plans on 297 loans totaling $128.4 million compared to 23 loans totaling $1.4 million as of March 31, 2020. These modifications were not classified as TDRs at June 30, 2020, in accordance with the guidance of the CARES Act and related regulatory guidance. The Company is continuing to work on forbearance plans with customers impacted by the COVID-19 pandemic. For additional information on COVID-19 deferrals, see Note 3 of the Notes to Consolidated Financial Statements contained in "Item 1, Financial Statements."

During the quarter ended June 30, 2020, we provided assistance to many small businesses through the SBA's Paycheck Protection Program. This program provides small businesses with funds to pay up to eight weeks of payroll costs including benefits. A portion of the funds can also be used to pay interest on mortgages, rent, and utilities. On June 5, 2020, the Paycheck Protection Program Flexibility Act ("PPPFA") was enacted. Main provisions of the PPPFA extended the repayment period from two to five years, extended the covered expense period from eight to 24 weeks, and lowered the percent of forgiveness amount required to be used for eligible payroll costs to 60%. The PPPFA also extends the repayment start date until after the SBA makes a decision on the application for loan forgiveness.

We processed approximately $30.6 million of loans for 440 customers through the SBA PPP program as of June 30, 2020. The average loan amount approved was approximately $69,000. Payments by borrowers on these loans begin six months after the note date, and interest, at 1%, will continue to accrue during the six-month deferment. Loans can be forgiven in whole or part (up to full principal and any accrued interest). We partnered with StreetShares to assist our borrowers with the loan forgiveness application process.

Loan processing fees paid to the Bank from the SBA of 5% on loans of $350,000 or less, 3% on loans of more than $350,000 but less than $2.0 million, and 1% for loans of $2.0 million or more are accounted for as loan origination fees. Net deferred fees are recognized over the life of the loan, or two years, as a yield adjustment on the loans. As of June 30, 2020, the Company had received $1.3 million in processing fees. If a loan is paid off or forgiven by the SBA prior to its maturity date, the remaining unamortized deferred fees will be recognized in interest income at that time. At such time that any of these loans are forgiven or repaid before the scheduled maturity, we expect an increase in interest income and the net interest margin during that period.

Critical Accounting Policies

There are no material changes to the critical accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Comparison of Financial Condition at June 30, ~~2019~~2020 and December 31, ~~2018~~

2019

Assets. Total assets ~~were $1.26~~increased to $1.48 billion at ~~both~~ June 30, ~~2019 and~~2020 from $1.31 billion at December 31, ~~2018.~~

2019.

Total loans, excluding loans held for sale, increased ~~$9.3~~$112.6 million to ~~$879.1~~$996.4 million at June 30, ~~2019,~~2020, from ~~$869.7~~$883.8 million at December 31, 2018, a result of new loan originations and loan purchases partially offset by loan sales and repayment activity. Growth in auto and other consumer and construction and land loans of $25.2 million and $9.6 million, respectfully, was partially offset by decreases in multi-family,2019. During the six months ended June 30, 2020, one- to four-family residential ~~commercial business, commercial~~loans increased $19.3 million, as we purchased a $28.0 million mortgage loan pool. Multi-family loans increased $7.2 million, as we continued to build this part of the loan portfolio. Commercial real estate loans increased by $11.5 million as we continue to build our lending presence in King and ~~home equity~~Whatcom Counties as well as in our legacy markets. Commercial business loans increased $57.9 million as we funded PPP loans and increased balances generated through the Northpointe Bank Mortgage Participation Program which provides interim financing to mortgage originators based on the contractual sale agreement of ~~$13.9 million, $4.4 million, $3.8 million, $3.0 million, and $435,000, respectively. Loan growth was muted~~a mortgage loan during the ~~most recent quarter with some unexpected early repayments within~~first half of 2020. Auto and other consumer loans decreased $2.9 million as we scaled back funding in our ~~multi-family~~specialty auto loan ~~portfolio coupled with strong competition~~portfolio. Competition for quality commercial credits remains; however, impacts of the COVID-19 pandemic effect both the supply and ~~our continuing efforts to originate~~demand for credit. An increase in refinance activity of one- to-four family residential loans ~~for sale.~~

also occurred during the period.

Construction and land loans increased ~~17.7%~~$21.0, or 56.4%, to ~~$63.7~~$58.2 million at June 30, ~~2019,~~2020, from ~~$54.1~~$37.2 million at December 31, ~~2018.~~2019. The majority of our construction loans are geographically ~~disbursed~~dispersed throughout the Puget Sound region and, as a result, these loans are susceptible to risks that may ~~be different~~vary depending on the nature and location of the project. We manage ~~all of~~ our construction lending by utilizing a licensed ~~third party~~third-party vendor to assist us in monitoring our construction ~~projects.~~

projects and intend to begin utilizing internal staffing to monitor certain projects, which we expect will enhance fee income related to these loans. In March 2020, the vast majority of construction projects in Washington State were put on hold as a result of Governor Jay Inslee’s “Stay Home, Stay Safe” order. By June 30, 2020, most projects were able to restart under specific criteria. We continue to monitor the projects currently in our portfolio to determine the impact of COVID-19 on completion. As of this point in time, we have no reason to believe that any of the projects in process will not be completed.

We monitor real estate values and general economic conditions in our market areas, in addition to assessing the strength of our borrowers, in order to prudently underwrite construction loans. ~~We have seen a slowing~~For the majority of 2019, we decreased our construction lending, which ~~has~~ resulted in a decline in construction balances at the end of the year compared to 2018. In the fourth quarter of 2019 and ~~land loan commitments. While~~the first quarter of 2020, we ~~continue to focus on~~increased production in construction ~~loan origination activity, we may see a decline in outstanding construction loan balances over time if we are unable to source quality construction loans to replace completed projects.~~lending and our commitments increased accordingly. We continually assess our lending strategies across all product lines and markets within which we do business in order to improve ~~our~~ earnings ~~potential over time~~ while also prudently managing credit risk.

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The following tables show our construction commitments by type and geographic concentrations at the dates indicated:

June 30, 2020	North Olympic Peninsula (1)		Puget Sound Region (2)		Other Washington		Total
	(In thousands)
Construction Commitment
One- to four-family residential	$	17,475	$	24,670	$	405	$	42,550
Multi-family residential		—		44,966		—		44,966
Commercial real estate		7,430		21,692		2,801		31,923
Total commitment	$	24,905	$	91,328	$	3,206	$	119,439

Construction Funds Disbursed
One- to four-family residential	$	6,226	$	12,432	$	235	$	18,893
Multi-family residential		—		20,492		—		20,492
Commercial real estate		6,810		4,814		54		11,678
Total disbursed	$	13,036	$	37,738	$	289	$	51,063

Undisbursed Commitment
One- to four-family residential	$	11,249	$	12,238	$	170	$	23,657
Multi-family residential		—		24,474		—		24,474
Commercial real estate		620		16,878		2,747		20,245
Total undisbursed	$	11,869	$	53,590	$	2,917	$	68,376

Land Funds Disbursed
One- to four-family residential	$	4,677	$	2,062	$	351	$	7,090
Commercial real estate		—		—		—		—
Total disbursed for land	$	4,677	$	2,062	$	351	$	7,090

(1) Includes Clallam and Jefferson counties.

(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties.

December 31, 2019	North Olympic Peninsula		Puget Sound Region		Other Washington		Total
	(In thousands)
Construction Commitment
One- to four-family residential	$	14,915	$	23,969	$	496	$	39,380
Multi-family residential		—		27,241		—		27,241
Commercial real estate		6,381		563		3,120		10,064
Total Commitment	$	21,296	$	51,773	$	3,616	$	76,685

Construction Funds Disbursed
One- to four-family residential	$	5,242	$	10,734	$	151	$	16,127
Multi-family residential		—		10,465		—		10,465
Commercial real estate		2,704		563		58		3,325
Total disbursed	$	7,946	$	21,762	$	209	$	29,917

Undisbursed Commitment
One- to four-family residential	$	9,673	$	13,235	$	345	$	23,253
Multi-family residential		—		16,776		—		16,776
Commercial real estate		3,677		—		3,062		6,739
Total undisbursed	$	13,350	$	30,011	$	3,407	$	46,768

Land Funds Disbursed
One- to four-family residential	$	4,904	$	1,343	$	—	$	6,247
Commercial real estate		1,023		—		—		1,023
Total disbursed for land	$	5,927	$	1,343	$	—	$	7,270

June 30, 2019
North Olympic Peninsula ⁽¹⁾

Puget Sound Region ⁽²⁾
Other Washington Total
(In thousands)
Construction Commitment
One- to four-family residential $ 12,814
$ 18,938
$ 406
$ 32,158
Multi-family residential —
43,958
—
43,958
Commercial real estate 7,717
10,915
—
18,632
Total commitment $ 20,531
$ 73,811
$ 406
$ 94,748

Construction Funds Disbursed
One- to four-family residential $ 6,053
$ 7,197
$ 55
$ 13,305
Multi-family residential —
31,877
—
31,877
Commercial real estate 2,143
8,675
—
10,818
Total disbursed $ 8,196
$ 47,749
$ 55
$ 56,000

Undisbursed Commitment
One- to four-family residential $ 6,761
$ 11,741
$ 351
$ 18,853
Multi-family residential —
12,081
—
12,081
Commercial real estate 5,574
2,240
—
7,814
Total undisbursed $ 12,335
$ 26,062
$ 351
$ 38,748

Land Funds Disbursed
One- to four-family residential $ 5,331
$ 2,130
$ —
$ 7,461
Commercial real estate —
280
—
280
Total disbursed for land $ 5,331
$ 2,410
$ —
$ 7,741

(1) Includes Clallam and Jefferson counties.
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties.

Table of Contents

December 31, 2018 North Olympic Peninsula Puget Sound Region Other Washington Total
(In thousands)
Construction Commitment
One- to four-family residential $ 16,814
$ 18,550
$ —
$ 35,364
Multi-family residential —
45,313
—
45,313
Commercial real estate 1,868
20,147
—
22,015
Total Commitment $ 18,682
$ 84,010
$ —
$ 102,692

Construction Funds Disbursed
One- to four-family residential $ 8,321
$ 8,998
$ —
$ 17,319
Multi-family residential —
17,348
—
17,348
Commercial real estate 1,584
9,424
—
11,008
Total disbursed $ 9,905
$ 35,770
$ —
$ 45,675

Undisbursed Commitment
One- to four-family residential $ 8,493
$ 9,552
$ —
$ 18,045
Multi-family residential —
27,965
—
27,965
Commercial real estate 284
10,723
—
11,007
Total undisbursed $ 8,777
$ 48,240
$ —
$ 57,017

Land Funds Disbursed
One- to four-family residential $ 6,124
$ 2,023
$ —
$ 8,147
Commercial real estate —
280
—
280
Total disbursed for land $ 6,124
$ 2,303
$ —
$ 8,427

During the six months ended June 30, ~~2019,~~2020, the Company originated ~~$70.6~~$276.3 million of loans, of which ~~$32.5~~$145.1 million, or ~~46.0%~~52.5%, were originated in the Puget Sound region, ~~of Washington, $36.0~~$115.7 million, or ~~50.9%~~41.9%, in the North Olympic Peninsula, ~~and $2.2~~$11.9 million, or ~~3.1%~~4.3%, in other areas throughout Washington State, and $3.7 million, or 1.3%, in ~~Washington.~~Oregon. The Company purchased an additional ~~$34.6~~$28.0 million in one- to four-family loans ~~mainly~~and $15.9 million in specialty auto loans, ~~of $28.4 million,~~ during the six months ended June 30, ~~2019.~~

2020. We will continue to evaluate opportunities to grow loans through wholesale channels in order to supplement our organic originations and increase net interest income.

Our allowance for loan losses increased ~~$198,000,~~$2.5 million, or ~~2.1%~~25.8%, to ~~$9.7~~$12.1 million at June 30, ~~2019,~~2020, from ~~$9.5~~$9.6 million at December 31, ~~2018, mainly~~2019. The increase was due to a $2.8 million loan loss provision, offset by net charge-offs of $285,000 for the six- month period. The provision is largely attributed to qualitative factor adjustments made in response to the economic impact of the COVID-19 pandemic, as ~~a result of~~well as to account for growth in the loan ~~growth.~~portfolio. The allowance for loan losses as a percentage of total loans ~~remained~~ at ~~1.1% at both~~ June 30, ~~2019~~2020 and December 31, ~~2018~~.

