First Northwest Bancorp 10-Q

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 other than the matter discussed below. On August 27, 2024, involuntary bankruptcy proceedings were commenced against Creative Technologies, LLC, Water Station Management, LLC and Refreshing USA, LLC (collectively the “OpCo Debtors”), certain of which were borrowers of First Fed. In addition, on September 5, 2024, Ideal Property Investments LLC (“Ideal”), also a borrower of First Fed, filed a voluntary petition for bankruptcy in the United States Bankruptcy Court for the Eastern District of Washington. On November 8, 2024, Ideal commenced an adversary proceeding in such bankruptcy proceedings against First Fed (the “Adversary Proceeding”), seeking to avoid certain transactions with First Fed under a theory of constructive fraudulent transfer or, in the alternative, to recharacterize them. Following commencement of the Adversary Proceeding and based on the facts and allegations asserted therein, First Fed determined, in light of its collateral position, that it was not probable that a liability had been incurred and therefore did not establish a legal reserve with respect to the Adversarial Proceeding. A judicial settlement conference was scheduled to begin on April 30, 2025 in which First Fed, the OpCo Debtors, and the Committee of Unsecured Creditors for the OpCo Debtors (the “Committee”) agreed to participate, with the purpose of resolving the Adversary Proceeding and all related claims. On April 27, 2025, the OpCo Debtors and the Committee raised previously unasserted claims relating to First Fed in connection with financial misconduct alleged against Ideal and the OpCo Debtors. As a result of this development, First Fed subsequently reevaluated its collateral position. Additionally, a legal reserve of $5.8 million was established for this matter and is included in other noninterest expense for the quarter ended March 31, 2025. Item 1A. Risk Factors There have been no material changes to the risk factors set forth in Part I. Item 1A of the Company's 2024 Form 10-K.