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Sound Financial Bancorp
SFBC
#9429
Rank
$99.24 M
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$41.72
Share price
0.48%
Change (1 day)
-16.63%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Sound Financial Bancorp
  2. Quarterly Reports (10-Q)
  3. Submitted on 2026-05-12

Sound Financial Bancorp - 10-Q quarterly report FY


Text size:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to
Commission File Number: 001-35633
Sound Financial Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Maryland45-5188530
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2400 3rd Avenue, Suite 150, Seattle, Washington
98121
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:   (206) 448-0884
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueSFBCThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
 Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
As of May 9, 2026, there were 2,566,069 shares of the registrant’s common stock outstanding. 

SOUND FINANCIAL BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
 Page Number
PART I    FINANCIAL INFORMATION 
 
3
4
5
6
7
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27
42
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43
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43
43
43
43
44
45

2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share and per share amounts)
 March 31,
2026		December 31,
2025
ASSETS  
Cash and cash equivalents$137,984 $138,453 
Available-for-sale (“AFS”) securities, at fair value (amortized cost of $8,690 and $8,770 as of March 31, 2026 and December 31, 2025, respectively)
7,517 7,699 
Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $1,528 and $1,578 at March 31, 2026 and December 31, 2025, respectively)
1,884 1,892 
Equity securities5,000 — 
Loans held-for-sale281 542 
Loans held-for-portfolio921,518 905,533 
Allowance for credit losses (“ACL”) on loans(8,635)(8,605)
Total loans held-for-portfolio, net912,883 896,928 
Accrued interest receivable3,888 3,771 
Bank-owned life insurance (“BOLI”), net23,747 23,327 
Other real estate owned (“OREO”) and repossessed assets, net99 344 
Mortgage servicing rights (“MSRs”), at fair value4,096 4,183 
Federal Home Loan Bank ("FHLB") stock, at cost1,120 1,060 
Premises and equipment, net4,168 4,239 
Right of use assets3,133 3,423 
Other assets6,251 6,312 
Total assets$1,112,051 $1,092,173 
LIABILITIES
Deposits
Interest-bearing$837,409 $816,309 
Noninterest-bearing demand131,092 132,566 
Total deposits968,501 948,875 
Borrowings10,000 10,000 
Accrued interest payable496 674 
Lease liabilities3,364 3,671 
Other liabilities8,839 10,366 
Advance payments from borrowers for taxes and insurance2,625 1,387 
Subordinated notes, net7,812 7,801 
Total liabilities1,001,637 982,774 
COMMITMENTS AND CONTINGENCIES (NOTE 7)— — 
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding
— — 
Common stock, $0.01 par value, 40,000,000 shares authorized, 2,568,043 and 2,567,953 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively
25 25 
Additional paid-in capital28,797 28,737 
Retained earnings82,518 81,483 
Accumulated other comprehensive loss, net of tax(926)(846)
Total stockholders’ equity110,414 109,399 
Total liabilities and stockholders’ equity$1,112,051 $1,092,173 
See Notes to Condensed Consolidated Financial Statements
3

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except share and per share amounts)
 Three Months Ended March 31,
20262025
INTEREST INCOME
Loans, including fees$13,307 $12,588 
Interest and dividends on investments, cash and cash equivalents1,158 1,118 
Total interest income14,465 13,706 
INTEREST EXPENSE
Deposits5,124 5,205 
Borrowings108 262 
Subordinated notes186 168 
Total interest expense5,418 5,635 
Net interest income9,047 8,071 
PROVISION FOR (RELEASE OF) CREDIT LOSSES123 (203)
Net interest income after provision for (release of) credit losses8,924 8,274 
NONINTEREST INCOME
Service charges and fee income624 684 
Earnings on BOLI130 195 
Mortgage servicing income248 269 
Fair value adjustment on MSRs(140)(99)
Net gain on sale of loans101 49 
Other income (loss)(53)— 
Total noninterest income910 1,098 
NONINTEREST EXPENSE
Salaries and benefits4,458 4,595 
Operations1,501 1,365 
Regulatory assessments198 221 
Occupancy427 437 
Data processing1,287 1,293 
Net loss and expenses on OREO and repossessed assets3 3 
Total noninterest expense7,874 7,914 
Income before provision for income taxes1,960 1,458 
Provision for income taxes384 291 
Net income$1,576 $1,167 
Earnings per common share:
Basic$0.61 $0.45 
Diluted$0.61 $0.45 
Weighted-average number of common shares outstanding:
Basic2,562,467 2,554,265 
Diluted2,574,212 2,578,609 
See Notes to Condensed Consolidated Financial Statements
4

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
Three Months Ended March 31,
20262025
Net income$1,576 $1,167 
Available for sale securities:
Unrealized losses arising during the period(101)(21)
Income tax benefit related to unrealized losses21 4 
Other comprehensive loss, net of tax benefit(80)(17)
Comprehensive income$1,496 $1,150 

See Notes to Condensed Consolidated Financial Statements
5

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March 31, 2026 and 2025 (unaudited)
(In thousands, except share and per share amounts)
 SharesCommon
Stock		Additional Paid-in CapitalRetained
Earnings		Accumulated Other
Comprehensive Loss, net of tax		Total
Stockholders’
Equity
Balance, at December 31, 2025
2,567,953 $25 $28,737 $81,483 $(846)$109,399 
Net income— — — 1,576 — 1,576 
Other comprehensive loss, net of tax benefit— — — — (80)(80)
Share-based compensation— — 57 — — 57 
Cash dividends paid on common stock ($0.21 per share)
— — — (541)— (541)
Common stock options exercised90 — 3 — — 3 
Balance, at March 31, 2026
2,568,043 $25 $28,797 $82,518 $(926)$110,414 
 SharesCommon
Stock		Additional Paid-in CapitalRetained
Earnings		Accumulated Other Comprehensive
Loss, net of tax		Total
Stockholders’
Equity
Balance, at December 31, 2024
2,564,907 $25 $28,413 $76,272 $(1,044)$103,666 
Net income— — — 1,167 — 1,167 
Other comprehensive loss, net of tax benefit— — — — (17)(17)
Share-based compensation— — 81 — — 81 
Cash dividends paid on common stock ($0.19 per share)
— — — (487)— (487)
Common stock options exercised1,162 — 21 — — 21 
Balance, at March 31, 2025
2,566,069 $25 $28,515 $76,952 $(1,061)$104,431 
See Notes to Condensed Consolidated Financial Statements
6

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 Three Months Ended March 31,
 20262025
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$1,576 $1,167 
Adjustments to reconcile net income to net cash from operating activities:
Amortization of net premiums on investments22 22 
Provision for (release of) credit losses123 (203)
Depreciation and amortization103 144 
Share-based compensation57 81 
Fair value adjustment on mortgage servicing rights140 99 
Right of use assets amortization192 245 
Change in lease liabilities(209)(251)
Change in cash surrender value of BOLI(130)(195)
Net change in advances from borrowers for taxes and insurance1,238 1,190 
Deferred income tax70 (273)
Net loss on disposal of assets, net53 — 
Net gain on sale of loans(101)(49)
Proceeds from sale of loans held-for-sale6,163 2,023 
Originations of loans held-for-sale(5,854)(3,772)
Net gain on OREO and repossessed assets(1)— 
Change in operating assets and liabilities:
Accrued interest receivable(117)(69)
Other assets12 351 
Accrued interest payable(178)(179)
Other liabilities(1,654)1,521 
Net cash provided by operating activities1,505 1,852 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments, maturities and sales of available-for-sale securities70 69 
Proceeds from principal payments of held-to-maturity securities8 9 
Purchase of equity investments(5,000)— 
Net change in loans(16,019)13,883 
FHLB stock purchased(60)(4)
Purchase of BOLI(290)— 
Purchases of premises and equipment, net(32)(38)
Proceeds from sale of OREO and other repossessed assets261 — 
Net cash (used in)/provided by investing activities(21,062)13,919 
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits19,626 72,548 
Dividends paid on common stock(541)(487)
Proceeds from common stock option exercises3 21 
Net cash provided by financing activities19,088 72,082 
Net change in cash and cash equivalents(469)87,853 
Cash and cash equivalents, beginning of period138,453 43,641 
Cash and cash equivalents, end of period$137,984 $131,494 
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes$— $— 
Interest paid on deposits and borrowings5,596 5,814 
Noncash investing and financing activities:
Loans transferred from loans held-for-portfolio to OREO and repossessed assets15 41 
ROU assets obtained in exchange for new operating lease liabilities— 66 
Derecognition of ROU asset98 — 
Derecognition of lease liability98 — 
See Notes to Condensed Consolidated Financial Statements
7

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


Note 1 – Basis of Presentation
The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Sound Financial Bancorp, Inc, and its wholly owned subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc.  References in this document to “Sound Financial Bancorp” refer to Sound Financial Bancorp, Inc. and references to the “Bank” refer to Sound Community Bank. References to “we,” “us,” and “our” or the “Company” refer to Sound Financial Bancorp, the Bank and Sound Community Insurance Agency, Inc., collectively, unless the context otherwise requires.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 18, 2026 (“2025 Form 10-K”). The results for the interim periods are not necessarily indicative of results for a full year or any other future period.
We have not made any changes in our significant accounting policies from those disclosed in the 2025 Form 10-K.

