What changed in this filing

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Item 1. Business

2025-03-18 compared with 2024-03-22 · 209 added, 220 removed, 891 unchanged (33% of the section changed)

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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 variety or range of factors including, but not limited to:

• potential adverse impacts to economic conditions in the Company's local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation or deflation, a potential recession or slowed economic growth;

• changes in the interest rate environment, including the recent increases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and duration at which such increased rate levels are maintained, 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 continuing high inflation;

• 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 the interest rate environment, including increases and decreases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and the duration of such rates, 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 the Federal Reserve’s monetary policy decisions;

• the effects of any federal government shutdown;

• changes in consumer spending, borrowing and savings habits;

• the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of our allowance for credit losses (“ACL”);

• 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;

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

• bank failures or adverse developments at other banks and related negative press about the banking industry in general 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;

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

• the possibility that unexpected outflows of uninsured 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;

• fluctuations in interest rates;

• results of examinations of Sound Financial Bancorp and Sound Community Bank by their regulators, including the possibility that the regulators may, among other things, require us to increase our ACL or to write-down assets, change Sound Community Bank's regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;

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

• 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, affect our ability to borrow funds or maintain or increase deposits;

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

• our ability to attract and retain deposits;

• competitive pressures among financial services companies;

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

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

• our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft, and other attacks on our information technology systems or on the third-party vendors that perform several of our critical processing functions;

• changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board ("FASB");

• 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 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 keep pace with technological changes;

• 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 law, 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;

• staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

• our ability to pay dividends on our common stock;

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

• environmental, social and governance goals;

• 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;

• disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;

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

• disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on those of our third-party vendors;

• the potential imposition of new tariffs or changes to existing trade policies that could affect economic activity or 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, civil unrest and other external events;

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

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We caution readers not to place undue reliance on any forward-looking statements and that the factors listed above could materially affect our financial performance and could cause our actual results for future periods to differ materially from any such forward-looking statements expressed 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 date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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 the “Company,” “we,” “us,” and “our” means Sound Financial Bancorp and its wholly-owned subsidiary, Sound Community Bank, unless the context otherwise requires.

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.

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.

References in this document to “Sound Financial Bancorp” mean Sound Financial Bancorp, Inc., and references to the "Bank" mean Sound Community Bank, a wholly owned subsidiary of Sound Financial Bancorp.

References to the “Company,” “we,” “us,” and “our” mean Sound Financial Bancorp and the Bank, unless the context otherwise requires.

Sound Financial Bancorp, a Maryland corporation, is a bank holding company.

Substantially all of Sound Financial Bancorp's business is conducted through the 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 State Department of Financial Institutions (“WDFI”) and the Federal Deposit Insurance Corporation (“FDIC”).

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We also sell insurance products and services to consumers 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 December 31, 2023, Sound Financial Bancorp had total consolidated assets of $995.2 million, including $894.5 million of loans held-for-portfolio, deposits of $826.5 million and stockholders' equity of $100.7 million.

The Bank's deposits are insured up to applicable limits by the FDIC.

At December 31, 2024, the Company had total consolidated assets of $993.6 million, including $900.2 million of loans held-for-portfolio, deposits of $837.8 million and stockholders' equity of $103.7 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 3 rd Avenue, Suite 150, Seattle, Washington, 98121 and our telephone number is 206-448-0884.

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Major employment sectors in our market area include information and communications technology, financial services, aerospace, military, manufacturing, maritime, biotechnology, education, health and social services, retail trades, transportation and professional services.

Significant employers headquartered in our market area include Microsoft, Amazon.com, Starbucks, University of Washington, Providence Health, Costco, Boeing, Nordstrom, Alaska Air Group, Weyerhaeuser and the U.S.

Significant employers headquartered in our market area include Microsoft, Amazon, Starbucks, University of Washington, Providence Health, Costco, Boeing, Nordstrom, Alaska Air Group, Weyerhaeuser and the U.S.

Joint Base Lewis-McChord.

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have been negatively impacted by inflation and the rising interest rate environment, partially offset by the continued trend of low unemployment rates.

Recent trends in housing prices in our market areas reflect the impact rising interest rates have had on housing prices.

Recent trends in housing prices in our market areas reflect the impact high interest rates and the limited housing supply have had on housing prices.

For December 2024, the preliminary Seattle MSA reported an unemployment rate of 3.5%, compared to the national average of 4.1%, according to the latest available information from the Bureau of Labor Statistics.

Home prices in our markets decreased over the past year.

Home prices in our markets increased over the past year.

Based on information from Case-Shiller, the average home price in the Seattle MSA increased 5.9% in 2024.

King County has the largest population of any county in the state of Washington, with approximately 2.3 million residents and a median household income of approximately $121 thousand.

Based on information from the Northwest Multiple Listing Service (“MLS”), the median home sales price in King County in December 2023 was $795 thousand, a 2% decrease from December 2022's median home sales price of $815 thousand.

Based on information from the Northwest Multiple Listing Service (“MLS”), the median home sales price in King County in December 2024 was $851 thousand, a 7% increase from December 2023's median home sales price of $795 thousand.

Pierce County has approximately 931 thousand residents and a median household income of approximately $97 thousand.

Based on information from the MLS, the median home sales price in Pierce County in December 2023 was $525 thousand, a 4% decrease from December 2022's median home sales price of $545 thousand.

Based on information from the MLS, the median home sales price in Pierce County in December 2024 was $555 thousand, a 6% increase from December 2023's median home sales price of $525 thousand.

Snohomish County has approximately 849 thousand residents and a median household income of approximately $106 thousand.

Based on information from the MLS, the median home sales price in Snohomish County at December 2023 was $700 thousand, a 4% decrease from December 2022's median home sales price of $730 thousand.

Based on information from the MLS, the median home sales price in Snohomish County at December 2024 was $750 thousand, a 7% increase from December 2023's median home sales price of $700 thousand.

Clallam County, with a population of approximately 79 thousand, has a median household income of approximately $67 thousand.

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Loan Maturity and Repricing.

The following table sets forth certain information at December 31, 2023, regarding the amount of total loans in our portfolio based on their contractual terms to maturity (in thousands).

The following table sets forth certain information at December 31, 2024, regarding the amount of loans in our portfolio based on their contractual terms to maturity (in thousands).

The table does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

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Our five largest relationships (including unused commitments) totaled $83.4 million in the aggregate, or 9.3% of our $901.8 million total loan portfolio, at December 31, 2024.

At December 31, 2023, the largest lending relationship totaled $22.8 million and consisted of six loans to four businesses totaling $22.7 million , of which $11.4 million remained unfunded at December 31, 2023, and two loans to a business totaling $106 thousand, of which $48 thousand remains unfunded.

The second largest relationship totaled $18.6 million and consisted of two loans to a business, a construction loan totaling $16.7 million, of which $4.2 million remained unfunded at December 31, 2023, and a $1.9 million commercial real estate loan.

The third largest relationship totaled $18.2 million and consisted of one construction and land loan, of which $3.4 million remained unfunded at December 31, 2023, secured by a multifamily real estate property being renovated.

The fourth largest relationship totaled $17.4 million and consisted of three loans to a business totaling $11.3 million collateralized by multifamily and commercial real estate, and two loans to a business with related guarantors totaling $6.1 million , both collateralized by multifamily real estate.

