Sound Financial Bancorp, Inc. (SFBC)

CIK: 0001541119. SIC: 6035 Savings Institution, Federally Chartered. Latest 10-K as of: 2026-03-18.

SIC breadcrumb: Finance, Insurance, And Real Estate > Depository Institutions > SIC 6035 Savings Institution, Federally Chartered

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1541119. Latest filing source: 0001541119-26-000008.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-18. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001541119.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-12. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001541119.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001541119-26-000018.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high. Filing date: 2026-05-12. Report date: 2026-03-31.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact but are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions, or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide range of factors including, but not limited to:

•adverse economic conditions in our market areas, and other markets where we have lending relationships;

•effects of employment levels, inflation, a recession, or slowed economic growth;

•changes in interest rate levels and volatility, and the timing and pace of such changes, including actions by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;

•the impact of inflation and related monetary and fiscal policy responses thereto, including their effects on consumer and business behavior;

•the effects of any federal government shutdown, debt ceiling standoff, or other fiscal uncertainties;

•changes in consumer spending, borrowing and savings habits;

•the risks of lending and investing activities, including delinquencies, write-offs and changes in our allowance for credit losses, and provision for credit losses;

•monetary and fiscal policies of the Federal Reserve and the U.S. Government and other governmental initiatives affecting the financial services industry;

•bank failures or adverse developments at other banks and related negative publicity about the banking industry on investor and depositor sentiment;

•fluctuations in the demand for loans, unsold homes, land and other properties;

•fluctuations in real estate values and both residential and commercial and multifamily real estate market conditions in our market area;

•our ability to access cost-effective funding, including maintaining the confidence of depositors;

•the possibility that unexpected outflows of deposits may require us to sell investment securities at a loss;

•our ability to control operating costs and expenses;

•secondary market conditions for loans and our ability to sell loans in the secondary market;

•results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to increase our allowance for credit losses, write- down asset values or increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits;

•the inability of key third-party providers to perform their obligations to us;

•our ability to attract and retain deposits, including the risk that changes to federal deposit insurance limits or coverage rules, or customer concerns regarding the safety of uninsured deposits, could adversely affect deposit stability;

•competitive pressures among financial services companies;

•our ability to successfully integrate into our operations any assets, liabilities, clients, systems, and management personnel we may acquire and our ability to realize related revenue synergies and expected cost savings and other benefits within the anticipated time frames or at all;

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

•our ability to adapt to rapid technological changes, including advancements related to artificial intelligence (“AI”), the use of AI models in credit decisioning, customer service, and operations, including risks of model error, bias, regulatory scrutiny under fair lending laws, and third-party AI dependencies, digital banking platforms, and cybersecurity;

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•risk associated with the evolving regulatory and market environment for digital assets and cryptocurrency, including potential impacts on customer behavior, deposit flows, and our ability to offer or support related products or services;

•changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Financial Accounting Standards Board, the U.S. Securities and Exchange Commission (the “SEC”), or the Public Company Accounting Oversight Board (“PCAOB”);

•legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax laws, in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and other governmental initiatives affecting the financial services industry and the availability of resources to address such changes;

•our ability to retain or attract key employees or members of our senior management team;

•costs and effects of litigation, including settlements and judgments;

•our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;

•environmental, social and governance matters;

•staffing fluctuations in response to product demand or corporate implementation strategies;

•our ability to pay dividends on and repurchase our common stock;

•the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;

•vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;

•geopolitical developments and international conflicts, or the imposition of new or increased tariffs and trade restrictions, any of which may disrupt financial markets, global supply chains, commodity prices, or economic activity in specific industry sectors;

•the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, domestic civil unrest and other external events;

•other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and

•the other risks described from time to time in our documents filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”), including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”).

We caution readers not to place undue reliance on any forward-looking statements. The factors listed above could materially affect our financial performance and cause our actual results for future periods to differ materially from any forward-looking statements expressed or implied with respect to future periods and could negatively affect our stock price performance.

We do not undertake, and specifically decline, any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the dates of such statements or to reflect the occurrence of anticipated or unanticipated events.

General

Sound Financial Bancorp, a Maryland corporation, is a bank holding company for its wholly owned subsidiary, Sound Community Bank. Substantially all of Sound Financial Bancorp’s business is conducted through Sound Community Bank, a Washington state-chartered commercial bank. As a Washington commercial bank that is not a member of the Federal Reserve System, the Bank’s regulators are the Washington Department of Financial Institutions and the Federal Deposit Insurance Corporation (the “FDIC”). As a bank holding company, Sound Financial Bancorp is regulated by the Federal Reserve. We also sell insurance products and services through Sound Community Insurance Agency, Inc., a wholly owned subsidiary of the Bank.

Sound Community Bank’s deposits are insured up to applicable limits by the FDIC. At March 31, 2026, Sound Financial Bancorp, on a consolidated basis, had total assets of $1.11 billion, net loans held-for-portfolio of $912.9 million, deposits of $968.5 million and stockholders’ equity of $110.4 million. The common stock of Sound Financial Bancorp is listed on the NASDAQ Capital Market under the symbol “SFBC.”  Our executive offices are located at 2400 3rd Avenue, Suite 150, Seattle, Washington, 98121.

Our principal business consists of attracting retail and commercial deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences (including home equity loans and lines of credit), commercial and multifamily real estate loans, construction and land loans, and consumer and commercial business loans. Our commercial business loans include unsecured lines of credit, secured term loans and lines of credit secured by inventory, equipment and accounts receivable. We also offer a variety of secured and unsecured consumer loan products, including manufactured home loans, floating home loans, automobile loans, boat loans and recreational vehicle loans. As part of our business, we focus on residential mortgage loan originations, a portion of which we sell to Fannie Mae and other investors and the remainder of which we retain for our loan portfolio consistent with our asset/liability objectives. We sell

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loans which conform to the underwriting standards of Fannie Mae (“conforming”) and retain the servicing of such loans in order to maintain the direct customer relationship and to generate noninterest income. Residential loans which do not conform to the underwriting standards of Fannie Mae (“non-conforming”) are either held in our loan portfolio or sold with servicing released. We originate and retain a significant amount of commercial real estate loans, including those secured by owner-occupied and nonowner-occupied commercial real estate, multifamily properties and mobile home parks, and construction and land development loans.

Critical Accounting Estimates

Certain of our accounting policies require management to make difficult, complex or subjective judgments, which may relate to matters that are inherently uncertain.  Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances.  Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, other changes in economic conditions and changes in the financial condition and performance of borrowers.  Management believes that its critical accounting estimates include determining the allowance for credit losses and accounting for mortgage servicing rights. There have been no material changes in the Company’s critical accounting policies and estimates as

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high. Filing date: 2026-03-18. Report date: 2025-12-31.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. The discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes included in Part II, Item 8 of this Form 10-K.