2019 was 1.2% and 1.1%, respectively.

Nonperforming loans ~~decreased $432,000,~~increased $1.6 million, or ~~25.1%~~86.9%, to ~~$1.3~~$3.4 million at June 30, ~~2019,~~2020, from ~~$1.7~~$1.8 million at December 31, ~~2018,~~2019, mainly attributable to ~~a decreases~~an increase in nonperforming ~~home equity~~one- to four-family loans of ~~$221,000~~$845,000, multi-family loans of $297,000, construction and land loans of $108,000, and commercial business loans of ~~$143,000.~~$308,000, partially offset by a decrease in commercial real estate loans of $74,000. Nonperforming loans to total loans ~~decreased~~increased to ~~0.1%~~0.3% at June 30, ~~2019~~2020, from 0.2% at December 31, ~~2018.~~2019. The allowance for loan losses as a percentage of nonperforming loans ~~increased~~decreased to ~~753.8%~~360.8% at June 30, ~~2019,~~2020, from ~~553.3%~~536.1% at December 31, ~~2018, and classified loans decreased $236,000 to $3.1 million at June 30, 2019, from $3.4 million at December 31, 2018.~~

2019.

At June 30, ~~2019,~~2020, there were ~~$3.7~~$2.5 million in restructured loans, of which ~~$3.6~~$2.4 million were performing in accordance with their modified payment terms and returned to accrual status.

Classified loans increased $154,000 to $5.1 million at June 30, 2020, from $5.0 million at December 31, 2019

Asset quality remains ~~strong~~consistent with ~~net~~December 31, 2019. Net loan charge-offs are concentrated mainly in our auto loan portfolio. We ~~have~~recently adjusted our indirect auto loan product offerings ~~in an effort~~and underwriting criteria to improve credit quality and reduce future charge-off activity. We continue to monitor ~~and make changes to~~ the indirect auto loan program in order to prudently balance risk and return within the ~~auto loan~~ portfolio. We believe ~~that~~ our allowance for loan losses ~~was~~is adequate to absorb the known and inherent risks of loss in the loan portfolio as of June 30, ~~2019.~~

2020. While the ultimate impact of the COVID-19 pandemic and response from Federal and State government remains to be seen, we increased the qualitative factor related to the economy this quarter.

Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated:

	June 30, 2020			December 31, 2019
	(In thousands)
Real Estate:
One-to-four family	$	325,349		$	306,014
Multi-family		103,279			96,098
Commercial real estate		267,233			255,722
Construction and land		58,153			37,187
Total real estate loans		754,014			695,021

Consumer:
Home equity		33,696			35,046
Auto and other consumer		109,214			112,119
Total consumer loans		142,910			147,165

Commercial business loans		99,477			41,571

Total loans		996,401			883,757
Less:
Net deferred loan fees		1,842			206
Premium on purchased loans, net		(3,901	)		(4,514	)
Allowance for loan losses		12,109			9,628
Loans receivable, net	$	986,351		$	878,437

June 30, 2019 December 31, 2018
(In thousands)
Real Estate:
One-to-four family $ 331,748
$ 336,178
Multi-family 68,440
82,331
Commercial real estate 250,250
253,235
Construction and land 63,741
54,102
Total real estate loans 714,179
725,846

Consumer:
Home equity 37,194
37,629
Auto and other consumer 112,583
87,357
Total consumer loans 149,777
124,986

Commercial business loans 15,098
18,898

Total loans 879,054
869,730
Less:
Net deferred loan fees 103
292
Premium on purchased loans, net (4,738 ) (3,947 )
Allowance for loan losses 9,731
9,533
Loans receivable, net $ 873,958
$ 863,852

Table of Contents

The following table represents nonperforming assets at the dates indicated.

June 30, 2019 December 31, 2018
(In thousands)
Nonperforming loans:
Real estate loans:
One- to four-family $ 685
$ 759
Commercial real estate 123
133
Construction and land 65
44

Total real estate loans 873
936

Consumer loans:
Home equity 148
369
Other 240
245

Total consumer loans 388
614

Commercial business 30
173

Total nonperforming loans 1,291
1,723

Real estate owned:
Land 72
72

Total real estate owned 72
72

Repossessed assets 19
52

Total nonperforming assets $ 1,382
$ 1,847

Nonaccrual and 90 days or more past due loans as a percentage of total loans 0.1 % 0.2 %

~~Total investment~~

	June 30, 2020			December 31, 2019
	(In thousands)
Nonperforming loans:
Real estate loans:
One- to four-family	$	1,543		$	698
Multi-family		297			—
Commercial real estate		35			109
Construction and land		137			29

Total real estate loans		2,012			836

Consumer loans:
Home equity		140			112
Auto and other consumer		896			848

Total consumer loans		1,036			960

Commercial business		308			—

Total nonperforming loans		3,356			1,796

Real estate owned:
Land		62			62

Total real estate owned		62			62

Repossessed assets		134			92

Total nonperforming assets	$	3,552		$	1,950

Nonaccrual and 90 days or more past due loans as a percentage of total loans		0.3	%		0.2	%

Investment securities ~~decreased $18.4~~increased $48.7 million, or ~~6.0%~~15.4%, to ~~$288.0~~$364.3 million at June 30, ~~2019,~~2020, from ~~$306.5~~$315.6 million at December 31, ~~2018,~~2019, due to ~~sales, calls,~~the purchase and sale of securities, normal ~~repayment activity.~~payments and prepayment activity, and an increase in the market value of the portfolio. Mortgage-backed securities represent the largest portion of our investment securities portfolio and totaled ~~$175.8~~$110.1 million at June 30, ~~2019,~~2020, or ~~61.0%~~30.2% of the investment securities portfolio, a decrease during the year of ~~$9.5~~$58.4 million, or ~~5.2%~~34.7%, from ~~$185.3~~$168.5 million at December 31, ~~2018.~~2019. Other investment securities, including municipal bonds and other asset-backed securities, were ~~$112.3~~$254.2 million at June 30, ~~2019,~~2020, or ~~39.0%~~69.8% of the investment securities portfolio, ~~a decrease~~an increase of ~~$8.9~~$107.1 million from ~~$121.1~~$147.1 million at December 31, ~~2018.~~2019. The investment portfolio, including mortgage-backed securities, had an estimated projected average life of ~~4.6~~6.7 years as of June 30, ~~2019,~~2020, and 5.0 years as of December 31, ~~2018,~~2019, and had an estimated average repricing term of ~~3.3~~4.8 years as of June 30, ~~2019,~~2020, and 3.7 years as of December 31, ~~2018,~~2019, based on the interest rate environment at those times.

The investment portfolio was comprised of ~~92.4%~~58.9% in amortizing securities at June 30, ~~2019~~2020 and ~~91.6%~~81.8% at December 31, ~~2018. As a result, the~~2019. The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is ~~generally affected~~impacted by ~~changing~~prevailing mortgage interest rates. Management ~~continues to~~maintains a focus on ~~improving~~enhancing the mix of earning assets by originating loans ~~and decreasing securities~~ as a percentage of earning assets; however, we ~~may~~continue to purchase investment securities as a source of additional interest ~~income and also in lieu of carrying higher cash balances at nominal interest rates.~~income. For additional information, see Note 2 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Table of Contents

Liabilities. Total liabilities increased ~~$5.2~~$172.1 million to ~~$1.08~~$1.30 billion at June 30, ~~2019,~~2020, from ~~$1.09~~$1.13 billion at December 31, ~~2018,~~2019, primarily ~~the result~~due to an increase in deposits of ~~growth in the deposit account~~$168.7 million.

Deposit balances ~~and accrued expenses and other liabilities. FHLB borrowings decreased by $5.3 million,~~increased 16.8%, to ~~$131.3 million~~$1.17 billion at June 30, ~~2019, as strong deposit growth alleviated the need to borrow. We may continue to utilize both FHLB short-term advances and FHLB overnight borrowings to manage liquidity.~~

~~Deposit balances decreased $7.0 million, or 0.7%, to $933.3 million at June 30, 2019,~~2020, from ~~$940.3 million~~$1.00 billion at December 31, ~~2018, which~~2019. There was ~~primarily due to a decrease~~an $82.2 million increase in money market accounts, ~~of $22.3~~a $62.7 million ~~partially offset by an~~increase in transaction accounts, and a $6.8 million increase in savings accounts during the year. The increase in deposits is in large part due to the Federal government's response to the pandemic including stimulus payments, additional unemployment benefits, and deferrals of ~~$20.8 million. Our promotional savings product carries a twelve month rate guarantee that provides greater flexibility~~Federal tax payment due dates. These actions, coupled with decreased spending by consumers and business, resulted in ~~the event the rate environment remains stable or decreases within the next 12~~higher deposit balances. In addition to ~~24 months. We anticipate that robust competition for~~collecting customer deposits, ~~with other financial institutions and financial intermediaries will continue in our markets affecting our cost of funds. During the most recent quarter,~~ we ~~began actively utilizing~~utilize brokered certificates of deposit ("brokered CDs") as an additional funding source in order to manage our cost of funds, ~~more effectively,~~ reduce our reliance on public funds deposits, and ~~become more selective~~allow flexibility when competing on ~~rate.~~retail rates. At June 30, ~~2019,~~2020, we had ~~$13.7~~$86.3 million in brokered CDs included in ~~our~~the $325.2 million balance of certificates of deposit.

Equity. Total shareholders' equity ~~increased $4.1~~decreased $536,000 to $176.3 million ~~during~~for the ~~year to $176.4 million at~~six months ended June 30, ~~2019, mainly~~2020. The decrease was due to $5.5 million the ~~result~~in repurchases of ~~net~~shares of common stock, largely offset by an after-tax increase in other comprehensive income of ~~$4.3~~$2.3 million ~~and an increase in~~due to the increased value of our available-for-sale securities portfolio, ~~resulting in a $3.4 million decrease in our accumulated other comprehensive loss,~~as well as year-to-date net income of ~~tax. These increases were partially offset by a $3.8 million decrease due to the repurchase of shares of common stock during the quarter.~~$2.9 million.

Comparison of Results of Operations for the Three Months Ended June 30, ~~2019~~2020 and ~~2018~~

2019

General. Net income ~~increased $553,000,~~decreased $103,000, or ~~36.2%~~4.9%, to $2.0 million for the three months ended June 30, 2020, compared to net income of $2.1 million for the three months ended June 30, ~~2019,~~2019. The decrease is mainly due to a larger loan loss provision in the current period compared to the same period one year ago, which was partially offset by a decrease in net noninterest expense. An increase in noninterest income ~~of $1.5~~driven by mortgage revenue offset an increase in noninterest expense due primarily to higher compensation expenses.

Net Interest Income. Net interest income increased $437,000 to $10.1 million for the three months ended June 30, ~~2018. The increase in net income was primarily due~~2020., compared to ~~an increase in noninterest income from early prepayment fees on loans.~~

~~Net Interest Income.~~ ~~Net interest income increased $137,000 to $9.3~~$9.7 million for the three months ended June 30, 2019 ~~from $9.2 million~~The yield on average interest-earning assets decreased 47 basis points to 3.79% for the three months ended June 30, ~~2018, mainly as~~2020, compared to 4.26% for the ~~result~~same period in the prior year. This was due to a decrease in market interest rates and a decrease in the ratio of ~~an increase~~total loans to assets in ~~interest income on loans receivable, partially offset by an increase in deposit costs.~~ the current period compared to one year ago from 67.4% to 69.9%.

The ~~yield on~~ average ~~interest-earning assets increased 18~~cost of interest-bearing liabilities decreased 44 basis points to ~~4.14%~~0.89% for the three months ended June 30, 2020, compared to 1.33% for the same period last year. The decrease was due in part to a reduction in the level and cost of borrowings given the prepayment of higher costing FHLB borrowings in the first quarter of 2020. As a result, our average cost of FHLB borrowings decreased to 1.13% in the first quarter of 2020 compared to 2.99% for the same period one year prior. The cost of interest-bearing deposits decreased by 17 basis points to 0.87% compared to 1.04% for the three months ended June 30, 2019, compared to 3.96% for the same period in the prior year, due primarily to an increase in the average balance of loans receivable coupled with a decrease in the average balance of investment securities. We continued to increase our concentration of loans receivable as a percentage of interest-earning assets.

