Note 14 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2025

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 14 - Commitments and Contingencies

First Fed is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally represent a commitment to extend credit in the form of loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

First Fed’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, is represented by the contractual notional amount of those instruments. First Fed uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Management does not anticipate any material loss as a result of these transactions.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established by the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. First Fed evaluates each customer’s creditworthiness on a case-by-case basis. First Fed did not incur any significant losses on its commitments for the years ended December 31, 2025, and 2024.

The following financial instruments were outstanding whose contract amounts represent credit risk at:

(dollars in thousands)	December 31, 2025		December 31, 2024
Commitments to grant loans	$	747	$	—
Standby letters of credit		408		2,017
Unfunded commitments under lines of credit or existing loans		167,489		163,827

The Company has future funding obligations related to partnership investments, with remaining off‑balance sheet commitments totaling $2.3 million.

Low-Income Housing Tax Credit Investments - The carrying value of the unconsolidated LIHTC investment was $4.1 million and $4.5 million at December 31, 2025 and 2024, respectively. During the years ended December 31, 2025 and 2024, the Company recognized tax benefits of $14,000 and $292,000 and proportional amortization of $13,000 and $251,000, respectively.

Total unfunded contingent commitments related to the Company’s LIHTC investment totaled $1.4 million and $2.4 million, at December 31, 2025 and 2024, respectively. The Company expects to fund LIHTC commitments of $1.3 million during the year ending  December 31, 2026, with the remaining commitment of $24,000 funded prior to December 31, 2027. There were no impairment losses on the Company’s LIHTC investment during the years ended  December 31, 2025 and 2024.

Legal contingencies - In the normal course of business, the Company may have various legal claims and other similar contingent matters outstanding for which a loss may be realized. For these claims, the Company establishes a liability for contingent losses when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. For claims determined to be reasonably possible but not probable of resulting in a loss, a liability will not be reserved but the amount of loss or a range of possible losses may be disclosed if the amount can be reasonably estimated.

Water Station Management Litigation

As the Company previously disclosed, on August 27, 2024, involuntary bankruptcy proceedings were commenced against Creative Technologies, LLC, Water Station Management, LLC ("Water Station Management") and Refreshing USA, LLC (collectively the "OpCo Debtors"), certain of which were borrowers of the Bank. In addition, on September 5, 2024, Ideal Property Investments LLC ("Ideal" and, together with the OpCo Debtors, the "Debtors"), also a borrower of the Bank, 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 the Bank, seeking to avoid certain transactions with the Bank under a theory of constructive fraudulent transfer or, in the alternative, to recharacterize them (the "Adversary Proceeding").

On July 17, 2025, the Bank, the OpCo Debtors, Ideal and the Joint Official Committee of Unsecured Creditors of the Debtors entered into a Settlement Agreement, Plan Support Agreement and Release (the "Settlement Agreement") to resolve the Adversary Proceeding and any other claims of the parties. Pursuant to the Settlement Agreement, the Bank agreed, in exchange for, among other things, a release of all claims of the parties to the Settlement Agreement, to (i) release certain liens against the property of the Debtors and (ii) make certain cash payments of not less than $2.87 million and not more than $5.74 million, with the amount within that range to be determined by the percentage of certain unsecured creditors of the OpCo Debtors that enter into a mutual release of all claims related to the Debtors with the Bank and the Company under the OpCo Debtors’ Chapter 11 plan of liquidation. The OpCo Debtors' Chapter 11 plan of liquidation was confirmed on September 9, 2025, with more than the 80% threshold of eligible creditors opting in to a mutual release under which they released claims against the Company in exchange for a reciprocal release, and the remainder of eligible creditors choosing not to release claims against the Company or obtain a reciprocal release.

The Bank subsequently paid the amounts required under the Settlement Agreement, utilizing $5.74 million of the $5.75 million previously reserved in the first quarter of 2025 as a noninterest expense. The Bank pursued reimbursement from its insurance carrier. The insurance carrier paid $3.3 million of legal and settlement fees directly to third parties. In addition, the Bank received a $1.7 million insurance reimbursement in October 2025 to offset costs associated with the litigation described above, which is included in other income.