Note 2 – Accounting Pronouncements Recently Issued or Adopted
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which will change the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (for example, employee compensation, depreciation and amortization) in expense captions. This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its disclosures and expects adoption will result in a more disaggregated presentation of expense line items in its financial statement footnotes.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which simplifies and modernizes the accounting for internal-use software by removing prescriptive project stage guidance and introducing a new capitalization threshold. Under the revised standard, software development costs are capitalized when management authorizes and commits funding for the project, and it is probable the software will be completed and used as intended. This ASU is effective for annual and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s Consolidated Financial Statements.
In November 2025, the FASB issued ASU 2025‑08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans, which expands the scope of the “gross‑up” method, formerly applicable only to purchased credit‑deteriorated ("PCD") assets, to include acquired non‑PCD loans that meet certain criteria, now referred to as “purchased seasoned loans” (PSLs). Under this model, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized cost basis, thereby eliminating the day-one credit‑loss expense previously required for non‑PCD assets. PSLs are defined as non‑PCD loans acquired either (i) through a business combination, or (ii) purchased more than 90 days after origination when the acquirer was not involved in origination. This ASU is effective on a prospective basis for loans acquired on or after the adoption date, which is for interim and annual reporting periods beginning after December 15, 2026. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.
In December 2025, the FASB issued ASU 2025‑11, Interim Reporting (Topic 270): Narrow‑Scope Improvements, which clarifies and enhances guidance under ASC 270 on interim financial reporting by (i) clarifying the scope of ASC 270 such that it now explicitly applies only to entities that issue complete interim financial statements and related notes under U.S. GAAP, (ii) establishing clear guidance on the form of interim financial statements and notes, incorporating a comprehensive list of
8

required interim disclosures drawn from across the ASC, and (iii) introducing a requirement to disclose material events and changes occurring after the end of the last annual period that could impact interim results. This ASU is effective for interim and annual reporting periods beginning after December 15, 2027. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

Note 3 – Investments
At March 31, 2026, the Company did not own any debt securities classified as trading.
Debt securities
The amortized cost and estimated fair value of our AFS securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value
March 31, 2026    
Municipal bonds$6,303 $9 $(930)$5,382 
Agency mortgage-backed securities2,387 7 (259)2,135 
Total$8,690 $16 $(1,189)$7,517 
December 31, 2025
Municipal bonds$6,313 $10 $(841)$5,482 
Agency mortgage-backed securities2,457 10 (250)2,217 
Total$8,770 $20 $(1,091)$7,699 
The amortized cost and estimated fair value of our HTM securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value
March 31, 2026
Municipal bonds$703 $— $(180)$523 
Agency mortgage-backed securities1,181 — (176)1,005 
Total$1,884 $— $(356)$1,528 
December 31, 2025
Municipal bonds$703 $— $(147)$556 
Agency mortgage-backed securities1,189 — (167)1,022 
Total$1,892 $— $(314)$1,578 
The amortized cost and estimated fair value of AFS and HTM securities at March 31, 2026, by contractual maturity, are shown below (in thousands). Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, consisting of agency mortgage-backed securities, are shown separately.
9

March 31, 2026
Available-for-saleHeld-to-maturity
Amortized
Cost		Estimated Fair ValueAmortized
Cost		Estimated Fair Value
Due within one year$150 $150 $— $— 
Due after one year through five years305 305 — — 
Due after five years through ten years1,716 1,635 — — 
Due after ten years4,132 3,292 703 523 
Agency mortgage-backed securities2,387 2,135 1,181 1,005 
Total$8,690 $7,517 $1,884 $1,528 
There were no pledged securities at March 31, 2026 or December 31, 2025.
There were no sales of AFS or HTM securities during the three months ended March 31, 2026 and 2025.
Accrued interest receivable on securities totaled $75 thousand at March 31, 2026 and $47 thousand at December 31, 2025, in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the allowance for credit losses.
The following table summarizes the aggregate fair value and gross unrealized loss by length of time of those investments for which an allowance for credit losses has not been recorded that have been in a continuous unrealized loss position at the dates indicated (in thousands):
 March 31, 2026
 Less Than 12 Months12 Months or LongerTotal
 Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available-for-sale securities
Municipal bonds$— $— $3,717 $(930)$3,717 $(930)
Agency mortgage-backed securities— — 1,804 (259)1,804 (259)
Total available-for-sale securities$— $— $5,521 $(1,189)$5,521 $(1,189)
Held-to-maturity securities
Municipal bonds$— $— $523 $(180)$523 $(180)
Agency mortgage-backed securities— — 1,005 (176)1,005 (176)
Total held-to-maturity securities$— $— $1,528 $(356)$1,528 $(356)
 December 31, 2025
 Less Than 12 Months12 Months or LongerTotal
 Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available-for-sale securities
Municipal bonds$— $— $3,816 $(841)$3,816 $(841)
Agency mortgage-backed securities— — 1,871 (250)1,871 (250)
Total$— $— $5,687 $(1,091)$5,687 $(1,091)
Held-to-maturity securities
Municipal bonds$— $— $556 $(147)$556 $(147)
Agency mortgage-backed securities— — 1,022 (167)1,022 (167)
Total held-to-maturity securities$— $— $1,578 $(314)$1,578 $(314)
There was no allowance for credit losses on securities at March 31, 2026 or December 31, 2025. At both March 31, 2026 and December 31, 2025, the total securities portfolio consisted of 11 agency mortgage-backed securities and 11 municipal bonds. There were no securities in an unrealized loss position for less than 12 months and 15 securities in an unrealized loss position
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for more than 12 months at both March 31, 2026 and December 31, 2025. The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and not related to the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. There was no provision for credit losses recognized for investment securities during the three months ended March 31, 2026 and 2025, because the declines in fair value were not attributable to credit quality and because we do not intend, and it is not likely that we will be required, to sell these securities before recovery of their amortized cost basis. 
Equity Securities
At March 31, 2026, the Company held equity securities without readily determinable fair values with a carrying value of $5.0 million, accounted for under the measurement alternative in accordance with ASC 321. During the three months ended March 31, 2026, there was no impairment and no observable price changes. The Company held no equity securities at December 31, 2025.

Note 4 – Loans

Loans-held-for portfolio (which excludes loans held-for-sale) at the dates indicated were as follows (in thousands):
 March 31,
2026		December 31,
2025
Real estate loans:  
One-to-four family$251,146 $253,841 
Home equity31,903 31,468 
Commercial and multifamily409,810 409,729 
Construction and land71,878 50,261 
Total real estate loans764,737 745,299 
Consumer loans:
Manufactured homes42,968 43,080 
Floating homes84,927 87,315 
Other consumer15,978 16,571 
Total consumer loans143,873 146,966 
Commercial business loans15,164 15,378 
Total loans held-for-portfolio923,774 907,643 
Premiums for purchased loans(1)
610 627 
Deferred fees, net(2,866)(2,737)
Total loans held-for-portfolio, gross921,518 905,533 
Allowance for credit losses — loans(8,635)(8,605)
Total loans held-for-portfolio, net$912,883 $896,928 
(1)Includes premiums resulting from purchased loans of $361 thousand related to one-to-four family loans, $204 thousand related to commercial and multifamily loans, and $46 thousand related to commercial business loans as of March 31, 2026. Includes premiums resulting from purchased loans of $367 thousand related to one-to-four family loans, $212 thousand related to commercial and multifamily loans, and $49 thousand related to commercial business loans as of December 31, 2025.
As of March 31, 2026, there were five collateral dependent one-to-four-family real estate loans, totaling $1.1 million, that were in process of foreclosure.
The following table presents a summary of activity in the ACL on loans and the reserve for unfunded loan commitments for the periods indicated (in thousands):