The average cost of interest-bearing liabilities increased 37 basis points to 1.33% for the three months ended June 30, 2019, compared to 0.96% for the same period last year, due primarily to increases in the average balance and cost of deposits.

given decreasing market rates.

Due to the average ~~cost of interest-bearing liabilities increasing~~yield on interest-earning assets decreasing at a faster pace than our ~~interest-earning assets,~~interest-bearing liabilities, the net interest margin decreased ~~twelve~~13 basis points to 3.10% for the three months ended June 30, ~~2019,~~2020, from ~~3.22%~~3.23% for the same period in ~~2018.~~

~~The $137,000 increase~~2019. For additional information, see Rate/Volume Analysis contained in ~~net~~ Item 2 of this Form 10-Q.

Interest Income. Totalinterest income during the three months ended June 30, 2019, compared to the three months ended June 30, 2018, was due to a combination of an increase of $724,000 as a result of an increase in volume, and a decrease of $587,000 due to changes in rates. The increase in loans receivable was the main contributor to the increase in net interest income with $810,000 due to an increase in average volumes and $331,000 due to increases in rates; however, this increase was mostly offset by a $1.0 million increase in the cost of interest-bearing liabilities attributable to increased rates. The cost of savings and certificates of deposits were the main drivers of the increase in interest expense, contributing and increase of $328,000 and $466,000, respectively, due to rates. Management has expanded its use of funding sources during the most recent quarter to include brokered CDs, and continues to focus on expanding its net interest margin. While establishing a stronger pricing discipline over loans and deposits is one of our strategies, we expect margin compression to continue as a result of economic conditions affecting our business, such as a continued flat yield curve and low interest rate environment.

~~Interest Income.~~ ~~Totalinterest income increased $1.1 million,~~decreased $425,000, or ~~9.9%~~3.3%, to $12.4 million for the three months ended June 30, ~~2019,~~2020, from ~~$11.3~~$12.8 million for the comparable period in ~~2018, primarily due to an increase in the average balance of, and yields earned on, loans receivable.~~2019. Interest and fees on loans receivable ~~increased $1.1~~decreased $237,000, to $10.2 million ~~to $10.1~~for the three months ended June 30, 2020, from $10.5 million for the three months ended June 30, 2019, ~~from $9.0~~due primarily to a decrease in the yield on loans and securities. Average loan yields decreased 34 basis points to 4.40% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to a decrease in market rates and an increase in the amount of lower yielding loans as a percentage of loans, including Northpointe and PPP loans.

Interest income on investment securities increased $347,000 to $1.3 million for the three months ended June 30, ~~2018, due primarily to an increase in the average balance of net loans receivable of $73.5 million~~2020, compared to ~~the prior year. Average loan yields increased 15 basis points to 4.57%~~$1.0 million for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, as we continued to increase our balance of higher yielding loans, including auto and consumer lending through our indirect and purchased auto loan programs. We also benefited from increases in short-term interest rates on our adjustable rate loans, such as construction, commercial business, and home equity lines of credit.

~~Interest income on investment securities decreased $4,000 to $969,000 for the three months ended June 30, 2019, compared to $973,000 for the three months ended June 30, 2018,~~ due to a $96.6 million increase in average balances partially offset by an ~~$8.9 million~~86 basis point decrease in average yield related to a decrease in the ~~average balance, partially offset by a 23 basis point increase in average~~ yield ~~during the quarter, compared to the same period in 2018.~~on variable rate securities. The change in average yield on investment securities does not include the benefit of nontaxable income from municipal bonds. Interest income on mortgage-backed and related securities for the three months ended June 30, ~~2019~~2020 decreased ~~$45,000,~~$452,000, or ~~3.6%~~37.9%, compared to the three months ended June 30, ~~2018,~~2019, the result of a decrease of ~~$7.5~~$43.3 million in the average balance ~~partially offset by~~and a 249 basis point ~~increase~~decrease in the average ~~yield.~~

yield in the 2020 period.

The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:

	Three Months Ended June 30,
	2020					2019
	Average Balance Outstanding		Yield			Average Balance Outstanding		Yield			Increase (Decrease) in Interest Income
	(Dollars in thousands)
Loans receivable, net	$	931,344		4.40	%	$	883,290		4.74	%	$	(237	)
Investment securities		213,141		2.47			116,496		3.33			347
Mortgage-backed securities		135,604		2.18			178,878		2.67			(452	)
FHLB stock		4,426		4.97			7,066		4.98			(33	)
Interest-bearing deposits in banks		20,922		0.15			13,118		1.77			(50	)
Total interest-earning assets	$	1,305,437		3.79	%	$	1,198,848		4.26	%	$	(425	)

Three Months Ended June 30,
2019 2018 Increase (Decrease) in Interest Income
Average Balance Outstanding Yield Average Balance Outstanding Yield
(Dollars in thousands)
Loans receivable, net $ 883,290
4.57 % $ 809,839
4.42 % $ 1,141
Investment securities 116,496
3.33
125,442
3.10
(4 )
Mortgage-backed securities 178,878
2.67
186,385
2.65
(45 )
FHLB stock 7,066
4.98
7,605
4.10
10
Interest-bearing deposits in banks 13,118
1.77
9,111
1.80
17
Total interest-earning assets $ 1,198,848
4.14
$ 1,138,382
3.96
$ 1,119

Table of Contents

Interest Expense. Total interest expense ~~increased $982,000,~~decreased $862,000, or ~~46.3%~~27.8%, to $2.2 million for the three months ended June 30, 2020, compared to $3.1 million for the three months ended June 30, 2019, ~~compared~~mainly due to ~~$2.1~~an 80.6% decrease in interest paid on borrowings. Interest expense on deposits decreased slightly for the three months ended June 30, 2020, due to lower rates offsetting the impact of increased balances. The average balance of interest-bearing deposits increased $141.2 million, or 17.7%, to $937.0 million for the three months ended June 30, 2018, due to an 83.8% increase in deposit costs, and a 3.9% increase in borrowing costs. Deposit costs increased for the three months ended June 30, 2019, due to increased interest rates and customers transferring deposits into higher-yielding accounts. The average balance of interest-bearing deposits increased $62.6 million, or 8.5%, to2020, from $795.8 million for the three months ended June 30, 2019, ~~from $733.1 million for the three months ended June 30, 2018,~~ as we continued to target deposit growth ~~in deposits~~ in new and existing market ~~areas.~~areas as well as the industry-wide impact of surge deposits during the pandemic. During the three months ended June 30, ~~2019,~~2020, the average balance ~~and related cost~~ of savings accounts increased ~~$58.0~~$9.7 million and 80the related weighted-average cost decreased 29 basis points ~~respectfully,~~ compared to the same period in ~~2018, the result of a savings promotion targeting growth in newer markets. During the same~~

~~period, as compared to 2018, the~~2019. The average balance of certificates of deposit balances grew ~~$22.0~~$90.5 million ~~with an increase in~~and the ~~average rate paid of 72~~weighed-average cost decreased by 51 basis points, mainly as a result of ~~our customers placing more money into higher-yielding certificates~~the utilization of ~~deposit as rates have increased.~~brokered CDs. During the three months ended June 30, ~~2019,~~2020, the average balance of money market accounts ~~decreased $19.6~~increased $34.0 million compared to the same period in the prior ~~year, as customers moved money into higher-yielding accounts at other financial institutions or into higher-yielding certificates of deposit and savings accounts at First Federal.~~year. The average cost of ~~all deposit products increased~~deposits decreased by 17 basis points to 0.87% for the three months ended June 30, 2020, from 1.04% for the three months ended June 30, ~~2019, from 0.61% for the three months ended June 30, 2018, as we paid higher rates to attract new and retain existing deposit balances and customer relationships.~~2019. Borrowing costs ~~increased~~decreased due ~~primarily~~ to ~~an increase~~a decrease in balances and the average rate paid ~~of 39 basis points~~ during the most recent quarter as compared to the same period in ~~2018.~~

2019.

The following table details average balances, cost of funds and the change in interest expense for the periods shown:

Three Months Ended June 30,
2019 2018 Increase (Decrease) in Interest Expense
Average Balance Outstanding Rate Average Balance Outstanding Rate
(Dollars in thousands)
Savings accounts $ 163,106
0.91 % $ 105,067
0.11 % $ 344
Transaction accounts 115,914
0.12
113,666
0.03
27
Money market accounts 257,548
0.49
277,186
0.41
31
Certificates of deposit 259,203
2.08
237,216
1.36
541
Borrowings 138,643
2.99
153,362
2.60
39
Total interest-bearing liabilities $ 934,414
1.33
$ 886,497
0.96
$ 982

	Three Months Ended June 30,
	2020					2019
	Average Balance Outstanding		Rate			Average Balance Outstanding		Rate			Increase (Decrease) in Interest Expense
	(Dollars in thousands)
Savings accounts	$	172,833		0.62	%	$	163,106		0.91	%	$	(103	)
Transaction accounts		122,951		0.01			115,914		0.12			(32	)
Money market accounts		291,526		0.55			257,548		0.49			87
Certificates of deposit		349,658		1.57			259,203		2.08			21
Borrowings		71,170		1.13			138,643		2.99			(835	)
Total interest-bearing liabilities	$	1,008,138		0.89	%	$	934,414		1.33	%	$	(862	)

Provision for Loan Losses. The provision for loan losses was ~~$255,000~~$1.5 million during the three months ended June 30, ~~2019, primarily due~~2020, compared to ~~charge-off activity in our auto and consumer~~a $255,000 provision for loan ~~portfolio related to our indirect auto loan portfolio, and $395,000~~losses for the three months ended June 30, ~~2018.~~

2019. This was mainly due to an increase to the economic qualitative factor resulting from the uncertainty surrounding COVID-19 and its potential impact on the loans in our portfolio.

The following table details activity and information related to the allowance for loan losses for the periods shown:

Three Months Ended June 30,
2019 2018
(Dollars in thousands)
Provision for loan losses $ 255
$ 395
Net charge-offs (283 ) (97 )
Allowance for loan losses 9,731
9,282
Allowance for losses as a percentage of total gross loans receivable at the end of this period 1.1 % 1.1 %
Total nonaccruing loans 1,291
2,062
Allowance for loan losses as a percentage of nonaccrual loans at end of period 753.8 % 450.1 %
Nonaccrual and 90 days or more past due loans as a percentage of total loans 0.1 % 0.2 %
Total loans $ 879,054
$ 828,229

	Three Months Ended June 30,
	2020			2019
	(Dollars in thousands)
Provision for loan losses	$	1,500		$	255
Net charge-offs		(221	)		(283	)
Allowance for loan losses		12,109			9,731
Allowance for losses as a percentage of total gross loans receivable at the end of this period		1.2	%		1.1	%
Total nonaccrual loans		3,356			1,291
Allowance for loan losses as a percentage of nonaccrual loans at end of period		360.8	%		753.8	%
Nonaccrual and 90 days or more past due loans as a percentage of total loans		0.3	%		0.1	%
Total loans	$	996,401		$	879,054

Noninterest Income. Noninterest income increased ~~$398,000,~~$2.7 million, or ~~28.3%~~188.8%, to ~~$1.8~~$4.1 million for the three months ended June 30, ~~2019,~~2020, from $1.4 million for the three months ended June 30, ~~2018,~~2019, primarily due to the gain on sales of mortgage loans of $1.9 million, the gain on sale of investment securities of $604,000, and an increase in ~~loan~~the cash surrender value of bank owned life insurance of $482,000. Loan and deposit ~~service~~fees decreased by $230,000 due to fewer non-sufficient funds fees as ~~noted above.~~

transaction volume reduced during the quarter as well as customers generally carrying higher balances in their deposit accounts.