Pursuant to the terms of the Settlement Agreement, the Bank maintains an unsecured creditors' claim in the amount of $30.6 million. The Bank is uncertain about the total amount that may be recovered from this claim through the bankruptcy proceeding and, therefore, has not established a receivable or income for this matter.

3|5|2 Capital Litigation

On June 10, 2025, 3|5|2 Capital GP LLC, on behalf of 3|5|2 Capital ABS Master Fund LP (collectively, "3|5|2 Capital"), filed a complaint (the "3|5|2 Complaint") against First Fed, in the Superior Court of the State of Washington for King County, arising from 3|5|2 Capital’s alleged investment in bonds of Water Station Management. The 3|5|2 Complaint alleges that Water Station Management and certain affiliated individuals and entities misappropriated over $100 million by using the proceeds from a bond offering to repay earlier investors and creditors, including the Bank, rather than for the disclosed purpose of expanding Water Station Management’s business. The 3|5|2 Complaint asserts claims against the Bank for aiding and abetting the alleged fraud, conspiracy to commit fraud, unjust enrichment, and constructive trust, and seeks various forms of relief, including not less than $106.9 million in compensatory damages plus interest, unspecified punitive damages, and attorneys' fees and costs. The Company strongly disputes the allegations contained in the 3|5|2 Complaint and is vigorously defending against the claims. On September 30, 2025, First Fed filed its Answer, Affirmative Defenses, and Counterclaims, which include a counterclaim alleging that 3|5|2 Capital aided and abetted a fraudulent scheme perpetrated by Ryan Wear, Water Station, and certain affiliated entities, causing damage to the Bank.

On January 30, 2026, First Fed filed its Amended Answer, Affirmative Defenses, and Counterclaims adding Leucadia Asset Management, LLC to the litigation with 3|5|2 Capital. The Bank is now waiting for a response.

Socotra REIT I Litigation

On October 17, 2025, Socotra REIT I, LLC filed a complaint (the "Socotra Complaint") against First Fed, in the Superior Court of the State of Washington for King County. The Socotra Complaint alleges that First Fed made misrepresentations, committed fraudulent acts, converted funds, and violated Washington’s Consumer Protection Act in connection with a $7.7 million commercial loan from Socotra to Ideal that paid down $4.0 million in First Fed secured obligations, and seeks unspecified damages including restitution, statutory penalties, and attorneys' fees and costs. The Company strongly disputes the allegations contained in the Socotra Complaint and intends to vigorously defend against the claims made therein. On December 8, 2025, First Fed filed its Answer and Affirmative Defenses. The Bank is now waiting for a response.

Significant group concentrations of credit risk - Concentration of credit risk is the risk associated with a lack of diversification, such as having substantial loan concentrations in a specific type of loan within First Fed’s loan portfolio, thereby exposing First Fed to greater risks resulting from adverse economic, political, regulatory, geographic, industrial, or credit developments. Loans to one borrower are subject to the state banking regulations general limitation of 20 percent of First Fed’s equity, excluding accumulated other comprehensive income (loss). At December 31, 2025 and 2024, First Fed’s most significant concentration of credit risk was in loans secured by real estate. These loans totaled approximately $1.25 billion and $1.33 billion, or 76.9% and 78.3%, of First Fed’s total loan portfolio at December 31, 2025 and 2024, respectively. Real estate construction, including land acquisition and land development, commercial real estate, multi-family, home equity, and one-to-four family residential loans, are included in the total loans secured by real estate for purposes of this calculation.

At December 31, 2025 and 2024, First Fed’s most significant investment portfolio exposure was with U.S. Government, its agencies, and Government-Sponsored Enterprises ("GSEs"). First Fed’s exposure, which results from positions in securities issued by the U.S. Government, its agencies, and securities guaranteed by GSEs, was $123.0 million and $134.7 million, or 43.4% and 38.0% of First Fed’s total investment portfolio (including FHLB stock), at December 31, 2025 and 2024, respectively. At  December 31, 2025 and 2024, First Fed's second most significant investment concentration of credit risk was from municipal bonds totaling $80.3 million and $77.9 million, or 28.3% and 22.0% of the total investment portfolio, respectively.