The fifth largest borrowing relationship totaled $16.3 million, and consisted of one construction loan, of which $2.3 million remained unfunded at December 31, 2023.

At December 31, 2023, we had 14 additional lending relationships in excess of $6.9 million each, totaling $144.3 million.

At December 31, 2024, the largest lending relationship totaled $19.4 million, consisting of a $16.7 million loan collateralized by multifamily real estate and another loan totaling $2.7 million collateralized by commercial real estate, each with related guarantors.

The second largest relationship totaled $17.4 million, consisting of one multifamily construction loan, of which $22 thousand remained unfunded at December 31, 2024.

The third largest relationship totaled $17.1 million, consisting of four loans to two businesses totaling $16.9 million collateralized by multifamily and commercial real estate, and a business line of credit totaling $189 thousand with related guarantors.

The fourth largest relationship totaled $15.1 million, consisting of four loans to four businesses collateralized by commercial real estate all with a related guarantor.

The fifth largest borrowing relationship totaled $14.5 million, consisting of one multifamily real estate loan at December 31, 2024.

At December 31, 2024, our 20 next largest lending relationships totaled $181.4 million in the aggregate, with an average loan balance of $9.1 million.

All of the foregoing loans were performing in accordance with their repayment terms at December 31, 2024.

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One of our primary lending activities is the origination of loans secured by first mortgages on one-to-four family residences, substantially all of which are secured by properties located in our geographic lending area.

We originate both fixed-rate and adjustable-rate loans.

Since 2019, we identified demand in the marketplace for one-to-four family, residential fixed-rate mortgage loans, especially jumbo loans (generally loans above the conforming Fannie Mae limits of $726,200 or $977,500, depending on location within our market area).

During 2023, our fixed-rate, one-to-four family loan originations decreased $47.1 million, or 56.6%, to $36.0 million compared to $83.1 million in 2022, while one-to-four family adjustable-rate loan originations decreased $25.4 million, or 59.8% to $17.1 million compared to $42.5 million in 2022.

The decreased originations in both fixed and adjustable-rate residential loans can be attributed to a combination of factors, including the high interest rate environment, economic uncertainty, and the limited housing supply and elevated housing prices in our market area.

We originate both fixed-rate and adjustable-rate one-to-four family loans, including jumbo loans (generally loans above the conforming Fannie Mae limits of $766,550 or $981,500, depending on location within our market area).

During 2024, our fixed-rate, one-to-four family loan originations decreased $12.5 million, or 34.8%, to $23.5 million compared to $36.0 million in 2023.

Additionally, one-to-four family adjustable-rate loan originations decreased $688 thousand, or 4.0% to $16.4 million compared to $17.1 million in 2023.

The decrease in both fixed and adjustable-rate residential loan originations can be attributed to several factors, including the high interest rate environment, economic uncertainty, and the limited housing supply coupled with elevated housing prices in our market area.

At December 31, 2024, our average adjustable-rate, one-to-four family residential loan was $592 thousand.

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As a result, subject to market conditions, we intend to continue to originate these types of loans.

We also retain jumbo loans, which exceed the conforming loan limits and therefore, are not eligible to be purchased by Fannie Mae.

We also retain jumbo loans, which exceed the conforming loan limits and are therefore, not eligible to be purchased by Fannie Mae.

At December 31, 2024, $154.1 million or 57.2% of our one-to-four family loan portfolio consisted of jumbo loans.

We generally underwrite our one-to-four family loans based on the applicant’s employment and credit history and the appraised value of the subject property.

We generally lend up to 80% of the lesser of the appraised value or purchase price for one-to-four family first mortgage loans and nonowner-occupied first mortgage loans.

For first mortgage loans with a loan-to-value ratio in

excess of 80%, we may require private mortgage insurance or other credit enhancement to help mitigate credit risk.

Properties securing our one-to-four family loans are typically appraised by independent fee appraisers who are selected in accordance with criteria approved by the Loan Committee.

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Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically re-price, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower.

At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates.

At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates.

Upward adjustments of the contractual interest rate are also limited by our maximum periodic and lifetime rate adjustments.

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however, prior to 2010 we originated home equity loans in amounts of up to 100% of the value of the collateral, minus any senior liens on the property.

Home equity lines of credit are typically originated for up to $250,000 with an adjustable rate of interest, based on the one-year Treasury Bill rate or the Wall Street Journal Prime rate, plus a margin .

Home equity lines of credit are typically originated for up to $250,000 with

an adjustable rate of interest, based on the one-year Treasury Bill rate or the Wall Street Journal Prime rate, plus a margin .

Home equity lines of credit generally have a three-, five-, ten- or 12-year draw period, during which time the funds may be paid down and redrawn up to the committed amount.

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We charge a $50 annual fee on each home equity line of credit and require monthly interest-only payments on the entire amount drawn during the draw period.

Certain home equity line of credit products allow an amount up to the credit limit to be converted to up to three installment loans at a fixed rate prior to the lapse of the draw period.

Approximately $5.9 million of our home equity line of credit products at December 31, 2024, allow an amount up to the credit limit to be converted to up to three installment loans at a fixed rate prior to the lapse of the draw period.

The option to convert a portion of a home equity line of credit into fixed-rate installment loans prior to the end of the draw period offers borrowers valuable financial flexibility, stability, and tailored financing options, enhancing the overall appeal and usefulness of the home equity product.

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We also from time to time acquire participation interests in commercial and multifamily real estate loans originated by other financial institutions secured by properties located in our market area.

Historically, loans secured by commercial and multifamily properties generally present different credit risks than one-to-four family properties.

Historically, loans secured by commercial and multifamily properties have generally presented different credit risks than one-to-four family properties.

These loans typically involve larger balances to single borrowers or groups of related borrowers.

Because payments on loans secured by commercial and multifamily properties are often dependent on the successful operation or management of the properties, repayment of these loans may be subject to adverse conditions in the real estate market or the economy.

Repayments of loans secured by nonowner-occupied properties depend primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s

ability to repay the loan without the benefit of a rental income stream.

If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower's ability to repay the loan may be impaired.

Commercial and multifamily real estate loans also expose a lender to greater credit risk than loans secured by one-to-four family because the collateral securing these loans typically cannot be sold as easily as one-to-four family collateral.

If the cash flow from the project is reduced, or if leases are not obtained or not renewed, the borrower's ability to repay the loan may be impaired.

Commercial and multifamily real estate loans also expose a lender to greater credit risk than loans secured by one-to-four family properties because the collateral securing commercial and multifamily real estate loans typically cannot be sold as easily as one-to-four family collateral.

In addition, most of our commercial and multifamily real estate loans are not fully amortizing and include balloon payments upon maturity.

Balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment.

The largest single commercial and multifamily real estate loan at December 31, 2023, totaled $11.5 million and was collateralized by a storage facility.

The largest single commercial and multifamily real estate loan at December 31, 2024, totaled $16.7 million and was collateralized by multifamily real estate.

At December 31, 2024, this loan was performing in accordance with its repayment terms.

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Loan proceeds are disbursed after inspection based on the percentage of completion method.

We require general liability, builder's risk hazard insurance, title insurance, and flood insurance, for properties located in or to be built in a designated flood hazard area, on all construction loans.

We require general liability insurance, builder's risk hazard insurance, title insurance, and flood insurance, for properties located in or to be built in a designated flood hazard area, on all construction loans.

We also originate developed lot and raw land loans to individuals intending to construct a residence in the future on the property.

