Benefit Plans
 12 Months Ended
Dec. 31, 2015
Compensation and Retirement Disclosure [Abstract]  
Benefit Plans
Benefit Plans

Multi-employer Pension Plans

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (“The Pentegra DB Plan”), a tax-qualified defined-benefit pension plan that covers substantially all employees after one year of continuous employment. Pension benefits vest over a period of five years of credited service. The Pentegra DB Plan’s Employer Identification Number is 13-5645888 and the Plan Number is 333. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.

As of March 31, 2013, the Pentegra DB Plan was frozen, eliminating all future benefit accruals for employees. Each employee's accrued benefit was determined as of March 31, 2013.
    
The funding target is the present value of all benefits that have accrued as of the first day of the current plan year (July 1). Because interest rates used to calculate the present value of all benefits (6.28% for 2015 and 6.49% for 2014) is significantly higher than current market rates, the funding target does not represent the Company's actual liability upon withdrawal from participation in the Pentegra DB Plan, which is significantly larger than the funding target. The table below presents the funded status (market value of plan assets divided by funding target) of the plan as of July1:
 
2015
 
2014
Source
Valuation Report
 
Valuation Report
First Financial Northwest's Plan(1)
102.8
%
 
105.3
%
_________________ 
(1) Market value of plan assets reflects any contributions received through June 30, 2015, or 2014, respectively.

Total contributions made to the Pentegra DB Plan, as reported on Form 5500, equal $190.8 million and $136.5 million for the plan years ending June 30, 2014 and June 30, 2013, respectively. The Company's contributions to the Pentegra DB Plan are not more than 5% of the total contributions to the Pentegra DB Plan. The Company's policy is to fund pension costs as accrued.

Total contributions during the years ended December 31, 2015, 2014, and 2013 were: 
2015
 
2014
 
2013
Date Paid
 
Amount
 
Date Paid
 
Amount
 
Date Paid
 
Amount
 
11/2015
 
$
540,000

 
9/25/2014
 
$
8,735

 
9/18/2013
 
$
26,328

 
 


 
11/28/2014
 
539,932

 
12/5/2013
 
43,979

 
 

 
 
 

 
12/20/2013
 
159,080

Total
 
$
540,000

 
Total
 
$
548,667

 
Total
 
$
229,387



Supplemental Executive Retirement Plan

The Company has post-employment agreements with certain key officers to provide supplemental retirement benefits. The Company recorded $101,000, $170,000 and $159,000 of deferred compensation expense for the years ended December 31, 2015, 2014, and 2013, respectively.

401(k) Plan

The Company has a savings plan under Section 401(k) of the Internal Revenue Code, covering substantially all employees after 90 days of continuous employment. Under the plan, employee contributions up to 6% will be matched 50% by the Company. Such matching becomes vested over a period of five years of credited service. Employees may make investments in various stock, money market, or fixed income plans. The Company contributed $192,000, $161,000 and $155,000 to the plan for the years ended December 31, 2015, 2014, and 2013, respectively.

Employee Stock Ownership Plan

The Company provides an ESOP for the benefit of substantially all employees. The ESOP borrowed $16.9 million from First Financial Northwest and used those funds to acquire 1,692,800 shares of First Financial Northwest's stock at the time of the initial public offering at a price of $10.00 per share. The loan matures on October 8, 2022 and has a fixed interest rate of 4.88%.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and are allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to First Financial Northwest. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company's discretionary contributions to the ESOP and earnings on the ESOP assets. Annual principal and interest payments of $1.6 million were made by the ESOP during 2015, 2014, and 2013.

As shares are committed to be released from collateral, the Company reports compensation expense equal to the daily average market prices of the shares and the shares become outstanding for EPS computations. The compensation expense is accrued throughout the year.

A summary of key transactions for the ESOP for the periods indicated follows:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
ESOP contribution expense
$
1,400

 
$
1,216

 
$
1,087

Dividends on unallocated ESOP shares used to reduce ESOP contribution
210

 
197

 
132


Shares held by the ESOP at December 31, 2015, and 2014, are as follows: 
 
December 31,
 
2015
 
2014
 
(Dollars in thousands, except share data)
Allocated shares
931,040

 
818,187

Unallocated shares
761,760

 
874,613

Total ESOP shares
1,692,800

 
1,692,800

Fair value of unallocated shares
$
10,634

 
$
10,530


 
Stock-Based Compensation

In June 2008, First Financial Northwest shareholders approved the First Financial Northwest 2008 Equity Incentive Plan (“Plan”). The Plan provides for the grant of stock options, restricted stock, and stock appreciation rights.