11

Three Months Ended March 31,
20262025
ACL - LoansReserve for Unfunded Loan CommitmentsACL ACL - LoansReserve for Unfunded Loan CommitmentsACL
Balance at beginning of period$8,605 $148 $8,753 $8,499 $234 $8,733 
Provision for (release of) credit losses during the period49 74 123 (85)(118)(203)
Net charge-offs during the period(19)— (19)(21)— (21)
Balance at end of period$8,635 $222 $8,857 $8,393 $116 $8,509 
Accrued interest receivable on loans receivable totaled $3.6 million at both March 31, 2026 and December 31, 2025, in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the ACL.
The ACL is measured using the current expected credit losses (“CECL”) approach for financial instruments measured at amortized cost and for 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. We estimate the ACL using relevant information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. The ACL is measured on a collective (segment) basis when similar risk characteristics exist. 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. The reserve was applied on a loan-by-loan basis and condensed into the applicable segments reported below. The ACL is determined using quantitative and qualitative analysis. The quantitative analysis utilizes macroeconomic variables to establish a quantitative relationship between economic conditions and loan performance through an economic cycle. Qualitative adjustments include but are not limited to changes in lending policies; changes in the nature and volume of the portfolio; changes in staff experience levels; changes in the volume or trends of classified loans, delinquencies, and nonaccrual loans; concentration risk; value of underlying collateral; competitive, legal, and regulatory factors; changes in the loan review system; and economic conditions. We evaluate our ACL policy and judgments on an ongoing basis and update them as necessary based on changing conditions. See “Note 1—Organization and Significant Accounting Policies” in the Company’s 2025 Form 10-K for further information on the Company’s ACL accounting policy.
The following tables summarize the activity in the ACL - loans for the periods indicated (in thousands):
Three Months Ended March 31, 2026
 Beginning
Allowance		Charge-offsRecoveriesProvision for (Release of) Credit LossesEnding
Allowance
One-to-four family$3,340 $— $— $(76)$3,264 
Home equity343 — — 20 363 
Commercial and multifamily1,484 — — 174 1,658 
Construction and land519 — — 65 584 
Manufactured homes(1)
1,174 (20)— (69)1,085 
Floating homes1,259 — — (34)1,225 
Other consumer(2)
370 (6)7 (39)332 
Commercial business116 — — 8 124 
Total$8,605 $(26)$7 $49 $8,635 
(1)During the three months ended March 31,2026, there was one manufactured loan for $20 thousand originated in 2017 that was charged off.
(2)During the three months ended March 31,2026, gross charge-offs of other consumer loans related entirely to deposit overdrafts.
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Three Months Ended March 31, 2025
 Beginning
Allowance		Charge-offsRecoveriesProvision for (Release of) Credit LossesEnding
Allowance
One-to-four family$3,025 $— $— $303 $3,328 
Home equity307 — — 55 362 
Commercial and multifamily1,218 — — (37)1,181 
Construction and land992 — — (713)279 
Manufactured homes(1)
1,172 (19)— 150 1,303 
Floating homes1,282 — — 127 1,409 
Other consumer(2)
401 (8)6 49 448 
Commercial business102 — — (19)83 
Total$8,499 $(27)$6 $(85)$8,393 
(1)During the three months ended March 31, 2025, there was one manufactured home loan originated in 2022 that was charged off and then subsequently foreclosed upon.
(2)During the three months ended March 31, 2025, the gross charge-offs of other consumer loans related entirely to deposit overdrafts that were charged off.
Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans and other assets (such as OREO and repossessed assets), as well as debt and equity securities considered as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading. The grades for watch and special mention loans are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful, or loss. These are loans which have been criticized and deserve management's close attention based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan, or collateral concerns. Loans identified as watch, special mention, substandard, doubtful, or loss are subject to additional problem loan reporting to management every three months.
When we classify problem assets as either substandard or doubtful, we may determine that these assets should be individually analyzed if they no longer share common risk characteristics with the rest of the portfolio. When we classify problem assets as a loss, we are required to charge off those assets in the period in which they are deemed uncollectible. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the FDIC (the Bank’s federal banking regulator) and the Washington Department of Financial Institutions (the Bank’s state banking regulator), which can order the establishment of additional credit loss allowances. Assets which do not currently expose us to sufficient risk to warrant classification as substandard or doubtful but possess weaknesses are required to be designated as special mention. There were no loans classified as doubtful or loss as of March 31, 2026 and December 31, 2025.
The following tables present the internally assigned grades as of March 31, 2026 and December 31, 2025, by type of loan and origination year (in thousands):
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At March 31, 2026
Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis Converted to Term
20262025202420232022PriorTotal
One-to-four family:
Pass$4,456 $17,160 $17,186 $17,094 $65,508 $127,640 $— $— $249,044 
Substandard— — — 1,473 291 367 — — 2,131 
Total one-to-four family$4,456 $17,160 $17,186 $18,567 $65,799 $128,007 $— $— $251,175 
Home equity:
Pass$— $1,284 $2,260 $2,292 $2,066 $1,501 $21,320 $908 $31,631 
Substandard— — — 46 — 48 322 65 481 
Total home equity$— $1,284 $2,260 $2,338 $2,066 $1,549 $21,642 $973 $32,112 
Commercial and multifamily:
Pass$7,823 $96,177 $33,681 $19,538 $77,800 $152,741 $— $— $387,760 
Substandard— — — 4,990 4,970 10,505 — — 20,465 
Total commercial and multifamily$7,823 $96,177 $33,681 $24,528 $82,770 $163,246 $— $— $408,225 
Construction and land:
Pass$18,391 $29,072 $13,441 $7,586 $1,010 $1,731 $— $— $71,231 
Substandard— — — 27 147 — — — 174 
Total construction and land$18,391 $29,072 $13,441 $7,613 $1,157 $1,731 $— $— $71,405 
Manufactured homes:
Pass$1,140 $7,942 $7,807 $10,622 $5,561 $9,107 $— $— $42,179 
Substandard— — — 175 219 271 — — 665 
Total manufactured homes$1,140 $7,942 $7,807 $10,797 $5,780 $9,378 $— $— $42,844 
Floating homes:
Pass$283 $9,970 $18,534 $6,264 $13,613 $35,857 $— $— $84,521 
Total floating homes$283 $9,970 $18,534 $6,264 $13,613 $35,857 $— $— $84,521 
Other consumer:
Pass$781 $2,342 $1,490 $1,871 $304 $8,038 $917 $— $15,743 
Substandard— — — — — 259 1 — 260 
Total other consumer$781 $2,342 $1,490 $1,871 $304 $8,297 $918 $— $16,003 
Commercial business:
Pass$54 $3,194 $201 $160 $271 $3,599 $7,696 $— $15,175 
Substandard— — 28 — — — 30 — 58 
Total commercial business$54 $3,194 $229 $160 $271 $3,599 $7,726 $— $15,233 
Total loans
Pass$32,928 $167,141 $94,600 $65,427 $166,133 $340,214 $29,933 $908 $897,284 
Substandard— — 28 6,711 5,627 11,450 353 65 24,234 
Total loans$32,928 $167,141 $94,628 $72,138 $171,760 $351,664 $30,286 $973 $921,518 
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At December 31, 2025
Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term
20252024202320222021PriorTotal
One-to-four family:
Pass$17,896 $18,112 $17,717 $66,239 $93,367 $38,871 $— $— $252,202 
Substandard— — 1,117 289 91 200 — — 1,697 
Total one-to-four family$17,896 $18,112 $18,834 $66,528 $93,458 $39,071 $— $— $253,899 
Home equity:
Pass$1,292 $2,277 $2,534 $2,086 $771 $777 $20,827 $881 $31,445 
Substandard— — — — — 50 68 121 239 
Total home equity$1,292 $2,277 $2,534 $2,086 $771 $827 $20,895 $1,002 $31,684 
Commercial and multifamily:
Pass$97,005 $33,810 $24,641 $78,185 $87,836 $72,359 $— $— $393,836 
Substandard— — — 4,990 6,069 3,197 — — 14,256 
Total commercial and multifamily$97,005 $33,810 $24,641 $83,175 $93,905 $75,556 $— $— $408,092 
Construction and land:
Pass$22,342 $16,867 $7,785 $1,025 $668 $1,134 $— $— $49,821 
Substandard— — — 150 — — — — 150 
Total construction and land$22,342 $16,867 $7,785 $1,175 $668 $1,134 $— $— $49,971 
Manufactured homes:
Pass$8,124 $8,183 $10,684 $5,678 $3,265 $6,316 $— $— $42,250 
Substandard— — 228 219 — 254 — — 701 
Total manufactured homes$8,124 $8,183 $10,912 $5,897 $3,265 $6,570 $— $— $42,951 
Floating homes:
Pass$10,100 $18,833 $6,291 $14,636 $22,632 $14,404 $— $— $86,896 
Total floating homes$10,100 $18,833 $6,291 $14,636 $22,632 $14,404 $— $— $86,896 
Other consumer:
Pass$2,471 $1,604 $2,144 $327 $3,283 $5,837 $667 $— $16,333 
Substandard— — — — 6 256 — — 262 
Total other consumer$2,471 $1,604 $2,144 $327 $3,289 $6,093 $667 — $16,595 
Commercial business:
Pass$3,324 $255 $253 $288 $1,255 $2,747 $7,293 $— $15,415 
Substandard— — — — — — 30 — 30 
Total commercial business$3,324 $255 $253 $288 $1,255 $2,747 $7,323 $— $15,445 
Total loans
Pass$162,554 $99,941 $72,049 $168,464 $213,077 $142,445 $28,787 $881 $888,198 
Substandard— — 1,345 5,648 6,166 3,957 98 121 17,335 
Total loans$162,554 $99,941 $73,394 $174,112 $219,243 $146,402 $28,885 $1,002 $905,533 
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Nonaccrual and Past Due Loans.  Loans are considered past due if the required principal and interest payments were not received as of the dates such payments were due.
The following table presents the amortized cost of nonaccrual loans as of the dates indicated, by type of loan (in thousands):
 March 31, 2026December 31, 2025
Total
Nonaccrual
Loans		Total
Nonaccrual
Loans
with no ACL		Total
Nonaccrual
Loans		Total
Nonaccrual
Loans
with no ACL
One-to-four family$1,939 $1,939 $1,597 $1,597 
Home equity383 383 187 187 
Commercial and multifamily4,213 4,213 3,163 3,163 
Construction and land80 80 82 82 
Manufactured homes475 475 461 461 
Other consumer259 259 262 262 
Commercial business30 — 30 — 
Total$7,379 $7,349 $5,782 $5,752 
The following tables present the aging of past due loans, based on amortized cost, as of the dates indicated, by type of loan (in thousands):
March 31, 2026
 30-59 Days
Past Due		60-89 Days
Past Due		90 Days and Greater Past Due90 Days and Greater Past Due and AccruingTotal Past
Due		CurrentTotal Loans
One-to-four family$250 $216 $1,612 $— $2,078 $249,097 $251,175 
Home equity462 135 — — 597 31,515 32,112 
Commercial and multifamily943 — 4,044 — 4,987 403,238 408,225 
Construction and land78 — 79 — 157 71,248 71,405 
Manufactured homes820 44 311 — 1,175 41,669 42,844 
Floating homes— — — — — 84,521 84,521 
Other consumer172 1 259 — 432 15,571 16,003 
Commercial business— — 30 — 30 15,203 15,233 
Total$2,725 $396 $6,335 $— $9,456 $912,062 $921,518 
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December 31, 2025
 30-59 Days
Past Due		60-89 Days
Past Due		90 Days and Greater Past Due90 Days and Greater Past Due and AccruingTotal Past
Due		CurrentTotal Loans
One-to-four family$529 $491 $1,358 $— $2,378 $251,521 $253,899 
Home equity522 275 — — 797 30,887 31,684 
Commercial and multifamily2,228 — 2,993 — 5,221 402,871 408,092 
Construction and land— — 82 — 82 49,889 49,971 
Manufactured homes702 641 336 — 1,679 41,272 42,951 
Floating homes849 — — — 849 86,047 86,896 
Other consumer7 4 262 — 273 16,322 16,595 
Commercial business32 — 30 — 62 15,383 15,445 
Total$4,869 $1,411 $5,061 $— $11,341 $894,192 $905,533 

Loan Modifications to Borrowers Experiencing Financial Difficulty. The Company has granted modifications which can generally be described in the following categories:
Principal Forgiveness:  A modification in which the principal is reduced.
Rate Modification:  A modification in which the interest rate is changed.
Term Modification:  A modification in which the maturity date, timing of payments or frequency of payments is changed.
Payment Modification:  A modification in which the dollar amount of the payment is changed.  Interest-only modifications in which a loan is converted to interest-only payments for a period of time are included in this category.
Combination Modification:  Any other type of modification, including the use of multiple categories above.
At March 31, 2026, the Company had no commitments to extend additional credit to borrowers owing loan receivables with modified terms.

There were no loans modified within the three months ended March 31, 2026 and 2025.
We have no modified loan receivables that have subsequently defaulted at March 31, 2026 and December 31, 2025.
Troubled debt restructurings (“TDRs”). Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs. Loans classified as legacy TDRs totaled $1.1 million at both March 31, 2026 and December 31, 2025.

Collateral Dependent Loans. Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated fair value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

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The following tables summarize collateral dependent loans by collateral type as of the dates indicated (in thousands):
March 31, 2026
Commercial Real EstateResidential Real EstateLandOther ResidentialRVs/AutomobilesBusiness Assets Total
Real estate loans:
One- to four- family$— $1,408 $— $663 $— $— $2,071 
Home equity— 383 — — — — 383 
Commercial and multifamily3,173 — — — — 1,040 4,213 
Construction and land— — — 80 — — 80 
Total real estate loans3,173 1,791 — 743 — 1,040 6,747 
Consumer loans:
Manufactured homes— — — 475 — — 475 
Other consumer— — — 256 3 — 259 
Total consumer loans— — — 731 3 — 734 
Commercial business loans— — — — — 30 30 
Total loans$3,173 $1,791 $— $1,474 $3 $1,070 $7,511 
December 31, 2025
Commercial Real EstateResidential Real EstateLandOther ResidentialRVs/AutomobilesBusiness AssetsTotal
Real estate loans:
One- to four- family$— $1,416 $— $314 $— $— $1,730 
Home equity— 187 — — — — 187 
Commercial and multifamily2,123 — — — — 1,040 3,163 
Construction and land— — — 82 — — 82 
Total real estate loans2,123 1,603 — 396 — 1,040 5,162 
Consumer loans:
Manufactured homes— — — 480 — — 480 
Other consumer— — — 256 6 — 262 
Total consumer loans— — — 736 6 — 742 
Commercial business loans— — — — — 30 30 
Total loans$2,123 $1,603 $— $1,132 $6 $1,070 $5,934 