We will generally originate these loans in an amount up to 75% of the lower of the purchase price or appraisal.

We generally originate these loans in an amount up to 75% of the lower of the purchase price or appraisal.

These lot and land loans are secured by a first lien on the property and have a fixed rate of interest with a maximum amortization of 20 years.

We make land acquisition and development loans to experienced builders or residential lot developers in our market area.

The maximum loan-to-value limit applicable to these loans is generally 75% of the appraised market value upon completion of the project.

The maximum loan-to-value limit applicable to these loans is generally 75% of the projected market value upon completion of the project.

We may not require cash equity from the borrower if there is sufficient equity in the land being used as collateral.

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We require that developers maintain adequate insurance coverage.

Land acquisition and development loans generally are originated with a loan term up to 24 months, have adjustable rates of interest based on the Wall Street Journal Prime Rate or the three- or five-year rate charged by the Federal Home Loan Bank ("FHLB") of Des Moines and require interest-only payment during the term of the loan.

Land acquisition and development loans generally are originated with a term of up to 24 months, have adjustable rates of interest based on the Wall Street Journal Prime Rate or the three- or five-year rate charged by the Federal Home Loan Bank ("FHLB") of Des Moines and require interest-only payments during the term of the loan.

Land acquisition and development loan proceeds are disbursed periodically in increments as construction progresses and as an inspection by our approved inspector warrants.

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Most of our commercial and multifamily construction loans provide for disbursement of loan funds during the construction period and conversion to a permanent loan when the construction is complete and either tenant lease-up provisions or prescribed debt service coverage ratios are met.

At December 31, 2023, commercial and multifamily construction loans totaled

$78.4 million or 61.8% of our construction and land portfolio, compared to $85.7 million, or 73.4% of our construction and land portfolio at December 31, 2022.

The three largest commercial and multifamily construction loans at December 31, 2023 included a $14.8 million loan secured by the renovation of a multifamily real estate property, an $14.0 million loan secured by construction of a multifamily real estate property and a $12.9 million loan secured by a construction of a multifamily real estate, located in Pierce and King Counties, Washington.

At December 31, 2024, commercial and multifamily construction loans totaled $37.0 million or 50.6% of our construction and land portfolio, compared to $78.4 million, or 61.8% of our construction and land portfolio at December 31, 2023.

The three largest commercial and multifamily construction loans at December 31, 2024 included a $17.3 million loan secured by a multifamily real estate property undergoing rehabilitation, an $11.0 million loan secured by an owner-occupied warehouse property undergoing construction and a $7.4 million loan secured by one-to-four family residential homes under construction.

At December 31, 2024, all these loans were performing in accordance with their repayment terms.

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Due to uncertainties inherent in estimating construction costs, market values of completed projects, and the impact of governmental regulations on real property, accurately evaluating the total funds required to complete a project and the completed project loan-to-value ratio can be challenging.

Actual results may significantly differ from estimates due to changes in demand, unexpected building costs, and other factors.

Actual results may significantly differ from estimates due to changes in demand, unexpected construction costs, and other factors.

This type of lending often involves higher loan principal amounts and may be concentrated with a small number of builders.

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Consequently, the success of these loans relies heavily on the project’s ultimate outcome and the borrower’s ability to sell or lease the property or secure permanent take-out financing.

If our appraisal of the completed project’s value proves overstated, we may lack sufficient security for the loan repayment, leading to potential losses.

If our appraisal of the completed project’s value proves overstated, we may lack sufficient security for the loan’s repayment, leading to potential losses.

Construction loans necessitate active monitoring of the building process, including cost comparisons and on-site inspections, making them more challenging and costly to oversee.

Increases in market interest rates can disproportionately impact construction loans by rapidly escalating end purchasers’ borrowing costs, potentially reducing overall project demand.

Selling properties under construction can be challenging, requiring completion for successful sales, complicating the resolution of problem construction loans.

properties under construction can be challenging, requiring completion for successful sales, complicating the resolution of problem construction loans.

This may require us to advance additional funds and/or contract with another builder to complete construction.

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Land loans pose risks due to the lack of income from the property and the potential illiquid nature of the collateral.

These risks can be significantly influenced by supply and demand conditions.

These risks can be significantly affected by supply and demand conditions.

A downturn in housing or the real estate market may elevate loan delinquencies, defaults, and foreclosures, impairing collateral value and our ability to sell the collateral upon foreclosure.

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Other collateral securing loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the specific type of business and equipment.

result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself which, in turn, is often dependent in part upon general economic conditions.

As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself which, in turn, is often dependent in part upon general economic conditions.

Consumer Lending.

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We typically originate new and used manufactured home loans to borrowers who intend to use the home as a primary residence.

The yields on these loans are higher than that on our other residential lending products and the portfolio has performed reasonably well with an acceptable level of risk and loss in exchange for the higher yield.

The yields on these loans are higher than on our other residential lending products, and the portfolio has performed reasonably well with an acceptable level of risk and loss in exchange for the higher yield.

Our weighted-average yield on manufactured home loans at December 31, 2024 was 8.61%, compared to 4.55% for one-to-four family mortgages, excluding loans held-for-sale.

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We underwrite these loans based on our review of creditworthiness of the borrower, including credit scores, and the value of the collateral, in which we hold a security interest.

Manufactured home loans are higher risk than loans secured by residential real property, though this risk may be reduced if the owner also owns the land on which the home is located.

Manufactured home loans are generally considered higher risk than loans secured by residential real property, though this risk may be reduced if the borrower also owns the land on which the manufactured home is located.

A small portion of our manufactured home loans involve properties on which we have also financed the land for the owner.

The primary risk in manufactured home loans is the difficulty in obtaining adequate value for the collateral due to the cost and limited ability to move the collateral.

The primary risk in manufactured home loans is the difficulty in obtaining adequate value for the collateral due to the cost and limited ability to relocate the collateral.

These loans tend to be made to retired individuals and first-time homebuyers.

First-time homebuyers of manufactured homes tend to be a higher credit risk than first-time homebuyers of single-family residences, due to more limited financial resources.

As a result, these loans may have a higher probability of default and higher delinquency rates than single-family residential loans and other types of consumer loans.

As a result, these loans may have a higher probability of default and higher delinquency rates than single-

family residential loans and other types of consumer loans.

We consider this additional risk as a component of our ACL.

We attempt to work out delinquent loans with the borrower and, if that is not successful, any past due manufactured homes are repossessed and sold.

At December 31, 2023, there were five nonperforming manufactured home loans totaling $228 thousand.

At December 31, 2024, we had ten nonperforming manufactured home loans, totaling $521 thousand.

We originate floating home, houseboat and house barge loans, typically located on cooperative or condominium moorages.

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The primary risk in floating home loans is the unique nature of the collateral and the challenges of relocating such collateral to a location other than where such housing is permitted.

The process for securing the deed and/or the condominium or cooperative dock is also unique compared to other types of lending we participate in.

As a result, these loans may have higher collateral recovery costs than for one-to-four family mortgage loans and other types of consumer loans.

The process for securing the deed and/or the condominium or cooperative dock is also unique compared to other types of lending.

As a result, these loans may have higher collateral recovery costs than one-to-four family mortgage loans and other types of consumer loans.

We consider these additional risks as a component of our ACL.

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Our ability to originate loans, however, is dependent upon client demand for loans in our market area.

