What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-03-18 compared with 2024-03-22 · 280 added, 275 removed, 1223 unchanged (31% of the section changed)

6 unchanged sentences

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses (Topic 326).

The Company adopted the new credit loss standard using the modified retrospective approach such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinion

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As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses on loans balance was $8.5 million at December 31, 2024.

The allowance for credit losses is maintained to provide

for estimated losses expected to occur over the estimated remaining life of the asset.

The Company incorporates relevant and reliable information from internal and external sources related to past events, current conditions, and a reasonable and supportable forecast.

The quantitative component of the reserve is calculated with a discounted cash flow model utilizing gross historical loss rates, adjusted for defaults, recoveries, expected prepayments, and an economic forecast based on unemployment.

Qualitative factors are used to estimate additional losses related to risks that are not captured in the quantitative reserve and are based on management’s evaluation of available internal and external data.

Qualitative factors include changes in lending standards, economic conditions, the nature and volume of loans, lending management delinquencies, the loan review system, the value of underlying collateral, the existence of concentrations, and the impact of other external factors.

We identified the auditing of the allowance for credit losses on loans, including management’s use of reasonable and supportable forecasts of future economic conditions in the discounted cash flow model, and the estimation of qualitative factors, both of which are used in the estimate, as a critical audit matter.

Determination of the inputs into the discounted cash flow model involve significant management judgement based on selection of appropriate peer groups and management’s consideration of the forecast of relevant economic conditions.

The qualitative factors are based on management’s evaluation of available internal and external data and involves significant management judgement.

Auditing management’s judgments relating to the determination of loss rates and qualitative factors involved significant audit effort as well as especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter was Addressed in the Audit

The primary procedures we performed to address the critical audit matter included testing the Company’s process used by management to develop the estimate of the allowance for credit losses on loans by:

• Evaluating the appropriateness of the methodology used, including completeness and accuracy of the internal data and the relevance and reliability of the external data used in the calculation, application of the forecasted economic conditions, and qualitative factors determined by management and verifying calculations.

• Obtaining management’s analysis and supporting documentation related to the significant assumptions, including forecasted economic conditions, and evaluating whether the significant assumptions used in the forecasts are reasonable and supportable based on the analysis provided.

• Evaluating management’s analysis and supporting documentation related to the selection of the peer groups utilized in determining the quantitative component of the reserve are supported by the analysis provided by management.

• Obtaining management’s analysis of internal and external qualitative factors and evaluating the reasonableness of the qualitative factor adjustment used in the calculation.

The allowance for credit losses is maintained to provide for estimated losses expected to occur over the estimated remaining life of the asset.

The Company uses relevant and reliable information from internal and external sources related to past events, current conditions, and a reasonable and supportable forecast.

The quantitative component of the allowance is measured using a discounted cash flow model incorporating gross historical loss rates, adjusted for defaults, recoveries, expected prepayments,

and an economic forecast based on unemployment.

Qualitative adjustments are used to estimate additional losses related to risks that are not captured in the quantitative analysis and are based on management’s evaluation of available internal and external data.

We identified the auditing of the allowance for credit losses on loans, including management’s use of reasonable and supportable forecasts of future economic conditions in the discounted cash flow model, and the estimation of qualitative adjustments, both of which are used in the estimate, as a critical audit matter.

Determination of the inputs used in the discounted cash flow model involve significant management judgment based on management’s consideration of the forecast of relevant economic conditions.

Qualitative adjustments are based on management’s evaluation of available internal and external data and involves significant management judgment.

Auditing management’s judgments relating to the determination of the inputs used in the discounted cash flow model and qualitative adjustments involved significant audit effort as well as especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

Our audit procedures related to the critical audit matter included the following, among others:

• Evaluating the appropriateness of the methodology, including the application of the forecasted economic conditions and qualitative adjustments determined by management and used in the calculation.

• Testing the completeness and accuracy of the internal data and evaluating the relevance and reliability of the external data used in the calculation.

• Obtaining management’s analysis and supporting documentation related to the forecasted economic conditions assumption, and evaluating whether the significant assumptions used in the forecast is reasonable and supportable based on the analysis provided

• Obtaining management’s analysis of internal and external qualitative adjustments and evaluating the reasonableness of the qualitative adjustments used in the calculation.

/s/ Moss Adams LLP

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Total liabilities 889,967 894,567

COMMITMENTS AND CONTINGENCIES (Notes 12 and 18)

COMMITMENTS AND CONTINGENCIES (Notes 18)

STOCKHOLDERS' EQUITY

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Net gain on sale of loans 258 340

Other income 38 —

Total noninterest income 4,655 5,006

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Data processing 4,226 4,388

Net loss and expenses on OREO and repossessed assets

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

Total noninterest expense 30,131 30,129

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AFS securities:

Unrealized gains (losses) arising during the year

163 ( 1,590 )

Income tax (expense) benefit related to unrealized gains (losses)

Other comprehensive income (loss), net of tax

129 ( 1,256 )

Unrealized (losses) gains arising during the year

Income tax benefit (expense) related to unrealized (losses) gains

Other comprehensive (loss) income, net of tax

Comprehensive income $ 4,584 $ 7,568

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2,549,427 $ 25 $ 27,990 $ 73,627 $ ( 988 ) $ 100,654

Impact of adoption of ASU No.

2016-13 ( 1,149 ) ( 1,149 )

Net income 4,640 4,640

Other comprehensive income, net of tax

Other comprehensive loss, net of tax benefit

( 56 ) ( 56 )

Share-based compensation 390 390

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Common stock surrendered ( 5,053 ) ( 218 ) ( 218 )

Restricted shares forfeited ( 755 ) —

Common stock options exercised 14,111 269 269

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2,583,619 $ 26 $ 28,004 $ 70,792 $ ( 1,117 ) $ 97,705

Net income 8,804 8,804

Other comprehensive loss, net of tax benefit

Impact of adoption of ASU No.

2016-13 ( 1,149 ) ( 1,149 )

Net income 7,439 7,439

Other comprehensive income, net of tax

Share-based compensation 450 450

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Deferred income tax ( 273 ) ( 467 )

Net gain on disposal of premises and equipment, net

Net gain on sale of loans ( 258 ) ( 340 )

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Originations of loans held-for-sale ( 14,899 ) ( 19,762 )

Net loss on OREO and repossessed assets

Net (gain) loss on sale of OREO and repossessed assets

Change in operating assets and liabilities:

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CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of AFS securities

Proceeds from principal payments, maturities and sales of AFS securities

Purchase of HTM securities

Proceeds from principal payments, maturities and sales of HTM securities 35 33

Net increase in loans ( 5,049 ) ( 28,660 )

Proceeds from death benefit of BOLI

(Purchases of BOLI) / Proceeds from death benefit of BOLI

Purchases of premises and equipment, net ( 76 ) ( 444 )

Proceeds from disposal of premises and equipment, net

Proceeds from sale of OREO and other repossessed assets 727 71

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Repayment of borrowings ( 15,000 ) ( 43,000 )

FHLB stock redeemed (purchased)

436 ( 1,786 )

FHLB stock redeemed

Common stock repurchases ( 65 ) ( 2,137 )

Dividends paid on common stock ( 1,948 ) ( 1,913 )

Purchase of stock surrendered to pay tax liability ( 265 ) ( 134 )

Surrender of stock to pay tax liability

( 218 ) ( 265 )

Proceeds from common stock option exercises 269 395

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Interest paid on deposits, borrowings and subordinated debt 26,424 16,337

Loans transferred from loans held-for-portfolio to OREO and repossessed assets 115 —

ROU assets obtained in exchange for new operating lease liabilities

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Sound Financial Bancorp, a Maryland corporation (“Sound Financial Bancorp”), is the parent holding company for its wholly owned subsidiary, Sound Community Bank (the “Bank”) and the Bank's wholly- owned subsidiary, Sound Community Insurance Agency, Inc.

Substantially all of Sound Financial Bancorp's business is conducted through Sound Community Bank, a Washington state-chartered commercial bank.

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 Board of Governors of the Federal Reserve System (“Federal Reserve”), the Bank's regulators are the Washington State Department of Financial Institutions (“WDFI”) and the Federal Deposit Insurance Corporation (“FDIC”).

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See “Note 22—Subsequent Events” for further information.

Basis of Presentation and Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.

Basis of Presentation and Use of Estimates – The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and the fair value of MSRs.

The accompanying consolidated financial statements include the accounts of Sound Financial Bancorp and its wholly-owned subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc.

The accompanying consolidated financial statements include the accounts of Sound Financial Bancorp and its wholly- owned subsidiaries, the Bank and Sound Community Insurance Agency, Inc.

All significant intercompany balances and transactions between Sound Financial Bancorp and its subsidiaries have been eliminated in consolidation.