Note 5 – Fair Value Measurements
The Company determines the fair values of its financial instruments based on the requirements established in ASC 820, Fair Value Measurements (“ASC 820”), which provides a framework for measuring fair value in accordance with U.S. GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The Company’s fair values for financial instruments at March 31, 2026 and December 31, 2025 were determined based on these requirements.
The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments:
Cash and cash equivalents - The estimated fair value is equal to the carrying amount.
Available-for-sale securities – AFS securities are recorded at fair value based on quoted market prices, if available (Level 1).  If quoted market prices are not available, management utilizes third-party pricing services or broker quotations from dealers
18

in the specific instruments (Level 2).  Level 2 securities include those traded on an active exchange, as well as U.S. government securities.  
Held-to-maturity securities – The fair value is based on quoted market prices, if available.  If quoted market prices are not available, management utilizes third-party pricing services or broker quotations from dealers in the specific instruments.  Level 2 securities include those traded on an active exchange, as well as U.S. government securities.   
Equity investments - Equity investments consist of securities without readily determinable fair values and are accounted for under the measurement alternative in accordance with ASC 321. Accordingly, these investments are carried at cost, less impairment, and adjusted for observable price changes in orderly transactions for identical or similar investments, with any such adjustments and impairment recognized in net income.
Loans held-for-sale - The fair value of fixed-rate one-to-four family loans is based on whole loan forward prices obtained from government sponsored enterprises.
Loans held-for-portfolio - The estimated fair value of loans held-for-portfolio consists of a credit adjustment to reflect the estimated adjustment to the carrying value of the loans due to credit-related factors and a yield adjustment to reflect the estimated adjustment to the carrying value of the loans due to a differential in yield between the portfolio loan yields and estimated current market rate yields on loans with similar characteristics. The estimated fair values of loans held-for-portfolio reflect exit price assumptions. The liquidity premiums/discounts are part of the valuation for exit pricing.
Mortgage servicing rights –The fair value of MSRs is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs.
Time deposits - The estimated fair value of time deposits is based on the difference between interest rates paid on the Company’s time deposits and current market rates for time deposits with comparable characteristics.
Borrowings - The fair value of borrowings is estimated using the contractual cash flows of each debt instrument discounted using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.
Subordinated notes - The fair value of subordinated notes is estimated using discounted cash flows based on current borrowing rates for similar long-term debt instruments with similar terms and remaining time to maturity.
A description of the valuation methodologies used for collateral dependent loans, OREO and repossessed assets and off-balance sheet loan commitments is as follows:
Collateral dependent loans - The fair value of collateral dependent loans is based on the current appraised value of the collateral less estimated costs to sell.
OREO and repossessed assets – The fair value of OREO and repossessed assets is based on the current appraised value of the collateral less estimated costs to sell. 
Off-balance sheet financial instruments - The fair value of off-balance sheet financial instruments, which consisted entirely of loan commitments at March 31, 2026 and December 31, 2025, is estimated based on fees charged to others to enter into similar agreements, taking into account the remaining terms of the agreements and credit standing of the Company’s clients. The estimated fair value of these commitments was not significant at March 31, 2026 and December 31, 2025.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. There were no transfers between levels during the three months ended March 31, 2026 and 2025.
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The following tables present information about the level in the fair value hierarchy for the Company’s financial assets and liabilities, whether recognized or recorded at fair value or not as of the dates indicated (in thousands):
 March 31, 2026Fair Value Measurements Using:
 Carrying
Value		Estimated
Fair Value		Level 1Level 2Level 3
FINANCIAL ASSETS:     
Cash and cash equivalents$137,984 $137,984 $137,984 $— $— 
Available-for-sale securities7,517 7,517 — 7,517 — 
Held-to-maturity securities1,884 1,528 — 1,528 — 
Equity securities5,000 5,000 — — 5,000 
Loans held-for-sale281 281 — 281 — 
   Loans held-for-portfolio, net912,883 878,228 — — 878,228 
Mortgage servicing rights4,096 4,096 — — 4,096 
FINANCIAL LIABILITIES:
   Time deposits301,973 302,387 — 302,387 — 
Borrowings10,000 10,000 — 10,000 — 
Subordinated notes7,812 8,200 — 8,200 — 
 December 31, 2025Fair Value Measurements Using:
 Carrying
Value		Estimated
Fair Value		Level 1Level 2Level 3
FINANCIAL ASSETS:     
Cash and cash equivalents$138,453 $138,453 $138,453 $— $— 
Available-for-sale securities7,699 7,699 — 7,699 — 
Held-to-maturity securities1,892 1,578 — 1,578 — 
Loans held-for-sale542 542 — 542 — 
Loans held-for-portfolio, net896,928 868,356 — — 868,356 
Mortgage servicing rights4,183 4,183 — — 4,183 
FINANCIAL LIABILITIES:
Time deposits299,593 300,290 — 300,290 — 
Borrowings10,000 10,000 — 10,000 — 
Subordinated notes7,801 8,102 — 8,102 — 
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The following tables present the balance of assets measured at fair value on a recurring basis as of the dates indicated (in thousands):
 Fair Value at March 31, 2026
DescriptionTotalLevel 1Level 2Level 3
Municipal bonds$5,382 $— $5,382 $— 
Agency mortgage-backed securities2,135 — 2,135 — 
Mortgage servicing rights4,096 — — 4,096 
 Fair Value at December 31, 2025
DescriptionTotalLevel 1Level 2Level 3
Municipal bonds$5,482 $— $5,482 $— 
Agency mortgage-backed securities2,217 — 2,217 — 
Mortgage servicing rights4,183 — — 4,183 
The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis as of the dates indicated:
March 31, 2026
Financial InstrumentValuation TechniqueUnobservable Input(s)Range
(Weighted-Average)
Mortgage Servicing RightsDiscounted cash flowPrepayment speed assumption
125%-581% (125%)
Discount rate
9.0%-13.5% (10%)
Average debt service cost per residential loan
$96.00
December 31, 2025
Financial InstrumentValuation TechniqueUnobservable Input(s)Range
(Weighted-Average)
Mortgage Servicing RightsDiscounted cash flowPrepayment speed assumption
125%-368% (125%)
Discount rate
9.0%-13.5% (10%)
Average debt service cost per residential loan
$96.00
Generally, any significant increases in the prepayment speed assumption and discount rate utilized in the fair value measurement of the MSRs will result in a negative fair value adjustment (and decrease in the fair value measurement). Conversely, a significant decrease in the prepayment speed assumption and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement). An increase in the weighted average life assumptions will result in a decrease in the prepayment speed assumption and conversely, a decrease in the weighted average life assumptions will result in an increase in the prepayment speed assumption. As a result of the difficulty in observing certain significant valuation inputs affecting our “Level 3” fair value assets, we are required to make judgments regarding these items’ fair values.
There were no assets or liabilities (excluding MSRs) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three months ended March 31, 2026 and 2025. 
MSRs are measured at fair value using significant unobservable inputs (Level 3) on a recurring basis, and a reconciliation of these assets can be found in “Note 6—Mortgage Servicing Rights.
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The following tables present the balance of assets measured at fair value on a nonrecurring basis at the dates indicated (in thousands):
 Fair Value at March 31, 2026
 TotalLevel 1Level 2Level 3
Equity securities$5,000 $— $— $5,000 
OREO and repossessed assets99 — — 99 
Collateral dependent loans7,511 — — 7,511 
 Fair Value at December 31, 2025
 TotalLevel 1Level 2Level 3
OREO and repossessed assets$344 $— $— $344 
Collateral dependent loans5,934 — — 5,934 
There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis at both March 31, 2026 and December 31, 2025.

Note 6 – Mortgage Servicing Rights
The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $393.8 million at March 31, 2026 compared to $398.4 million at December 31, 2025. Of these total balances, the unpaid principal balances of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at March 31, 2026 and December 31, 2025 were $392.1 million and $396.3 million, respectively. The unpaid principal balance of loans serviced for other financial institutions totaled $1.8 million at March 31, 2026 compared to $2.0 million at December 31, 2025. Loans serviced for Fannie Mae and others are not included in the Company’s financial statements as they are not assets of the Company.
A summary of the change in the balance of mortgage servicing assets during the periods indicated were as follows (in thousands):
Three Months Ended March 31,
20262025
Beginning balance, at fair value$4,183 $4,769 
Servicing rights that result from transfers and sale of financial assets53 18 
Changes in fair value:
Due to changes in model inputs or assumptions and other(1)
(140)(99)
Ending balance, at fair value$4,096 $4,688 
(1) Represents changes due to collection/realization of expected cash flows and curtailments.
The key economic assumptions used in determining the fair value of mortgage servicing rights at the dates indicated are as follows:
March 31, 2026December 31, 2025
Prepayment speed (Public Securities Association “PSA” model)125 %125 %
Weighted-average life10.2 years10.1 years
Weighted average discount rate10.0 %10.0 %
Average debt service cost per residential loan$96.00 $96.00 

The amount of contractually specified servicing, late and ancillary fees earned on mortgage servicing rights, which are included in mortgage servicing income on the Condensed Consolidated Statements of Income, totaled $248 thousand and $269 thousand for three months ended March 31, 2026 and 2025, respectively.

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Note 7 – Commitments and Contingencies
In the normal course of operations, the Company engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks.  These transactions are used primarily to manage clients’ requests for funding and take the form of loan commitments and lines of credit.

Note 8 – Borrowings, FHLB Stock and Subordinated Notes
FHLB Advances
The following tables present advances from the FHLB as of the dates indicated (dollars in thousands):
 March 31, 2026December 31, 2025
FHLB advances:
Short-term advances (one year or less)$— $— 
Long-term advances (over one year)10,000 10,000 
Total
$10,000 $10,000 
March 31, 2026December 31, 2025
Fixed Rate:
Outstanding balance$10,000 $10,000 
Interest rates ranging from4.06 %4.06 %
Interest rates ranging to4.06 %4.06 %
Weighted average interest rate4.06 %4.06 %
The following table presents the maturity of our FHLB advances (dollars in thousands):
March 31, 2026
Remainder of 2026$— 
2027— 
202810,000 
$10,000 
FHLB Des Moines Borrowing Capacity
The Company has a loan agreement with the FHLB of Des Moines. The terms of the agreement call for a blanket pledge of a portion of the Company’s mortgage and commercial and multifamily loan portfolio based on the Company’s outstanding borrowing balance. Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines to secure public deposits. The following table presents the Company’s borrowing capacity from the FHLB as of the dates indicated:
March 31, 2026December 31, 2025
Amount available to borrow under credit facility(1)
$357,308 $347,095 
Advance equivalent of collateral:
One-to-four family loans$187,048 $190,290 
Commercial and multifamily loans20,260 21,097 
Home equity loans273 278 
Notional amount of letters of credit outstanding15,000 14,000 
Remaining FHLB borrowing capacity(2)
$182,581 $187,665 
(1)Subject to eligible pledged collateral.
(2)Amount remaining from the advance equivalent of collateral less letters of credit outstanding and FHLB advances.
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As a member of the FHLB, the Company is required to maintain a minimum level of investment in FHLB of Des Moines stock based on specific percentages of its outstanding FHLB advances. At both March 31, 2026 and December 31, 2025, the Company had an investment of $1.1 million in FHLB of Des Moines stock.
Federal Reserve Bank of San Francisco (“FRB SF”) Borrowings
The Company has a borrowing agreement with the FRB SF. The terms of the agreement call for a blanket pledge of a portion of the Company’s consumer and commercial business loans based on the Company’s outstanding borrowing balance. At March 31, 2026 and December 31, 2025, the amount available to borrow under this credit facility was $19.1 million and $18.5 million, respectively, subject to eligible pledged collateral. The Company had no outstanding borrowings under this arrangement at March 31, 2026 and December 31, 2025. 
Other Borrowings
The Company has access to an unsecured Fed Funds line of credit from Pacific Coast Banker’s Bank (“PCBB”). The line has a one year term maturing on June 30, 2026 and is renewable annually. As of March 31, 2026, the amount available under this line of credit was $20.0 million. There was no balance on this line of credit as of March 31, 2026 and December 31, 2025.
Subordinated Debt
In September 2020, the Company issued $12.0 million of fixed to floating rate subordinated notes that mature in 2030. The subordinated notes had an initial fixed interest rate of 5.25% to, but excluding, October 1, 2025, payable semi-annually in arrears. From, and including, October 1, 2025, the interest rate on the subordinated notes reset quarterly to a floating rate per annum equal to the then-current three-month term Secured Overnight Financing Rate, or SOFR, plus 513 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030, and are redeemable by the Company, in whole or in part, on any interest payment date on or after October 1, 2025. The Company completed a partial redemption of $4.0 million on October 1, 2025, the first date on which partial redemptions were allowed. The subordinated notes may be included in Tier 2 capital for Sound Financial Bancorp under current regulatory guidelines and interpretations. The balance of the subordinated notes, net of debt issuance costs, was $7.8 million at both March 31, 2026 and December 31, 2025.