The following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:

	Three Months Ended June 30,					Increase (Decrease)
	2020			2019		Amount			Percent
	(Dollars in thousands)
Loan and deposit service fees	$	765		$	995	$	(230	)		(23.1	)%
Mortgage servicing fees, net of amortization		(172	)		54		(226	)		(418.5	)
Net gain on sale of loans		2,001			88		1,913			2,173.9
Net gain on sale of investment securities		661			57		604			1,059.6
Increase in cash surrender value of bank-owned life insurance		627			145		482			332.4
Other income		227			84		143			170.2
Total noninterest income	$	4,109		$	1,423	$	2,686			188.8	%

Three Months Ended June 30, Increase (Decrease)
2019 2018 Amount Percent
(Dollars in thousands)
Loan and deposit service fees $ 1,375
$ 915
$ 460
50.3 %
Mortgage servicing fees, net of amortization 54
70
(16 ) (22.9 )
Net gain on sale of loans 88
150
(62 ) (41.3 )
Net gain on sale of investment securities 57
13
44
338.5
Increase in cash surrender value of bank-owned life insurance 145
149
(4 ) (2.7 )
Other income 84
108
(24 ) (22.2 )
Total noninterest income $ 1,803
$ 1,405
$ 398
28.3 %

Table of Contents

Noninterest Expense. Noninterest expense ~~decreased slightly~~increased $2.0 million or 24.3% during the three months ended June 30, ~~2019,~~2020, compared to the three months ended June 30, ~~2018, as we continued~~2019, mainly due to ~~strive for better efficiencies~~a 25.5% increase in compensation and ~~cost management in the absence of new branching initiatives.~~

benefits driven by additional staffing and higher commissions paid on loan production, which increased 656.4%. Occupancy and equipment increased 18.0% and advertising increased 64.6%.

The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:

Three Months Ended June 30, Increase (Decrease)
2019 2018 Amount Percent
(Dollars in thousands)
Compensation and benefits $ 4,753
$ 4,745
$ 8
0.2 %
Data processing 667
677
(10 ) (1.5 )
Occupancy and equipment 1,140
1,127
13
1.2
Supplies, postage, and telephone 242
243
(1 ) (0.4 )
Regulatory assessments and state taxes 195
155
40
25.8
Advertising 229
290
(61 ) (21.0 )
Professional fees 331
458
(127 ) (27.7 )
FDIC insurance premium 77
79
(2 ) (2.5 )
Other 638
524
114
21.8
Total $ 8,272
$ 8,298
$ (26 ) (0.3 )%

	Three Months Ended June 30,				Increase (Decrease)
	2020		2019		Amount			Percent
	(Dollars in thousands)
Compensation and benefits	$	5,966	$	4,753	$	1,213			25.5	%
Data processing		769		667		102			15.3
Occupancy and equipment		1,345		1,140		205			18.0
Supplies, postage, and telephone		284		242		42			17.4
Regulatory assessments and state taxes		223		195		28			14.4
Advertising		377		229		148			64.6
Professional fees		354		331		23			6.9
FDIC insurance premium		70		77		(7	)		(9.1	)
Other		894		638		256			40.1
Total	$	10,282	$	8,272	$	2,010			24.3	%

Provision for Income Tax. ~~An income~~ Income tax expense of ~~$493,000~~$464,000 was recorded for the three months ended June 30, ~~2019,~~2020, compared to ~~$345,000~~$493,000 for the three months ended June 30, ~~2018,~~2019, generally due to ~~an increase~~a decrease in income before taxes of ~~$701,000.~~$132,000. For additional information, see Note 5 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Comparison of Results of Operations for the Six Months Ended June 30, ~~2019~~2020 and ~~2018~~

2019

General. Net income ~~increased $1.2~~decreased $1.4 million, or ~~40.6%~~33.5%, to $2.9 million for the six months ended June 30, 2020, compared to net income of $4.3 million for the six months ended June 30, 2019, ~~compared~~due to ~~net~~an increase in provision for loan losses and noninterest expense partially offset by an increase in noninterest income.

Net Interest Income. Net interest income ~~of $3.0~~increased $244,000 to $19.5 million for the six months ended June 30, ~~2018, primarily due to an increase in net interest income coupled with a decrease in noninterest expenses.~~

~~Net Interest Income.~~ ~~Net interest income increased $605,000 to $18.7~~2020, from $19.3 million for the six months ended June 30, ~~2019, from $18.1 million~~2019. This increase was mainly the result of an increase in average earning assets of $60.7 million. The yield on average interest-earning assets decreased 36 basis points to 3.87% for the six months ended June 30, ~~2018. This increase was mainly~~2020, compared to 4.23% for the ~~result of a change~~same period in the mix of earning assets, with a decrease in the investment portfolio and an increase in loans receivable, combined with changes in the yield curve, which resulted in higher yields on all interest-earning assets as highlighted in the following table. prior year.

The ~~yield on average interest-earning assets increased 25~~net interest margin decreased 11 basis points to ~~4.14%~~3.11% for the six months ended June 30, ~~2019, compared to 3.89%~~2020, from 3.22% for the same period in ~~the prior year.~~

~~The net interest margin decreased six basis points to 3.13% for the six months ended June 30, 2019, from 3.19% for the same period in 2018. While we experienced a 25~~2019. A 36 basis point ~~increase~~decrease in asset yields was offset by a 30 basis point decrease in our cost of interest-bearing liabilities, ~~increased 39 basis points,~~ reducing our net interest rate spread and net interest margin.

~~Of the $605,000~~

The $244,000 increase in net interest income during the six months ended June 30, ~~2019,~~2020, compared to the six months ended June 30, ~~2018, $1.5 million~~2019, was the result of a $1.1 million decrease in interest expense driven by an ~~increase~~improvement in ~~volume,~~the cost of interest-bearing liabilities which was partially offset by ~~$867,000 due to changes~~a decrease in ~~rates.~~interest income. The ~~increase~~decrease in ~~loans receivable~~interest expense of borrowings of $1.4 million was the main contributor to the increase in net interest ~~income with $1.7 million due to an increase in average volumes and $786,000 due to increases in rates for a total of $2.5 million.~~

income.

The average cost of interest-bearing liabilities ~~increased~~decreased to ~~1.29%~~0.99% for the six months ended June 30, ~~2019,~~2020, compared to ~~0.90%~~1.29% for the same period last year, due primarily to ~~promotional~~decreases in borrowing volume of $905,000 and decreases attributable to rates ~~on, and increases~~of $486,000.

Interest Income. Totalinterest income decreased $960,000, or 3.8%, to $24.3 million for the six months ended June 30, 2020, from $25.3 million for the comparable period in 2019, primarily due to a decrease in the average ~~balance of, savings accounts~~yields on interest-earning assets. Interest and ~~certificates of deposit used~~fees on loans receivable decreased $493,000, to ~~attract and retain deposits.~~

~~Interest Income.~~ ~~Totalinterest income increased $2.6~~$20.1 million ~~or 11.9%, to $24.8~~for the six months ended June 30, 2020, from $20.6 million for the six months ended June 30, 2019, ~~from $22.1 million for the comparable period~~ in ~~2018, primarily due to an increase in the average balance~~spite of and yields earned on loans receivable. Interest and fees on loans receivable increased $2.5 million, to $20.0 million for the six months ended June 30, 2019, from $17.5 million for the six months ended June 30, 2018, due primarily to an increase in the average balance of net loans receivable of ~~$77.8~~$24.0 million compared to the prior year. Average loan yields ~~increased 18~~decreased 24 basis points to ~~4.57%~~4.45% for the six months ended June 30, ~~2019~~2020 compared to the six months ended June 30, ~~2018, as we continued~~2019.

Total interest income from securities decreased $344,000 to ~~increase our~~$4.1 million for the six months ended June 30, 2020 from $4.4 million for the same period in 2019. While the average balance of higher yielding loans, such as auto, commercial real estate and multi-family. We also benefited from increases in short-term interest rates on our adjustable rate loans, such as commercial business and home equity lines of credit.

total securities increased $30.5 million, the average yield decreased 48 basis points. Interest income on investment securities increased ~~$144,000,~~$406,000, or ~~7.8%~~20.5% to $2.4 million for the six months ended June 30, 2020, compared to $2.0 million for the six months ended June 30, 2019, ~~compared to $1.8 million for the six months ended June 30, 2018,~~ due to an increase in the average ~~yield~~balance of ~~49 basis points~~$63.2 million partially offset by a decrease in ~~the~~ average ~~balance~~yield of ~~$10.6 million~~71 basis points compared to the same period in ~~2018.~~2019. The change in average yields on investment securities does not include the benefit of nontaxable income from municipal bonds. Interest income on mortgage-backed and related securities for the six months ended June 30, ~~2019~~2020 decreased ~~$85,000~~$750,000, or 30.6%, compared to the six months ended June 30, ~~2018,~~2019, reflecting ~~an $11.3~~a $32.7 million decrease in the average balance ~~partially offset by an increase~~and a decrease in yield of 741 basis points.

Table of Contents

The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:

Six Months Ended June 30,
2019 2018 Increase (Decrease) in Interest Income
Average Balance Outstanding Yield Average Balance Outstanding Yield
(Dollars in thousands)
Loans receivable, net $ 877,095
4.57% $ 799,288
4.39% $ 2,490
Investment securities 118,423
3.34 128,963
2.85 144
Mortgage-backed securities 181,297
2.70 192,645
2.63 (85 )
FHLB stock 6,955
5.06 7,419
3.69 39
Interest-bearing deposits in banks 12,495
2.00 10,123
1.70 39
Total interest-earning assets $ 1,196,265
4.14 $ 1,138,438
3.89 $ 2,627

	Six Months Ended June 30,
	2020					2019
	Average Balance Outstanding		Yield			Average Balance Outstanding		Yield			Increase (Decrease) in Interest Income
	(Dollars in thousands)
Loans receivable, net	$	901,116		4.45	%	$	877,095		4.69	%	$	(493	)
Investment securities		181,586		2.63			118,423		3.34			406
Mortgage-backed securities		148,593		2.29			181,297		2.70			(750	)
FHLB stock		4,573		4.46			6,955		5.06			(74	)
Interest-bearing deposits in banks		21,110		0.72			12,495		2.00			(49	)
Total interest-earning assets	$	1,256,978		3.87	%	$	1,196,265		4.23	%	$	(960	)

Interest Expense. Total interest expense ~~increased $2.0~~decreased $1.2 million, or ~~50.6%~~20.0%, to $4.8 million for the six months ended June 30, 2020, compared to $6.0 million for the six months ended June 30, 2019, ~~compared to $4.0 million for the six months ended June 30, 2018,~~ due to ~~an increase in deposit costs of $1.9 million, or 89.2%, and an increase~~a decrease in borrowing costs of ~~$140,000,~~$1.4 million, or ~~7.4%~~68.7%. ~~Deposit~~Interest expense on deposit costs increased for the six months ended June 30, ~~2019,~~2020, by $187,000 due to a combination of promotional products and higher rates needed to compete to attract new and retain existing deposit customers. We also experienced disintermediation as existing customers transferred all or a portion of existing, lower-rate deposit accounts into higher-yielding certificates of deposit and other accounts.an increase in average interest-bearing balances. The average balance of interest-bearing deposits increased ~~$63.0~~$97.8 million, or ~~8.6%~~12.3%, to $893.0 million for the six months ended June 30, 2020, from $795.2 million for the six months ended June 30, 2019, ~~from $732.2 million for the six months ended June 30, 2018,~~ as we continued to target growth in deposits in new and existing market ~~areas.~~

areas and surge deposits related to the pandemic.

During the six months ended June 30, ~~2019, the cost of savings accounts increased mainly due to an increase in average balance of $51.8 million and an increase in the average rate paid of 79 basis points, and the~~2020, interest expense on cost of certificates of deposit increased due to an increase in average balance of ~~$20.1~~$73.9 million ~~and an increase~~partially offset by a decrease in the average rate paid of 7133 basis points, compared to the six months ended June 30, ~~2018.~~2019. During the same period, the average ~~balance~~balances of savings, transaction, and money market accounts ~~declined $10.2~~increased $11.0 million, ~~while the average balance of transaction accounts remained relatively stable with a modest $1.4~~$3.6 million ~~increase.~~and $9.3 million, respectively. The average cost of all deposit products ~~increased~~decreased to 0.94% for the six months ended June 30, 2020, from 1.00% for the six months ended June 30, ~~2019, from 0.58% for~~2019. Borrowing costs decreased as higher rate long term advances were prepaid during the six ~~months ended June 30, 2018. Borrowing costs increased primarily due to a 48 basis point increase in average rates paid, partially offset by a decrease in the average balance of $14.7 million.~~

months.