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Amortization of premiums and accretion of discounts are recognized as adjustments to interest income using the interest method over the period to the earlier of call date or maturity.

Allowance for Credit Losses on Investment Securities ( after adoption of ASC 326 ) – 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 .

Allowance for Credit Losses on Investment Securities – 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 .

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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(iii) downgrades in credit ratings;

(iv) payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments and (vi) general market conditions, which reflect prospects for the economy as a whole, including interest rates and sector credit spreads.

(iv) payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments;

and (vi) general market conditions, which reflect prospects for the economy as a whole, including interest rates and sector credit spreads.

If it is determined that the unrealized loss can be attributed to credit loss, we record the amount of credit loss through a charge to provision for credit losses in current period earnings.

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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A substantial portion of the loan portfolio is represented by loans secured by real estate located throughout the Puget Sound region, especially King, Snohomish and Pierce Counties, and in Clallam and Jefferson Counties of Washington State.

The ability of the Company’s debtors to honor their contracts is dependent upon employment, real estate and general economic conditions in these areas.

The ability of the Company’s debtors to honor their contracts can be affected by employment, real estate and general economic conditions in these areas.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balance adjusted for any charge-offs, the ACL, and any premiums, discounts, deferred fees or costs on origination of loans.

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Loans are typically charged off no later than 120 days past due, unless secured by collateral.

Past due status is based on contractual terms of the loan.

Past due status is based on the contractual terms of the loan.

In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current, future payments are reasonably assured and payments have been received for six consecutive months.

Allowance for Credit Losses on Loans ( after adoption of ASC 326 ) – The ACL is measured using the current expected credit losses (“CECL”) approach for financial instruments measured at amortized cost and other commitments to extend credit.

Allowance for Credit Losses on Loans – The ACL is measured using the current expected credit losses (“CECL”) approach for financial instruments measured at amortized cost and for other commitments to extend credit.

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

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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 maintain a loan review system that provides a periodic review of the loan portfolio and the identification of individually analyzed loans.

For loans that do not share risk characteristics with other loans, expected credit loss is measured on net realizable value that is the difference between the discounted value of the expected future cash flows, based on the original effective interest rate and the amortized cost basis of the loan.

For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral dependent, which is when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the

collateral (collateral dependent loans).

For collateral dependent loans we elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, which considers selling costs in the event sale of the collateral is expected.

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.

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

We maintain a loan review system that periodically assesses our loan portfolio and identifies individually analyzed loans.

For loans that do not share risk characteristics with other loans, expected credit loss is measured as the difference between the discounted value of expected future cash flows (based on the original effective interest rate) and the loan’s amortized cost basis.

The amortized cost basis is net of previous charge-offs and deferred loan fees and costs.

If the net realizable value of the loan is less than its amortized cost basis, we recognize an expected credit loss for the difference.

For collateral-dependent loans, where the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation

or sale of the collateral, we have elected the practical expedient under ASC 326.

Under this approach, expected credit losses are measured based on the fair value of the collateral, considering estimated selling costs when a sale is expected.

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

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

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We have identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

• Construction — While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with not only the completion of construction within an estimated time period and budget, but also the need to sell the building or reach a level of stabilized occupancy sufficient to generate cash flows necessary to support debt service and operating costs.

Some loans are originated to a borrower who will occupy the property.

There is risk the borrower will not be able to obtain permanent financing upon the completion of construction.

We seek to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan-to-value ratios and additional covenants as well as strong financial support of guarantors or borrowers.

• One-to-four family residential closed end loans secured by first liens — The most significant drivers of potential loss within our residential real estate portfolio relate to general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow.

Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value.

Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

• One-to-four family residential secured by junior liens — Similar to residential real estate first lien loans, junior liens performance is also primarily driven by borrower cash flows based on employment status.

However, junior liens carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder.

Furthermore, for home equity lines of credit (“HELOCs”), there is risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase since they may only be canceled by the Company if certain limited criteria are met.

For HELOCs, in addition to the ACL maintained as a percent of the outstanding loan balance, we maintain additional reserves for the unfunded portion of the HELOC.

• Commercial and multifamily real estate — Non-owner occupied commercial and multifamily properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment.

Owner occupied commercial generally rely on the financial condition of the business operated by the property owner.

Property types are predominantly office, retail, light industrial, or multifamily but the portfolio also has some special use properties.

As such, the risk of loss associated with these properties is primarily driven by general economic changes or changes in regional economies and the impact of such on a tenant’s or the operating business’ ability to pay.

Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss.

Ultimately this can affect occupancy, rental rates, or both.

Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates.

The terms on these loans at origination typically have maturities from five to 10 years with amortization periods from 15 to 25 years.

• Commercial and industrial — Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower.

A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value.

Most often, collateral includes accounts receivable, inventory, or equipment.

Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these loans.

• Other consumer loans — These loans are susceptible to three primary risks;

non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any.

Typically, non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate.

Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors.

Revolving lines of credit are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery.

• Construction — While secured by real estate, construction loans carry greater risk than term real estate loans due to additional uncertainties, including the timely and cost-effective completion of construction, as well as the ability to sell the building or achieve stabilized occupancy sufficient to generate necessary cash flows for debt service and operating costs.

Some loans are originated for borrowers who intend to occupy the property, creating a risk that they may be unable to secure permanent financing upon construction completion.

To mitigate these risks, we require borrowers to adhere to lower loan-to-value ratios and additional covenants and demonstrate strong financial support from guarantors or borrowers.

• One-to-four family residential closed end loans secured by first liens — The primary drivers of potential loss in our residential real estate portfolio included general, regional, or individual economic conditions that effect employment and borrowers’ cash flows.

Risk in this portfolio is best measured through changes in borrower credit scores and loan-to-value ratios.

Loss estimates are based on credit score trends, economic outlook, home values, and historical loss experience, adjusted for economic conditions and unemployment rates.

• One-to-four family residential secured by junior liens — Similar to first-lien residential real estate loans, the performance of junior lien loans is primarily influenced by borrower cash flow and employment status.

However, junior lien loans carry additional risk because they are typically secured by a deed of trust subordinate to the primary lien holder.

For home equity lines of credit (“HELOCs”), there is an added risk that, as a borrower's financial condition deteriorates, the outstanding balance may increase since the Company can only cancel these credit lines under specific, limited conditions.

In addition to the ACL maintained as a percentage of the outstanding loan balance, we maintain additional reserves for the unfunded portion of HELOCs.

• Commercial and multifamily real estate — Non-owner-occupied commercial and multifamily properties typically consist of leased buildings, where rental income serves as the primary source of repayment.

Owner-occupied commercial properties generally rely on the financial condition of the business operating within the property.

The portfolio primarily includes loans secured by office, retail, light industrial, and multifamily properties, along with some special-use properties.

The risk of loss is primarily driven by economic changes that affect tenants’ or business owners’ ability to pay rent.

These properties require more intensive management due to potential tenant turnover, which can impact occupancy rates and rental income.

Additional risks include oversupply from new construction, rising operating costs, and changes in interest rates.

These loans typically have maturities of five to ten years at origination, with amortization periods ranging from 15 to 25 years.

• Commercial and industrial — Repayment of these loans is primarily based on the borrower’s cash flow and secondarily on the underlying collateral.

Borrower cash flows may be unpredictable, and collateral (often accounts receivable, inventory, or equipment) can fluctuate in value.

Such collateral may depreciate, be difficult to appraise, or be illiquid.

Losses in this portfolio tend to be closely correlated with actual and forecasted changes in gross domestic product.

• Floating homes — The primary drivers of potential loss in our floating homes portfolio included general, regional, or individual economic conditions that effect employment and borrowers’ cash flows.

Risk in this portfolio is best measured through changes in borrower credit scores and loan-to-value ratios.

Loss estimates are based on credit score trends, economic outlook, floating home values, and historical loss experience, adjusted for economic conditions and unemployment rates.

• Other consumer loans (excluding floating homes) — These loans are subject to three primary risks:

non-payment due to income loss, over-extension of credit, and collateral shortfall in the event of default.

Non-payment is typically driven by job loss and follows general economic trends, particularly increases in unemployment.

Collateral values may decline due to market demand shifts, physical damage, or a combination of factors.

Revolving lines of credit, which are unsecured, generally offer limited recovery opportunities in the event of default.

The ACL quantitative allowance for each segment is measured using a discounted cash flow methodology incorporating a gross historical loss rate.

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change in staff experience level;

changes in the volume or trends of classified loans, delinquencies, and nonaccrual;

changes in the volume or trends of classified loans, delinquencies, and nonaccrual loans;

concentration risk;

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The rating of the qualitative factor and the allocated weighting determines the adjustment to the historical loss rate.

Management utilizes a scorecard approach in the determination of what level of the five-point scale to assign to each qualitative adjustment.