Note 9 – Earnings Per Common Share
The following table summarizes the calculation of earnings per share for the periods indicated (dollars in thousands, except per share data):
 Three Months Ended
 20262025
Net income$1,576 $1,167 
LESS: Participating dividends - Unvested Restricted Stock Awards (“RSAs”)(1)(2)
LESS: Income allocated to participating securities - Unvested RSAs(2)(3)
Net income available to common stockholders - basic1,573 1,162 
ADD BACK: Income allocated to participating securities - Unvested RSAs2 3 
LESS: Income reallocated to participating securities - Unvested RSAs(2)(3)
Net income available to common stockholders - diluted$1,573 $1,162 
Weighted average number of shares outstanding, basic2,562,467 2,554,265 
Effect of potentially dilutive common shares11,745 24,344 
Weighted average number of shares outstanding, diluted2,574,212 2,578,609 
Earnings per share, basic$0.61 $0.45 
Earnings per share, diluted$0.61 $0.45 
There were no anti-dilutive securities during the three months ended March 31, 2026 and March 31, 2025.

Note 10 – Leases
We currently have operating leases for branch locations, a loan production office and our corporate office. The term for our leases generally begins on the date we become legally obligated for the rent payments or we take possession of the building
24


premises, whichever is earlier. Our real estate leases have initial terms ranging from one to 10.5 years and typically include one renewal option. As of March 31, 2026, our leases had remaining terms ranging from 11 months to 4.2 years. The operating leases require us to pay property taxes and operating expenses for the properties. We also have finance leases for certain equipment, including copier machines, which had an initial term of five years and a remaining term of approximately 3.75 years as of March 31, 2026 . During the three months ended March 31, 2026, we provided notice that our Tacoma branch would close in April 2026 as part of ongoing strategic consolidation efforts. In connection with this closure, the lease was modified to a shorter term ending in the second quarter of 2026. The modification resulted in the derecognition of $98 thousand in both our operating right-of-use asset and operating lease liability.
The following table presents the lease right-of-use assets and lease liabilities recorded on the Condensed Consolidated Balance Sheets at the dates indicated (in thousands):
March 31,
2026		December 31,
2025
Operating lease right-of-use assets$3,036 $3,319 
Finance lease right-of-use assets97 104 
Operating lease liabilities3,264 3,565 
Finance lease liabilities100 106 
The following table presents the components of lease expense for the periods indicated (in thousands):
Three Months Ended March 31,
20262025
Lease expense
Operating leases$278 $273 
Finance leases
Amortization of right-of-use assets6 — 
Interest on lease liabilities1 — 
Sublease income— — 
Net lease expense$285 $273 
The following table presents the schedule of lease liability payments at the date indicated (in thousands):
March 31,Finance LeasesOperating LeasesTotal Lease Payments
Remainder of 2026$22 $849 $871 
202729 1,083 1,112 
202829 996 1,025 
202929 456 485 
2030— 48 48 
Total lease payments109 3,432 3,541 
Less: Present value discount9 168 177 
Present value of lease liabilities$100 $3,264 $3,364 
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Lease term and discount rate by lease type consisted of the following at the dates indicated:
March 31,
2026		December 31,
2025
Weighted-average remaining lease term:
Operating leases3.2 years3.5 years
Finance leases3.8 years4.0 years
Weighted-average discount rate (annualized):
Operating leases3.10 %3.08 %
Finance leases4.41 %4.41 %

Supplemental cash flow information related to leases was as follows for the periods indicated (in thousands):
Three Months Ended March 31,
20262025
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows:
Operating leases$294 $279 
Finance leases1 — 
Financing cash flows:
Finance leases6 — 

Note 11 – Subsequent Events
On April 28, 2026, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.21 per common share, payable on May 26, 2026 to stockholders of record at the close of business on May 11, 2026.





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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
28


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 previously disclosed in the Company’s 2025 Form 10-K. 

Comparison of Financial Condition at March 31, 2026 and December 31, 2025
General.  Total assets increased $19.9 million, or 1.8%, to $1.11 billion at March 31, 2026 from $1.09 billion at December 31, 2025. The increase was primarily a result of higher balance of loans held-for-portfolio and a new equity investment in the first quarter of 2026.
Cash and Cash Equivalents, and Investment Securities. Cash and cash equivalents decreased $469.0 thousand, or 0.3%, to $138.0 million at March 31, 2026 from $138.5 million at December 31, 2025. The decrease reflects cash deployed into higher-yielding assets, primarily loans held-for-portfolio and a new $5.0 million equity investment, partially offset by higher deposit balances.
Investment securities decreased $190 thousand, or 2.0%, to $9.4 million at March 31, 2026, compared to $9.6 million at December 31, 2025. Held-to-maturity securities totaled $1.9 million at both March 31, 2026 and December 31, 2025. Available-for-sale securities totaled $7.5 million at March 31, 2026, compared to $7.7 million at December 31, 2025. The decrease in available-for-sale securities was related to principal paydowns or payoffs, as well as decreases in fair value.
Equity securities totaled $5.0 million at March 31, 2026, compared to zero at both December 31, 2025 and March 31, 2025. The increase primarily related to the strategic decision to deploy some of our interest-earning cash into a higher yielding Community Reinvestment Act (“CRA”)-eligible workforce housing equity investment in the first quarter of 2026. While this investment carries more risk, the level of investment remains low compared to our total assets and partially replaces the runoff of our CRA-eligible available-for-sale debt securities over the past few years.
Loans.  Loans held-for-portfolio, net increased $16.0 million, or 1.8%, to $912.9 million at March 31, 2026, from $896.9 million at December 31, 2025.
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The following table reflects the changes in the mix of our loans held-for-portfolio at March 31, 2026, as compared to December 31, 2025 (dollars in thousands):
 March 31,
2026		December 31,
2025		Amount
Change		Percent
Change
One-to-four family$251,146 $253,841 $(2,695)(1.1)%
Home equity31,903 31,468 435 1.4 
Commercial and multifamily409,810 409,729 81 — 
Construction and land71,878 50,261 21,617 43.0 
Manufactured homes42,968 43,080 (112)(0.3)
Floating homes84,927 87,315 (2,388)(2.7)
Other consumer15,978 16,571 (593)(3.6)
Commercial business15,164 15,378 (214)(1.4)
Premiums for purchased loans610 627 (17)(2.7)
Deferred loan fees(2,866)(2,737)(129)4.7 
Total loans held-for-portfolio, gross921,518 905,533 15,985 1.8 
Allowance for credit losses — loans(8,635)(8,605)(30)0.3 
Total loans held-for-portfolio, net$912,883 $896,928 $15,955 1.8 %

The increase in total loans held-for-portfolio was driven primarily by a $21.6 million, or 43.0%, increase in construction and land loans largely due to new project loan originations in the current quarter. Given the growth in this loan category and current macroeconomic uncertainty, we have applied qualitative adjustments to our ACL for construction and land loans, as discussed further in the “Allowance for Credit Losses” section below. Home equity loans increased by $435 thousand, or 1.4%, 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. The growth in these segments of the portfolio was partially offset by decreases in one-to-four-family loans and floating home loans of $2.7 million and $2.4 million, respectively, or 1.1% and 2.7%, primarily due to loan repayments exceeding new originations.
At March 31, 2026, our loan portfolio, net of deferred loan fees, remained well-diversified. At that date, commercial and multifamily real estate loans accounted for 44.4% of total loans, one-to-four family loans, including home equity loans, accounted for 30.6% of total loans, commercial business loans accounted for 1.6% of total loans, and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounted for 15.6% of total loans. Construction and land loans accounted for 7.8% of total loans at March 31, 2026.
Loans held-for-sale totaled $281 thousand at March 31, 2026, compared to $542 thousand at December 31, 2025. The decrease was primarily due to timing of mortgage originations and sales.

Allowance for Credit Losses.