Over the past several years, we have continued to originate residential and consumer loans, and

increased our emphasis on commercial and multifamily real estate, construction and land, and commercial business lending.

Over the past several years, we have continued to originate residential and consumer loans, and increased our emphasis on commercial and multifamily real estate, construction and land, and commercial business lending.

Demand is affected by competition and the interest-rate environment.

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We did not sell any commercial loan participations in 2024 or 2023.

We had no purchases of commercial business loan participations from other financial institutions in 2023 and $2.6 million in 2022.

We had $2.0 million in purchases of commercial business loan participations from other financial institutions in 2024 and no such purchases in 2023.

We originate loans that may meet one or more of the credit characteristics commonly associated with subprime lending.

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Additionally, of the $9.8 million in manufactured home loans originated in 2024, $162 thousand or 1.7% were to borrowers with a credit score of 660 or lower.

At December 31, 2023, the total amount of residential and consumer loans held in our loan portfolio to borrowers with a credit score of 660 or lower were $20.8 million.

At December 31, 2024, the total amount of residential and consumer loans held in our loan portfolio to borrowers with a credit score of 660 or lower were $19.2 million of which $515 thousand were nonaccrual.

We generally do not originate or purchase negative amortization or option adjustable-rate loans.

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These loans are fixed-rate mortgages, which primarily are sold to reduce our interest-rate risk and generate noninterest income.

These loans are generally sold for cash in amounts equal to the unpaid principal amount of the loans determined using present value yields to the buyer.

They are generally sold for cash in amounts equal to the unpaid principal amount of the loans determined using present value yields to the buyer.

These sales allow for a servicing fee on loans when the servicing is retained by us.

Most one-to-four family loans are sold with servicing retained.

Most one-to-four family loans are sold by us with servicing retained.

At December 31, 2024, we were servicing a $423.7 million portfolio of residential mortgage loans for Fannie Mae and $2.1 million for other investors.

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Financial Statements and Supplementary Data” of this report on Form 10-K.

We repurchased one loan totaling $448 thousand in 2023 and no loans in 2022.

We repurchased no loans in 2024 and one loan totaling $448 thousand in 2023.

Sales of whole real estate loans may generate income at the time of sale, produce future servicing income on loans where servicing is retained, provide funds for additional lending, and increase liquidity.

We sold $17.1 million and $20.3 million of conforming one-to-four family loans during the year ended December 31, 2023 and 2022, respectively.

We sold $14.2 million and $17.1 million of conforming one-to-four family loans during the years ended December 31, 2024 and 2023, respectively.

Gains, losses and transfer fees on sales of one-to-four family loans and participations are recognized at the time of the sale.

Our net gains on sales of residential loans for the years ended December 31, 2024 and 2023 were $258 thousand and $340 thousand, respectively.

In addition to loans sold to Fannie Mae and others on a servicing retained basis, we also sell nonconforming residential loans to correspondent banks on a servicing released basis.

During the year ended December 31, 2023 and 2022, we sold $2.0 million and $636 thousand, respectively, of loans with servicing released.

In addition to loans sold to Fannie Mae and others on a servicing retained basis, we sell nonconforming residential loans to correspondent banks on a servicing released basis.

We sold no loans with servicing released during 2024, compared to $2.0 million of loans sold with servicing released in 2023.

Asset Quality

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If the account becomes 120 days delinquent and an acceptable foreclosure alternative has not been agreed upon, we generally refer the account to legal counsel with instructions to prepare a notice of default.

The notice of default begins the

foreclosure process.

The notice of default begins the foreclosure process.

If foreclosure is completed, typically we take title to the property and sell it directly through a real estate broker.

Delinquent consumer loans are handled in a similar manner to one-to-four family loans.

Delinquent consumer loans are handled in a manner similar to one-to-four family loans.

Our procedures for repossession and sale of consumer collateral are subject to various requirements under the applicable consumer protection laws as well as other applicable laws and the determination by us that it would be beneficial from a cost basis.

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Other consumer 16 18 0.1 — — — 16 18 0.1

Commercial Business 1 66 0.3 1 2,128 10.3 2 2,194 10.6

Total 38 $ 1,353 0.2 % 12 $ 6,895 0.8 % 50 $ 8,248 0.9 %

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Home equity 298 84

Commercial and multifamily 3,734 —

Construction and land 24 —

Manufactured homes 521 228

Floating homes 2,363 —

Other consumer 3 1

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OREO and repossessed assets:

One-to-four family — 84

Commercial and multifamily — 575

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Nonperforming assets as a percentage of total assets 0.75 % 0.42 %

(1) Nonaccrual loans included $333 thousand and $103 thousand in nonperforming modified loans to borrowers experiencing financial difficulty at December 31, 2023 and 2022, respectively.

Performing modified loans:

One-to-four family $ 1,119 $ 1,342

Home equity 56 62

Commercial and multifamily — —

Construction and land — —

Manufactured homes 20 42

Floating homes — —

Other consumer 70 76

Commercial business — —

Total performing modified loans

$ 1,265 $ 1,522

(1) Nonaccrual loans included $66 thousand and $333 thousand in modified loans to borrowers experiencing financial difficulty at December 31, 2024 and 2023, respectively.

We had no accruing loan 90 days or more delinquent at December 31, 2024 and 2023.

Nonaccrual loans, including nonaccrual modified loans to borrowers experiencing financial difficulty, increased $597 thousand to $3.6 million at December 31, 2023 from $3.0 million at December 31, 2022.

The increase was primarily due to the placement on nonaccrual status of a $2.1 million business term loan, $649 thousand in four one-to-four family real estate loans, and $142 thousand in two manufactured home loans, partially offset by the payoff of $1.5 million in nonperforming one-to-four family real estate loans related to a single borrower, the write-off of one residential property for $84 thousand, and other payoffs and normal amortization.

Our largest nonperforming loan relationship at December 31, 2023 consisted of one business term loan totaling $2.1 million, which is well secured, where the collateral is listed for sale and we expect to be repaid in full.

In addition, there were five manufactured home loans, two home equity loans, two other consumer loans, and nine additional one-to-four family loans classified as nonperforming at December 31, 2023.

Nonaccrual loans, including nonaccrual modified loans to borrowers experiencing financial difficulty, increased $3.9 million to $7.5 million at December 31, 2024, compared to $3.6 million at December 31, 2023.

The increase was primarily due to the placement of an additional $9.3 million of loans on nonaccrual status, including a $3.7 million matured commercial real estate loan where the borrower is in the process of securing alternative financing, and a $2.4 million floating home loan, both of which are well secured.

These additions were partially offset by payoffs totaling $4.2 million, the return of $784 thousand of loans to accrual status, charge-offs of $142 thousand, the sale of two OREO properties for $690 thousand, and regular loan payments.

Our largest nonperforming loan relationship at December 31, 2024 was the $3.7 million commercial real estate loan noted above.

In addition, there were eight manufactured home loans, one floating loan, one business term, one commercial real estate, one home equity loan, one land loan and five other consumer loans classified as nonperforming at December 31, 2024.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition at December 31, 2024 Compared to December 31, 2023—Delinquencies and Nonperforming Assets" contained in Item 7 of this report on Form 10-K for more information on troubled assets.

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Such loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt.

In March 2022, the FASB issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments — Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

This ASU eliminated the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

We typically measure the ACL on modified loans to troubled borrowers on an individual basis when the loans are deemed to no longer share risk characteristics that are

similar with other loans in the portfolio.