This includes, but is not limited to, differences between local and national unemployment rates, quantitative changes in inflation, introduction of new product lines, level of past due loans, risk rating of certain loan portfolios, loan review downgrades or upgrades, and quantitative approaches to measuring the risk of underlying collateral.

The ACL is established through the provision for credit losses that is reported in the Consolidated Statements of Income, which is based upon an evaluation of estimated losses in the current loan portfolio, including the evaluation of individually analyzed loans.

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Additionally, we enhanced the inputs related to our reasonable and supportable forecast through the inclusion of a quantitative model as part of our forecast which replaced a previous qualitative method.

This change in the ACL is considered a change in accounting estimate as per ASC 250-10 provisions, where adjustments should be made prospectively.

This change in the ACL is considered a change in accounting estimate as per ASC 250-10, where adjustments should be made prospectively.

Accrued interest receivable for loans is reported in accrued interest receivable balances in the Consolidated Balance Sheets.

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We concluded that this policy results in the timely reversal of uncollectable interest.

Allowance for Credit Losses on Unfunded Commitments (after adoption of ASC 326) – We are required to include unfunded commitments that are expected to be funded in the future within the ACL calculation, other than for those that are unconditionally cancellable.

Allowance for Credit Losses on Unfunded Commitments – We are required to include unfunded commitments that are expected to be funded in the future within the ACL calculation, other than for those that are unconditionally cancellable.

To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate.

To determine the expected funding rate, we utilize a peer-based historical utilization rate for each segment.

The ACL for off-balance-sheet exposures is reported in other liabilities in the Consolidated Balance Sheets.

The ACL for off-balance-sheet exposures is reported in other liabilities on the Consolidated Balance Sheets.

The liability represents an estimate of expected credit losses arising from off-balance-sheet exposures such as unfunded commitments.

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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.

Allowance for loan losses ( before adoption of ASC 326 ) – The allowance for loan losses was a reserve established through a provision for loan losses charged to expense and represented management's best estimate of probable incurred losses within the existing loan portfolio as of the balance sheet date.

The level of the allowance reflected management's view of trends in loan loss activity, then-current loan portfolio quality and then-present economic, political and regulatory conditions.

Portions of the allowance were allocated for specific loans;

however, the allowance was available for any loan that was charged off.

The allowance was increased by provisions charged to earnings and by recoveries of amounts previously charged off, and was reduced by charge-offs on loans (or portions thereof) deemed to be uncollectible.

Loan charge-offs were recognized when management believed the collectability of the principal balance outstanding was unlikely.

Full or partial charge-offs on collateral dependent impaired loans were generally recognized when the collateral was deemed to be insufficient to support the carrying value of the loan.

The allowance for loan losses was maintained at a level sufficient to provide for probable credit losses based upon evaluating known and inherent risks in the loan portfolio.

The allowance was provided based upon management's continuing analysis of the pertinent factors underlying the quality of the loan portfolio.

These factors included changes in the size and composition of the loan portfolio, delinquency levels, actual loan loss experience, then-current economic conditions, and detailed analysis of individual loans for which full collectability may not have been assured.

The detailed analysis included techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment.

The allowance consisted of specific, general and unallocated components.

Transfers of financial assets – Transfers of an entire financial asset, or a participating interest in an entire financial asset, are accounted for as sales when control over the assets has been surrendered.

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The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs.

The Company measures its mortgage servicing assets at fair value and reports changes in fair value through earnings under the caption fair value adjustment on MSRs in other income in the period in which the change occurs.

Changes in the fair values of servicing rights occur primarily due to the collection/realization of expected cash flows, as well as changes in valuation inputs and assumptions.

Currently, we do not hedge the effects of changes in fair value of our servicing assets.

The Company measures its MSRs at fair value and reports changes in fair value through earnings under the caption fair value adjustment on MSRs in other income in the period in which the change occurs.

Changes in the fair values of MSRs occur primarily due to the collection/realization of expected cash flows, as well as changes in valuation inputs and assumptions.

Currently, we do not hedge the effects of changes in fair value of our MSRs.

Premises and equipment – Premises, leasehold improvements and furniture and equipment are carried at cost, less accumulated depreciation and amortization.

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In some instances, the Company may make loans to facilitate the sales of OREO.

Management reviews all sales for which it is the lending institution.

Management reviews all sales for which the Company is the lending institution.

Any gains related to sales of other real estate owned may be deferred until the buyer has a sufficient investment in the property.

Leases – We determine if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use assets and operating lease liabilities in our Consolidated Balance Sheets.

Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the Consolidated Balance Sheets.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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Income Taxes – Income taxes are accounted for using the asset and liability method.

Under this method a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company's income tax returns.

The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

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The Company's operations are solely in the financial services industry and include providing to its clients traditional banking and other financial services.

For additional information regarding our segments, see “Note 21 - Business Segments.”

Off-balance-sheet credit-related financial instruments – In the normal course of operations, the Company engages in a variety of financial transactions that are not recorded in our financial statements.

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Such financial instruments are recorded when they are funded.

The Company also maintains a separate allowance for credit losses for off-balance sheet credit commitments.

The Company also maintains a separate ACL for off-balance sheet credit commitments.

Management estimates anticipated losses using expected loss factors consistent with those used for the ACL methodology for loans described above, and utilization assumptions based on historical experience.

The allowance for credit losses for off-balance sheet credit commitments totaled $ 193 thousand and $ 335 thousand at December 31, 2023 and 2022, respectively, and is included in other liabilities on the Consolidated Balance Sheets.

Provision for credit losses for off-balance sheet credit commitments is included in provision for credit on the Consolidated Statements of Income.

The ACL for off-balance sheet credit commitments totaled $ 234 thousand and $ 193 thousand at December 31, 2024 and 2023, respectively, and is included in other liabilities on the Consolidated Balance Sheets.

Provision for credit losses for off-balance sheet credit commitments is included in provision for credit losses in the Consolidated Statements of Income.

Advertising costs – The Company expenses advertising costs as they are incurred.

3 unchanged sentences

Such items, along with net income, are components of comprehensive income.

Intangible assets – At December 31, 2023 and 2022, the Company had $ 36 thousand and $ 67 thousand, respectively, of identifiable intangible assets included in other assets as a result of the acquisition of deposits from other institutions.

These assets are amortized using the straight-line method over a period of eight to ten years and have a remaining weighted average life of 1.3 years.

Management reviews intangible assets for impairment on an annual basis, or whenever events occur or circumstances change indicating the carrying amount of the intangible asset may not be recoverable.

Intangible assets –Identifiable intangible assets are included in other assets on the Consolidated Balance Sheets and include goodwill and intangibles related to the acquisition of core deposits from other financial institutions.

Typically, these assets are amortized using the straight-line method over a period of eight to ten years ;

however, goodwill is not amortized.

Goodwill on the Company’s balance sheet is not material and resulted from the acquisition of branches in 2014 and 2017.

The core deposit intangible was fully amortized as of December 31, 2024.

Management reviews intangible assets for impairment on an annual basis or whenever events or circumstances indicate that the carrying amount of an intangible asset may not be recoverable.

No impairment losses have been recognized in the periods presented.

At both December 31, 2024, and 2023, the Company had $ 777 thousand of goodwill.

Employee stock ownership plan (“ESOP”) – The Company sponsors an ESOP.

17 unchanged sentences

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to fair value measurements.

In certain cases, the inputs used to measure fair value of an asset or liability may fall into different levels of the fair value hierarchy.

In certain cases, the inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy.

The level within which the fair value measurement is categorized is based on the lowest level unobservable input that is significant to the fair value measurement in its entirety.

5 unchanged sentences

Reductions in compensation expense associated with forfeited options are expensed based on actual forfeiture experience.

The Company measures the fair value of the restricted stock using the closing market price of the Company's common stock on the date of grant.

In the case of restricted stock grants, the Company measures the fair value of the restricted stock using the closing market price of the Company's common stock on the date of grant.

The Company expenses the grant date fair value of the Company's stock options and restricted stock with a corresponding increase in equity.

2 unchanged sentences

The results of the reclassifications are typically not considered material and have no effect on previously reported net income, earnings per share or stockholders' equity.

Certain prior period amounts have been reclassified to conform to current period presentation, including reclassification of the provision for losses on unfunded loan commitments from being included in other noninterest expense to being included within provision for credit losses.

There were no other reclassifications to prior year amounts in the current year.

There were no reclassifications to prior year amounts in the current year.

Note 2— Accounting Pronouncements Recently Issued or Adopted

On March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, " Reference Rate Reform" ("Topic 848").

This ASU provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this update apply to modifications to eligible contracts (e.g., loans, debt securities, derivatives, borrowings) that replace a reference rate affected by reference rate reform (including rates referenced in fallback provisions) and contemporaneous modifications of other contract terms related to the replacement of the reference rate (including contract modifications to add or change fallback provisions).