The following table details average balances, cost of funds and the change in interest expense for the periods shown:

Six Months Ended June 30,
2019 2018 Increase (Decrease) in Interest Expense
Average Balance Outstanding Rate Average Balance Outstanding Rate
(Dollars in thousands)
Savings accounts $ 158,398
0.87% $ 106,610
0.08% $ 644
Transaction accounts 115,358
0.12 113,933
0.02 59
Money market accounts 262,747
0.48 272,991
0.36 136
Certificates of deposit 258,737
2.01 238,687
1.30 1,043
Borrowings 136,545
2.97 151,243
2.49 140
Total interest-bearing liabilities $ 931,785
1.29 $ 883,464
0.90 $ 2,022

	Six Months Ended June 30,
	2020					2019
	Average Balance Outstanding		Rate			Average Balance Outstanding		Rate			Increase (Decrease) in Interest Expense
	(Dollars in thousands)
Savings accounts	$	169,371		0.72	%	$	158,398		0.87	%	$	(79	)
Transaction accounts		118,963		0.04			115,358		0.12			(49	)
Money market accounts		272,030		0.56			262,747		0.48			123
Certificates of deposit		332,674		1.68			258,737		2.01			192
Borrowings		75,574		1.68			136,545		2.97			(1,391	)
Total interest-bearing liabilities	$	968,612		0.99	%	$	931,785		1.29	%	$	(1,204	)

Provision for Loan Losses. The provision for loan losses was $2.8 million during the six months ended June 30, 2020, primarily due to the uncertainty in economic conditions created by the ongoing COVID-19 pandemic and growth in the loan portfolio, and was $590,000 ~~during~~for the six months ended June 30, 2019, primarily due to charge-off activity ~~related to~~in our indirect auto loan ~~portfolio, and was $705,000 for the six months ended June 30, 2018, also due to charge-off activity in our auto portfolio as well as a specific reserve taken for a commercial business loan.~~

portfolio.

The following table details activity and information related to the allowance for loan losses for the periods shown:

	Six Months Ended June 30,
	2020			2019
	(Dollars in thousands)
Provision for loan losses	$	2,766		$	590
Net charge-offs		(285	)		(392	)
Allowance for loan losses		12,109			9,731
Allowance for losses as a percentage of total gross loans receivable at the end of this period		1.2	%		1.1	%
Total nonaccrual loans		3,356			1,291
Allowance for loan losses as a percentage of nonaccrual loans at end of period		360.8	%		753.8	%
Nonaccrual and 90 days or more past due loans as a percentage of total loans		0.3	%		0.1	%
Total loans	$	996,401		$	879,054

Six Months Ended June 30,
2019 2018
(Dollars in thousands)
Provision for loan losses $ 590
$ 705
Net charge-offs (392 ) (183 )
Allowance for loan losses 9,731
9,282
Allowance for losses as a percentage of total gross loans receivable at the end of this period 1.1 % 1.1 %
Total nonaccruing loans 1,291
2,062
Allowance for loan losses as a percentage of nonaccrual loans at end of period 753.8 % 450.1 %
Nonaccrual and 90 days or more past due loans as a percentage of total loans 0.1 % 0.2 %
Total loans $ 879,054
$ 828,229

Table of Contents

Noninterest Income. Noninterest income increased ~~$327,000,~~$3.7 million, or ~~11.3%~~140.4%, to ~~$3.2~~$6.4 million for the six months ended June 30, 2020, from $2.7 million for the six months ended June 30, 2019, ~~from $2.9 million~~mainly due to an increase in gain on sale of mortgage loans of $2.2 million. Gain on sale of investments for the six months ended June 30, ~~2018, mainly~~2020, totaled $1.2 million compared to $57,000 recognized in the ~~result~~first six months of ~~an increase~~2019. The cash surrender value of bank-owned life insurance increased $667,000 in ~~loan and deposit service fees related~~the first six months of 2020 due to ~~the early prepayment~~a BOLI restructure that resulted in recognition of ~~commercial and multi-family real estate loans~~market gains as well as ~~an increase~~additional investment in ~~deposit fees related to changes in our account offerings.~~

BOLI.

The following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:

Six Months Ended June 30, Increase (Decrease)
2019 2018 Amount Percent
(Dollars in thousands)
Loan and deposit service fees $ 2,440
$ 1,808
$ 632
35.0 %
Mortgage servicing fees, net of amortization 99
132
(33 ) (25.0 )
Net gain on sale of loans 175
317
(142 ) (44.8 )
Net gain on sale of investment securities 57
135
(78 ) (57.8 )
Increase in cash surrender value of bank-owned life insurance 288
298
(10 ) (3.4 )
Other income 155
197
(42 ) (21.3 )
Total noninterest income $ 3,214
$ 2,887
$ 327
11.3 %

	Six Months Ended June 30,					Increase (Decrease)
	2020			2019		Amount			Percent
	(Dollars in thousands)
Loan and deposit service fees	$	1,646		$	1,900	$	(254	)		(13.4	)%
Mortgage servicing fees, net of amortization		(157	)		99		(256	)		(258.6	)
Net gain on sale of loans		2,384			175		2,209			1,262.3
Net gain on sale of investment securities		1,266			57		1,209			2,121.1
Increase in cash surrender value of bank-owned life insurance		955			288		667			231.6
Other income		333			155		178			114.8
Total noninterest income	$	6,427		$	2,674	$	3,753			140.4	%

Noninterest Expense. Noninterest expense ~~decreased $501,000,~~increased $3.6 million, or ~~3.0%~~22.3%, to $19.7 million for the six months ended June 30, 2020, compared to $16.1 million for the six months ended June 30, 2019, ~~compared to $16.6 million for the six months ended June 30, 2018,~~ primarily as a result of ~~a decrease~~an increase in advertising costs and compensation and benefits. We received a $441,000 credit from our health insurance carrier as a result of a lower than anticipated claims experience level during the most recent plan year, $391,000 of which partially offset compensation and benefits expense during the six months ended June 30, 2019, and $50,000 of which is being held for the benefit of our employees to help offset the burden of future insurance premium increases. Advertising expenses were lower as a result of a combination of advertising expenses incurred during the six months ended June 30, 2018 related to the opening of our Bainbridge Island branch that were not incurred during the same period in 2019, as well as ~~managing the determination~~occupancy and ~~timing~~equipment as we added staff to generate revenue. Compensation and benefits also increased due to an $829,000 increase in commissions paid on increased mortgage production as well as one-time pandemic related payments made to staff. We also incurred a one-time FHLB prepayment penalty of ~~current advertising and promotional expenses for the current year.~~

$210,000 as we retired long term debt to reduced interest expense.

The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:

Six Months Ended June 30, Increase (Decrease)
2019 2018 Amount Percent
(Dollars in thousands)
Compensation and benefits $ 9,326
$ 9,556
$ (230 ) (2.4 )%
Data processing 1,298
1,305
(7 ) (0.5 )
Occupancy and equipment 2,248
2,229
19
0.9
Supplies, postage, and telephone 470
474
(4 ) (0.8 )
Regulatory assessments and state taxes 364
281
83
29.5
Advertising 372
614
(242 ) (39.4 )
Professional fees 629
780
(151 ) (19.4 )
FDIC insurance premium 154
155
(1 ) (0.6 )
Other 1,211
1,179
32
2.7
Total $ 16,072
$ 16,573
$ (501 ) (3.0 )%

	Six Months Ended June 30,				Increase (Decrease)
	2020		2019		Amount			Percent
	(Dollars in thousands)
Compensation and benefits	$	11,327	$	9,326	$	2,001			21.5	%
Data processing		1,459		1,298		161			12.4
Occupancy and equipment		2,696		2,248		448			19.9
Supplies, postage, and telephone		495		470		25			5.3
Regulatory assessments and state taxes		397		364		33			9.1
Advertising		649		372		277			74.5
Professional fees		754		629		125			19.9
FDIC insurance premium		70		154		(84	)		(54.5	)
FHLB prepayment penalty		210		—		210			100.0
Other		1,607		1,211		396			32.7
Total	$	19,664	$	16,072	$	3,592			22.3	%

Provision for Income Tax. An income tax expense of ~~$1.0 million~~$668,000 was recorded for the six months ended June 30, ~~2019,~~2020, compared to ~~$691,000~~$1.0 million for the six months ended June 30, ~~2018, generally~~2019, due to ~~an increase~~a decrease in income before taxes of ~~$1.5~~$1.7 million. For additional information, see Note 5 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

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Average Balances, Interest and Average Yields/Cost

The following table set forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average ~~interest‑earning~~interest-earning assets and interest expense on average ~~interest‑bearing~~interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on ~~interest‑earning~~interest-earning assets), and the ratio of average ~~interest‑earning~~interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at June 30, ~~2019~~2020 and ~~2018.~~2019. Income and all average balances are monthly average balances, which management deems to be not materially different than daily averages. ~~Nonaccruing~~Nonaccrual loans have been included in the table as loans carrying a zero yield.

			Three Months Ended June 30,														Six Months Ended June 30,
	At June 30, 2020		2020							2019							2020							2019
			Average			Interest				Average			Interest				Average			Interest				Average			Interest
	Yield/		Balance			Earned/		Yield/		Balance			Earned/		Yield/		Balance			Earned/		Yield/		Balance			Earned/		Yield/
	Rate		Outstanding			Paid		Rate		Outstanding			Paid		Rate		Outstanding			Paid		Rate		Outstanding			Paid		Rate
	(Dollars in thousands)																(Dollars in thousands)
Interest-earning assets:
Loans receivable, net (1)	4.38	%	$	931,344		$	10,236	4.40	%	$	883,290		$	10,473	4.74	%	$	901,116		$	20,072	4.45	%	$	877,095		$	20,565	4.69	%
Investment securities	2.69			213,141			1,316	2.47			116,496			969	3.33			181,586			2,385	2.63			118,423			1,979	3.34
Mortgage-backed securities	2.10			135,604			740	2.18			178,878			1,192	2.67			148,593			1,699	2.29			181,297			2,449	2.70
FHLB dividends	4.87			4,426			55	4.97			7,066			88	4.98			4,573			102	4.46			6,955			176	5.06
Interest-bearing deposits in banks	0.11			20,922			8	0.15			13,118			58	1.77			21,110			76	0.72			12,495			125	2.00
Total interest-earning assets (2)	3.79			1,305,437			12,355	3.79			1,198,848			12,780	4.26			1,256,978			24,334	3.87			1,196,265			25,294	4.23

Interest-bearing liabilities:
Savings accounts	0.53		$	172,833		$	269	0.62		$	163,106		$	372	0.91		$	169,371		$	609	0.72		$	158,398		$	688	0.87
Transaction accounts	0.01			122,951			4	0.01			115,914			36	0.12			118,963			23	0.04			115,358			72	0.12
Money market accounts	0.44			291,526			400	0.55			257,548			313	0.49			272,030			756	0.56			262,747			633	0.48
Certificates of deposit	1.57			349,658			1,368	1.57			259,203			1,347	2.08			332,674			2,791	1.68			258,737			2,599	2.01
Total deposits	0.64			936,968			2,041	0.87			795,771			2,068	1.04			893,038			4,179	0.94			795,240			3,992	1.00
Borrowings	0.73			71,170			201	1.13			138,643			1,036	2.99			75,574			635	1.68			136,545			2,026	2.97
Total interest-bearing liabilities	0.65			1,008,138			2,242	0.89			934,414			3,104	1.33			968,612			4,814	0.99			931,785			6,018	1.29

Net interest income						$	10,113						$	9,676						$	19,520						$	19,276
Net interest rate spread	0.03							2.90							2.94							2.88							2.94
Net earning assets			$	297,299						$	264,434						$	288,366						$	264,480
Net interest margin (3)								3.10							3.23							3.11							3.22
Average interest-earning assets to average interest-bearing liabilities				129.5	%						128.3	%						129.8	%						128.4	%

(1) The average loans receivable, net balances include nonaccrual loans.

(2) Includes interest-bearing deposits (cash) at other financial institutions.

(3) Net interest income divided by average interest-earning assets.