Overview

Our principal business consists of attracting retail and commercial deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences (including home equity loans and lines of credit), commercial and multifamily real estate, construction and land, and consumer and commercial business loans. Our commercial business loans include unsecured lines of credit and secured term loans and lines of credit secured by inventory, equipment and accounts receivable. We also offer a variety of secured and unsecured consumer loan products, including manufactured home loans, floating home loans, automobile loans, boat loans and recreational vehicle loans. As part of our business, we focus on residential mortgage loan originations, a portion of which we sell to Fannie Mae and other investors and the remainder of which we retain for our loan portfolio consistent with our asset/liability objectives. We sell loans which conform to the underwriting standards of Fannie Mae (“conforming”) in which we retain the servicing of the loan in order to maintain the direct customer relationship and to generate noninterest income. Residential loans which do not conform to the underwriting standards of Fannie Mae (“non-conforming”), are either held in our loan portfolio or sold with servicing released. 

We originated $32.0 million and $39.9 million of one-to-four family loans during the years ended December 31, 2025 and 2024, respectively. We had no purchases of one-to-four family loans during the years ended December 31, 2025 and 2024. During those two years, we sold $14.0 million and $14.2 million, respectively, of one-to-four family loans.

Our strategic plan targets consumers, small- and medium-sized businesses, and professionals within our market area for loans and deposits. In managing the size and concentrations of our loan portfolio, we focus on including a significant amount of commercial business and commercial and multifamily real estate loans. A significant portion of our commercial business and commercial and multifamily real estate loans have adjustable rates, higher yields and shorter terms, and higher credit risk than traditional residential fixed-rate mortgage loans.

Our commercial loan portfolio (commercial and multifamily real estate and commercial business loans) totaled $425.1 million or 46.8% of our loan portfolio at December 31, 2025, up from $387.1 million or 42.9% of our loan portfolio at December 31, 2024. Our consumer loan portfolio, which includes manufactured and floating homes and other consumer loans, was $147.0 million or 16.1% of our loan portfolio at December 31, 2025, compared to $145.3 million or 16.2% of our loan portfolio at December 31, 2024. 

Our operating revenues are derived principally from earnings on interest-earning assets, service charges and fees, and gains on the sale of loans. During 2025, the elevated interest rate environment continued to exert downward pressure on our net gain on sale of loans and contributed to higher borrowing costs, which modestly affected our net interest income and net interest margin. While interest expense on deposits also increased, the rates earned on our loan portfolio continued to reprice at higher yields, partially offsetting these pressures. Deposit costs began trending downward during the latter part of 2025 following rate reductions by the Federal Reserve Board.

To meet our funding requirements, we rely on a variety of sources, including retail and brokered deposits, FHLB advances, borrowings through the Federal Reserve, and cash received from loan and securities payments. We offer a broad range of deposit accounts, including savings, money market, NOW (negotiable order of withdrawal), interest-bearing and noninterest-bearing demand accounts, and certificates of deposit, providing customers with flexibility in interest rates and account terms to meet their financial needs.

The provision for credit losses, or the release of such provision, is essential for maintaining the ACL at a level sufficient to cover estimated lifetime credit losses in our loan portfolio, including unfunded loan commitments. An increase in our loan portfolio or a rise in estimated lifetime credit losses may result in additional provisions for credit losses, thereby decreasing net income. However, improvements in loan risk ratings, increased property values, or recoveries of previously charged-off amounts may partially or fully offset the required increase in the ACL due to factors such as loan growth or an increase in estimated lifetime losses on loans and unfunded loan commitments. We recorded a provision for credit losses of $127 thousand for the year ended December 31, 2025, consisting of a provision for credit losses on loans of $212 thousand and a release of provision for credit losses on unfunded commitments of $86 thousand, compared to a release of provision for credit losses of $120 thousand for the year ended December 31, 2024, consisting of a release of provision for credit losses on loans of $161

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thousand and a provision for credit losses on unfunded commitments of $41 thousand. The provision recorded in 2025 primarily reflected loan growth and changes in portfolio composition, partially offset by stable credit quality trends.

Our noninterest expenses consist primarily of salaries, employee benefits, incentive pay, expenses for occupancy, online and mobile services, marketing, professional fees, data processing, charitable contributions, FDIC deposit insurance premiums and regulatory expenses. Salaries and benefits consist primarily of the salaries paid to our employees, payroll taxes, directors' fees, retirement expenses, share-based compensation and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance and the cost of utilities.

Recent Accounting Standards

For a discussion of recent accounting standards, see “Note 2—Accounting Pronouncements Recently Issued or Adopted” in the Notes to Consolidated Financial Statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” of this report on Form 10-K.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP. In doing so, we must make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.

See "Note 1—Organization and Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in "Part II. Item 8. Financial Statements and Supplementary Data" of this report on Form 10-K for a summary of significant accounting policies.

Allowance for Credit Losses. The level of the ACL is established using the CECL approach for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts. The ACL consists of two elements: (1) identification of loans that do not share risk characteristics with collectively evaluated loan pools, which are individually analyzed for expected credit loss and (2) establishment of an ACL for collectively evaluated loan pools based upon loans that share similar risk characteristics.

We estimate the ACL using relevant and reliable information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and segment-specific peers provides the basis for the estimate of expected credit losses. Segments are based upon federal call report segmentation.

We continuously evaluate and update our critical accounting estimates and judgments based on changing conditions. As part of our ongoing enhancement of the ACL methodology, during the year ended December 31, 2025, we made changes to benchmark ratios and the annual loss driver analysis. This change in the ACL is not considered a change in accounting estimate as per ASC 250-10 provisions.

While our policies and procedures used to estimate the ACL, as well as the resulting provision for credit losses reported on the Consolidated Statements of Income, are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond our control, such as changes in projected economic conditions, real estate markets or particular industry conditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.

Our ACL analysis is prepared utilizing a qualitative scorecard framework, which establishes bounds for the estimation of loss between a minimum (“Low Watermark”) and a maximum (“High Watermark”) for each segment. The Low Watermark indicates zero credit losses. The High Watermark is established by utilizing the same historical loss rate model used to establish

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modified loss rates, assuming a worse-case economic scenario. Risk levels are categorized as minor, moderate, major, no change, and improvement, segmenting the gap between the Low Watermark and High Watermark.

In evaluating the results of the sensitivity analysis, the qualitative factor adjustment provided the largest change in the ACL. If all qualitative factors were adjusted from the base model to the High Watermark, the estimated ACL on loans would increase to $26.6 million (2.96%). However, considering all relevant information, management estimated pooled loan losses to range between the base model of $6.6 million (0.73%) and, with all qualitative factors assigned a minor risk level, $13.3 million (1.47%). This evaluation included an assessment of changes to business risks and alignment with the Company’s overall strategy and objectives. Management determined that the Company’s overall strategy and objectives remained constant during the quarter compared to the look-back period. The historical look-back period and loss rate serve as the foundation of the ACL methodology, considering both our loss history and peer loss rates. No historical or recent experience has indicated notable deviations from management’s assessments.