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the related Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope

1) Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate;

2) Modifications of contracts within the scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (for example, the incremental borrowing rate) or remeasurements of lease payments that otherwise would be required under those Topics for modifications not accounted for as separate contracts;

and 3) Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives.

In January 2021, ASU 2021-01 updated amendments in the new ASU to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification.

The amendments in this ASU had differing effective dates, beginning with interim period including and subsequent to March 12, 2020 through December 31, 2022.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

5 unchanged sentences

The Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach and recorded a net decrease of approximately $ 1.1 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the ACL of $ 1.5 million, net of related deferred tax assets arising from temporary differences of $ 305 thousand, commonly referred to as the “Day 1” adjustment.

The Day 1 adjustment to the ACL is reflective of expected lifetime credit losses associated with the composition of financial assets within in the scope of ASC 326 as of January 1, 2023, which is comprised of loans held for investment and off-balance sheet credit exposures at January 1, 2023, as well as management’s expectation of future economic conditions.

The Day 1 adjustment to the ACL is reflective of expected lifetime credit losses associated with the composition of financial assets within the scope of ASC 326 as of January 1, 2023, which is comprised of loans held for investment and off-balance sheet credit exposures at January 1, 2023, as well as management’s expectation of future economic conditions.

The following table presents the impact of adopting ASU 2016-13 on January 1, 2023:

24 unchanged sentences

This ASU was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, upon the Company’s adoption of the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology.

The Company adopted ASU 2022-02 on January 1, 2023 using the prospective transition guidance which allows the entity to continue estimating expected credit losses in accordance with legacy U.S.

GAAP for receivables modified in a TDR until the receivables are subsequently modified or settled.

The Company adopted ASU 2022-02 on January 1, 2023 using the prospective transition guidance which allows the entity to continue estimating expected credit losses in accordance with legacy GAAP for receivables modified in a TDR until the receivables are subsequently modified or settled.

Once a legacy TDR is modified after adoption of ASU 2022-02, the prospective transition guidance no longer applies and the impact to the ACL is recognized in earnings in the period of modification.

3 unchanged sentences

Improvements to Reportable Segment Disclosures , which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources.

The update will be effective for annual periods beginning after December 15, 2023.

ASU 2023-07 will not have an impact on the Company's financial position or results of operation as it impacts disclosures only.

We are assessing the impact on our disclosures.

The Company adopted this ASU on January 1, 2024.

ASU 2023-07 did not have an impact on the Company's financial position or results of operation as it impacts disclosures only.

The adoption of this ASU did not have a material impact on the Company’s disclosures as the Company operates under one segment.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures .

This ASU requires public business entities to annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.

This ASU was released in response to stakeholder feedback indicating that

the existing income tax disclosures should be enhanced to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows.

This ASU was released in response to stakeholder feedback indicating that the existing income tax disclosures should be enhanced to provide information to better assess how an entity’s operations and

related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows.

This ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted.

The adoption of this ASU is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) , which will change the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (for example, employee compensation, depreciation and amortization) in expense captions.

This ASU’s amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently evaluating the impact of this guidance.

Note 3— Restricted Cash

3 unchanged sentences

Note 4— Investments

At December 31, 2024, the Company did not own any debt securities classified as trading or any equity investment securities.

The amortized cost and fair value of AFS securities and the corresponding amounts of gross unrealized gains and losses at December 31, 2024 and 2023 were as follows (in thousands):

7 unchanged sentences

December 31, 2023

Treasury bills $ 1,596 $ — $ ( 2 ) $ 1,594

Municipal bonds $ 6,394 $ 12 $ ( 878 ) $ 5,528

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The amortized cost and fair value of AFS and HTM securities at December 31, 2024, by contractual maturity, are shown below (in thousands).

Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the

right to call or prepay obligations with or without call or prepayment penalties.

Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.

Expected maturities of AFS and HTM securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investments not due at a single maturity date, primarily agency mortgage-backed securities, are shown separately.

December 31, 2024

35 unchanged sentences

AFS securities

Treasury bills $ 1,594 $ ( 2 ) $ — $ — $ 1,594 $ ( 2 )

Municipal bonds $ — $ — $ 3,862 $ ( 878 ) $ 3,862 $ ( 878 )

8 unchanged sentences

There were no credit losses recognized in earnings during the years ended December 31, 2024 and 2023 relating to the Company's securities.

At December 31, 2023, the securities portfolio consisted of 11 municipal bonds and 12 agency mortgage-backed securities with a total portfolio fair value of $ 10.1 million.

At December 31, 2022, the securities portfolio consisted of one treasury bill security, 11 municipal bonds and 12 agency mortgage-backed securities with a fair value of $ 12.0 million.

At December 31, 2023, there was one security in an unrealized loss position for less than 12 months, and sixteen securities in an unrealized loss position for more than 12 months.

At December 31, 2022, there were 16 securities in an unrealized loss position for less than 12 months, and three securities in an unrealized loss position for more than 12 months.

At December 31, 2024, the securities portfolio consisted of 11 municipal bonds and 11 agency mortgage-backed securities with a fair value of $ 9.5 million.

At December 31, 2023, the securities portfolio consisted of 11 municipal bonds and 12 agency mortgage-backed securities with a fair value of $ 10.1 million.

At December 31, 2024, there was one security in an unrealized loss position for less than 12 months and fifteen securities in an unrealized loss position for more than 12 months.

At December 31, 2023, there was one security in an unrealized loss position for less than 12 months and 16 securities in an unrealized loss position for more than 12 months.

For both 2024 and 2023, the unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and not related to the underlying credit of the issuers or the underlying collateral.

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Premiums resulting from purchased loans totaled $ 465 thousand on one-to-four family loans, $ 280 thousand on commercial and multifamily loans, and $ 84 thousand on commercial business loans as of December 31, 2023.

The Company purchased no loans during the year ended December 31, 2023.

During the year ended December 31, 2022, the Company purchased $ 2.6 million of commercial business loan participations with United States Department of Agriculture guarantees.

The Company purchased $ 2.0 million of loans during the year ended December 31, 2024 and zero loans during the year ended December 31, 2023.

The following table presents a summary of activity in the ACL on loans and unfunded commitments for the periods indicated (in thousands):

7 unchanged sentences

— — — 760 695 1,455

Provision for (release of) credit losses during the period 564 ( 837 ) ( 273 ) 1,225 ( 69 ) 1,156

Net (charge-offs)/recoveries during the period ( 163 ) — ( 163 ) 68 — 68

(Release of) provision for credit losses during the period

( 161 ) 41 ( 120 ) 564 ( 837 ) ( 273 )

Net charge-offs during the period

( 100 ) — ( 100 ) ( 163 ) — ( 163 )

Balance at end of period $ 8,499 $ 234 $ 8,733 $ 8,760 $ 193 $ 8,953

(1) Represents the impact of adopting ASU 2016-13, Financial Instruments — Credit Losses on January 1, 2023.

Since that date, as a result of adopting ASU 2016-13, our methodology to estimate our ACL has been based on a current expected credit loss methodology, rather than the previously applied incurred loss methodology.

Accrued interest receivable on loans receivable totaled $ 3.4 million and $ 3.0 million at December 31, 2023 and December 31, 2022, respectively, in the accompanying Consolidated Balance Sheets .

Accrued interest receivable on loans receivable totaled $ 3.4 million at both December 31, 2024 and December 31, 2023, in the accompanying Consolidated Balance Sheets .

Accrued interest receivable is excluded from the estimate of expected credit losses.

The following tables summarize the activity in the ACL for the year ended December 31, 2023 and the allowance for loan losses for the year ended December 31, 2022 (in thousands):

The following tables summarize the activity in the ACL for the years ended December 31, 2024 and 2023 (in thousands):

Year ended December 31, 2024

Allowance Impact of Adoption of ASU 2016-13

Charge-offs Recoveries Provision (Release of)

Allowance Charge-offs Recoveries Provision (Release of)

One-to-four family $ 2,630 $ — $ — $ 395 $ 3,025

Home equity 185 — — 122 307

132 69 ( 25 ) — 9 185

Commercial and multifamily 1,070 — — 148 1,218

1 unchanged sentence

Manufactured homes (1)

971 ( 23 ) — 224 1,172

Floating homes 2,022 — — ( 740 ) 1,282

4 unchanged sentences

$ 8,760 $ ( 122 ) $ 22 $ ( 161 ) $ 8,499

(1) During the year ended December 31, 2023, there was one revolving home equity loan that was charged off.

(1) During the year ended December 31, 2024, there was one manufactured housing loan originated in 2020 that was charged off.

(2) During the year ended December 31, 2024, gross charge-offs related primarily to deposit overdrafts that were charged off.