At June 30, 2019 Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018

Yield/
Rate
Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate

Interest-earning assets: (Dollars in thousands)
Loans receivable, net ⁽¹⁾
4.72 % $ 883,290
$ 10,093
4.57 % $ 809,839
$ 8,952
4.42 % $ 877,095
$ 20,025
4.57 % $ 799,288
$ 17,535
4.39 %
Investment securities 4.38
116,496
969
3.33
125,442
973
3.10
118,423
1,979
3.34
128,963
1,835
2.85
Mortgage-backed securities 2.61
178,878
1,192
2.67
186,385
1,237
2.65
181,297
2,449
2.70
192,645
2,534
2.63
FHLB dividends 5.20
7,066
88
4.98
7,605
78
4.10
6,955
176
5.06
7,419
137
3.69
Interest-bearing deposits in banks 1.79
13,118
58
1.77
9,111
41
1.80
12,495
125
2.00
10,123
86
1.70
Total interest-earning assets ⁽²⁾
4.32
1,198,848
12,400
4.14
1,138,382
11,281
3.96
1,196,265
24,754
4.14
1,138,438
22,127
3.89

Interest-bearing liabilities:
Savings accounts 0.94
$ 163,106
$ 372
0.91
$ 105,067
28
0.11
$ 158,398
$ 688
0.87
$ 106,610
44
0.08
Transaction accounts 0.06
115,914
36
0.12
113,666
9
0.03
115,358
72
0.12
113,933
13
0.02
Money market accounts 0.43
257,548
313
0.49
277,186
282
0.41
262,747
633
0.48
272,991
497
0.36
Certificates of deposit 2.11
259,203
1,347
2.08
237,216
806
1.36
258,737
2,599
2.01
238,687
1,556
1.30
Total deposits 0.88
795,771
2,068
1.04
733,135
1,125
0.61
795,240
3,992
1.00
732,221
2,110
0.58
Borrowings 2.84
138,643
1,036
2.99
153,362
997
2.60
136,545
2,026
2.97
151,243
1,886
2.49
Total interest-bearing liabilities 1.12
934,414
3,104
1.33
886,497
2,122
0.96
931,785
6,018
1.29
883,464
3,996
0.90

Net interest income $ 9,296
$ 9,159
$ 18,736
$ 18,131

Net interest rate spread 3.20
2.81
3.00
2.85
2.99
Net earning assets $ 264,434
$ 251,885
$ 264,480
$ 254,974

Net interest margin ⁽³⁾
3.10
3.22
3.13
3.19
Average interest-earning assets to average interest-bearing liabilities 128.3 % 128.4 % 128.4 % 128.9 %

(1) The average loans receivable, net balances include nonaccruing loans.
(2) Includes interest-bearing deposits (cash) at other financial institutions.
(3) Net interest income divided by average interest-earning assets.

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Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

Three Months Ended Six Months Ended
June 30, 2019 vs. 2018 June 30, 2019 vs. 2018
Increase (Decrease) Due to Total Increase (Decrease) Increase (Decrease) Due to Total Increase (Decrease)
Volume Rate Volume Rate
(In thousands)
Interest earning assets:
Loans receivable, net $ 810
$ 331
$ 1,141
$ 1,704
$ 786
$ 2,490
Investments (123 ) 74
(49 ) (298 ) 357
59
FHLB stock (6 ) 16
10
(9 ) 48
39
Other⁽¹⁾
18
(1 ) 17
20
19
39
Total interest-earning assets $ 699
$ 420
$ 1,119
$ 1,417
$ 1,210
$ 2,627

Interest-bearing liabilities:
Savings accounts $ 16
$ 328
$ 344
$ 21
$ 623
$ 644
Interest-bearing transaction accounts —
27
27
—
59
59
Money market accounts (20 ) 51
31
(20 ) 156
136
Certificates of deposit 75
466
541
127
916
1,043
Borrowings (96 ) 135
39
(183 ) 323
140
Total interest-bearing liabilities $ (25 ) $ 1,007
$ 982
$ (55 ) $ 2,077
$ 2,022

Net change in interest income $ 724
$ (587 ) $ 137
$ 1,472
$ (867 ) $ 605

(1) Includes interest-bearing deposits (cash) at other financial institutions.

	Three Months Ended									Six Months Ended
	June 30, 2020 vs. 2019									June 30, 2020 vs. 2019
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(In thousands)									(In thousands)
Interest earning assets:
Loans receivable, net	$	562		$	(799	)	$	(237	)	$	575		$	(1,068	)	$	(493	)
Investments		516			(621	)		(105	)		614			(958	)		(344	)
FHLB stock		(33	)		—			(33	)		(60	)		(14	)		(74	)
Other(1)		35			(85	)		(50	)		86			(135	)		(49	)
Total interest-earning assets	$	1,080		$	(1,505	)	$	(425	)	$	1,215		$	(2,175	)	$	(960	)

Interest-bearing liabilities:
Savings accounts	$	22		$	(125	)	$	(103	)	$	48		$	(127	)	$	(79	)
Interest-bearing transaction accounts		2			(34	)		(32	)		2			(51	)		(49	)
Money market accounts		41			46			87			22			101			123
Certificates of deposit		470			(449	)		21			743			(551	)		192
Borrowings		(504	)		(331	)		(835	)		(905	)		(486	)		(1,391	)
Total interest-bearing liabilities	$	31		$	(893	)	$	(862	)	$	(90	)	$	(1,114	)	$	(1,204	)

Net change in interest income	$	1,049		$	(612	)	$	437		$	1,305		$	(1,061	)	$	244

(1) Includes interest-bearing deposits (cash) at other financial institutions.

Off-Balance Sheet Activities

In the normal course of operations, First Federal engages in a variety of financial transactions that are not recorded in the financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For the six months ended June 30, ~~2019~~2020 and the year ended December 31, ~~2018,~~2019, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.

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Contractual Obligations

At June 30, ~~2019,~~2020, our scheduled maturities of contractual obligations were as follows:

Within
1 Year After 1 Year Through
3 Years After 3 Years Through
5 Years Beyond
5 Years
Total
Balance
(In thousands)

Certificates of deposit $ 179,950
$ 64,274
$ 13,148
$ —
$ 257,372
FHLB advances 101,337
30,000
—
—
131,337
Operating leases 321
541
438
1,814
3,114
Borrower taxes and insurance 1,251
—
—
—
1,251
Deferred compensation 54
—
53
836
943
Total contractual obligations $ 282,913
$ 94,815
$ 13,639
$ 2,650
$ 394,017

	Within		After 1 Year Through		After 3 Years Through		Beyond		Total
	1 Year		3 Years		5 Years		5 Years		Balance
	(In thousands)

Certificates of deposit	$	240,053	$	70,167	$	14,944	$	—	$	325,164
FHLB advances		62,379		20,000		30,000		—		112,379
Operating leases		432		715		698		2,228		4,073
Borrower taxes and insurance		1,403		—		—		—		1,403
Deferred compensation		352		219		62		341		974
Total contractual obligations	$	304,619	$	91,101	$	45,704	$	2,569	$	443,993

Commitments and Off-Balance Sheet Arrangements

The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of June 30, ~~2019:~~2020:

	Amount of Commitment Expiration
	Within		After 1 Year Through		After 3 Years Through		Beyond		Total Amounts
	1 Year		3 Years		5 Years		5 Years		Committed
	(In thousands)
Commitments to originate loans:
Fixed-rate	$	1,602	$	—	$	—	$	—	$	1,602
Variable-rate		130		—		—		—		130
Unfunded commitments under lines of credit or existing loans		34,204		27,402		—		58,664		120,270
Standby letters of credit		182		—		—		—		182
Total commitments	$	36,118	$	27,402	$	—	$	58,664	$	122,184

Amount of Commitment Expiration
Within
1 Year After 1 Year Through
3 Years After 3 Years Through
5 Years Beyond
5 Years Total Amounts Committed
(In thousands)
Commitments to originate loans:
Fixed-rate $ 27
$ —
$ —
$ —
$ 27
Adjustable-rate 658
—
—
—
658
Unfunded commitments under lines of credit or existing loans 2,122
25,833
4,089
47,307
79,351
Standby letters of credit —
214
—
—
214
Total commitments $ 2,807
$ 26,047
$ 4,089
$ 47,307
$ 80,250

Liquidity Management

Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are usually predictable sources of funds, deposit flows, calls of investment securities and borrowed funds, and prepayments on loans and investment securities are greatly influenced by general interest rates, economic conditions and competition, which can cause those sources of funds to fluctuate.

Management regularly adjusts our investments in liquid assets based upon an assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our interest-rate risk and investment policies.

Our most liquid assets are cash and cash equivalents followed by available for sale securities. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At June 30, ~~2019,~~2020, cash and cash equivalents totaled ~~$28.8~~$49.6 million, and unpledged securities classified as available-for-sale with a market value of ~~$250.1~~$250.7 million provided additional sources of liquidity. We pledged collateral to support borrowings from the FHLB of ~~$131.3~~$112.4 million and have an established borrowing arrangement with the Federal Reserve Bank of San Francisco, for which ~~no collateral has been~~available-for-sale securities with a market value of $46.2 million were pledged as of June 30, ~~2019.~~

2020.

At June 30, ~~2019,~~2020, we had ~~$685,000~~$1.7 million in loan commitments outstanding, ~~and an additional $79.6~~$120.5 million in undisbursed loans and standby letters of credit, including ~~$38.7~~$68.4 million in undisbursed construction loan commitments.

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Certificates of deposit due within one year as of June 30, ~~2019~~2020 totaled ~~$180.0~~$240.1 million, or ~~69.9%~~73.8% of certificates of ~~deposit.~~deposit with a weighted-average rate of 1.20%. We believe the large percentage of certificates of deposit that mature within one year reflects customers' hesitancy to invest their funds for longer periods as market interest rates have begun to rise. A significant portion of our money market accounts have rolled into certificates of deposit over the past twelve months, which management believes, based on past experience, is commensurate with our customers' behavior during periods of rising interest rates.recently declined. If these maturing deposits are not renewed, however, we will be required to seek other sources of funds, including other certificates of deposit, non-maturity deposits, and borrowings. We have the ability to attract and retain deposits by adjusting the interest rates ~~offered.~~offered as well as through sales and marketing efforts in the markets we serve. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on certificates of deposit. In addition, we believe that our branch network, and the general cash flows from our existing lending and investment activities, will ~~afford~~provide us ~~sufficient foreseeable~~more than adequate long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.

The Company is a separate legal entity from the Bank and provides for its own liquidity to pay its operating expenses and other financial obligations. At June 30, ~~2019,~~2020, the Company (on an unconsolidated basis) had liquid assets of ~~$20.6~~$12.4 million.

Capital Resources

At June 30, ~~2019,~~2020, shareholders' equity totaled ~~$176.4~~$176.3 million, or ~~14.0%~~11.9% of total assets. Our book value per share of common stock was ~~$16.15~~$17.07 at June 30, ~~2019,~~2020, compared to ~~$15.42~~$16.48 at December 31, ~~2018. Consistent with our goals to operate a sound and profitable organization, our policy for First Federal is to maintain its “well-capitalized” status in accordance with regulatory standards.~~

2019.

At June 30, ~~2019,~~2020, the Bank exceeded all regulatory capital requirements and was considered "well capitalized" under FDIC regulatory capital guidelines.

The following table provides the capital requirements and actual results for First Federal at June 30, ~~2019.~~

Actual
Minimum Capital Requirements Minimum Required to be Well-Capitalized
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tier I leverage capital (to average assets) $ 145,397
11.6 % $ 50,305
4.0 % $ 62,881
5.0 %
Common equity tier I (to risk-weighted assets) 145,397
17.4
37,692
4.5
54,445
6.5
Tier I risk-based capital (to risk-weighted assets) 145,397
17.4
50,256
6.0
67,009
8.0
Total risk-based capital (to risk-weighted assets) 155,316
18.5
67,009
8.0
83,761
10.0

2020.