We typically measure the ACL on modified loans to troubled borrowers on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio.

The determination of the ACL for these loans is based on a discounted cash flow approach for loans measured individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated fair value of the underlying collateral, less estimated costs to sell.

GAAP requires us to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications.

Modified loans to borrowers experiencing financial difficulty totaled $1.7 million at December 31, 2023.

Troubled Debt Restructured Loans.

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 TDRs totaled $2.0 million at December 31, 2022, and were previously included in impaired loans.

Accounting principles generally accepted in the United States (“GAAP”) requires us to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications.

Modified loans to borrowers experiencing financial difficulty totaled $1.3 million and $1.7 million at December 31, 2024 and 2023, respectively .

OREO and Repossessed Assets.

OREO and repossessed assets include assets acquired in settlement of loans.

At December 31, 2023, OREO and repossessed assets totaled $575 thousand.

Our OREO at December 31, 2023, consisted of one property.

This property is a former bank branch property located in Port Angeles, Washington, which was acquired in 2015 as a part of three branches purchased from another financial institution.

It is currently leased to a local not-for-profit organization at a below-market rate.

At December 31, 2024 and 2023 ,we had no and $575 thousand of OREO and repossessed assets, respectively.

Classified Assets.

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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.

When we classify problem assets as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address specific impairments.

When we classify problem assets as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address impairments.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets.

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At December 31, 2024, special mention assets totaled $18.7 million.

We regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations.

Based on management’s review of our assets at December 31, 2023, we had classified $14.4 million of our assets as substandard, of which $13.8 million represented a variety of outstanding loans and $575 thousand represented the balance of our OREO and repossessed assets.

We regularly review the problem assets in our portfolio to determine whether any require classification in accordance with applicable regulations.

Based on management’s review of our assets at December 31, 2024, we had classified $27.4 million of our assets, all which were loans, as substandard.

At that date, we had no assets classified as doubtful or loss.

This total amount of classified assets represented 14.3% of our equity capital and 1.4% of our assets at December 31, 2023.

Classified assets represented 26.4% of our equity capital and 2.8% of our assets at December 31, 2024.

Classified assets totaled $14.4 million, or 14.3% of our equity capital and 1.4% of our assets at December 31, 2023.

Allowance for Credit Losses on Loans .

We maintain an ACL in accordance with ASC 326.

The ACL is measured using the CECL approach for financial instruments measured at amortized cost and other commitments to extend credit.

We maintain an ACL in accordance with Accounting Standards Codification (“ASC”) 326.

The level of the ACL is established using the CECL approach for financial instruments measured at amortized cost and other commitments to extend credit.

CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset.

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The ACL consists of two elements:

(1) identification of loans that do not share risk characteristics with collectively evaluated loan pools are individually analyzed for expected credit loss and (2) establishment of an ACL for collectively evaluated loan pools based upon loans that share similar risk characteristics.

We estimate the ACL using relevant and reliable information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast.

The ACL is measured on a collective (segment) basis when similar risk characteristics exist.

(1) identification of loans that do not share risk characteristics with collectively evaluated loan pools, which are individually analyzed for expected credit loss and (2) establishment of an ACL for collectively evaluated loan pools based upon loans that share similar risk characteristics.

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.

While our policies and procedures used to estimate the ACL, as well as the resulting provision for credit losses reported in the Consolidated Statements of Income, are reviewed periodically by regulators, model validators and internal audit, they are

necessarily approximate and imprecise.

While our policies and procedures used to estimate the ACL, as well as the resulting provision for credit losses reported on the Consolidated Statements of Income, are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise.

There are factors beyond our control, such as changes in projected economic conditions, real estate markets or particular industry conditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.

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At and For December 31,

Allowance for credit losses - loans as a percentage of total loans outstanding 0.98 % 0.88 %

Allowance for credit losses — loans 8,760 7,599

ACL - loans as a percentage of total loans outstanding 0.94 % 0.98 %

ACL — loans 8,499 8,760

Total loans outstanding 901,827 896,160

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Total loans outstanding 901,827 896,160

Allowance for credit losses - loans as a percentage of nonaccrual loans

ACL - loans as a percentage of nonaccrual loans

113.46 % 246.34 %

Allowance for credit losses — loans 8,760 7,599

ACL — loans 8,499 8,760

Total nonaccrual loans 7,491 3,556

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One-to-four family:

Net recoveries

Net (charge-offs)/recoveries

Average loans outstanding

274,424 275,776

(0.12) % 0.36 %

Net (charge-offs)/recoveries

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Manufactured homes:

Net recoveries

Net (charge-offs)/recoveries

Average loans outstanding

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(0.01) % (0.02) %

Net (charge-offs) recoveries

Net (charge-offs)

Average loans outstanding

897,839 870,511

Economic conditions in both our local markets and the broader U.S.

have been and continue to be adversely impacted by inflation and the rising interest rate environment.

This impact has been partially mitigated by the persistent trend of low unemployment rates.

Recent trends in housing prices within our market areas indicate the influence of rising interest rates on

housing prices;

despite this, we continued to see strong demand for loans despite this increase.

In response to these economic challenges, we consistently monitor our loan portfolio for potential deterioration attributable to inflation and other economic factors.

Economic conditions in our local markets and the broader U.S.

continue to be adversely impacted by inflation, elevated interest rates, and a limited housing supply.

However, the impact of these factors has been partially offset by persistently low unemployment rates.

Recent housing price trends in our market areas reflect the effects of higher interest rates, yet demand for

loans has remained strong despite these challenges.

In response to these economic conditions, we continuously monitor our loan portfolio for potential deterioration resulting from inflation and other macroeconomic factors.

The ACL as a percentage of nonperforming loans was 113.46% and 246.34% at December 31, 2024 and 2023, respectively.

We recorded a provision for credit losses on loans of $564 thousand for the year ended December 31, 2023, compared to $1.2 million for the year ended December 31, 2022.

We recorded a release of provision for credit losses on loans of $161 thousand for the year ended December 31, 2024, compared to a provision for credit losses on loans of $564 thousand for the year ended December 31, 2023.

Net charge-offs were $100 thousand for the year ended December 31, 2024, compared to $163 thousand for the year ended December 31, 2023.

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Commercial business 102 1.7 107 2.3

Unallocated — — 488 —

Total $ 8,499 100.0 % $ 8,760 100.0 %

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The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest-rate risk.

Our investment quality emphasizes safer investments with the yield on those investments secondary to not taking unnecessary risk with the available funds.

Our investment strategy emphasizes safer investments with the yield on those investments secondary to not taking unnecessary risk with the available funds.

See “Quantitative and Qualitative Disclosures About Market Risk” contained in Item 7A.

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As a condition of membership in the FHLB of Des Moines, we are required to purchase and hold a certain amount of FHLB stock.

The ACL on investment securities is determined for both the HTM and AFS securities in accordance with Accounting Standards Codification (“ASC”) 326 - Financial Instruments - Credit Losses .

The ACL on investment securities is determined for both the HTM and AFS securities in accordance with ASC 326 - Financial Instruments - Credit Losses .

For AFS securities, we perform a quarterly qualitative evaluation for securities in an unrealized loss position to determine if, for those investments in an unrealized loss position, the decline in fair value is credit related or non-credit related.

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However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost.