The following table reflects the activity in our allowance for credit losses (“ACL”) during the periods indicated (dollars in thousands):
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 Three Months Ended March 31,
 20262025
ACL — Loans:
Balance at beginning of period$8,605 $8,499 
Charge-offs(26)(27)
Recoveries7 6 
Net charge-offs(19)(21)
Provision for (release of) credit losses49 (85)
Balance at end of period$8,635 $8,393 
Reserve for Unfunded Commitments:
Balance at beginning of period148 234 
Provision for (release of) credit losses74 (118)
Balance at end of period222 116 
ACL$8,857 $8,509 
Ratio of net charge-offs during the period to average loans outstanding during the period(0.01)%(0.01)%
Our ACL — loans increased $30 thousand, or 0.3%, to $8.6 million at March 31, 2026, from $8.6 million at December 31, 2025. The increase in the ACL - loans was primarily a result of an increase in the balance of our loan portfolio, as well as higher reserves on our portfolio of construction loan and land loans due to qualitative adjustments for uncertainty in market conditions and concentrations, partially offset by improvement in other consumer past due loans and commercial construction collateral values. See “Comparison of Results of Operations for the Three Months Ended March 31, 2026 and 2025 — Provision for Credit Losses.”
The following tables show certain credit ratios at the dates and for the periods indicated and the components of each ratio's calculation (dollars in thousands).
 At March 31, 2026At December 31, 2025
ACL - loans as a percentage of total loans outstanding0.93 %0.95 %
ACL — loans$8,635 $8,605 
Total loans outstanding$923,774 $907,643 
Nonaccrual loans as a percentage of total loans outstanding
0.80 %0.64 %
Total nonaccrual loans$7,379 $5,782 
Total loans outstanding$923,774 $907,643 
ACL - loans as a percentage of nonaccrual loans
117.02 %148.82 %
ACL — loans$8,635 $8,605 
Total nonaccrual loans$7,379 $5,782 
ACL as a percentage of total loans outstanding0.96 %0.96 %
ACL$8,857 $8,753 
Total loans outstanding$923,774 $907,643 
ACL as a percentage of nonaccrual loans120.03 %151.38 %
ACL$8,857 $8,753 
Total nonaccrual loans$7,379 $5,782 
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Three Months Ended March 31,
20262025
($ in thousands)
Net recoveries (charge-offs) during period to average loans outstanding:
One-to-four family:
— %— %
Net (charge-offs)/recoveries
$— $— 
Average loans outstanding
$251,815 $266,980 
Home equity:
— %— %
Net (charge-offs)/recoveries
$— $— 
Average loans outstanding
$31,667 $27,562 
Commercial and multifamily real estate:
— %— %
Net (charge-offs)/recoveries
$— $— 
Average loans outstanding
$408,333 $377,925 
Construction and land:
— %— %
Net (charge-offs)/recoveries
$— $— 
Average loans outstanding
$64,339 $65,187 
Manufactured homes:
(0.19)%(0.19)%
Net (charge-offs)/recoveries
$(20)$(19)
Average loans outstanding
$42,770 $41,587 
Floating homes:
— %— %
Net (charge-offs)/recoveries
$— $— 
Average loans outstanding
$85,708 $85,593 
Other consumer:
0.03 %(0.05)%
Net (charge-offs)/recoveries$1 $(2)
Average loans outstanding
$16,049 $17,633 
Commercial business:
— %— %
Net (charge-offs)/recoveries
$— $— 
Average loans outstanding
$14,799 $15,269 
Total loans:(0.01)%(0.01)%
Net (charge-offs)
$(19)$(21)
Average loans outstanding
$915,480 $897,736 
The ratio of ACL - loans to nonaccrual loans decreased to 117.0% at March 31, 2026, from 148.8% at December 31, 2025, reflecting the increase in nonaccrual loans during the quarter. Despite this decrease, we believe our allowance remains adequate given the collateralized nature of the nonaccrual loans and the overall performance of our loan portfolio.


Nonperforming Assets.  
Nonperforming assets (“NPAs”), which were comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, increased $1.4 million, or 22.1%, to $7.5 million, or 0.67% of total assets, at March 31, 2026 from $6.1 million, or 0.56% of total assets, at December 31, 2025. 
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The table below sets forth the amounts and categories of NPAs at the dates indicated (dollars in thousands):
 Nonperforming Assets
 March 31,
2026		December 31,
2025		Amount
Change		Percent
Change
Total nonperforming loans$7,379 $5,782 $1,597 27.6 
OREO and repossessed assets99 344 (245)(71.2)
Total nonperforming assets$7,478 $6,126 $1,352 22.1 %

The increase in NPAs from December 31, 2025 was primarily due to the placement of $1.8 million of loans on nonaccrual status during the quarter, including one multifamily real estate loan of $1.1 million. These additions were partially offset by loan repayments, the return of certain credits to accrual status, and the sale of OREO properties. The percentage of nonperforming loans to total loans was 0.80% at March 31, 2026, compared to 0.64% at December 31, 2025.

We believe the collateral value of the multifamily real estate loan placed on nonaccrual status during the quarter is sufficient to minimize loss exposure. We continue to monitor this credit and other nonaccrual loans closely. While we believe the increase in nonperforming loans reflects isolated credit events rather than a systemic portfolio trend, we remain attentive to macroeconomic conditions that may affect borrower performance.

Mortgage Servicing Rights.  The fair value of mortgage servicing rights decreased $87 thousand, or 2.1%, to $4.1 million at March 31, 2026 from $4.2 million at December 31, 2025. The decrease was primarily related to a decline in the size of our mortgage servicing portfolio and modest changes in valuation assumptions, including prepayment speed assumptions reflecting current interest rate expectations. We record mortgage servicing rights on loans sold with servicing retained and upon acquisition of a servicing portfolio. Mortgage servicing rights are carried at fair value. If the fair value of our mortgage servicing rights fluctuates significantly, our financial results could be materially impacted.
Deposits and Borrowings. Total deposits increased $19.6 million, or 2.1%, to $968.5 million at March 31, 2026 from $948.9 million at December 31, 2025. This increase was primarily due to seasonal fluctuations in customer account balances, new client deposits, and higher balances from large depositors. Noninterest-bearing deposits decreased $1.5 million, or 1.1%, to $131.1 million at March 31, 2026, compared to $132.6 million at December 31, 2025. This decline was primarily the result of normal daily fluctuations in customer account balances, reflecting routine activity rather than significant changes in overall deposit levels. Noninterest-bearing deposits represented 13.5% of total deposits at March 31, 2026, compared to 14.0% at December 31, 2025.
A summary of deposit accounts with the corresponding weighted-average cost of funds at the dates indicated is presented below (dollars in thousands):
 March 31, 2026December 31, 2025
 AmountWtd. Avg. RateAmountWtd. Avg. Rate
Noninterest-bearing demand$125,541 — %$129,828 — %
Interest-bearing demand130,642 0.23 125,634 0.27 
Savings58,881 0.10 59,478 0.10 
Money market345,913 2.82 331,604 3.13 
Time deposits301,973 3.63 299,593 3.89 
Escrow (1)
5,551 — 2,738 — 
Total deposits$968,501 2.18 %$948,875 2.31 %
(1) Escrow balances shown in noninterest-bearing deposits on the Condensed Consolidated Balance Sheets. 
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Scheduled maturities of time deposits at March 31, 2026, are as follows (in thousands):
Year Ending December 31,Amount
2026$259,929 
202727,359 
202812,375 
2029403 
20301,828 
Thereafter79 
 $301,973 
The aggregate amount of time deposits in denominations of more than $250,000 at March 31, 2026 and December 31, 2025, totaled $106.8 million and $112.4 million, respectively. Deposit amounts in excess of $250,000 are not federally insured. As of March 31, 2026, uninsured deposits totaled $197.9 million, which represented 20.4% of total deposits, as compared to uninsured deposits of $184.7 million, or 19.5% of total deposits as of December 31, 2025. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The increase in the balance of uninsured deposits primarily related to jumbo tier pricing offered on some of our deposit products, as well as normal fluctuations within deposit accounts.
We actively manage our uninsured deposit exposure through diversification of our deposit base, maintenance of robust liquidity resources, and ongoing monitoring of large depositor relationships. We believe our current liquidity position is sufficient to meet potential demands from uninsured depositors.

Borrowings, comprised of FHLB advances, were $10.0 million at both March 31, 2026 and December 31, 2025. FHLB advances are primarily used to support organic loan growth and to maintain liquidity ratios in line with our asset/liability objectives. A single FHLB advance outstanding at March 31, 2026 matures in early 2028. Subordinated notes, net totaled $7.8 million at both March 31, 2026 and December 31, 2025.
Stockholders’ Equity. Total stockholders’ equity increased $1.0 million, or 0.9%, to $110.4 million at March 31, 2026, from $109.4 million at December 31, 2025. This increase primarily reflects $1.6 million of net income earned during the three months ended March 31, 2026, partially offset by the payment of $541 thousand in cash dividends to stockholders and an $80 thousand increase in accumulated other comprehensive loss, net of tax.

Average Balances, Net Interest Income, Yields Earned and Rates Paid
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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).
Three Months Ended March 31,
20262025
Average
Outstanding
Balance		Interest
Earned/
Paid		Yield/
Rate Annualized		Average
Outstanding
Balance		Interest
Earned/
Paid		Yield/
Rate Annualized
Interest-earning assets:
Loans receivable$914,113 $13,307 5.90 %$896,822 $12,588 5.69 %
Investments11,701 97 3.36 12,924 108 3.39 
Cash and cash equivalents120,683 1,061 3.57 95,999 1,010 4.27 
Total interest-earning assets (1)
1,046,497 14,465 5.61 1,005,745 13,706 5.53 
Interest-bearing liabilities:
Savings and money market accounts388,633 2,306 2.41 332,406 2,058 2.51 
Demand and NOW accounts125,932 82 0.26 140,905 108 0.31 
Certificate accounts301,341 2,736 3.68 292,973 3,039 4.21 
Subordinated notes7,808 186 9.66 11,766 168 5.79 
Borrowings10,556 108 4.15 25,000 262 4.25 
Total interest-bearing liabilities834,270 5,418 2.63 %803,050 5,635 2.85 %
Net interest income$9,047 $8,071 
Net interest rate spread2.97 %2.68 %
Net earning assets$212,227  $202,695 
Net interest margin3.51 %3.25 %
Average interest-earning assets to average interest-bearing liabilities125.44 % 125.24 %
Noninterest-bearing deposits$133,691 $126,215 
Total deposits$949,597 $5,124 2.19 %$892,499 $5,205 2.37 %
Total funding(2)
$967,961 $5,418 2.27 %$929,265 $5,635 2.46 %
(1) Calculated net of deferred loan fees, loan discounts and loans in process.
(2) 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 total funding.
Rate/Volume Analysis
The following table presents, for the periods indicated, 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).
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Three Months Ended March 31, 2026 vs. 2025
 Increase (Decrease) due toTotal
Increase (Decrease)
 VolumeRate
Interest-earning assets:   
Loans receivable$252 $467 $719 
Investments(10)(1)(11)
Cash and cash equivalents217 (166)51 
Total interest-earning assets459 300 759 
Interest-bearing liabilities:
Savings and Money Market accounts334 (86)248 
Demand and NOW accounts(10)(16)(26)
Certificate accounts76 (379)(303)
Subordinated notes(94)112 18 
Borrowings(148)(6)(154)
Total interest-bearing liabilities$158 $(375)$(217)
Change in net interest income$976 

Comparison of Results of Operation for the Three Months Ended March 31, 2026 and 2025

General.  
Net income increased $409 thousand, or 35.0%, to $1.6 million, or $0.61 per diluted common share, for the three months ended March 31, 2026, compared to $1.2 million, or $0.45 per diluted common share, for the three months ended March 31, 2025, reflecting strong growth in net interest income. The improvement was partially offset by higher provisions for credit losses, a modest decline in noninterest income, and slightly higher income taxes. Noninterest expenses remained relatively flat.