	Actual					Minimum Capital Requirements					Minimum Required to be Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in thousands)
Tier I leverage capital (to average assets)	$	152,140		10.9	%	$	55,853		4.0	%	$	69,816		5.0	%
Common equity tier I (to risk-weighted assets)		152,140		15.1			45,231		4.5			65,333		6.5
Tier I risk-based capital (to risk-weighted assets)		152,140		15.1			60,308		6.0			80,410		8.0
Total risk-based capital (to risk-weighted assets)		164,532		16.4			80,410		8.0			100,513		10.0

In order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses, the Bank must maintain common equity tier 1 capital ("CET1") at an amount greater than the required minimum levels plus a capital conservation ~~buffer. This new capital conservation buffer requirement was phased in starting in January 2016 requiring a~~ buffer of ~~0.625% of risk-weighted assets and will increase each year until fully implemented to an amount of~~ 2.5% ~~of risk-weighted assets in January 2019. As of June 30, 2019, the conservation buffer was 2.500%~~.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented in this report have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that general inflation may have on both short-term and long-term interest rates. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance

than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has not been any material change in the market risk disclosures contained in First Northwest Bancorp’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

2019.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of the Company's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial and Accounting Officer), and other members of the Company's management team as of the end of the period covered by this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that as of June 30, ~~2019,~~2020, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company inthe reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

(b) Changes in Internal Controls.

There have been no changes in the Company's internal control over financial reporting (as defined in 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent every error or instance of fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Table of Contents

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is engaged in legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on the Company’s financial position or results of operations.

Item 1A. Risk Factors

~~There have been no material changes to~~

The disclosures below supplement the risk factors ~~set forth in~~previously disclosed under Part I. Item 1A of the Company's Form 10-K for the year ended December 31, ~~2018.~~

2019.

The effects of the COVID-19 pandemic could adversely affect our customers future results of operations and/or the market price of our stock.

The COVID-19 pandemic continues to rapidly evolve, as do federal, state and local efforts to address it. Both the direct effects of the pandemic and the resulting United States governmental responses are of an unprecedented scope as it impacts both the health and the economy of our country and the world at large. No one can predict the extent or duration of the pandemic, or its effect on the markets that we serve. Further, the ongoing efforts and impact of the government in mitigating the health and the economic effects of the pandemic cannot currently be predicted, whether on our business or as to the economy as a whole. The pandemic has thus far resulted in significant volatility in international and United States markets, which could adversely affect the market price of our stock. To date, the pandemic has resulted in significant business disruption and volatility in the international and domestic markets, which has adversely affected the market price of our stock and stocks in general

The Company continues to manage through uncertainties and complexities created by the pandemic. As an essential business, our employees have been able to work safely in our branch locations and over 70% of our workforce has the ability to work from home. However, the economic downturn in local markets we serve could result in increased credit risk associated with the loan portfolio as customers are unable to repay loans and meet their obligations, as well as adversely impact our earnings. We believe our strong capital position will be important in managing through the unknown impact of the pandemic.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)
~~(a)~~	Not applicable.

(b)
~~(b)~~	Not applicable.

(c)

~~(c)~~

The following table summarizes common stock repurchases during the three months ended June 30, 2020:

					Total Number of Shares Repurchased as Part of Publicly		Maximum Number of Shares that May Yet Be Repurchased
Period	Total Number of Shares Purchased		Average Price Paid per Share		Announced Plans (1)		Under the Plans

April 1, 2020 - April 30, 2020		—	$	—		—		272,030
May 1, 2020 - May 31, 2020		54,181		12.32		54,181		217,849
June 1, 2020 - June 30, 2020		76,056		13.16		76,056		141,793
Total		130,237	$	12.81		130,237

(1) On December 5, 2019, the ~~three months ended June 30, 2019:~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet Be Repurchased Under the Plans

April 1, 2019 - April 30, 2019 2,400
$ 16.27
2,400
322,809
May 1, 2019 - May 31, 2019 39,400
16.18
39,400
283,409
June 1, 2019 - June 30, 2019 21,200
16.24
21,200
262,209
Total 63,000
$ 16.20
63,000

~~On September 26, 2017, the~~Company announced that its Board of Directors had authorized the repurchase of up to ~~1,166,659~~an additional 535,097 shares of its common stock, or approximately ~~10%~~5% of its shares of common stock issued and outstanding as of September 18, 2017. The repurchase program permits shares to be repurchased in the open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with the SEC's Rule 10b5-1.December 2, 2019. As of June 30, ~~2019,~~2020, a total of ~~904,450~~393,304 shares, or ~~77.5%~~73.5% percent of the shares authorized in the ~~September 2017~~December 2019 stock repurchase plan, have been purchased at an average cost of ~~$16.06~~$12.88 per share, leaving ~~262,209~~141,793 shares available for future purchases.

Table of Contents

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

COVID-19 Legislation and Regulation.

General. Governments at the federal, state, and local levels continue to take steps to address the impact of the COVID-19 emergency. On March 27, 2020 the President signed into law the historic $2
trillion federal stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which included $350 billion in stimulus for small businesses under the so-called “Paycheck Protection Program,” along with direct stimulus payments (i.e., “economic impact payments” or “stimulus checks”) for many eligible Americans. The initial amounts available under the Paycheck Protection Program were quickly exhausted in less than two weeks, which prompted Congress to negotiate additional funding. On April 24, 2020, the Paycheck Protection Program and Health Care Enforcement Act was signed into law to replenish funding to the Paycheck Protection Program and to provide other spending for hospitals and virus testing. Further, on July 3, 2020 the President extended the deadline for potential borrowers to apply for Paycheck Protection Program funds until August 8, 2020. The legislative and regulatory landscape surrounding COVID-19 is rapidly changing, and neither the Company nor the Bank can predict with certainty the impact it will have on our operations or business.

Table of Contents

~~Not applicable.~~

Item 6. Exhibits

Exhibit No.	Exhibit Description	Filed Herewith	Form	Original Exhibit No.	Filing Date	SEC File No.
10.1*	Form of Restricted Shares Award Agreement under the First Northwest Bancorp 2020 Equity Incentive Plan	X
~~Exhibit~~ ~~No.~~ 31.1	~~Exhibit Description~~	~~Filed~~ ~~Herewith~~
~~31.1~~	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act	X
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act	X
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act	X
101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019,~~2020, formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive ~~Income ;~~Income; (4) Consolidated Statements of Cash Flows; and (5) Selected Notes to Consolidated Financial Statements
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
	* Denotes a management contract or compensatory plan or arrangement.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	FIRST NORTHWEST BANCORP

Date: August ~~7, 2019~~10, 2020	/s/ ~~Laurence J. Hueth~~Matthew P. Deines

	~~Laurence J. Hueth~~ Matthew P. Deines
	President, Chief Executive Officer and Director
	(Principal Executive Officer)


Date: August ~~7, 2019~~10, 2020	/s/ ~~Regina M. Wood~~Geraldine L. Bullard

	~~Regina M. Wood~~ Geraldine L. Bullard
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)


☒
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, ~~2019~~2020


☐
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from _____ to _____



~~Washington~~		~~46-1259100~~
Washington		46-1259100
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer I.D. Number)

105 West 8th Street, Port Angeles, Washington		98362
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:		(360) 457-0461



Title of each class:	Trading Symbol(s):	Name of each exchange on which registered:
Common Stock, par value $0.01 per share	FNWB	The Nasdaq Stock Market LLC



Large accelerated filer	¨ ☐	Accelerated filer	x ☒
Non-accelerated filer	¨ ☐	Smaller reporting company	x ☒
Emerging growth company	x ☒



ASSETS	June 30, 2019			December 31, 2018

Cash and due from banks	$	15,275		$	15,430
Interest-bearing deposits in banks	13,547			10,893
Investment securities available for sale, at fair value	250,051			262,967
Investment securities held to maturity, at amortized cost	37,990			43,503
Loans held for sale	2,516			—
Loans receivable (net of allowance for loan losses of $9,731 and $9,533)	873,958			863,852
Federal Home Loan Bank (FHLB) stock, at cost	6,773			6,927
Accrued interest receivable	4,094			4,048
Premises and equipment, net	14,719			15,255
Mortgage servicing rights, net	955			1,044
Bank-owned life insurance, net	29,607			29,319
Prepaid expenses and other assets	8,225			5,520

Total assets	$	1,257,710		$	1,258,758


LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits	$	933,265		$	940,260
Borrowings	131,337			136,552
Accrued interest payable	389			521
Accrued expenses and other liabilities	15,067			8,071
Advances from borrowers for taxes and insurance	1,251			1,090

Total liabilities	1,081,309			1,086,494

Shareholders' Equity
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding	—			—
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,925,181 shares at June 30, 2019, and 11,170,018 shares at December 31, 2018	109			112
Additional paid-in capital	104,064			105,825
Retained earnings	83,795			81,607
Accumulated other comprehensive loss, net of tax	(1,347		)	(4,731		)
Unearned employee stock ownership plan (ESOP) shares	(10,220		)	(10,549		)

Total shareholders' equity	176,401			172,264

Total liabilities and shareholders' equity	$	1,257,710		$	1,258,758



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
INTEREST INCOME
Interest and fees on loans receivable	$	10,093	$	8,952	$	20,025	$	17,535
Interest on mortgage-backed securities	1,192		1,237		2,449		2,534
Interest on investment securities	969		973		1,979		1,835
Interest on deposits and other	58		41		125		86
FHLB dividends	88		78		176		137

Total interest income	12,400		11,281		24,754		22,127
INTEREST EXPENSE
Deposits	2,068		1,125		3,992		2,110
Borrowings	1,036		997		2,026		1,886

Total interest expense	3,104		2,122		6,018		3,996

Net interest income	9,296		9,159		18,736		18,131
PROVISION FOR LOAN LOSSES	255		395		590		705

Net interest income after provision for loan losses	9,041		8,764		18,146		17,426
NONINTEREST INCOME
Loan and deposit service fees	1,375		915		2,440		1,808
Mortgage servicing fees, net of amortization	54		70		99		132
Net gain on sale of loans	88		150		175		317
Net gain on sale of investment securities	57		13		57		135
Increase in cash surrender value of bank-owned life insurance	145		149		288		298
Other income	84		108		155		197

Total noninterest income	1,803		1,405		3,214		2,887

NONINTEREST EXPENSE
Compensation and benefits	4,753		4,745		9,326		9,556
Data processing	667		677		1,298		1,305
Occupancy and equipment	1,140		1,127		2,248		2,229
Supplies, postage, and telephone	242		243		470		474
Regulatory assessments and state taxes	195		155		364		281
Advertising	229		290		372		614
Professional fees	331		458		629		780
FDIC insurance premium	77		79		154		155
Other	638		524		1,211		1,179

Total noninterest expense	8,272		8,298		16,072		16,573

INCOME BEFORE PROVISION FOR INCOME TAXES	2,572		1,871		5,288		3,740

PROVISION FOR INCOME TAXES	493		345		1,002		691

NET INCOME	$	2,079	$	1,526	$	4,286	$	3,049

Basic and diluted earnings per share	$	0.21	$	0.15	$	0.43	$	0.29



	Common Stock					Additional Paid-in Capital			Retained Earnings			Unearned ESOP Shares			Accumulated Other Comprehensive (Loss) Income, Net of Tax			Total Shareholders' Equity
	Shares		Amount

BALANCE, March 31, 2018	11,577,394		$	116		$	109,354		$	78,822		$	(11,043	)	$	(3,747	)	$	173,502

Net income									1,526									1,526
Common stock repurchased	(88,900	)	(1		)	(886		)	(581		)							(1,468		)
Restricted stock award forfeitures	(5,000	)	—			—												—
Other comprehensive loss, net of tax															(1,089		)	(1,089		)
Share-based compensation						259												259
ESOP shares committed to be released						53						164						217

BALANCE, June 30, 2018	11,483,494		$	115		$	108,780		$	79,767		$	(10,879	)	$	(4,836	)	$	172,947


BALANCE, March 31, 2019	10,992,181		$	110		$	104,374		$	82,436		$	(10,385	)	$	(3,128	)	$	173,407

Net income									2,079									2,079
Common stock repurchased	(63,000	)	(1		)	(628		)	(392		)							(1,021		)
Restricted stock award forfeitures	(4,000	)	—			—												—
Other comprehensive income, net of tax															1,781			1,781
Share-based compensation						270												270
ESOP shares committed to be released						48						165						213
Cash dividends declared and paid ($0.03 per share)									(328		)							(328		)

BALANCE, June 30, 2019	10,925,181		$	109		$	104,064		$	83,795		$	(10,220	)	$	(1,347	)	$	176,401