If we intend to sell, or it is likely we will be required to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings.

If we intend, or it is likely we will be required, to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings.

For unrealized losses deemed non-credit related, we record the loss, net of tax, through accumulated other comprehensive income.

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The amount of credit loss is measured as the amount by which the security’s amortized cost exceeds the present value of expected future cash flows.

Credit losses on AFS securities are measured on an individual basis, while credit losses on held-to-maturity (“HTM”) securities are measured on a collective basis according to shared risk characteristics.

Credit losses on AFS securities are measured on an individual basis, while credit losses on HTM securities are measured on a collective basis according to shared risk characteristics.

Credit losses on HTM securities are only recognized at the individual security level when we determine a security no longer possesses risk characteristics similar to others in the portfolio.

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At December 31, 2024, core deposits, which we define as our non-time deposit accounts and time deposit accounts less than $250 thousand (excluding brokered deposits and public funds), represented approximately 87.3% of total deposits, compared to 86.6% at December 31, 2023.

We did not have any brokered time deposits at December 31, 2023 and 2022, and $5.0 million of brokered money market accounts at December 31, 2023 as compared to none at December 31, 2022.

We primarily rely on competitive pricing policies, marketing and client service to attract and retain these deposits and we expect to continue these practices in the future.

We had no brokered deposits at December 31, 2024, compared to $5.0 million of brokered money market accounts at December 31, 2023.

We primarily rely on competitive pricing policies, marketing and client service to attract and retain deposits, and we expect to continue these practices in the future.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition.

The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and

to respond with flexibility to changes in consumer demand.

The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand.

We manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors.

Based on our experience, we believe that our deposits are relatively stable sources of funds.

Based on our experience, we believe

that our deposits are relatively stable sources of funds.

Despite this stability, our ability to attract and maintain these deposits and the rates paid on them is and will continue to be significantly affected by market conditions.

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(1) Noninterest-bearing

The following table sets forth, for the periods indicated, the average amount of and the average rate paid on deposit categories that are in excess of 10 percent of average total deposits.

The following table sets forth, for the periods indicated, the average amount of and the average rate paid on deposit categories in excess of 10 percent of average total deposits.

Year Ended December 31,

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Total deposits increased $11.3 million to $837.8 million at December 31, 2024, compared to the prior year-end.

The increase in total deposits over the past year was the result of an increase in certificate accounts, which was primarily used to fund organic loan growth in 2023.

Noninterest-bearing demand accounts (excluding escrow accounts) decreased $46.4 million, or 27.2%, in 2023 compared to 2022.

We also experienced decreases in our interest-bearing demand and savings accounts in 2023 compared to 2022.

The decrease in these accounts was primarily due to interest rate sensitive clients moving a portion of their non-operating deposit balances from lower costing deposits, including noninterest-bearing deposits, into higher costing money market and time deposits.

Certificates of deposits increased $97.7 million, or 46.4%, in 2023 compared to 2022.

We are a public funds depository and at December 31, 2023, we had $17.5 million in public funds compared to $7.0 million at December 31, 2022.

These funds consisted of $13.7 million in certificates of deposit, $3.7 million in money market accounts

and $17 thousand in checking accounts at December 31, 2023.

The increase in total deposits primarily was the result of a $52.0 million, or 33.8% increase in money market accounts.

Management attributes this increase primarily to interest rate sensitive clients moving a portion of their non-operating deposit balances from lower interest-bearing demand and savings accounts into higher interest-bearing money market accounts.

Interest-bearing demand and saving accounts decreased $26.2 million, or 15.6%, and $8.2 million, or 11.8%, respectively, from December 31, 2023 to December 31, 2024.

Certificate accounts decreased $12.1 million, or 3.9% to $295.8 million at December 31, 2024, compared to the 2023 year-end, primarily due to a strategic decision to pay higher rates on money market accounts as opposed to certificate accounts.

Noninterest-bearing demand accounts (excluding escrow accounts) increased $6.0 million, or 4.8%, in 2024, compared to 2023.

We are a public funds depository and at December 31, 2024, we had $15.9 million in public fund deposits compared to $17.5 million at December 31, 2023.

These deposits consisted of $12.2 million in certificates of deposit, $3.7 million in money

market accounts and $17 thousand in checking accounts at December 31, 2024.

These accounts must be 50% collateralized if the amount on deposit exceeds FDIC insurance of $250 thousand.

We use letters of credit from the FHLB of Des Moines as collateral for these funds.

The Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $10 million and $8.0 million at December 31, 2023 and 2022, respectively, to secure public deposits.

We use letters of credit from the FHLB of Des Moines as collateral for these deposits.

The Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $8.0 million and $10.0 million at December 31, 2024 and 2023, respectively, to secure public fund deposits.

The following table shows rate and maturity information for our certificates of deposit at December 31, 2024 (dollars in thousands):

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As of December 31, 2024 and 2023, approximately $167.3 million and $140.1 million, respectively, of our deposit portfolio was uninsured.

The uninsured amounts are estimates based on the methodologies and assumptions used for Sound Community Bank’s regulatory reporting requirements.

The following table sets forth the portion of our certificate accounts that are in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2023 (dollars in thousands).

The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

The following table sets forth the portion of our certificate accounts that were in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2024 (dollars in thousands).

3 months or less $ 20,393

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These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features, and all long-term advances are required to provide funds for residential home financing.

We have entered into a loan agreement with the FHLB of Des Moines pursuant to which Sound Community Bank may borrow up to approximately 45% of total assets, secured by a blanket pledge on a portion of our residential mortgage portfolio, including one-to-four family loans, commercial and

multifamily real estate loans and home equity loans.

We have entered into a loan agreement with the FHLB of Des Moines pursuant to which the Bank may borrow up to approximately 45% of total assets, secured by a blanket pledge on a portion of our residential mortgage loan portfolio, including one-to-four family loans, commercial and multifamily real estate

loans and home equity loans.

Based on eligible collateral, the total amount available under this agreement at December 31, 2024 was $172.3 million.

At the same date, we had $40.0 million of outstanding FHLB fixed-rate advances, comprised of $15.0 million of short-term advances (with a maturity of November 2024 ) and $25.0 million of long-term advances (with maturities ranging from January 2026 to January 2028).

Additionally, we had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $10.0 million at December 31, 2023.

We plan to rely in part on FHLB advances to fund asset and loan growth.

At the same date, we had $25.0 million of outstanding FHLB fixed-rate advances, with maturities ranging from January 2026 to January 2028.

Additionally, we had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $8.0 million at December 31, 2024, which was used to secure public fund deposits.

We rely in part on FHLB advances to fund asset and loan growth.

We also use short-term FHLB advances to meet short term liquidity needs.

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Commercial banks, credit unions and finance companies, including FinTech companies, provide vigorous competition in consumer lending.

Commercial business competition is primarily from local commercial banks, but credit unions also compete for this business.

Competition in originating commercial business loans comes primarily from local commercial banks, as well as credit unions.

We compete by consistently delivering high-quality, personal service to our clients, which results in a high level of client satisfaction.

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We compete for these deposits by offering superior service, online and mobile access and a variety of deposit accounts at competitive rates.

Based on the most recent data provided by the FDIC, there are approximately 47 other commercial banks and savings banks operating in the Seattle MSA, which includes King, Snohomish and Pierce Counties.