3 unchanged sentences

Home equity (1)

132 ( 25 ) — 9 185

Commercial and multifamily 2,501 — — ( 1,111 ) 1,070

1 unchanged sentence

Manufactured homes

462 — — 689 971

Floating homes 456 — — 1,400 2,022

Other consumer (2)

324 ( 179 ) 41 403 426

Commercial business 256 — — ( 114 ) 107

1 unchanged sentence

$ 7,599 $ ( 204 ) $ 41 $ 564 $ 8,760

(1) During the year ended December 31, 2023, there was one revolving home equity loan that was charged off.

(2) During the year ended December 31, 2023, gross charge-offs related primarily to deposit overdrafts that were charged off.

Credit Quality Indicators.

11 unchanged sentences

There were no loans classified as doubtful or loss as of December 31, 2024 and 2023.

The following table presents the internally assigned grades as of December 31, 2023, by type of loan and origination year (in thousands):

The following tables present the internally assigned grades as of December 31, 2024 and December 31, 2023, by type of loan and origination year (in thousands):

At December 31, 2024

Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Amortized Cost Basis Converted to Term

14 unchanged sentences

Pass $ 26,458 $ 22,846 $ 2,166 $ 968 $ 593 $ 2,338 $ — $ — $ 55,369

Special mention — — 17,349 — — — — — 17,349

Substandard — — 70 — — 24 — — 94

6 unchanged sentences

Pass $ 20,587 $ 6,395 $ 16,225 $ 23,902 $ 6,059 $ 10,472 $ — $ — $ 83,640

Substandard — — 2,350 — — — — — 2,350

Total floating homes $ 20,587 $ 6,395 $ 18,575 $ 23,902 $ 6,059 $ 10,472 $ — $ — $ 85,990

1 unchanged sentence

Pass $ 2,273 $ 3,297 $ 622 $ 3,615 $ 5,387 $ 1,925 $ 618 $ — $ 17,737

Substandard — — — 1 — — — — 1

Total other consumer $ 2,273 $ 3,297 $ 622 $ 3,616 $ 5,387 $ 1,925 $ 618 $ — $ 17,738

7 unchanged sentences

Total loans $ 123,321 $ 92,473 $ 218,805 $ 252,107 $ 51,822 $ 140,028 $ 20,480 $ 1,135 $ 900,171

The following tables represent the internally assigned grades at December 31, 2022, by type of loan (in thousands):

December 31, 2022

Equity Commercial

and Multifamily Construction

and Land Manufactured

Homes Floating

Consumer Commercial

Business Total

At December 31, 2023

Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Amortized Cost Basis

Converted to Term

2023 2022 2021 2020 2019 Prior Total

One-to-four family:

Pass $ 26,272 $ 84,467 $ 110,488 $ 16,126 $ 13,029 $ 28,139 $ — $ — $ 278,521

Watch 279 2 7,538 4,037 134 — — 161 12,151

Substandard — 259 119 — 260 553 — — 1,191

Total one-to-four family $ 26,272 $ 84,726 $ 110,607 $ 16,126 $ 13,289 $ 28,692 $ — $ — $ 279,712

Pass $ 3,963 $ 2,783 $ 1,072 $ 302 $ 95 $ 1,608 $ 12,982 $ — $ 22,805

Substandard — — — — — 63 445 2 510

Total home equity $ 3,963 $ 2,783 $ 1,072 $ 302 $ 95 $ 1,671 $ 13,427 $ 2 $ 23,315

Commercial and multifamily:

Pass $ 21,144 $ 75,960 $ 93,932 $ 22,731 $ 29,822 $ 58,388 $ — $ — $ 301,977

Special mention — — — 3,365 — 350 — — 3,715

Substandard — 1,036 — 1,317 5,134 1,121 — — 8,608

Total $ 274,638 $ 19,548 $ 313,358 $ 116,878 $ 26,953 $ 74,443 $ 17,923 $ 23,815 $ 867,556

Total commercial and multifamily $ 21,144 $ 76,996 $ 93,932 $ 27,413 $ 34,956 $ 59,859 $ — $ — $ 314,300

Construction and land:

Pass $ 32,057 $ 53,302 $ 36,285 $ 967 $ 601 $ 2,031 $ — $ — $ 125,243

Substandard — — — — 689 44 — — 733

Total construction and land $ 32,057 $ 53,302 $ 36,285 $ 967 $ 1,290 $ 2,075 $ — $ — $ 125,976

Manufactured homes:

Pass $ 13,696 $ 7,958 $ 4,365 $ 2,160 $ 2,075 $ 5,498 $ — $ — $ 35,752

Substandard 115 46 — 22 86 64 — — 333

Total manufactured homes $ 13,811 $ 8,004 $ 4,365 $ 2,182 $ 2,161 $ 5,562 $ — $ — $ 36,085

Floating homes:

Pass $ 8,779 $ 21,555 $ 26,196 $ 6,471 $ 1,865 $ 9,867 $ — $ — $ 74,733

Total floating homes $ 8,779 $ 21,555 $ 26,196 $ 6,471 $ 1,865 $ 9,867 $ — $ — $ 74,733

Other consumer:

Pass $ 4,629 $ 1,845 $ 3,884 $ 5,883 $ 598 $ 2,237 $ 539 $ — $ 19,615

Total other consumer $ 4,629 $ 1,845 $ 3,884 $ 5,883 $ 598 $ 2,237 $ 539 — $ 19,615

Commercial business:

Pass $ 987 $ 437 $ 3,564 $ 400 $ 227 $ 5,848 $ 6,854 $ — $ 18,317

Substandard 2,128 53 204 — — — 40 — 2,425

Total commercial business $ 3,115 $ 490 $ 3,768 $ 400 $ 227 $ 5,848 $ 6,894 $ — $ 20,742

Pass $ 111,527 $ 248,307 $ 279,786 $ 55,040 $ 48,312 $ 113,616 $ 20,375 $ — $ 876,963

Special mention — — — 3,365 — 350 — — 3,715

Substandard 2,243 1,394 323 1,339 6,169 1,845 485 2 13,800

Total loans $ 113,770 $ 249,701 $ 280,109 $ 59,744 $ 54,481 $ 115,811 $ 20,860 $ 2 $ 894,478

Nonaccrual and Past Due Loans .

5 unchanged sentences

Home equity 298 298 84 84

Commercial and multifamily 3,734 3,734 — —

Construction and land 24 24 — —

Manufactured homes 521 521 228 228

Floating homes 2,363 2,363 — —

Other consumer 3 1 1 —

44 unchanged sentences

At December 31, 2024, the Company had no commitments to extend additional credit to borrowers owing loan receivables with modified terms.

There were no loans modified during the year ended December 31, 2024.

During the year ended December 31, 2023, there was one modified one-to-four family loan to a borrower experiencing financial difficulty.

This loan received a term extension for 90 days, with an amortized cost basis of $ 90 thousand representing 0.03 % of the total class of loans.

We have no modified loans to troubled borrowers that have subsequently defaulted at December 31, 2023.

We have no modified loan receivables that have subsequently defaulted at December 31, 2024.

Troubled debt restructurings.

9 unchanged sentences

December 31, 2024

Commercial Real Estate Residential Real Estate Land Other Residential Total

Commercial Real Estate Residential Real Estate Land Other Residential RVs/Automobiles Business Assets Total

Real estate loans:

1 unchanged sentence

Home equity — 298 — — — — 298

Commercial and multifamily 3,734 — — — — — 3,734

Construction and land — — 24 — — — 24

Total real estate loans 3,734 609 24 364 — — 4,731

1 unchanged sentence

Manufactured homes — — — 521 — — 521

Floating homes — — — 2,363 — — 2,363

Other consumer — — — — 1 — 1

Total consumer loans — — — 2,884 1 — 2,885

1 unchanged sentence

Total loans $ 3,734 $ 609 $ 24 $ 3,248 $ 1 $ 11 $ 7,627

Impaired Loans .

Prior to the adoption of ASC 326 on January 1, 2023, we classified loans as impaired when we determined that we might be unable to collect payments of principal or interest when due under the terms of the loan.

In the process of identifying loans as impaired, we took into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future.

Minor payment delays and insignificant payment shortfalls typically did not result in a loan being classified as impaired.

The significance of payment delays and shortfalls was considered on a case-by-case basis, after taking into consideration the totality of circumstances surrounding the loan and the borrower, including payment history.

Impairment was measured on a loan-by-loan basis for all

loans in the portfolio.

All TDRs were also classified as impaired loans and were included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses.