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(In thousands)
Available for Sale
Municipal bonds	$	881	$	51	$	—		$	932
U.S. government agency issued asset-backed securities (ABS agency)	25,995		—		(559		)	25,436
Corporate issued asset-backed securities (ABS corporate)	37,877		—		(667		)	37,210
Corporate issued debt securities (Corporate debt)	9,986		—		(504		)	9,482
U.S. Small Business Administration securities (SBA)	31,865		151		(41		)	31,975
Mortgage-backed securities:
U.S. government agency issued mortgage-backed securities (MBS agency)	135,337		499		(597		)	135,239
Corporate issued mortgage-backed securities (MBS corporate)	9,841		3		(67		)	9,777

Total securities available for sale	$	251,782	$	704	$	(2,435	)	$	250,051

Held to Maturity
Municipal bonds	$	7,080	$	71	$	—		$	7,151
SBA	144		—		—			144
Mortgage-backed securities:
MBS agency	30,766		639		(25		)	31,380

Total securities held to maturity	$	37,990	$	710	$	(25	)	$	38,675



	June 30, 2019
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In thousands)
Mortgage-backed securities:
Due within one year	$	—	$	—	$	—	$	—
Due after one through five years	7,122		7,156		421		425
Due after five through ten years	11,341		11,312		1,768		1,749
Due after ten years	126,715		126,548		28,577		29,206

Total mortgage-backed securities	145,178		145,016		30,766		31,380

All other investment securities:
Due within one year	—		—		—		—
Due after one through five years	—		—		794		812
Due after five through ten years	28,628		28,143		6,430		6,483
Due after ten years	77,976		76,892		—		—

Total all other investment securities	106,604		105,035		7,224		7,295

Total investment securities	$	251,782	$	250,051	$	37,990	$	38,675



	At or For the Three Months Ended June 30, 2019
	One-to- four family			Multi-family			Commercial real estate		Construction and land		Home equity			Auto and other consumer			Commercial business			Unallocated			Total
	(In thousands)
ALLL:
Beginning balance	$	3,441		$	769		$	2,337	$	700	$	467		$	1,678		$	191		$	176		$	9,759
Provision for loan losses	(25		)	(118		)	20		11		(22		)	416			(20		)	(7		)	255
Charge-offs	—			—			—		—		—			(362		)	—			—			(362		)
Recoveries	1			—			—		—		20			58			—			—			79
Ending balance	$	3,417		$	651		$	2,357	$	711	$	465		$	1,790		$	171		$	169		$	9,731



	At June 30, 2019
	One-to- four family		Multi-family		Commercial real estate		Construction and land		Home equity		Auto and other consumer		Commercial business		Unallocated		Total
	(In thousands)
Total ALLL	$	3,417	$	651	$	2,357	$	711	$	465	$	1,790	$	171	$	169	$	9,731
General reserve	3,381		650		2,347		710		458		1,740		164		169		9,619
Specific reserve	36		1		10		1		7		50		7		—		112

Total loans	$	331,748	$	68,440	$	250,250	$	63,741	$	37,194	$	112,583	$	15,098	$	—	$	879,054
Loans collectively evaluated ⁽¹⁾	328,739		68,331		248,320		63,676		36,793		112,343		14,800		—		873,002
Loans individually evaluated ⁽²⁾	3,009		109		1,930		65		401		240		298		—		6,052


⁽¹⁾ Loans collectively evaluated for general reserves.
⁽²⁾ Loans individually evaluated for specific reserves.



	At December 31, 2018
	One-to- four family		Multi-family		Commercial real estate		Construction and land		Home equity		Auto and other consumer		Commercial business		Unallocated		Total
	(In thousands)
Total ALLL	$	3,297	$	762	$	2,289	$	585	$	480	$	1,611	$	334	$	175	$	9,533
General reserve	3,262		761		2,281		584		474		1,552		168		175		9,257
Specific reserve	35		1		8		1		6		59		166		—		276

Total loans	$	336,178	$	82,331	$	253,235	$	54,102	$	37,629	$	87,357	$	18,898	$	—	$	869,730
Loans collectively evaluated ⁽¹⁾	333,062		82,221		251,263		54,058		37,002		87,113		18,453		—		863,172
Loans individually evaluated ⁽²⁾	3,116		110		1,972		44		627		244		445		—		6,558


⁽¹⁾ Loans collectively evaluated for general reserves.
⁽²⁾ Loans individually evaluated for specific reserves.



	June 30, 2019							December 31, 2018
	Recorded Investment			Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With no allowance recorded:
One-to-four family	$	188		$	222	$	—	$	306	$	339	$	—
Commercial real estate	1,274			1,346		—		1,308		1,374		—
Construction and land	—			—		—		—		1		—
Home equity	57			161		—		330		478		—
Auto and other consumer	(7		)	504		—		—		276		—
Commercial business	—			—		—		—		3		—
Total	1,512			2,233		—		1,944		2,471		—

With an allowance recorded:
One-to-four family	2,821			3,088		36		2,810		3,085		35
Multi-family	109			109		1		110		110		1
Commercial real estate	656			656		10		664		663		8
Construction and land	65			99		1		44		71		1
Home equity	344			410		7		297		364		6
Auto and other consumer	247			247		50		244		244		59
Commercial business	298			298		7		445		445		166
Total	4,540			4,907		112		4,614		4,982		276

Total impaired loans:
One-to-four family	3,009			3,310		36		3,116		3,424		35
Multi-family	109			109		1		110		110		1
Commercial real estate	1,930			2,002		10		1,972		2,037		8
Construction and land	65			99		1		44		72		1
Home equity	401			571		7		627		842		6
Auto and other consumer	240			751		50		244		520		59
Commercial business	298			298		7		445		448		166
Total	$	6,052		$	7,140	$	112	$	6,558	$	7,453	$	276



	Three Months Ended				Six Months Ended
	June 30, 2018				June 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no allowance recorded:
One-to-four family	$	407	$	6	$	408	$	10
Commercial real estate	2,720		13		2,554		26
Construction and land	2,486		—		2,487		—
Home equity	356		9		358		9
Auto and other consumer	—		5		—		9
Total	5,969		33		5,807		54

With an allowance recorded:
One-to-four family	2,779		62		3,080		102
Multi-family	113		1		114		3
Commercial real estate	785		7		790		17
Construction and land	49		3		50		4
Home equity	268		6		277		11
Auto and other consumer	116		4		108		5
Commercial business	862		33		769		36
Total	4,972		116		5,188		178

Total impaired loans:
One-to-four family	3,186		68		3,488		112
Multi-family	113		1		114		3
Commercial real estate	3,505		20		3,344		43
Construction and land	2,535		3		2,537		4
Home equity	624		15		635		20
Auto and other consumer	116		9		108		14
Commercial business	862		33		769		36
Total	$	10,941	$	149	$	10,995	$	232



	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans
	(In thousands)
Real Estate:
One-to-four family	$	685	$	—	$	100	$	785	$	330,963	$	331,748
Multi-family	—		—		—		—		68,440		68,440
Commercial real estate	—		—		—		—		250,250		250,250
Construction and land	—		—		31		31		63,710		63,741
Total real estate loans	685		—		131		816		713,363		714,179

Consumer:
Home equity	145		—		25		170		37,024		37,194
Auto and other consumer	795		158		15		968		111,615		112,583
Total consumer loans	940		158		40		1,138		148,639		149,777

Commercial business loans	—		—		30		30		15,068		15,098

Total loans	$	1,625	$	158	$	201	$	1,984	$	877,070	$	879,054



	Number of Contracts	Rate Modification		Term Modification		Combination Modification		Total Modifications
		(Dollars in thousands)
Pre-modification outstanding recorded investment
One- to four-family	1	$	—	$	50	$	—	$	50

Post-modification outstanding recorded investment
One- to four-family	1	$	—	$	51	$	—	$	51



	Number of Contracts	Rate Modification		Term Modification		Combination Modification		Total Modifications
		(Dollars in thousands)
TDR loans that subsequently defaulted
One- to four-family	1	$	—	$	—	$	48	$	48



	June 30, 2019						December 31, 2018
	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total
	(In thousands)
One-to-four family	$	2,324	$	134	$	2,458	$	2,358	$	84	$	2,442
Multi-family	109		—		109		110		—		110
Commercial real estate	656		—		656		663		—		663
Home equity	253		—		253		258		—		258
Commercial business	268		—		268		272		—		272

Total TDR loans	$	3,610	$	134	$	3,744	$	3,661	$	84	$	3,745



	For the Three Months Ended
	June 30, 2019
	Shares		Weighted-Average Grant Date Fair Value
Non-vested at April 1, 2019	290,600		$	13.72
Granted	—		—
Vested	—		—
Forfeited	(4,000	)	16.07

Non-vested at June 30, 2019	286,600		13.69



	For the Six Months Ended
	June 30, 2019
	Shares		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2019	290,600		$	13.72
Granted	—		—
Vested	—		—
Canceled (1)	—		—
Forfeited	(4,000	)	16.07

Non-vested at June 30, 2019	286,600		13.69

(1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the total cost of the vested shares. The surrendered shares are canceled and are unavailable for reissue.



	June 30, 2019
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Securities available-for-sale
Municipal bonds	$	—	$	932	$	—	$	932
ABS agency	—		25,436		—		25,436
ABS corporate	—		37,210		—		37,210
Corporate debt	—		9,482		—		9,482
SBA	—		31,975		—		31,975
MBS agency	—		135,239		—		135,239
MBS corporate	—		9,777		—		9,777
	$	—	$	250,051	$	—	$	250,051



June 30, 2019		North Olympic Peninsula ⁽¹⁾		Puget Sound Region ⁽²⁾		Other Washington		Total
		(In thousands)
Construction Commitment
	One- to four-family residential	$	12,814	$	18,938	$	406	$	32,158
	Multi-family residential	—		43,958		—		43,958
	Commercial real estate	7,717		10,915		—		18,632
	Total commitment	$	20,531	$	73,811	$	406	$	94,748

Construction Funds Disbursed
	One- to four-family residential	$	6,053	$	7,197	$	55	$	13,305
	Multi-family residential	—		31,877		—		31,877
	Commercial real estate	2,143		8,675		—		10,818
	Total disbursed	$	8,196	$	47,749	$	55	$	56,000

Undisbursed Commitment
	One- to four-family residential	$	6,761	$	11,741	$	351	$	18,853
	Multi-family residential	—		12,081		—		12,081
	Commercial real estate	5,574		2,240		—		7,814
	Total undisbursed	$	12,335	$	26,062	$	351	$	38,748

Land Funds Disbursed
	One- to four-family residential	$	5,331	$	2,130	$	—	$	7,461
	Commercial real estate	—		280		—		280
	Total disbursed for land	$	5,331	$	2,410	$	—	$	7,741

(1) Includes Clallam and Jefferson counties.
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties.



	Three Months Ended									Six Months Ended
	June 30, 2019 vs. 2018									June 30, 2019 vs. 2018
	Increase (Decrease) Due to						Total Increase (Decrease)			Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(In thousands)
Interest earning assets:
Loans receivable, net	$	810		$	331		$	1,141		$	1,704		$	786		$	2,490
Investments	(123		)	74			(49		)	(298		)	357			59
FHLB stock	(6		)	16			10			(9		)	48			39
Other⁽¹⁾	18			(1		)	17			20			19			39
Total interest-earning assets	$	699		$	420		$	1,119		$	1,417		$	1,210		$	2,627

Interest-bearing liabilities:
Savings accounts	$	16		$	328		$	344		$	21		$	623		$	644
Interest-bearing transaction accounts	—			27			27			—			59			59
Money market accounts	(20		)	51			31			(20		)	156			136
Certificates of deposit	75			466			541			127			916			1,043
Borrowings	(96		)	135			39			(183		)	323			140
Total interest-bearing liabilities	$	(25	)	$	1,007		$	982		$	(55	)	$	2,077		$	2,022

Net change in interest income	$	724		$	(587	)	$	137		$	1,472		$	(867	)	$	605

(1) Includes interest-bearing deposits (cash) at other financial institutions.



	Within 1 Year		After 1 Year Through 3 Years		After 3 Years Through 5 Years		Beyond 5 Years		Total Balance
	(In thousands)

Certificates of deposit	$	179,950	$	64,274	$	13,148	$	—	$	257,372
FHLB advances	101,337		30,000		—		—		131,337
Operating leases	321		541		438		1,814		3,114
Borrower taxes and insurance	1,251		—		—		—		1,251
Deferred compensation	54		—		53		836		943
Total contractual obligations	$	282,913	$	94,815	$	13,639	$	2,650	$	394,017