Mortgage Servicing Rights.  We record MSRs on loans sold to Fannie Mae with servicing retained, as well as on acquired servicing rights. We stratify our capitalized MSRs based on the type, term and interest rates of the underlying loans. MSRs are carried at fair value. The fair value is determined using a discounted cash flow analysis that incorporates assumptions for interest rates, prepayment speeds, weighted average life, and delinquency rates. All of these assumptions require a significant degree of management judgment. Changes in these assumptions could materially affect the fair value of our MSRs. We use a third party to assist us in the preparation of the analysis of the market value each quarter.

We performed a sensitivity analysis assuming permanent changes in market interest rates. We assumed changes in market interest rates of +/- 100 and 200 basis points. Under each scenario, we modified both the assumed prepayment speeds and the interest rate earned on float. Prepayment speeds were assumed to increase under declining rate scenarios and decrease under rising rate scenarios. Based on the modeling with these revised assumptions, the valuation of the mortgage servicing rights ranged from 56 basis points under the -200 basis point scenario to 121 basis points under the +200 basis point scenario. Historical experience and recent performance have not indicated material deviations from management’s assessments.

Business and Operating Strategies and Goals

Our goal is to deliver returns to stockholders by increasing higher-yielding assets (including consumer, commercial and multifamily real estate and commercial business loans), increasing lower-cost core deposit balances, managing expenses, managing problem assets and exploring expansion opportunities. We seek to achieve these results by focusing on the following objectives:

Maintaining Strong Asset Quality.  We believe that strong asset quality is a key to our long-term financial success. We are focused on monitoring existing performing loans, resolving nonperforming assets and selling foreclosed assets. Nonperforming assets were $6.1 million, or 0.56% of total assets, at December 31, 2025 compared to $7.5 million, or 0.75% of total assets, at December 31, 2024. We continually seek to reduce the level of nonperforming assets through collections, modifications and sales of OREO. We also take proactive steps to resolve our non-performing loans, including negotiating payment plans, forbearances, loan modifications and loan extensions on delinquent loans when such actions have been deemed appropriate. Our goal is to maintain or improve upon our level of nonperforming assets by managing all segments of our loan portfolio in order to proactively identify and mitigate risk.

Improving Earnings by Expanding Product Offerings. We intend to prudently maintain the percentage of our assets consisting of higher-yielding commercial and multifamily real estate and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest-rate fluctuations than one-to-four family mortgage loans, while remaining focused on residential lending. In addition, we continue to focus on consumer loan products, such as floating and manufactured home loans. With our long experience and expertise in residential lending, we believe we can capture mortgage banking opportunities and grow consumer deposits. We continue to develop correspondent relationships to sell nonconforming mortgage loans servicing released. We also intend to selectively add products to further diversify revenue sources and to capture more of each client's banking relationship by offering additional services. We continue to refine our products and services for additional business and to automate processes in an effort to improve customer service. We intend to further build relationships with medium and small businesses through new and improving existing service offerings, including remote deposit.

Emphasizing Lower Cost Core Deposits to Manage the Funding Costs of Our Loan Growth.  Our strategic focus is to emphasize total relationship banking with our clients to internally fund loan growth. We also seek to reduce our need for wholesale funding sources, including FHLB advances, through the continued growth of core deposits. We believe that a continued focus on client relationships will help increase the level of core deposits and retail certificates of deposit from consumers and businesses in our market area. We intend to increase demand deposits by growing retail and business banking

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relationships. New technology and services are generally reviewed for business development and cost saving opportunities. We continue to experience growth in client use of our online and mobile banking services, which allow clients to conduct a full range of services on a real-time basis, including balance inquiries, transfers and electronic bill paying, while providing them with greater flexibility and convenience in conducting their banking. In addition to our retail branches, we believe we maintain state of the art technology-based products, such as business cash management, business remote deposit products, business and consumer mobile banking applications and consumer remote deposit products. Total deposits increased to $948.9 million at December 31, 2025, from $837.8 million at December 31, 2024, with core deposits, which we define as non-time deposit accounts and time deposit accounts of less than $250 thousand, increasing $78.5 million to $809.5 million at December 31, 2025, from $731.0 million at December 31, 2024.

Maintaining Our Client Service Focus.  Exceptional service, local involvement (including volunteering and contributing to the communities where we do business) and timely decision-making are integral parts of our business strategy. Our employees understand the importance of delivering exemplary customer service and seeking opportunities to build relationships with our clients to enhance our market position and add profitable growth opportunities. We compete with other financial service providers by relying on the strength of our customer service and relationship banking approach, including developing an enhanced online banking user experience, significantly increasing usage and client satisfaction as identified by app scores, as well as implementing remote notary services for mortgage loan originations. We believe that one of our strengths is that our employees are also significant stockholders through our ESOP and 401(k) plans. We also offer incentives that are designed to reward employees for achieving high-quality client relationship growth.

Expanding Our Presence, Including Through Digital Channels and Streamlining Operations, Within Our Existing and Contiguous Market Areas and by Capturing Business Opportunities Resulting from Changes in the Competitive Environment.  We believe that opportunities currently exist within our market area to grow our franchise. We anticipate continued organic growth as the local economy and loan demand remain strong, through our marketing efforts and as a result of the opportunities created from the consolidation of financial institutions occurring in our market area. In addition, by delivering high-quality, client-focused products and services, we expect to attract additional borrowers and depositors and thus increase our market share and revenue generation. We continue to be disciplined as it pertains to future expansion, acquisitions and de novo branching focusing on the markets in Western Washington, which we know and understand.

Comparison of Financial Condition at December 31, 2025 and December 31, 2024

As of December 31,

2025

2024

Selected Financial Condition Data:

Total assets

$

1,092,173 

$

993,633 

Cash and cash equivalents

138,453 

43,641 

Total loans held for portfolio, net

896,928 

891,672 

Loans held-for-sale

542 

487 

AFS securities, at fair value

7,699 

7,790 

HTM securities, at amortized cost

1,892 

2,130 

Bank-owned life insurance (“BOLI”), net

23,327 

22,490 

OREO and repossessed assets, net

344 

— 

Mortgage servicing rights, at fair value

4,183 

4,769 

FHLB stock, at cost

1,060 

1,730 

Total deposits

948,875 

837,799 

Borrowings

10,000 

25,000 

Subordinated notes, net

7,801 

11,759 

Stockholders' equity

109,399 

103,666 

General.  Total assets increased by $98.5 million, or 9.9%, to $1.1 billion at December 31, 2025, from $993.6 million at December 31, 2024. This increase was primarily a result of higher balances of cash and cash equivalents and an increase in loans held-for-portfolio.