Impaired loans at December 31, 2022, by type of loan were as follows (in thousands):

December 31, 2023

Recorded Investment

Unpaid Principal

Balance Without

Allowance With

Allowance Total

Investment Related

One-to-four family $ 3,758 $ 3,038 $ 708 $ 3,746 $ 102

Home equity 210 142 68 210 5

Construction and land 358 324 34 358 3

Manufactured homes 187 93 94 187 52

Other consumer 343 261 82 343 22

Total $ 4,856 $ 3,858 $ 986 $ 4,844 $ 184

The following table provides the average recorded investment and interest income on impaired loans for the year ended December 31, 2022, by type of loan (in thousands):

December 31, 2022

Investment Interest Income

Commercial Real Estate Residential Real Estate Land Other Residential Total

Real estate loans:

One- to four- family $ — $ 664 $ — $ 545 $ 1,209

Home equity — 84 — — 84

Commercial and multifamily 1,405 —

Construction and land 124 20

Total real estate loans — 748 — 545 1,293

Consumer loans:

Manufactured homes — — — 228 228

Floating homes 98 —

Other consumer 299 17

Commercial business 69 —

Total $ 6,041 $ 174

Total consumer loans — — — 228 228

Commercial business loans — — — 2,135 2,135

Total loans $ — $ 748 $ — $ 2,908 $ 3,656

Related Parties and Regulatory Matters.

9 unchanged sentences

Balance, end of period $ 6,682 $ 5,906

At December 31, 2023 and 2022, loans totaling $ 9.4 million and $ 16.4 million, respectively, represented real estate secured loans that had current loan-to-value ratios above supervisory guidelines.

At December 31, 2024 and 2023, loans totaling $ 526 thousand and $ 9.4 million, respectively, represented real estate secured loans that had current loan-to-value ratios above supervisory guidelines.

Note 6— Mortgage Servicing Rights

The unpaid principal balances underlying the Company’s MSRs portfolio totaled $ 448.9 million at December 31, 2023, compared to $ 472.5 million at December 31, 2022.

Of this total balance, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at December 31, 2023 and 2022 was $ 446.8 million and $ 470.3 million, respectively.

The unpaid principal balances underlying the Company’s MSRs portfolio totaled $ 425.8 million and $ 448.9 million at December 31, 2024 and 2023, respectively.

Of these total balances, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at December 31, 2024 and 2023 was $ 423.7 million and $ 446.8 million, respectively.

The unpaid principal balances of loans serviced for other financial institutions at December 31, 2024 and 2023, totaled $ 2.1 million and $ 2.2 million, respectively.

5 unchanged sentences

Due to changes in model inputs or assumptions (1)

( 4 ) ( 219 )

Ending balance, at fair value $ 4,769 $ 4,632

4 unchanged sentences

Yield to maturity discount rate 10.0 % 12.5 %

The amount of contractually specified servicing, late and ancillary fees earned on the MSRs are included in “Mortgage servicing income” on the Consolidated Statements of Income and totaled $ 1.2 million for both the years ended December 31, 2023 and 2022.

See "Note 1—Organization and Significant Accounting Policies" and "Note 11— Fair Measurements" for additional information on MSRs.

The amount of contractually specified servicing, late and ancillary fees earned on the MSRs are included in “Mortgage servicing income” on the Consolidated Statements of Income and totaled $ 1.1 million and $ 1.2 million for the years ended December 31, 2024 and 2023, respectively.

See "Note 1—Organization and Significant Accounting Policies" and "Note 11— Fair Value Measurements" for additional information on MSRs.

Note 7— Premises and Equipment

13 unchanged sentences

Beginning balance, January 1 $ 575 $ 659

Additions to OREO and repossessed assets 115 —

Sales ( 690 ) —

Ending balance, December 31 $ — $ 575

As of December 31, 2023, there were three one-to-four family loans totaling $ 457 thousand that were in process of foreclosure.

As of December 31, 2024, there was one one-to-four family loan totaling $ 260 thousand that was in process of foreclosure.

Note 9— Deposits

16 unchanged sentences

Deposits in excess of $250 thousand are not federally insured.

There was $ 5.0 million in money market brokered deposits outstanding at December 31, 2023 and none at December 31, 2022.

There were no money market brokered deposits outstanding at December 31, 2024 and $ 5.0 million at December 31, 2023.

Deposits from related parties held by the Company were $ 9.8 million and $ 3.6 million at December 31, 2024 and 2023, respectively.

3 unchanged sentences

FHLB advances:

Overnight advances

Short-term advances

1 unchanged sentence

25,000 25,000

$ 25,000 $ 40,000

December 31, 2024 December 31, 2023

3 unchanged sentences

Weighted average interest rate 4.16 % 4.25 %

Variable rate:

Outstanding balance $ — $ 43,000

Weighted average interest rate — % 2.14 %

The following table presents the maturity of our FHLB advances (dollars in thousands):

2024 $ 15,000

FHLB Des Moines Borrowing Capacity

18 unchanged sentences

As a member of the FHLB, the Company is required to maintain a minimum level of investment in FHLB of Des Moines stock based on specific percentages of its outstanding FHLB advances.

At both December 31, 2023 and 2022, the Company had an investment of $ 2.4 million and $ 2.8 million, respectively, in FHLB of Des Moines stock.

At December 31, 2024 and 2023, the Company had an investment of $ 1.7 million and $ 2.4 million, respectively, in FHLB of Des Moines stock.

Federal Reserve Bank of San Francisco Borrowings

2 unchanged sentences

At December 31, 2024 and December 31, 2023, the amount available to borrow under this credit facility was $ 20.8 million and $ 18.3 million, respectively, subject to eligible pledged collateral.

The Company had no outstanding borrowings under this arrangement at December 31, 2023 and December 31, 2022.

The Company had no outstanding borrowings under this arrangement at December 31, 2024 and 2023.

Other Borrowings

2 unchanged sentences

As of December 31, 2024, the amount available under this line of credit was $ 20.0 million.

There was no balance on this line of credit as of December 31, 2023 and December 31, 2022.

There was no balance on this line of credit as of December 31, 2024 and 2023.

Subordinated Debt

5 unchanged sentences

The subordinated notes may be included in Tier 2 capital for Sound Financial Bancorp under current regulatory guidelines and interpretations.

The balance of the subordinated notes, net of debt issuance costs, was $ 11.7 million as of both December 31, 2023 and December 31, 2022.

The balance of the subordinated notes, net of debt issuance costs, was $ 11.8 million at December 31, 2024 and $ 11.7 million at December 31, 2023.

Note 11— Fair Value Measurements

GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company determines the fair values of its financial instruments based on the requirements established in ASC 820 , Fair Value Measurements , which provides a framework for measuring fair value in accordance with GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.

2 unchanged sentences

Cash and cash equivalents - The estimated fair value is equal to the carrying amount.

Available-for-sale securities – AFS securities are recorded at fair value based on quoted market prices, if available.

If quoted market prices are not available, management utilizes third-party pricing services or broker quotations from dealers in the specific instruments.

Available-for-sale securities – AFS securities are recorded at fair value based on quoted market prices, if available (Level 1).

If quoted market prices are not available, management utilizes third-party pricing services or broker quotations from dealers in the specific instruments (Level 2).

Level 2 securities include those traded on an active exchange, as well as U.S.

6 unchanged sentences

At December 31, 2024 and 2023, loans held-for-sale were carried at cost, as no impairment was required.

Loans held-for-portfolio - The estimated fair value of loans-held-for portfolio consists of a credit adjustment to reflect the estimated adjustment to the carrying value of the loans due to credit-related factors and a yield adjustment to reflect the estimated adjustment to the carrying value of the loans due to a differential in yield between the portfolio loan yields and estimated current market rate yields on loans with similar characteristics.

estimated current market rate yields on loans with similar characteristics.

The estimated fair values of loans held-for-portfolio reflect exit price assumptions.

2 unchanged sentences

Time deposits - The estimated fair value of time deposits is based on the difference between interest costs paid on the Company’s time deposits and current market rates for time deposits with comparable characteristics.

Borrowings - The fair value of borrowings are estimated using the contractual cash flows of each debt instrument discounted using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Borrowings - The fair value of borrowings is estimated using the contractual cash flows of each debt instrument discounted using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated notes - The fair value of subordinated notes is estimated using discounted cash flows based on current lending rates for similar long-term debt instruments with similar terms and remaining time to maturity.

2 unchanged sentences

OREO and repossessed assets – The fair value of OREO and repossessed assets is based on the current appraised value of the collateral less estimated costs to sell.

Off-balance sheet financial instruments - The fair value for the off-balance sheet loan commitments is estimated based on fees charged to others to enter into similar agreements taking into account the remaining terms of the agreements and credit standing of the Company’s clients.

The estimated fair value of these commitments is not significant.

Off-balance sheet financial instruments - The fair value of off-balance sheet financial instruments, which consisted entirely of loan commitments at December 31, 2024 and 2023, is estimated based on fees charged to others to enter into similar agreements, taking into account the remaining terms of the agreements and credit standing of the Company’s clients.

The estimated fair value of these commitments was not significant at December 31, 2024 and 2023.

In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy.