Based on the most recent data provided by the FDIC, there are approximately 46 other commercial banks operating in the Seattle MSA, which includes King, Snohomish and Pierce Counties.

Based on the most recent branch deposit data provided by the FDIC, our share of deposits in the Seattle MSA is approximately 0.28%.

The five largest financial institutions in that area have 71.0% of those deposits.

In Clallam County, there are nine other commercial banks and savings banks.

In Clallam County, there are nine other commercial banks.

Our share of deposits in Clallam County was the second highest in the county at approximately 16.35%, with the five largest institutions in that county having 81.4% of the deposits.

In Jefferson County there are six other commercial banks and savings banks.

share of deposits in Jefferson County is approximately 5.66%, while the five largest institutions in that county have 86.1% of those deposits.

In Jefferson County there are six other commercial banks.

Our share of deposits in Jefferson County is approximately 5.86%, while the five largest institutions in that county have 86.0% of those deposits.

How We Are Regulated

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Sound Community Bank, as a state-chartered commercial bank, is subject to applicable provisions of Washington law and to regulations and examinations of the WDFI.

As an insured institution, it also is subject to examination and regulation by the FDIC, which insures the deposits of Sound Community Bank to the maximum amount permitted by law.

It also is subject to examination and regulation by the FDIC, which insures the deposits of Sound Community Bank to the maximum amount permitted by law.

During state or federal regulatory examinations, the examiners may require Sound Community Bank to provide for higher general or specific loan loss reserves, which can impact our capital and earnings.

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Sound Community Bank is required to maintain minimum levels of regulatory capital and is subject to certain limitations on the payment of dividends to Sound Financial Bancorp.

See “—Capital Rules” and “—Limitations on Dividends and Other Capital Distributions.”

See “—Capital Rules” and “—Limitations on Dividends and Stock Repurchase.”

Regulation by the WDFI and the FDIC .

State laws and regulations govern Sound Community Bank’s ability to take deposits and pay interest, to make loans on or invest in residential and other real estate, to make other loans, to invest in securities, to offer various banking services, and to establish branch offices.

State laws and regulations govern Sound Community Bank’s ability to take deposits and pay interest, to make loans on or invest in residential and other real estate, to make other loans, to offer various other banking services, to invest in securities, and to establish branch offices.

As a state-chartered commercial bank, Sound Community Bank must pay semi-annual assessments, examination costs and certain other charges to the WDFI.

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Washington law allows Washington commercial banks to charge the maximum interest rates on loans and other extensions of credit to Washington residents which are allowable for a national bank in another state if higher than Washington limits.

In addition, the WDFI may approve applications by Washington commercial banks to engage in an otherwise unauthorized activity, if it determines that the activity is closely related to banking, and Sound Community Bank is otherwise qualified under the statute.

In addition, the WDFI may approve an application by a Washington commercial bank to engage in an otherwise unauthorized activity if the WDFI determines that the activity is closely related to banking and the bank is otherwise qualified under the statute.

Federal laws and regulations generally limit the activities and equity investments of Sound Community Bank to those that are permissible for national banks, unless approved by the FDIC, and govern our relationship with our depositors and borrowers to a great extent, especially with respect to disclosure requirements.

The FDIC has adopted regulatory guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and information systems, audit systems, interest-rate risk exposure and compensation and other benefits.

The FDIC has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and information systems, audit systems, interest-rate risk exposure and compensation and other benefits.

If the FDIC determines that Sound Community Bank fails to meet any standard prescribed by these guidelines, it may require Sound Community Bank to submit an acceptable plan to achieve compliance with the standard.

Among these safety and soundness standards are FDIC regulations that require Sound Community Bank to adopt and maintain written policies that establish appropriate limits and standards for real estate loans.

These standards, which must be consistent with safe and sound banking practices, establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value ratio limits) that are clear and measurable, loan administration procedures, and

documentation, approval and reporting requirements.

Sound Community Bank is obligated to monitor conditions in its real estate markets to ensure that its standards continue to be appropriate for current market conditions.

Sound Community Bank’s Board of Directors is required to review and approve Sound Community Bank’s standards at least annually.

Sound Community Bank is obligated to monitor conditions in its real estate markets to ensure that its standards remain appropriate for current market conditions.

Sound Community Bank’s Board of

Directors is required to review and approve Sound Community Bank’s standards at least annually.

The FDIC has published guidelines for compliance with these regulations, including supervisory limitations on loan-to-value ratios for different categories of real estate loans.

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Sound Community Bank is in compliance with the records and reporting requirements.

At December 31, 2023, Sound Community Bank’s aggregate loans in excess of the supervisory loan-to-value ratios were $9.4 million and were within the aggregate limits set forth in the preceding paragraph.

At December 31, 2024, Sound Community Bank’s aggregate loans in excess of the supervisory loan-to-value ratios were $526 thousand and were within the aggregate limits set forth in the preceding paragraph.

The FDIC and the WDFI must approve any merger transaction involving Sound Community Bank as the acquirer, including an assumption of deposits from another depository institution.

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The FDIC has authority to increase insurance assessments.

Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020.

In September 2020, the FDIC Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent extraordinary circumstances, as required by the Federal Deposit Insurance Act.

The Restoration Plan maintained the assessment rate schedules in place at the time and required the FDIC to update its analysis and projections for the deposit insurance fund balance and reserve ratio at least semiannually.

In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio.

Based on this update, the FDIC Board approved an Amended Restoration Plan, and concurrently proposed an increase in initial base deposit insurance assessment rate schedules uniformly by 2 basis points, applicable to all insured depository institutions.

In October 2022, the FDIC Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023.

The revised assessment rate schedules are intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum level of 1.35 percent by September 30, 2028.

Revised assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds the FDIC’s target minimum level, absent further action by the FDIC Board.

In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023.

Any significant increases in insurance assessments in the future may have an adverse effect on the operating expenses and results of operations of the Company.

The FDIC also conducts examinations of and requires reporting by state non-member banks, such as Sound Community Bank.

The FDIC also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious risk to the DIF.

In addition, the FDIC may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious risk to the DIF.

No institution may pay a dividend if it is in default on its federal deposit insurance assessment.

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The guidance directs the FDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk.

A bank that has experienced rapid

growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:

A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:

• Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory capital (or in the case of a bank that has elected to follow the Community Bank Leverage Ratio (“CBLR”) framework, Tier 1 capital plus the entire allowance for loan and lease losses (“CBLR Capital”));

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At December 31, 2024, Sound Community Bank’s aggregate recorded loan balances for construction, land development and land loans were 63.9% of CBLR Capital.

In addition, at December 31, 2023, Sound Community Bank’s loans on all commercial real estate, including construction, owner and non-owner occupied commercial real estate, and multi-family lending, as defined by the FDIC, were 352.9% of CBLR capital.

In addition, at December 31, 2024, Sound Community Bank’s loans on all commercial real estate, including

construction, owner and non-owner occupied commercial real estate, and multi-family lending, as defined by the FDIC, were 348.5% of CBLR Capital.

Transactions with Related Parties.

Sound Community Bancorp and Sound Community Bank are separate and distinct legal entities.

Sound Community Bank is an affiliate of Sound Community Bancorp and any non-bank subsidiary of Sound Community Bancorp.

Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates.

Transactions deemed to be a “covered transaction” under Section 23A of the Federal Reserve Act between a bank and an affiliate are limited to 10% of the bank's capital and surplus and, with respect to all affiliates, to an aggregate of 20% of the bank's capital and surplus.