Cash and Securities.  Cash, cash equivalents, AFS securities and HTM securities increased by $94.5 million, or 176.4%, to $148.0 million at December 31, 2025 compared to the prior year-end. Cash and cash equivalents increased $94.8 million, or 217.3%, to $138.5 million at December 31, 2025 compared to the prior year-end due to higher deposit balances, including the

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effects of a strategic decision to utilize cash balances to sell reciprocal deposits at the end of 2024 and bring them back onto the balance sheet in early 2025, partially offset by an increase in loans held-for-portfolio and the partial repayment of borrowings and partial redemption of subordinated notes during the fourth quarter of 2025. AFS securities decreased $91 thousand, or 1.2%, to $7.7 million at December 31, 2025 and HTM securities decreased $238 thousand, or 11.2%, to $1.9 million at December 31, 2025, compared to the 2024 year end, primarily due to regularly scheduled payments and maturities, and net unrealized losses resulting from the increases in market interest rates during the past 12 months.

Loans.  Gross loans held-for-portfolio increased $5.8 million, or 0.6%, to $907.6 million at December 31, 2025 from $901.8 million at December 31, 2024. Loans held-for-sale increased to $542 thousand at December 31, 2025 from $487 thousand at December 31, 2024, primarily due to timing of originations.

The following table reflects the changes in the loan mix, excluding premiums and deferred fees, of our loan portfolio at December 31, 2025, as compared to December 31, 2024 (dollars in thousands):

December 31,

Amount

Percent

2025

2024

Change

Change

One-to-four family

$

253,841 

$

269,684 

$

(15,843)

(5.9)

%

Home equity

31,468 

26,686 

4,782 

17.9 

Commercial and multifamily

409,729 

371,516 

38,213 

10.3 

Construction and land

50,261 

73,077 

(22,816)

(31.2)

Manufactured homes

43,080 

41,128 

1,952 

4.7 

Floating homes

87,315 

86,411 

904 

1.0 

Other consumer

16,571 

17,720 

(1,149)

(6.5)

Commercial business

15,378 

15,605 

(227)

(1.5)

Total loans

$

907,643 

$

901,827 

$

5,816 

0.6 

Commercial and multifamily loans saw the largest increase, rising by $38.2 million, or 10.3%, driven by new originations and the conversion of construction projects to permanent financing, partially offset by pay-downs and normal payment amortization. Home equity loans grew by $4.8 million, or 17.9%, as demand for this product remains high with homeowners utilizing their home equity lines to access liquidity as opposed to paying off their lower rate mortgages. Manufactured home loans rose by $2.0 million, or 4.7%, reflecting affordability of these homes in the current market as well as internal efficiencies in how we process these loans. These increases were partially offset by declines in other loan categories. Construction and land loans experienced the largest decrease, declining by $22.8 million, or 31.2%, largely due to project completions and a slowdown in new financing activities amid continuing elevated interest rates, as well as the payoff of a $17.0 million loan that had been risk rated as special mention. One-to-four family loans declined by $15.8 million, or 5.9%, due to loan repayments exceeding new originations. Additionally, other consumer loans decreased by $1.1 million, or 6.5%.

The loan portfolio remained well-diversified at December 31, 2025, with commercial and multifamily real estate loans accounting for 45.1% of the total loan portfolio, one-to-four family real estate loans, including home equity loans, accounting for approximately 31.4% of the total loan portfolio and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounting for 16.1% of the total loan portfolio. Construction and land loans accounted for 5.5% of the total loan portfolio and commercial business loans accounted for the remaining 1.7% of the total loan portfolio at December 31, 2025.

At December 31, 2025, loans secured by commercial real estate represented 355.2% of CBLR Capital. While this level exceeds the 300% monitoring threshold established under interagency guidance for commercial real estate concentrations, the Company has not experienced growth in its commercial real estate portfolio of 50% or more over the preceding 36 months. Management monitors commercial real estate concentration levels in relation to capital and has implemented risk management practices, including underwriting standards and portfolio stress testing, designed to ensure that capital levels remain commensurate with the risks inherent in this portfolio segment.

At December 31, 2025 and 2024, there were $509 thousand and $526 thousand, respectively, of real estate secured loans that had loan-to-value ratios above supervisory guidelines.

Nonperforming Assets.  Nonperforming assets, comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans to troubled borrowers) and OREO and repossessed assets, decreased $1.4 million, or 18.2%, to $6.1 million, or 0.56% of total assets, at December 31, 2025 from $7.5 million, or 0.75% of total assets, at December 31, 2024. 

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The table below sets forth the amount of nonperforming assets at the dates indicated (dollars in thousands):

Nonperforming Assets

December 31,

2025

December 31,

2024

Amount

Change

Percent

Change

Total nonperforming loans

$

5,782 

$

7,491 

$

(1,709)

(22.8)

%

OREO and repossessed assets

344 

— 

344 

— 

Total nonperforming assets

$

6,126 

$

7,491 

$

(1,365)

(18.2)

%

The decrease in nonperforming assets reflects payoffs totaling $7.9 million, loans returning to accrual status of $335 thousand, and net charge-offs of $281 thousand, partially offset by the placement of $7.1 million of loans on nonaccrual status and $344 thousand of new OREO properties.

Total nonperforming loans were $5.8 million at December 31, 2025, with the largest nonperforming loan totaling $2.0 million and secured by a multi-family property, which was adequately collateralized. Commercial and multifamily loans represented $3.2 million, or 51.6% of total nonperforming loans, reflecting a concentration in larger relationships. At December 31, 2025, one-to-four family nonperforming loans totaled $1.6 million, or 26.1% of total nonperforming loans, with the remaining balance primarily comprised of manufactured home loans, home equity loans, and other consumer loans. OREO and repossessed assets totaled $344 thousand, or 5.6% of total NPAs, at December 31, 2025. Nonperforming loans were 0.64% of total loans at December 31, 2025, compared to 0.83% of total loans at December 31, 2024. No loans were 90 days or more past due and still accruing at either date.