Interest Income 
Three Months Ended March 31,Amount
Change		Percent Change
20262025
Loans, including fees$13,307 $12,588 $719 5.7 %
Interest and dividends on investments97 108 (11)(10.2)
Cash and cash equivalents1,061 1,010 51 5.0 
  Total interest income$14,465 $13,706 $759 5.5 %
Total interest income increased $759 thousand, or 5.5%, to $14.5 million for the three months ended March 31, 2026, from $13.7 million for the three months ended March 31, 2025, primarily due to higher average balances of loans and interest earning cash, and a 21 basis point increase in the average yield on loans, partially offset by a 70 basis point decline in the average yield on cash and cash equivalents.
Interest income on loans increased $719 thousand, or 5.7%, to $13.3 million for the three months ended March 31, 2026, from $12.6 million for the three months ended March 31, 2025. The average yield on total loans rose to 5.90% for the three months ended March 31, 2026, from 5.69% for the three months ended March 31, 2025, primarily due to the origination of new loans at higher interest rates and upward repricing on variable-rate loans. The average balance of total loans was $914.1 million for the three months ended March 31, 2026, compared to $896.8 million for the three months ended March 31, 2025.
Interest and dividends on investments decreased $11 thousand, or 10.2%, to $97 thousand for the three months ended March 31, 2026, compared to $108 thousand for the three months ended March 31, 2025. The decrease was primarily due to a decline in the average balance of investments to $11.7 million from $12.9 million, reflecting continued paydown of the investment portfolio, with a modest further impact from a three basis point decline in average yield to 3.36% from 3.39%.

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Interest income on cash and cash equivalents increased $51 thousand, or 5.0%, to $1.1 million for the three months ended March 31, 2026, compared to $1.0 million for the three months ended March 31, 2025. The increase was primarily due to a higher average balance of $120.7 million compared to $96.0 million for the same period in 2025, mainly attributable to higher deposit inflows and the repayment of borrowings and subordinated debt during the fourth quarter of 2025. The increase in average balance was partially offset by a 70 basis point decline in average yield to 3.57% from 4.27%, reflecting the lower market interest rate environment. (Refer to “Net Interest Income” below for additional detail regarding the interest rate environment.)


Interest Expense  
Three Months Ended March 31,
Amount
Change		Percent Change
20262025
Deposits$5,124 $5,205 $(81)(1.6)%
Borrowings108 262 (154)(58.8)
Subordinated notes186 168 18 10.7 
  Total interest expense$5,418 $5,635 $(217)(3.9)%
Total interest expense decreased $217 thousand, or 3.9%, to $5.4 million for the three months ended March 31, 2026, from $5.6 million for the three months ended March 31, 2025. The decrease was primarily attributable to lower interest rates across most interest-bearing liabilities, resulting from lower market interest rates generally, partially offset by an increase in our average balance of interest-bearing liabilities.
Interest expense on certificate accounts declined $303 thousand, driven by a $379 thousand rate-related decrease, partially offset by a $76 thousand volume-related increase. The average balance of certificate accounts rose to $301.3 million for the three months ended March 31, 2026, from $293.0 million during the same period in 2025, while the average rate paid fell to 3.68% from 4.21%. The decline in the average rate reflected lower market interest rates and the repricing of maturing certificates into the current rate environment. In addition, interest expense on demand and NOW accounts decreased $26 thousand, due to both lower average balances and slightly lower rates. Interest expense on savings and money market accounts increased $248 thousand, or 12.1%, to $2.3 million for the three months ended March 31, 2026, from $2.1 million for the same period in 2025, primarily due to an increase in average balances to $388.6 million from $332.4 million, reflecting shifts in customer deposit preferences from certificate accounts into more liquid deposit products. This increase was partially offset by a 10 basis point decline in the average rate paid to 2.41% from 2.51%, as we implemented repricing strategies to manage overall funding costs.
Interest expense on borrowings, comprised solely of FHLB advances, decreased $154 thousand , primarily due to a $14.4 million decline in average borrowings following the payoff of an FHLB advance during the fourth quarter of 2025. The average balance of FHLB advances was $10.6 million for the three months ended March 31, 2026, compared to $25.0 million for the three months ended March 31, 2025. The average rate paid on borrowings decreased ten basis points to 4.15% for the quarter ended March 31, 2026, compared to 4.25% for the same quarter in 2025. Interest expense on subordinated notes was $186 thousand for the three months ended March 31, 2026, compared to $168 thousand for the three months ended March 31, 2025. The increase was due to the debt converting to a variable-rate instrument that reprices on a quarterly basis from the previous fixed-rate period, partially offset by a lower average balance as a result of the paydown of $4.0 million of our subordinated debt balance in the fourth quarter of 2025.

Net Interest Income.  
Net interest income increased $976 thousand, or 12.1%, to $9.0 million for the three months ended March 31, 2026, from $8.1 million for the three months ended March 31, 2025, driven by both growth in interest-earning asset balances and improvement in the net interest rate spread, reflecting higher loan yields and lower funding costs across most categories of interest-bearing liabilities. These changes were partially offset by a decrease in the average yield on investments and interest-bearing cash. Overall, the decline in average funding costs and increase in average yield on loans resulted in a 29 basis point improvement in the net interest rate spread and a 26 basis point increase in the annualized net interest margin, which rose to 3.51% for the three months ended March 31, 2026, compared to 3.25% for the same period in 2025.
Through most of 2025, the Federal Open Market Committee of the Federal Reserve (“FOMC”) maintained the target range for the federal funds rate at 4.25% to 4.50%, where it remained until September 2025. The FOMC subsequently lowered the target
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range 75 basis points to 3.50% to 3.75% between September 2025 and December 2025. The FOMC maintained the target range for the federal funds rate through the first quarter of 2026. The lower interest rate environment has contributed to decreased funding costs, while loan yields have remained elevated due to repricing of variable-rate loans and higher rates on new loan originations.
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):
Three Months Ended March 31,
20262025
Provision for (release of) credit losses on loans$49 $(85)
Provision for (release of) credit losses on unfunded loan commitments74 (118)
Provision for (release of) credit losses$123 $(203)
A provision for credit losses of $123 thousand was recorded for the quarter ended March 31, 2026, compared to a release of provision for credit losses of $203 thousand for the quarter ended March 31, 2025. The swing to a provision in the current quarter resulted primarily from annual updates to model assumptions that increased estimated loss factors, growth in the loan portfolio, and additional qualitative adjustments applied to the commercial loan segment, reflecting uncertainty surrounding geopolitical conditions and the potential impact of tariffs on our borrowers. 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. Net charge-offs for the three months ended March 31, 2026 totaled $19 thousand, compared to $21 thousand for the three months ended March 31, 2025.

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 further decline in national and local economic conditions, as a result of the effects of inflation, and a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL and 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 the adjustment of reserves based upon their judgment of information available to them at the time of their examination.
Noninterest Income.  Total noninterest income decreased $188 thousand, or 17.1%, to $910 thousand for the three months ended March 31, 2026, as compared to $1.1 million for the three months ended March 31, 2025, as reflected below (dollars in thousands):
 Three Months Ended March 31,Amount
Change		Percent
Change
 20262025
Service charges and fee income$624 $684 $(60)(8.8)%
Earnings on BOLI130 195 (65)(33.3)
Mortgage servicing income248 269 (21)(7.8)
Fair value adjustment on mortgage servicing rights(140)(99)(41)41.4 
Net gain on sale of loans101 49 52 106.1
Other income(53)— (53)— 
Total noninterest income$910 $1,098 $(188)(17.1)%
The decrease in noninterest income was primarily due to:
•a $60 thousand decrease in service charges and fee income, primarily due to differences in the volume incentive paid by Mastercard in 2025 and 2026;
•a $65 thousand decrease in earnings from BOLI, primarily due to a one-time benefit recognized in the first quarter of 2025 in connection with the surrender and exchange of existing policies into higher-yielding policies, which did not recur in the current quarter, partially offset by improved yields on the new policies;
•a $21 thousand decrease in mortgage servicing income as a result of a smaller servicing portfolio;
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•a $41 thousand increase in the fair value adjustment loss on mortgage servicing rights, reflecting a smaller servicing portfolio and changes in valuation assumptions related to servicing costs and interest rate movements; and
•a $53 thousand decrease in other income due to estimated costs related to the Tacoma branch closure announced in the January 2026 and which closed in April 2026.

These decreases were partially offset by a $52 thousand increase in net gain on sale of loans due to an increase in the volume of loans sold.


Noninterest Expense.  Total noninterest expense remained relatively unchanged during the three months ended March 31, 2026, compared to the three months ended March 31, 2025, as reflected below (dollars in thousands):
 Three Months Ended March 31,Amount
Change		Percent
Change
 20262025
Salaries and benefits$4,458 $4,595 $(137)(3.0)%
Operations1,501 1,365 136 10.0 %
Regulatory assessments198 221 (23)(10.4)%
Occupancy427 437 (10)(2.3)%
Data processing1,287 1,293 (6)(0.5)%
Net loss on OREO and repossessed assets3 3 — — %
Total noninterest expense$7,874 $7,914 $(40)(0.5)%
While overall noninterest expense remained largely flat, there were fluctuations within certain expense categories, as noted below:
•a $137 thousand decrease in salaries and benefits due to the impact of deferred compensation accruals for key executives and an increase in deferred salary costs associated with loan growth, partially offset by higher medical insurance premiums;
•a $23 thousand decrease in regulatory assessments, primarily due to reduced quarterly assessments resulting from a lower rate applied to a lower average asset balance; and
•a $10 thousand decrease in occupancy expense, due to higher building lease charges in the first quarter of 2025 resulting from lease renewals and maintenance charges.

These decreases were partially offset by a $136 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing. These costs reflect higher transaction volumes and vendor rate adjustments and are expected to continue at a similar level in future quarters.

The efficiency ratio improved 723 basis points to 79.08% for the quarter ended March 31, 2026 from 86.31% for the same period in 2025, primarily reflecting significant growth in net interest income driven by lower funding costs and higher loan yields.

Income Tax Expense. The provision for income taxes was $384 thousand for the three months ended March 31, 2026, compared to $291 thousand for the three months ended March 31, 2025. The effective tax rate decreased to 19.59% from 19.96% primarily because the first quarter of 2025 included a taxable gain recognized in connection with the surrender and exchange of BOLI policies, which elevated the prior year effective tax rate and did not recur in the current quarter.