28 unchanged sentences

2,166 1,787 — 1,787 —

Loans held-for-sale 603 603 — 603 —

Loans held-for-portfolio, net 885,718 837,579 — — 837,579

12 unchanged sentences

Description Total Level 1 Level 2 Level 3

Treasury bills $ 1,594 $ — $ 1,594 $ —

Municipal bonds $ 5,528 $ — $ 5,528 $ —

32 unchanged sentences

We have operating leases for branch locations, loan production offices, and our corporate office.

The lease term for our leases begins on the date we become legally obligated for the rent payments or we take possession of the building premises, whichever is earlier.

The term for our leases begins on the date we become legally obligated for the rent payments or we take possession of the building premises, whichever is earlier.

Generally, our real estate leases have initial terms of three to 10 years and typically include one renewal option.

Our leases have remaining terms of nine months to 5.5 years.

Our leases have remaining terms of five months to 4.5 years.

The operating leases require us to pay property taxes and operating expenses for the properties.

11 unchanged sentences

Operating Lease Commitments

Thereafter 341

Total lease payments 4,262

1 unchanged sentence

Present value of lease liabilities $ 4,013

Lease term and discount rate by lease type at December 31, 2023 and 2022 consist of the following:

Lease term and discount rate by lease type at December 31, 2024 and 2023 consisted of the following:

Weighted-average remaining lease term:

Office leases 4.3 years 5.2 years

Weighted-average discount rate (annualized):

Weighted-average discount rate:

Office leases 2.88 % 2.77 %

19 unchanged sentences

Earnings per share, diluted $ 1.80 $ 2.86

There were 7,892 anti-dilutive securities for the year ended December 31, 2023 and 2,612 anti-dilutive securities for the year ended December 31, 2022.

There were no anti-dilutive securities for the year ended December 31, 2024 and 7,892 anti-dilutive securities for the year ended December 31, 2023.

Note 14— Employee Benefits

4 unchanged sentences

The Bank maintains a deferred compensation account for the benefit of the Chief Executive Officer, established in 1994 in connection with an incentive plan which is no longer active.

The chief executive officer is fully vested in the benefits under this plan as of January 2005.

Pursuant to the terms of the plan, payments in an amount equal to the fair market value of the assets in the deferred compensation account shall be made to the chief executive officer (or to the designated beneficiary in the event of death) in 120 equal monthly installments commencing on the last day of the month following the month in which her employment with the Bank is terminated.

In the event of the death of the chief executive officer and the designated beneficiary prior to the account being fully paid, the remaining value of the account shall be paid in a lump sum to the beneficiary’s estate.

The assets in the deferred compensation account consist of cash, which is held in a certificate of deposit at the Bank and earns

interest at market rates.

At both December 31, 2023 and 2022, the amount held in the certificate of deposit at the Bank was $ 113 thousand and $ 111 thousand, respectively.

The Chief Executive Officer became fully vested in the benefits under this plan as of January 2005.

Pursuant to the terms of the plan, payments in an amount equal to the fair market value of the assets in the deferred compensation account shall be made to the Chief Executive Officer (or to her designated beneficiary in the event of death) in 120 equal monthly installments commencing on the last day of the month following the month in which her employment with the Bank is terminated.

In the event of the death of the Chief Executive Officer and her designated beneficiary prior to the account being fully paid, the remaining value of the account shall be paid in a lump sum to the beneficiary’s estate.

The assets in the deferred compensation account consist of cash, which is held in a certificate of deposit at

the Bank and earns interest at market rates.

At December 31, 2024 and 2023, the amount held in the certificate of deposit at the Bank was $ 117 thousand and $ 113 thousand, respectively.

The Bank maintains a nonqualified deferred compensation plan (the “NQDC Plan”), which became effective on January 1, 2017.

12 unchanged sentences

The Company maintains two supplemental executive retirement plans for the benefit of the Chief Executive Officer, which are intended to be unfunded, non-contributory defined benefit plans maintained primarily to provide her with supplemental retirement income.

The first supplemental executive retirement plan ("SERP 1") was effective as of August 14, 2007.

The second supplemental executive retirement plan ("SERP 2") was effective as of December 30, 2011, at which time the benefits under SERP 1 were frozen.

The first supplemental executive retirement plan ("SERP 1") became effective as of August 14, 2007.

The second supplemental executive retirement plan ("SERP 2") became effective as of December 30, 2011, at which time the benefits under SERP 1 were frozen.

Under the terms of SERP 1, as amended, the Chief Executive Officer is entitled to receive $ 53,320 per year for life commencing on the first day of the month following separation from service (as defined in SERP 1) for any reason from Sound Community Bank, subject to a six-month delay if required by Section 409A of the Internal Revenue Code.

4 unchanged sentences

In the event of the Chief Executive Officer’s death prior to the commencement of the additional retirement benefits, the beneficiary will be entitled to a single lump sum payment within 90 days thereafter in an amount equal to the Bank's accrual for her retirement benefit under SERP 2 as of the date of death, or approximately $ 1.1 million at December 31, 2024.

If a change in control occurs (as defined in SERP 2), the chief executive officer will receive full retirement benefit under SERP 2 commencing upon the first day of the month following her separation from service from Sound Community Bank, subject to a six-month delay if required by Section 409A of the Internal Revenue Code.

If a change in control occurs (as defined in SERP 2), the Chief Executive Officer will receive full retirement benefits under SERP 2 commencing upon the first day of the month following her separation from service from Sound Community Bank, subject to a six-month delay if required by Section 409A of the Internal Revenue Code.

Stock Options and Restricted Stock

The Company currently has one active stockholder approved equity incentive plan, the Amended and Restated 2013 Equity Incentive Plan (the “2013 Plan”).

The 2013 Plan permits the grant of restricted stock, restricted stock units, stock options, and

stock appreciation rights.

The Company currently has one active stockholder approved equity incentive plan, the Amended and Restated 2013 Equity Incentive Plan (the “2013 Plan”), which shareholders originally approved in 2013 and, again in 2018, when amended.

The 2013 Plan permits the grant of restricted stock, restricted stock units, stock options, and stock appreciation rights.

The equity incentive plan approved by stockholders in 2008 (the "2008 Plan") expired in November 2018 and no further awards may be made under the 2008 Plan;

2 unchanged sentences

At December 31, 2024, awards for stock options totaling 301,453 shares and awards for restricted stock totaling 167,114 shares of Company common stock have been granted in the aggregate, net of any forfeitures, under the 2008 Plan and 2013 Plan to participants.

As of December 31, 2023, 6,469 awards for stock options and 8,048 awards for restricted stock remained available for issuance.

As of December 31, 2024, 257 awards for stock options and no awards for restricted stock remained available for issuance under the 2013 Plan.

During the years ended December 31, 2024 and 2023, share-based compensation expense totaled $ 390 thousand and $ 450 thousand, respectively.

1 unchanged sentence

All stock option awards granted under the 2008 Plan vest in 20 percent annual increments commencing one year from the grant date in accordance with the requirements of the 2008 Plan.

All remaining stock option awards granted under the 2008 Plan are fully vested as of December 31, 2023.

All outstanding stock option awards granted under the 2008 Plan were fully vested as of December 31, 2024.

The stock option awards granted to date under the 2013 Plan provide for immediate vesting of a portion of the award with the balance of the award vesting on the anniversary date of each grant date in equal annual installments over periods of one -to- four years subject to the continued service of the participant with the Company.

All of the options granted under the 2008 Plan and the 2013 Plan are exercisable for a period of 10 years from the date of grant, subject to vesting.

The following is a summary of the Company's stock option plan award activity during the period ended December 31, 2023 (dollars in thousands, except per share amounts):

The following is a summary of the Company's stock option plan award activity during the year ended December 31, 2024 (dollars in thousands, except per share amounts):

Shares Weighted-Average

18 unchanged sentences

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model.

The fair value of options granted in 2023 and 2022 were determined using the following weighted-average assumptions as of the grant date.

The fair values of options granted in 2024 and 2023 were determined using the following weighted-average assumptions as of the grant date.

Year Ended December 31,

8 unchanged sentences

The restricted stock awards granted under the 2008 Plan vest in 20 % annual increments commencing one year from the grant date.

The restricted stock awards granted to date under the 2013 Plan provide for immediate vesting of a portion of the award with the balance of the award vesting on the anniversary date of each of the grant date in equal annual installments over periods of one to four years subject to the continued service of the participant with the Company.

The restricted stock awards granted to date under the 2013 Plan provide for immediate vesting of a portion of the award with the balance of the award vesting on the anniversary of the grant date in equal annual installments over periods of one to four years subject to the continued service of the participant with the Company.

The following is a summary of the Company's non-vested restricted stock awards for the year ended December 31, 2024:

7 unchanged sentences

Vested ( 6,872 ) 38.19

Forfeited ( 755 ) 40.30

Non-vested at December 31, 2024

7 unchanged sentences

Employee Stock Ownership Plan

The funds to purchase shares in the ESOP come from contributions the Bank makes up to twice a year to the Plan.