Further, covered transactions that are loans and extensions of credit generally are required to be secured by eligible collateral in specified amounts.

Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.

Sound Financial Bancorp and Sound Community Bank are separate and distinct legal entities.

Sound Community Bank is an affiliate of Sound Financial Bancorp and any non-bank subsidiary of the latter.

Federal laws restrict the ability of banks to engage in certain transactions with their affiliates.

Under Section 23A of the Federal Reserve Act, “covered transactions” between a bank and an affiliate are limited to 10% of the bank's capital and surplus, with an aggregate cap of 20% for all affiliates.

Further, loans and extensions of credit considered covered transactions typically require collateral in specified amounts.

Section 23B of the Federal Reserve Act further mandates that such transactions be conducted on terms as favorable to the bank as those with non-affiliates.

Capital Rules.

Sound Community Bank and Sound Financial Bancorp are required to maintain specified levels of regulatory capital under regulations of the FDIC and FRB, respectively.

In September 2019, the regulatory agencies, including the FDIC and FRB adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio (“CBLR”) for institutions with total consolidated assets of less than $10 billion, and that meet other qualifying criteria related to off-balance sheet exposures and trading assets and liabilities.

In September 2019, the regulatory agencies, including the FDIC and FRB, adopted a final rule, effective January 1, 2020, creating a CBLR for institutions with total consolidated assets of less than $10 billion, and that meet other qualifying criteria related to off-balance sheet exposures and trading assets and liabilities.

The CBLR provides for a simple measure of capital adequacy for qualifying institutions.

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Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional regulatory capital information.

The FASB has adopted a new accounting standard for accounting principles generally accepted in the U.S.

GAAP") that became effective for the Company and Bank on January 1, 2023.

This standard, referred to as Current Expected Credit Loss or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses

expected over the life of certain financial assets.

CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses.

The FASB has adopted a new accounting standard for GAAP that became effective for the Company and Bank on January 1, 2023.

This standard, referred to as Current Expected Credit Loss or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.

CECL covers a broader range of assets than the previous method of recognizing credit losses and generally results in earlier recognition of credit losses.

Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL.

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The federal banking regulators (the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

Community Reinvestment and Consumer Protection Laws.

Community Reinvestment Act and Consumer Protection Laws.

In connection with its lending and other activities, Sound Community Bank is subject to a number of federal and state laws designed to protect clients and promote lending to various sectors of the economy and population.

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Sound Community Bank’s compliance with consumer protection rules is examined by the WDFI and the FDIC.

As of now, the CFPB's future remains uncertain, with ongoing discussions about potential restructuring or replacement by other regulatory frameworks.

In addition, federal and state regulations limit the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties.

The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.

The CRA requires the appropriate federal banking agency to assess the bank’s record in meeting the credit needs of the communities served by the bank, including low- and moderate-income neighborhoods.

The CRA requires the appropriate federal banking agency to assess a bank’s record in meeting the credit needs of the communities served by the bank, including low- and moderate-income neighborhoods.

The FDIC examines Sound Community Bank for compliance with its CRA obligations.

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The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type.

Sound Community Bank cannot predict the impact the changes to the CRA will have on its operations at this time.

The applicability date for the majority of the changes is January 1, 2026, with additional requirements becoming applicable on January 1, 2027.

Under the laws of the state of Washington, Sound Community Bank has a similar obligation to meet the credit needs of the communities it serves, and is subject to examination by the WDFI for this purpose, including assignment of a rating.

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On November 18, 2021, the federal banking agencies announced the adoption of a final rule providing for new notification requirements for banking organizations and their service providers for significant cybersecurity incidents.

Specifically, the new rule requires a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred.

Specifically, the rule requires a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred.

Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.

Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours.

Compliance with the new rule was required by May 1, 2022.

Service providers are required under the rule to notify affected banking organization customers as soon as possible when the

provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours.

Compliance with the rule was required starting May 1, 2022.

Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory fines and penalties, damages from private causes of action and/or reputational harm.

In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance.

The new rules require registrants to disclose on Form 8-K any cybersecurity incident they determine to be material and to describe the material aspects of the incident's nature, scope, and timing, as well as its material impact or reasonably likely material impact on the registrant.

The rules require registrants to disclose on Form 8-K any cybersecurity incident they determine to be material and to describe the material aspects of the incident's nature, scope, and timing, as well as the material impact or reasonably likely material impact on the registrant.

For information regarding the Company’s cybersecurity risk management, strategy, and governance, see “Item 1C.” in this Form 10-K.

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The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) was signed into law on October 26, 2001.

The USA PATRIOT Act and the Bank Secrecy Act requires financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities.

The USA PATRIOT Act and the Bank Secrecy Act requires financial institutions to develop programs to prevent themselves from being used for money laundering and terrorist activities.

If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S.

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The FHLBs continue to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on borrowings targeted for community investment and low- and moderate-income housing projects.

These contributions have adversely affected the level of dividends paid by the FHLB of Des Moines and could continue to do so in the future.

These contributions have

adversely affected the level of dividends paid by the FHLB of Des Moines and could continue to do so in the future.

These contributions could also have an adverse effect on the value of FHLB stock in the future.

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A bank holding company that does not meet any applicable capital standard would not be able to pay any cash dividends under this policy.

A bank holding company subject to the Small Bank Holding Company Policy Statement, such as Sound Financial Bancorp, is expected not to pay dividends unless its debt-to-equity ratio is less than 1:1 and it meets certain additional criteria.

A bank holding company subject to the Small Bank

Holding Company Policy Statement, such as Sound Financial Bancorp, is expected not to pay dividends unless its debt-to-equity ratio is less than 1:1 and it meets certain additional criteria.

The Federal Reserve also has indicated that it is inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.

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Regardless of its asset size, a bank holding company is considered well-capitalized if on a consolidated basis it has a total risk-based capital ratio of at least 10.0% and a Tier 1 risk-based capital ratio of 6.0% or more, and is not subject to an agreement, order, or directive to maintain a specific level for any capital measure.

Under Maryland corporate law, Sound Financial Bancorp generally may not pay dividends if after that payment it would not be able to pay its liabilities as they become due in the usual course of business, or its total assets would be less than the sum of its total liabilities.

Under Maryland corporate law, Sound Financial Bancorp generally may not pay dividends if after that payment it would not be able to pay its indebtedness as the indebtedness becomes due in the usual course of business, or its total assets would be less than the sum of its total liabilities.

Sound Community Bank.

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At December 31, 2024, approximately 62% of our workforce was female and approximately 38% was male, and women held 69% of the Bank's management roles.

The average tenure of employees was 4.55 years.

The average employee tenure was 6.14 years.

As part of our compensation philosophy, we offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent.

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Accordingly, we are committed to the health, safety, and wellness of our employees.

In support of our commitment, we expanded our gym reimbursement to include all physical and mental wellness activities.

In support of our commitment, our gym reimbursement includes all physical and mental wellness activities.

We provide our employees and their families with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status;

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This approach has yielded loyalty and commitment in our employee base which in turn grows our business, our products, and our customers, while adding new employees and external ideas supports a continuous improvement mindset.

We believe that our average tenure of nearly five years reflects the engagement of our employees in this talent management philosophy.

We believe that our average tenure of over six years reflects the engagement of our employees in this talent management philosophy.

We maintain a website;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business