Capital and Liquidity
The Management’s Discussion and Analysis in Item 7 of the Company’s 2025 Form 10-K contains an overview of Sound Financial Bancorp’s and the Bank’s liquidity management, sources of liquidity and cash flows. Although there have been no material changes in our liquidity management, sources of liquidity and cash flows since December 31, 2025, this discussion updates that disclosure for the three months ended March 31, 2026.
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Capital. Stockholders’ equity totaled $110.4 million at March 31, 2026 and $109.4 million at December 31, 2025. In addition to net income of $1.6 million, other sources of capital during the three months ended March 31, 2026 included $57 thousand related to stock-based compensation and $3 thousand in proceeds from stock option exercises. Uses of capital during the three months ended March 31, 2026 primarily included $541 thousand of dividends paid on common stock and an $80 thousand increase in accumulated other comprehensive loss, net of tax, primarily resulting from additional unrealized losses on available-for-sale securities.
We paid cash dividends of $0.21 per common share during the three months ended March 31, 2026, compared to $0.19 per common share during the three months ended March 31, 2025, which equates to a dividend payout ratio of 34.33% and 41.73%, respectively. The Company expects to continue paying quarterly cash dividends on its common stock, subject to the Board of Directors' discretion to change this practice at any time and for any reason, without prior notice. Assuming continued payment of the regular quarterly cash dividend during the remainder of 2026 at the rate of $0.21 per share, our average total dividend paid each quarter would be approximately $539 thousand based on the number of outstanding shares as of March 31, 2026.
The dividends, if any, we pay 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 the Company’s 2025 Form 10-K.
Stock Repurchase Programs. From time to time, our Board of Directors has authorized stock repurchase programs. In general, stock repurchases allow us to proactively manage our capital position and return excess capital to stockholders. Stock repurchases may also offset the dilutive effects of stock compensation awards. The Company does not currently have a stock repurchase program in place. For additional details on our stock repurchase activity, see “Unregistered Sales of Equity Securities and Use of Proceeds” contained in Part II, Item 2 of this Form 10-Q.
Liquidity. Liquidity measures the ability to meet current and future cash flow needs. The liquidity of a financial institution reflects its ability to meet loan requests, accommodate possible outflows in deposits and take advantage of potential opportunities presented by changes 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 our 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 assets that are readily marketable or pledgeable or that will mature in the near future. Liquid asset sources 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.
We continuously monitor our liquidity position and adjust the balance between sources and uses of funds as we deem appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model stress scenarios to assess potential liquidity outflows or funding challenges 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.
As of March 31, 2026, we had $145.5 million in cash and cash equivalents and available-for-sale investment securities, and $281 thousand in loans held-for-sale. At March 31, 2026, we had the ability to borrow $182.6 million in FHLB advances and access to additional borrowings of $19.1 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements. We had $10.0 million in outstanding advances from the FHLB and none from the Federal Reserve at March 31, 2026. We also had a $20.0 million credit facility with Pacific Coast Bankers’ Bank available, with no balance outstanding, at March 31, 2026. Subject to market conditions, we expect to utilize these borrowing facilities from time to time to fund loan originations and deposit withdrawals, to satisfy other financial commitments, to repay maturing debt and to take advantage of investment opportunities to the extent feasible. As of March 31, 2026, management was not aware of any events 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 8—Borrowings, FHLB Stock and Subordinated Notes” in the Notes to Condensed Consolidated Financial Statements contained in "Item 1. Financial Statements" of this Form 10-Q.
In the ordinary course of business, we enter into contractual obligations and other commitments to make future payments. Refer to the accompanying Notes to Condensed Consolidated Financial Statements elsewhere in this report for the expected timing of such payments as of March 31, 2026. These include payments related to (i) long-term borrowings (Note 8—Borrowings, FHLB
40


Stock and Subordinated Notes) and (ii) operating leases (Note 10—Leases). See the discussion below for information regarding commitments to extend credit and standby letters of credit.
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments generally represent commitments 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 Condensed Consolidated Balance Sheets.
The Company'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. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established by the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the client. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These commitments are not reflected in the condensed consolidated financial statements. The Company evaluates each client's creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management's credit evaluation of the client.
At March 31, 2026 and December 31, 2025, financial instrument contractual amounts representing credit risk were as follows (in thousands):
 March 31, 2026December 31, 2025
Residential mortgage commitments$6,769 $1,008 
Unfunded construction commitments32,990 23,718 
Unused lines of credit29,975 27,457 
Irrevocable letters of credit183 183 
Total loan commitments$69,917 $52,366 
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 its outstanding debt, 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 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 the Company’s 2025 Form 10-K. At March 31, 2026, Sound Financial Bancorp, on an unconsolidated basis, had $2.2 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.
See also the “Condensed Consolidated Statements of Cash Flows” included in “Item 1. Financial Statements and Supplementary Data” of this Form 10-Q, for further information.

Regulatory Capital
Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action (“PCA”). Qualifying institutions that elect to use the Community Bank Leverage Ratio (“CBLR”), framework, such as the Bank and the Company, that maintain the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies’ capital rules, and to have met the capital requirements for the well-capitalized category
41


under the agencies’ PCA framework. As of March 31, 2026, the Bank’s CBLR was 10.62%, which exceeded the minimum requirement of 9%.

Subsequent to March 31, 2026, the federal banking agencies finalized a rule lowering the minimum CBLR requirement from 9% to 8%, effective July 1, 2026. The Bank’s CBLR of 10.62% at March 31, 2026 exceeds both the current and the forthcoming minimum requirements.

See "Part I, Item 1. Business – Regulation of Sound Community Bank – Capital Rules " in the Company's 2025 Form 10-K for additional information related to regulatory capital.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
The Company provided information about market risk in Item 7A of its 2025 Form 10-K.  There have been no material changes in our market risk since December 31, 2025.
Item 4.     Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures.
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a -15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of March 31, 2026, was carried out under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, and several other members of the Company’s senior management. The Company’s principal executive officer and principal financial officer concluded that, as of March 31, 2026, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management (including the Company’s principal executive officer and principal financial officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
We intend to continually review and evaluate the design and effectiveness of the Company’s disclosure controls and procedures and to improve the Company’s controls and procedures over time and to correct any deficiencies that we may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company’s business. While we believe the present design of our disclosure controls and procedures is effective to achieve this goal, future events affecting our business may cause the Company to modify its disclosure controls and procedures.
The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the acts of individuals, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
(b)Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1     Legal Proceedings
In the normal course of business, the Company occasionally becomes involved in various legal proceedings.  Any liability from such currently pending proceedings is not expected to have a material adverse effect on the business or financial condition of the Company. 

Item 1A    Risk Factors
There have been no material changes in the Risk Factors previously disclosed in Item 1A of our 2025 Form 10-K.

Item 2    Unregistered Sales of Equity Securities and Use of Proceeds
(a)    Not applicable.
(b)Not applicable.
(c)The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended March 31, 2026:
Total Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximated Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
January 1, 2026 - January 31, 2026—$— —$— 
February 1, 2026 - February 28, 2026—$— —— 
March 1, 2026 - March 31, 2026—$— —— 
Total—$— —$— 

Item 3    Defaults Upon Senior Securities
None.

Item 4.    Mine Safety Disclosures
Not applicable.

Item 5.    Other Information
(a)    Not applicable.
(b)    Not applicable.
(c)    Trading Plans. During the three months ended March 31, 2026, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
43


Item 6.    Exhibits
Exhibits:
3.1
Articles of Incorporation of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
3.2
Amended and Restated Bylaws of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on October 26, 2021 (File No. 001-35633))
4.1
Form of Common Stock Certificate of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
4.3
Forms of 5.25% Fixed-to-Floating Rate Subordinated Note due October 1, 2030 (included as Exhibit A to the Subordinate Note Purchase Agreement included in Exhibit 10.16) (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September 21, 2020 (File No. 001-35633)).
10.1+
Amended and Restated Employment Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 30, 2019 (File No. 001-35633))
10.2+
Amended and Restated Supplemental Executive Retirement Agreement dated July 11, 2022, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on July 14, 2022 (File No. 001-35633))
10.3+
Amended and Restated Long Term Compensation Agreement dated November 23, 2015, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 27, 2015 (File No. 001-35633))
10.4+
Amended and Restated Confidentiality, Non-Competition and Non-Solicitation Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 30, 2019 (File No. 001-35633))
10.5+
2008 Equity Incentive Plan (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 31, 2009 (File No. 000-52889))
10.6+
Forms of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreements under the 2008 Equity Incentive Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 29, 2009 (File No. 000-52889))
10.7+
Summary of Annual Bonus Plan (included as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and incorporated herein by reference (File No. 001-35633))
10.8+
2013 Equity Incentive Plan (included as Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 2013 and incorporated herein by reference (File No. 001-35633))
10.9+
Form of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock
Agreement under the 2013 Equity Incentive Plan (included as Exhibit 10.14 to the Registrant's Quarterly
Report on Form 10-Q/A for the quarter ended September 30, 2013 and incorporated herein by reference (File
No. 001-35633))
10.10+
Amended Form of Adoption Agreement for the Sound Community Bank Nonqualified Deferred Compensation Plan (included as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and incorporated herein by reference (File No. 001-35633))
10.11+
The Sound Community Bank Nonqualified Deferred Compensation Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on March 24, 2017 (File No. 001-35633))
10.12+
Change of Control Agreement dated October 25, 2018, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Heidi Sexton (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on October 26, 2018 (File No. (001-35633))
10.13+
Credit Union of the Pacific Incentive Compensation Achievement Plan, dated January 1, 1994 (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 14, 2019 (File No. (001-35633))
10.14+
Form of Subordinated Note Purchase Agreement, dated September 18, 2020, by and among Sound Financial Bancorp, Inc. and the Purchasers (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September 21, 2020 (File No. 001-35633)).
10.15+
Change in Control Agreement dated August 25, 2021 by and among Sound Financial Bancorp, Inc., Sound Community Bank and Wes Ochs (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on August 31, 2021 (File No. 001-35633)).
10.16+
Amendment No 1 to Change of Control Agreement dated October 25, 2018, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Heidi Sexton, effective as of October 30, 2024 (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 5, 2024 (File No. (001-35633))
10.17+
Amendment No. 1 to Change in Control Agreement dated August 25, 2021 by and among Sound Financial Bancorp, Inc., Sound Community Bank and Wes Ochs, effective as of October 30, 2024 (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 5, 2024 (File No. 001-35633)).
31.1
Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2
Rule 13(a)-14(a) Certification (Chief Financial Officer)
32
Section 1350 Certification
101
The following financial statements from the Sound Financial Bancorp, Inc. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026, formatted in Extensive Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income, (iii) condensed consolidated statements of comprehensive income, (iv) condensed consolidated statements of equity (v) condensed consolidated statements of cash flows and (vi) the notes to condensed consolidated financial statements
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

+ Indicates management contract or compensatory plan or arrangement.
44


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Sound Financial Bancorp, Inc.
   
Date: May 12, 2026By:/s/  Laura Lee Stewart
  Laura Lee Stewart
  Chief Executive Officer
  (Principal Executive Officer and Duly Authorized Officer)
By:/s/  Wes Ochs
Wes Ochs
President/Chief Financial Officer
(Principal Financial Officer)
45

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