For the years ended December 31, 2023 and 2022, the ESOP trustee purchased 18,573 shares and 19,438 shares of the Company's common stock for inclusion in the Plan.

The funds to purchase shares in the ESOP come from contributions the Bank makes to the plan.

For the years ended December 31, 2024 and 2023, the ESOP trustee purchased 15,535 shares and 18,573 shares of the Company's common stock for inclusion in the ESOP.

The number of allocated shares under the ESOP was 178,031 and 169,647 at December 31, 2024 and 2023, respectively.

The fair value of the 169,647 shares held by the ESOP trust was $ 6.6 million at December 31, 2023.

The fair value of the 178,031 shares held by the ESOP was $ 9.4 million at December 31, 2024.

ESOP compensation expense included in salaries and benefits was $ 750 thousand and $ 691 thousand for the years ended December 31, 2024 and 2023, respectively.

9 unchanged sentences

Tax-exempt income ( 125 ) ( 126 )

Other 41 ( 41 )

( 131 ) ( 248 )

$ 1,006 $ 1,561

Federal Tax Rate 21.0 % 21.0 %

Tax exempt rate ( 2.2 ) ( 1.4 )

( 2.3 ) ( 2.7 )

Other 1.3 0.5

5 unchanged sentences

Intangible assets 25 29

Depreciation 54 —

Lease liabilities 843 1,012

13 unchanged sentences

At December 31, 2024 and 2023, the Company had no unrecognized tax benefits.

During the years ended December 31, 2023 and 2022, the Company recognized no interest and penalties related to income taxes.

During the years ended December 31, 2024 and 2023, the Company recognized no interest or penalties related to income taxes.

The Company files an income tax return in the U.S.

4 unchanged sentences

Sound Financial Bancorp is a bank holding company under the supervision of the Federal Reserve.

Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended,

and the regulations of the Federal Reserve, except that, pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act, effective August 30, 2018, a bank holding company with consolidated assets of less than $3.0 billion is generally not subject to the Federal Reserve’s capital regulations, which parallel the FDIC’s capital regulations.The Bank is a state-chartered, federally insured institution and thereby is subject to the capital requirements established by the FDIC.

Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve, except that, pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act, effective August 30, 2018, a bank holding company with consolidated assets of less than $3.0 billion is generally not subject to the Federal Reserve’s capital regulations, which parallel the FDIC’s capital regulations.The Bank is a state-chartered, federally insured institution and is subject to the capital requirements established by the FDIC.

Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital regulations that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

12 unchanged sentences

The estimated CBLR calculated for Sound Financial Bancorp at December 31, 2024 was 9.56 %

On July 25, 2023, the Company announced that its Board of Directors approved an extension of the Company’s existing stock repurchase program, which was set to expire on July 31, 2023, until January 31, 2024.

Under this stock repurchase program, the Company is authorized to repurchase up to $ 4.0 million of its outstanding shares of common stock from time to time in the open market, based on prevailing market prices, or in privately negotiated transactions.

During the years ended December 31, 2023 and 2022, the Company repurchased a total of 58,035 and 46,799 shares of Company common stock at an average price of $ 36.81 and $ 37.05 per share pursuant to the Company’s stock repurchase programs, leaving $ 1 thousand available for future repurchases under the existing program as of December 31, 2023.

On January 26, 2024, the Company announced that its Board of Directors approved an extension of the Company’s then-existing stock repurchase program, which was set to expire on January 31, 2024, until January 26, 2025.

Under this stock repurchase program, the Company was authorized to repurchase up to $ 1.5 million of its outstanding shares of common stock from time to time in the open market, based on prevailing market prices, or in privately negotiated transactions.

After this program expired on January 26, 2025, the Company’s Board of Directors did not extend the program or adopt a new program.

During the years ended December 31, 2024 and 2023, the Company repurchased a total of 1,626 and 58,035 shares of Company common stock at an average price of $ 39.71 and $ 36.81 per share pursuant to the Company’s stock repurchase programs, leaving $ 1.4 million available for repurchases as of December 31, 2024.

Note 17— Concentrations of Credit Risk

28 unchanged sentences

If a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained.

If there are no defects, the Company has no commitment to repurchase the loan.

If there are no defects, the Company has no obligation to repurchase the loan.

At December 31, 2024 and 2023, the maximum amount of these guarantees totaled $ 425.8 million and $ 448.9 million, respectively.

These amounts represent the unpaid principal balances of the Company's loans serviced for others' portfolios.

There was one loan for $ 448 thousand repurchased during the year ended December 31, 2023, and no loans were repurchased during the year ended December 31, 2022.

There were no loans repurchased during the year ended December 31, 2024, and one loan for $ 448 thousand was repurchased during the year ended December 31, 2023.

The Company pays certain medical, dental, prescription, and vision claims for its employees on a self-insured basis.

The Company has purchased stop-loss insurance to cover claims that exceed stated limits and has recorded estimated reserves for the ultimate costs for both reported claims and claims incurred but not reported, which were not considered significant at December 31, 2023.

During the year-ended December 31, 2023, the Company recorded no stop loss medical insurance claims exceeding stated coverage limits and recorded $ 227 thousand during the year-ended December 31, 2022.

To mitigate risk, the Company has purchased stop-loss insurance to cover claims that exceed stated limits and has recorded estimated reserves for the ultimate costs for both reported claims and claims incurred but not reported, which were not considered significant at December 31, 2024.

The Company recorded $ 402 thousand in stop-loss medical insurance claims exceeding stated coverage limits during the year ended December 31, 2024, and $ 364 thousand for the year ended December 31, 2023.

At various times, the Company may be the defendant in various legal proceedings arising in connection with its business.

28 unchanged sentences

Equity in undistributed earnings of subsidiary ( 1,537 ) ( 5,771 )

Net cash used in operating activities 1,680 1,479

Net cash provided by operating activities

Cash flows from financing activities:

3 unchanged sentences

Net cash used in financing activities ( 1,744 ) ( 3,655 )

Net decrease in cash ( 1,975 ) ( 2,063 )

Net increase (decrease) in cash

1,132 ( 1,975 )

Cash and cash equivalents at beginning of year 177 2,152

18 unchanged sentences

Net gain on sale of loans (a) 258 340

Other income (a) 38 —

Total noninterest income $ 4,655 $ 5,006

14 unchanged sentences

Similar to debit card interchange fees, the Bank earns an interchange fee for each transaction made with Sound Community Bank's branded credit cards.

The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders' credit card.

The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholder’s credit card.

Certain expenses and rebates directly related to the credit card interchange contract are recorded net of the interchange income.

2 unchanged sentences

When the Bank finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable.

Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

In determining the gain or loss on sale, we adjust the

transaction price and related gain or loss on sale if a significant financing component is present.

The Company generated income/incurred expenses on OREO properties, net of gain/losses on sale of OREO, of $ 13 thousand and $ 0 for the years ended December 31, 2023 and 2022, respectively, included under noninterest expense on the Consolidated Statements of Income.

Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is

recorded upon the transfer of control of the property to the buyer.

In determining the gain or loss on sale, we adjust the transaction price and related gain or loss on sale if a significant financing component is present.

The Company generated income/incurred expenses on OREO properties, net of (gains)/losses on sale of OREO, of $( 31 ) thousand and $ 13 thousand for the years ended December 31, 2024 and 2023, respectively, included under noninterest expense on the Consolidated Statements of Income.

Note 21— Business Segments

The Company has evaluated its operations and identified that it has one reportable business segment:

the Banking Segment.

Loans and investments are the primary sources of revenues in the Banking Segment.

Interest expense, provision for credit losses, and salaries and benefits are usually the most significant expenses in the Banking Segment.

All operations are domestic.

The accounting policies of the Banking Segment are the same as those described in the significant accounting policies.

The segment was determined based upon how the Company’s Chief Operating Decision Maker (“CODM”) reviews the Company’s performance.

The Company’s CODM is the CEO.

As a part of the CODM review, pre-tax net income is utilized to allocate resources.

Note 22— Subsequent Events

On January 26, 2024, the Company declared on Company common stock a quarterly cash dividend of $ 0.19 per common share, payable on February 21, 2024 to stockholders of record at the close of business February 7, 2024.

On January 26, 2024, the Company announced that its Board of Directors approved a new stock repurchase program, authorizing the Company to purchase up to $ 1.5 million of the Company’s issued and outstanding common stock over a period of 12 months expiring on January 26, 2025.

On January 29, 2025, the Company’s Board of Directors declared on the Company’s common stock a quarterly cash dividend of $ 0.19 per share, payable on February 26, 2025 to stockholders of record at the close of business February 12, 2025.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data