Total compensation expense for the Plan for the years ended December 31, 2015, 2014, and 2013 was $440,000, $384,000, and $1.4 million, respectively. The related income tax benefit was $154,070, $134,000 and $496,000 for the years ended December 31, 2015, 2014, and 2013, respectively.

Stock Options

The Plan authorized the grant of stock options amounting to 2,285,280 shares to Company directors, advisory directors, officers, and employees. Option awards are granted with an exercise price equal to the market price of First Financial Northwest's common stock at the grant date. These option awards have a vesting period of five years, with 20% vesting on the anniversary date of each grant date, and a contractual life of ten years. Any unexercised stock options will expire ten years after the grant date, or sooner in the event of the award recipient’s death, disability or termination of service with the Company. First Financial Northwest has a policy of issuing new shares from authorized but unissued common stock upon the exercise of stock options. At December 31, 2015, remaining options for 591,756 shares of common stock were available for grant under the Plan.

The fair value of each option award is estimated on the grant date using a Black-Scholes model that uses the assumptions noted in the table below. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. Historical employment data is used to estimate the forfeiture rate. In previous years, First Financial Northwest elected to use a weighted-average of its peers’ historical stock price information in conjunction with its own stock price history due to the limited amount of history available regarding its stock price. Now that sufficient stock price information is available regarding its stock, First Financial Northwest is utilizing the historical volatility of its stock price over a specified period of time for the expected volatility assumption. First Financial Northwest bases the risk-free interest rate on the U.S. Treasury Constant Maturity Indices in effect on the date of the grant. First Financial Northwest elected to use the simplified method permitted by the Securities and Exchange Commission to calculate the expected term by setting the expected life at a midpoint of the vesting term of an option and the contractual term.
    
    
The fair value of options granted was determined using the following weighted-average assumptions as of the grant date for the periods indicated. 
 
Year Ended December 31,
 
2015
 
2014
 
2013
Annual dividend yield
1.77
%
 
1.86
%
 
1.35
%
Expected volatility
35.30

 
37.27

 
34.05

Risk-free interest rate
2.23

 
2.44

 
2.18

Expected term
10.0 years

 
10.0 years

 
8.1 years

Weighted-average grant date fair value per option granted
$
4.74

 
$
4.13

 
$
3.70


    
A summary of the Company’s stock option plan awards activity for the year ended December 31, 2015 follows: 
 
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Term in Years
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2014
929,260

 
$
9.51

 
—

 
$
—

Granted
80,000

 
12.98

 
—

 
—

Exercised
(125,000
)
 
7.48

 
—

 
—

Outstanding at December 31, 2015
884,260

 
10.11

 
4.93

 
3,403,707

Expected to vest assuming a 3% forfeiture rate over the vesting term
876,400

 
10.10

 
4.90

 
3,380,786

Exercisable at December 31, 2015
622,260

 
9.72

 
3.46

 
2,639,687



As of December 31, 2015, there was $926,000 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over the remaining weighted-average vesting period of 3.6 years.

Restricted Stock Awards

The Plan authorized the grant of restricted stock awards amounting to 914,112 shares to directors, advisory directors, officers and employees. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the grant date. The restricted stock awards’ fair value is equal to the value on the grant date. Shares awarded as restricted stock vest ratably over a five-year period beginning at the grant date with 20% vesting on the anniversary date of each grant date. At December 31, 2015, remaining restricted awards for 74,478 shares were available to be issued. Shares that have been awarded but have not yet vested are held in a reserve account until they are vested.

A summary of changes in nonvested restricted stock awards for the period ended December 31, 2015, follows: 
Nonvested Shares
 
Shares
 
Weighted-Average Grant Date  Fair Value
Nonvested at December 31, 2012
 
244,847

 
$
8.95

Granted
 
25,000

 
10.88

Vested
 
(156,047
)
 
9.72

Forfeited
 
(10,400
)
 
9.12

Nonvested at December 31, 2013
 
103,400

 
8.24

Vested
 
(27,800
)
 
7.64

Nonvested at December 31, 2014
 
75,600

 
8.47

Vested
 
(27,800
)
 
7.64

Nonvested at December 31, 2015
 
47,800

 
8.95

 
 
 
 
 
Expected to vest assuming a 3% forfeiture rate over the vesting term
 
46,366

 
 



As of December 31, 2015 there was $358,000 of total unrecognized compensation costs related to nonvested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of 2.0 years. The total fair value of shares vested during the years ended December 31, 2015, and 2014 were $212,000 and $212,000, respectively.