First Financial Northwest's chairman is stepping down to settle a contentious legal dispute with an activist investor.

Victor Karpiak agreed to resign his post as soon as Spencer Schneider, a representative of Stilwell Group, joins the board. Schneider will become a director as soon as he is approved by the Renton, Wash., company's regulators. Karpiak will resign from the board next September, the company said in a Thursday press release.

First Financial and Stilwell Group have been involved in a nasty legal battle since June. That's when Stilwell Group filed a lawsuit seeking to invalidate the results of the $973 million-asset company's board elections, in which Karpiak defeated Schneider.

The outside investor claimed that the results were bogus, disputing a decision by a proxy tabulation service to invalidate the votes encompassing 8 million shares in favor of Schneider. First Financial had contended that Carl T. Hagberg and Associates made the right call because Schneider had failed to sign a master ballot.

The lawsuit has been costing First Financial a considerable sum of money. In October, the company said that it incurred $868,000 in legal costs this year fighting Stilwell. The lawsuit was on a course for a January evidentiary hearing before the sides opted to settle.

First Financial will rack up more costs as a result of the settlement. The company agreed to reimburse a portion of Stilwell Group's proxy solicitation expenses tied to this year's annual meeting. Stilwell Group agreed to support the board's nominees for the next three annual elections.

"We are delighted that we have found a solution to this costly election dispute that, we believe, is in the best interests of our shareholders," Karpiak said in a press release. Joseph Stilwell, whose firm owns 9.4% of First Financial's outstanding shares, added that his company is "very happy that our candidate will be seated on the board."

This will be Schneider's second stint on the First Financial board. He resigned as a director last February after just a few weeks of service, citing concerns about the board's spending habits and suggesting that they replace refreshments with hard candy at the annual meeting.

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