Allowance for Credit Losses.  The following table reflects the adjustments in our ACL during the periods indicated (dollars in thousands):

Year Ended December 31,

2025

2024

ACL — Loans:

Balance at beginning of period

$

8,499 

$

8,760 

Charge-offs

(135)

(122)

Recoveries

29 

22 

Net charge-offs

(106)

(100)

 Provision for (release of) credit losses

212 

(161)

Balance at end of period

$

8,605 

$

8,499 

ACL - Unfunded Loan Commitments:

Balance at beginning of period

234 

193 

(Release of) provision for credit losses

(86)

41 

Balance at end of period

148 

234 

ACL

$

8,753 

$

8,733 

Ratio of net charge-offs during the period to average loans outstanding during the period

(0.01)

%

(0.01)

%

The ACL for loans increased $106 thousand, or 1.2%, to $8.6 million at December 31, 2025, from $8.5 million at December 31, 2024, while the ACL for unfunded loan commitments decreased $86 thousand, or 36.8% to $148 thousand at December 31, 2025, from $234 thousand at December 31, 2024. The changes in the balances were primarily due to updates to assumptions in the model related to our annual review completed during 2025, which included changes to benchmark ratios and the annual loss driver analysis, and a larger loan portfolio. Additionally, qualitative adjustments applied to certain loan segments, specifically consumer and construction loans, reflecting increased uncertainty in market conditions tied to the impact of tariffs and other external factors affecting our clients, contributed to the change in balances. Expected credit loss estimates consider various factors, including market conditions, borrower-specific information, projected delinquencies, and anticipated effects of economic trends on borrowers' ability to repay. See “Comparison of Results of Operations for the Years Ended December 31, 2025 and 2024 — Provision for Credit Losses.”

Mortgage Servicing Rights.  The fair value of MSRs was $4.2 million at December 31, 2025, compared to $4.8 million at December 31, 2024. We record MSRs on loans sold with servicing retained and upon acquisition of a servicing portfolio. MSRs are carried at fair value. If the fair value of our MSRs fluctuates significantly, our financial results could be materially impacted.

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The decrease in fair value from the prior year end is primarily due to a smaller servicing portfolio and an adjustment during 2025 related to interest rate declines and changes in valuation assumptions. See "Note 6—Mortgage Servicing Rights" in the Notes to Consolidated Financial Statements contained in "Part II. Item 8. Financial Statements and Supplementary Data" of this report on Form 10-K for a summary of the significant valuation assumptions.

Deposits. Total deposits increased $111.1 million to $948.9 million at December 31, 2025, compared to the prior year-end. The increase in total deposits primarily was the result of a $125.5 million, or 60.9%, increase in money market accounts. Management attributes this increase primarily to the strategic decision to sell reciprocal money market deposits at the end of 2024 and bring them back onto the balance sheet in early 2025, as well as interest rate sensitive clients moving a portion of their non-operating deposit balances from lower interest-bearing demand and savings accounts into higher interest-bearing money market accounts. Certificate accounts increased $3.8 million, or 1.3%, to $299.6 million at December 31, 2025, compared to the 2024 year-end. Interest-bearing demand and saving accounts decreased $16.5 million, or 11.6%, and $1.8 million, or 2.9%, respectively, from December 31, 2024 to December 31, 2025. Noninterest-bearing demand accounts (excluding escrow accounts) decreased $267.5 thousand, or 0.2%, in 2025, compared to 2024.

A summary of deposit accounts with the corresponding weighted-average cost at December 31, 2025 and 2024 is presented below (dollars in thousands):

December 31, 2025

December 31, 2024

Amount

Wtd. Avg. Rate

Amount

Wtd. Avg. Rate

Noninterest-bearing demand

$

129,828 

— 

%

$

130,095 

— 

%

Interest-bearing demand

125,634 

0.27 

142,126 

0.34 

Savings

59,478 

0.10 

61,252 

0.10 

Money market

331,604 

3.13 

206,067 

3.60 

Certificates of deposit

299,593 

3.89 

295,822 

4.57 

Escrow(1)

2,738 

— 

2,437 

— 

Total

$

948,875 

2.31 

%

$

837,799 

2.63 

%

(1)Escrow balances shown in noninterest-bearing deposits on the Consolidated Balance Sheets.

Scheduled maturities of time deposits at December 31, 2025, are as follows (in thousands):

Year Ending December 31,

Amount

2026

$

270,638 

2027

14,587 

2028

12,130 

2029

403 

2030

1,835 

Thereafter

— 

$

299,593 

Savings, demand, and money market accounts have no contractual maturity. Certificates of deposit have maturities of five years or less.

Deposit amounts in excess of $250,000 are not federally insured. As of December 31, 2025, uninsured deposits totaled $184.7 million, which represented 19.5% of total deposits, as compared to uninsured deposits of $167.3 million, or 20.0% of total deposits as of December 31, 2024. The aggregate amount of time deposits in denominations of more than $250,000 at December 31, 2025 and December 31, 2024, totaled $112.4 million and $90.9 million, respectively. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Borrowings.  FHLB advances totaled $10.0 million at December 31, 2025, down from $25.0 million at December 31, 2024, due to the early repayment of a $15.0 million FHLB advance during the fourth quarter of 2025. FHLB advances are primarily used to support organic loan growth and maintain liquidity in line with our asset/liability objectives. Outstanding FHLB advances at December 31, 2025 mature in early 2028. Subordinated notes, net, decreased to $7.8 million at December 31, 2025 from $11.8 million at December 31, 2024, reflecting a $4.0 million partial redemption on the first scheduled repricing date of October 1, 2025, as part of a strategic decision to reduce higher cost debt and repurpose cash. For additional information regarding our

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borrowings, see “Note 10—Borrowings, FHLB Stock and Subordinated Notes” in the Notes to Consolidated Financial Statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” of this report on Form 10-K.

Stockholders' Equity.  Total stockholders’ equity increased $5.7 million, or 5.5%, to $109.4 million at December 31, 2025, from $103.7 million at December 31, 2024. This increase primarily reflects $7.2 million in net income for the year ended December 31, 2025, $303 thousand in share-based compensation, $198 thousand in unrealized gains on our securities portfolio resulting in other comprehensive income, net of tax, and $151 thousand in common stock options exercised, partially offset by the payment of cash dividends of $1.9 million to common stockholders and stock surrendered of $130 thousand to satisfy tax withholding obligations upon the vesting of restricted stock during the year ended December 31, 2025.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield for the period they have been on nonaccrual (dollars in thousands).

Year Ended December 31,

2025

2024

Average

Outstanding

Balance

Interest

Earned/

Paid

Yield/

Rate Annualized

Average

Outstanding

Balance

Interest

Earned/

Paid

Yield/

Rate Annualized

Interest-earning assets:

Loans receivable(1)(2)

$

902,033 

$

52,950 

5.87 

%

$

896,690 

$

50,499 

5.63 

%

Investments

11,354 

477 

4.20 

12,468 

508 

4.07 

Cash and cash equivalents

99,482 

4,130 

4.15 

124,259 

6,367 

5.12 

Total interest-earning assets (2)

1,012,869 

57,557 

5.68 

%

1,033,417 

57,374 

5.55 

Interest-bearing liabilities:

Savings and money market accounts

347,413 

9,012 

2.59 

316,004 

9,145 

2.89 

Demand and NOW accounts

134,543 

410 

0.30 

151,528 

568 

0.37 

Certificate accounts

292,514 

11,486 

3.93 

312,751 

14,363 

4.59 

Subordinated notes

10,774 

701 

6.51 

11,740 

672 

5.72 

Borrowings

23,769 

1,021 

4.30 

37,623 

1,624 

4.32 

Total interest-bearing liabilities

809,013 

22,630 

2.80 

%

829,646 

26,372 

3.18 

%

Net interest income

$

34,927 

$

31,002 

Net interest rate spread

2.89 

%

2.37 

%

Net earning assets

$

203,856 

$

203,771 

Net interest margin

3.45 

%

3.00 

%

Average interest-earning assets to average interest-bearing liabilities

125.20 

%

124.56 

%

Total deposits

900,746 

20,908 

2.32 

%

911,424 

24,076 

2.64 

%

Total funding(3)

935,289 

22,630 

2.42 

%

960,787 

26,372 

2.74 

%

(1) Includes loans on nonaccrual status.

(2) Calculated net of deferred loan fees, loan discounts and loans in process.

(3) Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

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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 changes related to outstanding balances and changes due to 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 (dollars in thousands).

Year Ended December 31,

2025 vs. 2024

Increase (Decrease) due to

Total

Increase (Decrease)

Volume

Rate

Interest-earning assets:

Loans

$

314 

$

2,137 

$

2,451 

Investments

(47)

16 

(31)

Interest-bearing cash

(1,029)

(1,208)

(2,237)

Total interest-earning assets

(762)

945 

183 

Interest-bearing liabilities:

Savings and Money Market accounts

815 

(948)

$

(133)

Demand and NOW accounts

(52)

(106)

(158)

Certificate accounts

(795)

(2,082)

(2,877)

Subordinated notes

(63)

92 

29 

Borrowings

(595)

(8)

(603)

Total interest-bearing liabilities

$

(690)

$

(3,052)

$

(3,742)

Change in net interest income

$

3,925 

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Comparison of Results of Operation for the Years Ended December 31, 2025 and 2024

Year Ended December 31,

2025

2024

Selected Operations Data:

Total interest income

$

57,557 

$

57,374 

Total interest expense

22,630 

26,372 

Net interest income

34,927 

31,002 

Provision for (release of) credit losses

127 

(120)

Net interest income after provision for (release of) loan losses

34,800 

31,122 

Service charges and fee income

2,669 

2,620 

Earnings on cash surrender value of BOLI

837 

625 

Mortgage servicing income

1,046 

1,118 

Fair value adjustment on mortgage servicing rights ("MSRs")

(711)

(4)

Net gain on sale of loans

260 

258 

Other income

(137)

38 

Total noninterest income

3,964 

4,655 

Salaries and benefits

16,708 

17,590 

Operations expense

5,973 

5,894 

Occupancy expense

1,743 

1,665 

Net loss (gain) and expenses on OREO and repossessed assets

37 

(31)

Other noninterest expense

5,631 

5,013 

Total noninterest expense

30,092 

30,131 

Income before provision for income taxes

8,672 

5,646 

Provision for income taxes

1,514 

1,006 

Net income

$

7,158 

$

4,640 

General. Net income increased $2.5 million, or 54.3%, to $7.2 million, or $2.77 per diluted common share, for the year ended December 31, 2025, compared to $4.6 million, or $1.80 per diluted common share, for the year ended December 31, 2024. The increase was primarily a result of a $3.9 million increase in net interest income, partially offset by a $247 thousand increase in the provision for credit losses, a $691 thousand decrease in noninterest income and a $508 thousand increase in provision for income taxes.

Interest Income.  Interest income increased $183 thousand, or 0.3%, to $57.6 million for the year ended December 31, 2025, from $57.4 million for the year ended December 31, 2024, due to an increase in the yield earned on interest earning assets, offset by a lower average balance of interest earning assets.

Interest income on loans increased $2.5 million, or 4.9%, to $53.0 million for the year ended December 31, 2025, compared to $50.5 million for the year ended December 31, 2024, driven by a higher average balance of total loans and a 24 basis points increase in the average yield on loans. The average balance of total loans was $902.0 million for the year ended December 31, 2025, compared to $896.7 million for the year ended December 31, 2024, resulting primarily from increased average balances in commercial and multifamily, home equity, floating homes and manufactured home loans. The average yield on total loans was 5.87% for the year ended December 31, 2025, compared to 5.63% for the year ended December 31, 2024. The average yield on total loans increased primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates.

Interest income on the investment portfolio decreased $31 thousand, or 6.10%, to $477 thousand for the year ended December 31, 2025, compared to $508 thousand for the year ended December 31, 2024. The decrease was due to lower average balances, partially offset by higher average yields. The average yield on investments was 4.20% for the year ended December 31, 2025, compared to 4.07% for the year ended December 31, 2024, primarily due to the impact of a partial paydown on a lower - yielding investment during the year.

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Interest income on cash and cash equivalents decreased $2.2 million, or 35.1%, to $4.1 million for the year ended December 31, 2025, compared to $6.4 million for the year ended December 31, 2024. The decrease was due to lower average yields and lower average balances. The average yield on cash and cash equivalents was 4.15% for the year ended December 31, 2025, compared to 5.12% for the year ended December 31, 2024, primarily due to the impact of lower market interest rates during the year. The average balance of cash and cash equivalents was $99.5 million for the year ended December 31, 2025, compared to $124.3 million for the year ended December 31, 2024. The decrease in the average balance of cash and cash equivalents was primarily due to the partial repayment of borrowings and partial redemption of subordinated notes during 2025, as well as an increase in loans held-for-portfolio, partially offset by an increase in deposits.

Interest Expense.  Interest expense decreased $3.7 million, or 14.2%, to $22.6 million for the year ended December 31, 2025, from $26.4 million for the year ended December 31, 2024, primarily as a result of a decrease in the overall average balances and costs of deposits and borrowings.

Interest expense on deposits decreased $3.2 million, or 13.2%, to $20.9 million for the year ended December 31, 2025, compared to $24.1 million for the year ended December 31, 2024. The decrease was the result of a decrease in the average balance of certificate accounts and demand and NOW accounts, as well as lower average rates paid on all categories of interest-bearing deposits, reflecting lower market interest rates, offset slightly by a $31.4 million increase in the average balance of savings and money market accounts. The average cost of total deposits, including noninterest bearing deposits, decreased 32 basis points to 2.32% for the year ended December 31, 2025, from 2.64% for the year ended December 31, 2024.

Interest expense on borrowings, comprised solely of FHLB advances, was $1.0 million for the year ended December 31, 2025, compared to $1.6 million for the year ended December 31, 2024, reflecting the decreased use of FHLB advances to supplement our liquidity needs. The cost of FHLB advances decreased two basis points to 4.30% for the year ended December 31, 2025, compared to 4.32% for the year ended December 31, 2024. The average balance of FHLB advances was $23.8 million for the year ended December 31, 2025, compared to $37.6 million for the year ended December 31, 2024. Interest expense on subordinated notes was $701 thousand for the year ended December 31, 2025, compared to $672 thousand for the year ended December 31, 2024. Interest expense on our subordinated notes increased despite a lower average balance, due to the notes converting to variable-rate debt that reprices on a quarterly basis from the previous fixed-rate period.

Net Interest Income.  Net interest income increased $3.9 million, or 12.7%, to $34.9 million for the year ended December 31, 2025, from $31.0 million for the year ended December 31, 2024. Net interest margin was 3.45% and 3.00% for the year ended December 31, 2025 and 2024, respectively. The increase in net interest income primarily resulted from higher yields earned on interest-earning assets and lower average rates paid on all categories of interest-bearing deposits, partially offset by lower average balances of interest-earning assets and all categories of interest-bearing deposits. The increase in net interest margin primarily was due to a decline in funding costs due to declines in market interest rates, as well as an increase in the average yields earned on loans as our portfolio continued to reprice at higher rates.

During 2025, the Federal Open Market Committee of the Federal Reserve (“FOMC”) lowered the target range for the federal funds rate in response to continued moderation in inflation and evolving economic conditions. The FOMC reduced the target range by 75 basis points, from 4.25% - 4.50% at December 31, 2024, to 3.50% - 4.25% by year-end 2025. All reductions occurred between September and December 2025. These rate decreases contributed to lower funding costs during the latter part of the year while interest income on variable-rate loans gradually adjusted to higher market rates earlier in 2025.

Provision for Credit Losses. 

The following table reflects the components of the provision for (release of) credit losses during the periods indicated (dollars in thousands):

Year Ended December 31,

2025

2024

Provision for (release of) credit losses on loans

$

212 

$

(161)

(Release of) provision for credit losses on unfunded loan commitments

(86)

41 

Provision for (release of) credit losses

$

126 

$

(120)

The change in the provision for (release of) credit losses for 2025 from 2024 primarily reflects updates to assumptions in the model related to our annual review completed during 2025, which included changes to benchmark ratios and the annual loss driver analysis, and a larger loan portfolio. Also, additional qualitative adjustments were applied to certain loan segments, specifically consumer and construction loans, reflecting increased uncertainty in market conditions tied to the impact of tariffs

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and other external factors affecting our clients. Net charge-offs for the year ended December 31, 2025 totaled $106 thousand, compared to net charge-offs of $100 thousand for the year ended December 31, 2024.

Under CECL, the provision for credit losses for the year ended December 31, 2025 reflects assumptions about the economic environment at the local, national, and global levels, with expected loss estimates considering factors, such as customer-specific information, changes in risk ratings, projected delinquencies, and borrowers’ ability to repay.

While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not have a material adverse impact on our financial condition and results of operations. A deterioration in national and local economic conditions due to such factors as inflation, a recession or slowed economic growth, among others, may lead to a material increase in the provision for credit losses, which could have a material adverse impact on our financial condition and results of operations. In addition, the determination of the amount of our ACL is subject to review by bank regulators as part of the routine examination process, which may result in adjustments to the ACL based upon their judgment of information available to them at the time of their examination.

Noninterest Income. 

Year Ended December 31,

Amount

Change

Percent

Change

2025

2024

Service charges and fee income

$

2,669 

$

2,620 

$

49 

1.9 

%

Earnings on cash surrender value of BOLI

837 

625 

212 

33.9 

Mortgage servicing income

1,046 

1,118 

(72)

(6.4)

Fair value adjustment on MSRs

(711)

(4)

(707)

17,675.0 

Net gain on sale of loans

260 

258 

2 

0.8

Other income

$

(137)

$

38 

$

(175)

(460.5)

%

Total noninterest income

$

3,964 

$

4,655 

$

(691)

(14.8)

%

Noninterest income decreased $691 thousand, or 14.8%, to $4.0 million for the year ended December 31, 2025, compared to $4.7 million for the year ended December 31, 2024, primarily as a result of:

•a $707 thousand decrease in fair value adjustment on mortgage servicing rights due to changes in valuation assumptions associated with interest rate movements compared to the prior year and an overall smaller servicing portfolio;

•a $175 thousand decrease in other income due to losses recognized on the disposal of ITMs decommissioned or replaced during 2025 compared to a gain on disposal of assets in 2024 due to insurance claims on the loss of fully depreciated assets; and

•a $72 thousand decline in mortgage servicing income as a result of a smaller servicing portfolio.

These decreases were partially offset by:

•a $212 thousand increase in earnings from BOLI, primarily due to the strategic decision to surrender and exchange existing policies into higher yielding policies in the first quarter of 2025, with the benefit of improved yields continuing throughout 2025.

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Noninterest Expense

Year Ended December 31,

Amount

Change

Percent

Change

2025

2024

Salaries and benefits

$

16,708 

$

17,590 

$

(882)

(5.0)

%

Operations

5,973 

5,894 

79 

1.3 

Regulatory assessments

610 

787 

(177)

(22.5)

Occupancy

1,743 

1,665 

78 

4.7 

Data processing

5,021 

4,226 

795 

18.8 

Net loss (gain) and expenses on OREO and repossessed assets

37 

(31)

68 

(219.4)

Total noninterest expense

$

30,092 

$

30,131 

$

(39)

(0.1)

%

Noninterest expense was $30.1 million during the years ended December 31, 2025 and 2024. While overall noninterest expense remained flat, there were fluctuations within certain expense categories, as noted below:

•an $882 thousand decrease in salaries and benefits due to a reduction in incentive compensation, partially offset by higher expense related to our employee stock ownership plan resulting from increased contributions during 2025; and

•a $177 thousand decrease in regulatory assessments, reflecting lower than expected exam costs, as well as reduced quarterly assessments resulting from a lower rate applied to a lower average asset balance.

These decreases were partially offset by:

•a $795 thousand increase in date processing due to various project implementations that began amortizing in the third quarter of 2024, as well as new software technology being deployed in 2025 that continues to streamline our operations;

•a $79 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing;

•a $78 thousand increase in occupancy due to higher property charges and maintenance fees recognized due primarily to repair work performed on the decommission of ITMs; and

•a $68 thousand increase in net loss (gain) on OREO and repossessed assets as the current year reflected a net loss on new property additions in 2025 compared to a net gain in the prior year.

The efficiency ratio for the year ended December 31, 2025 was 77.38%, compared to 84.50% for the year ended December 31, 2024. The improvement in the efficiency ratio was due to higher net interest income in 2025, partially offset by lower noninterest income in the current year.

Income Tax Expense. The provision for income taxes increased $508 thousand, or 50.5% to $1.5 million for the year ended December 31, 2025, compared to $1.0 million for the year ended December 31, 2024 due to higher pre-tax income. The effective tax rates for the years ended December 31, 2025 and 2024 were 17.5% and 17.8%, respectively. The effective tax rate was lower in 2025 as a result of adjustments to our deferred tax asset related to leases and vacation expense, partially offset by an increase in taxable earnings on BOLI in 2025 resulting from the surrender and exchange of existing BOLI policies into higher -yielding policies.

On July 4, 2025, the President of the United States signed and enacted the One Big Beautiful Bill Act (“OBBBA”) into law. Except for certain provisions, the OBBBA is effective for tax years beginning on or after January 1, 2025. The tax and spending legislation permanently extends key business tax breaks originally enacted under the 2017 Tax Cuts and Jobs Act. The law had minimal impact on the income tax provision.

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Capital and Liquidity

Capital. Stockholders’ equity totaled $109.4 million at December 31, 2025 and $103.7 million at December 31, 2024. In addition to net income of $7.2 million, other sources of capital during 2025 included $303 thousand related to stock-based compensation, $198 thousand of other comprehensive income, net of tax, and $151 thousand in proceeds from stock option exercises. Uses of capital during 2025 included $1.9 million of dividends paid on common stock and $130 thousand of stock surrendered to satisfy tax withholding obligations upon the vesting of restricted stock awards.

We paid quarterly dividends aggregating $0.76 per common share during the year ended December 31, 2025 and quarterly dividends aggregating $0.76 per common share during the year ended December 31, 2024. This equates to a dividend payout ratio of 27.2% in 2025 and 42.0% in 2024. The Company expects to continue its current practice of paying quarterly cash dividends on its common stock, subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason. Assuming continued payment of cash dividends during 2026 at the current quarterly dividend rate of $0.21 per share, our total dividend paid each quarter would be approximately $539 thousand based on the number of our outstanding shares at December 31, 2025. The dividends, if any, we may pay in the future may be limited as more fully discussed under “Business—How We Are Regulated—Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of this Form 10-K.

Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to stockholders. Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. In January 2024, the Board of Directors approved a stock repurchase program authorizing the Company to purchase up to $1.5 million of the Company’s issued and outstanding common stock over a period of 12 months, which expired on January 26, 2025. The Board did not extend the stock repurchase plan that expired on January 26, 2025, nor did it adopt a new stock repurchase plan. See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” contained in Item 5, Part II of this Form 10-K for additional information relating to stock repurchases.

Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of favorable movements in market interest rates. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to manage cash flows and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flows from securities, sales of fixed rate residential mortgage loans in the secondary market and federal funds sold. Liability liquidity generally is provided by access to funding sources which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.

Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

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As of December 31, 2025, we had $146.2 million in cash, cash equivalents and AFS securities, and $542 thousand in loans held-for-sale. At December 31, 2025, we had the ability to borrow up to $187.7 million in FHLB advances (in addition to FHLB advances outstanding at that date) and up to $18.5 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements. We had $10.0 million in outstanding advances with the FHLB at December 31, 2025 and no outstanding borrowings with the Federal Reserve at December 31, 2025. We also had available $20.0 million of credit facilities with other financial institutions, with no balance outstanding at December 31, 2025. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible. As of December 31, 2025, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us. For additional details, see “Note 10—Borrowings, FHLB Stock and Subordinated Notes” in the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

In the ordinary course of business, we enter into contractual obligations and have additional commitments to make future payments. These include payments related to (i) short and long-term borrowings (Note 10—Borrowings, FHLB Stock and Subordinated Notes), (ii) time deposits with stated maturity dates (Note 9—Deposits) (iii) operating leases (Note 12—Leases) and (iv) commitments to extend credit and standby letters of credit (Note 18—Commitments and Contingencies).

We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises and equipment during the year ending December 31, 2026 that would materially impact liquidity.

Sound Financial Bancorp is a separate legal entity from Sound Community Bank and must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to Sound Community Bank), Sound Financial Bancorp is responsible for paying for any stock repurchases, dividends declared to its stockholders, interest and principal on outstanding holding company indebtedness, and other general corporate expenses.

Sound Financial Bancorp is a holding company and does not conduct operations; its sources of liquidity are generally dividends up-streamed from Sound Community Bank, interest on investment securities, if any, and borrowings from outside sources. Banking regulations may limit the dividends that may be paid to Sound Financial Bancorp by Sound Community Bank. See “Business — How We Are Regulated — Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of this Form 10-K.

In 2020, the Company completed a private placement of $12.0 million in aggregate principal of subordinated notes resulting in net proceeds, after placement fees and offering expenses, of approximately $11.6 million. The Company contributed $5.5 million of the net proceeds from the sale of the subordinated notes to the Bank and retained the remaining net proceeds to be used for general corporate purposes. During 2025, the Bank paid $7.2 million in dividends to the Company to cover expenses, including a $4.0 million partial redemption of the subordinated notes on October 1, 2025. At December 31, 2025, Sound Financial Bancorp, on an unconsolidated basis, held $1.4 million in cash, noninterest-bearing deposits, and liquid investments generally available for its cash needs.

See also the “Consolidated Statements of Cash Flows” included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K, for additional information regarding our sources and use of funds.

Regulatory Capital. Sound Community Bank is subject to minimum capital requirements imposed by regulations of the FDIC. Capital adequacy requirements are quantitative measures established by regulation that require Sound Community Bank to maintain minimum amounts and ratios of capital. Based on its capital levels at December 31, 2025, Sound Community Bank exceeded these requirements at that date. Consistent with our goals to operate a sound and profitable organization, our policy is for Sound Community Bank to maintain a "well-capitalized" status under the prompt corrective action capital categories of the FDIC.

Beginning January 2020, the Bank elected to use the CBLR framework. A bank that elects to use the CBLR framework as provided for in the Economic Growth, Regulatory Relief and Consumer Protection Act will generally be considered "well-capitalized" and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio

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greater than 9.0%. At December 31, 2025, the Bank’s CBLR was 10.91%, which exceeded the minimum requirements. For additional details, see “Note 16—Capital” in the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" and "Item 1. Business—How We Are Regulated—Regulation of Sound Community Bank—Capital Rules" of this Form 10-K.

For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank-only basis and the Federal Reserve expects the holding company's subsidiary banks to be "well-capitalized" under the prompt corrective action regulations. If Sound Financial Bancorp were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2025, Sound Financial Bancorp would have exceeded all regulatory capital requirements. The estimated CBLR calculated for Sound Financial Bancorp at December 31, 2025 was 10.28%.