What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-12 compared with 2025-05-13 · 284 added, 143 removed, 343 unchanged (55% of the section changed)

9 unchanged sentences

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

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

• changes in the interest rate environment, including increases and decreases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and the duration of such rates, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;

• the impact of inflation and the Federal Reserve’s monetary policy decisions;

• the effects of any federal government shutdown;

• effects of employment levels, persistent inflation, recessionary pressures, or slowing economic growth;

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

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

• the effects of a federal government shutdown, debt ceiling standoff, or other fiscal policy uncertainty;

• changes in consumer spending, borrowing and savings habits;

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Securities and Exchange Commission (the “SEC”), or the Public Company Accounting Oversight Board;

governmental initiatives affecting the financial services industry and the availability of resources to address such changes;

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

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

5 unchanged sentences

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

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

• the potential for new or increased tariffs, trade restrictions, or geopolitical tensions that could affect economic activity or specific industry sectors;

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

• our ability to adapt to rapid technological changes, including advancements in artificial intelligence, digital banking, and cybersecurity;

• geopolitical developments and international conflicts, including but not limited to tensions or instability in Eastern Europe, the Middle East, and Asia, or the imposition of new or increased tariffs and trade restrictions, which may disrupt financial markets, global supply chains, energy prices, or economic activity in specific industry sectors;

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

10 unchanged sentences

Sound Community Bank’s deposits are insured up to applicable limits by the FDIC.

At March 31, 2025, Sound Financial Bancorp, on a consolidated basis, had assets of $1.07 billion, net loans held-for-portfolio of $877.8 million, deposits of $910.3 million and stockholders’ equity of $104.4 million.

At June 30, 2025, Sound Financial Bancorp, on a consolidated basis, had assets of $1.06 billion, net loans held-for-portfolio of $895.8 million, deposits of $899.5 million and stockholders’ equity of $106.0 million.

The common stock of Sound Financial Bancorp is listed on the NASDAQ Capital Market under the symbol “SFBC.” Our executive offices are located at 2400 3rd Avenue, Suite 150, Seattle, Washington, 98121.

Our principal business consists of attracting retail and commercial deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences (including home equity loans and lines of credit), commercial and multifamily real estate, construction and land, and consumer and commercial business loans.

Our principal business consists of attracting retail and commercial deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences (including home equity loans and lines of credit), commercial and multifamily real estate loans, construction and land loans, and consumer and commercial business loans.

Our commercial business loans include unsecured lines of credit and secured term loans and lines of credit secured by inventory, equipment and accounts receivable.

1 unchanged sentence

As part of our business, we focus on residential mortgage loan originations, a portion of which we sell to Fannie Mae and other investors and the remainder of which we retain for our loan portfolio consistent with our asset/liability objectives.

We sell loans which conform to the underwriting standards of Fannie Mae (“conforming”) in which we retain the servicing of the loan in order to maintain the direct customer relationship and to generate noninterest income.

We sell loans which conform to the underwriting standards of Fannie Mae (“conforming”) and retain the servicing of the loan in order to maintain the direct customer relationship and to generate noninterest income.

Residential loans which do not conform to the underwriting standards of Fannie Mae (“non-conforming”) are either held in our loan portfolio or sold with servicing released.

6 unchanged sentences

There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2024 Form 10-K.

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

Total assets increased $75.6 million, or 7.6%, to $1.07 billion at March 31, 2025 from $993.6 million at December 31, 2024.

The increase primarily was a result of an increase in cash and cash equivalents, partially offset by a lower balance of loans held-for-portfolio.

Comparison of Financial Condition at June 30, 2025 and December 31, 2024

Total assets increased $64.6 million, or 6.5%, to $1.06 billion at June 30, 2025 from $993.6 million at December 31, 2024.

The increase primarily was a result of increases in cash and cash equivalents and loans held-for-portfolio.

Cash and Cash Equivalents, and Investment Securities.

Cash and cash equivalents increased $87.9 million, or 201.3%, to $131.5 million at March 31, 2025 from $43.6 million at December 31, 2024.

Cash and cash equivalents increased $58.9 million, or 135.0%, to $102.5 million at June 30, 2025 from $43.6 million at December 31, 2024.

The increase was primarily due to the strategic decision to sell reciprocal deposits at the end of 2024, which reduced our cash balances.

These reciprocal deposits returned to our balance sheet in the first quarter of 2025.

In addition, balances of cash and cash equivalents increased as a result of higher overall deposit balances, except for time deposits.

Investment securities decreased $110 thousand, or 1.1%, to $9.8 million at March 31, 2025, compared to $9.9 million at December 31, 2024.

Held-to-maturity securities totaled $2.1 million at both March 31, 2025 and December 31, 2024.

Available-for-sale securities totaled $7.7 million at March 31, 2025, compared to $7.8 million at December 31, 2024.

The decrease in available-for-sale securities was primarily due to regularly scheduled payments, as well as lower net unrealized losses resulting from an increase in yields on our agency mortgage-backed securities during the first quarter of 2025.

Loans held-for-portfolio, net, decreased $13.8 million, or 1.6%, to $877.8 million at March 31, 2025 from $891.7 million at December 31, 2024.

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

In addition, balances of cash and cash equivalents increased as a result of higher overall deposit balances.

Investment securities decreased $286 thousand, or 2.9%, to $9.6 million at June 30, 2025, compared to $9.9 million at December 31, 2024.

Held-to-maturity securities totaled $2.1 million at both June 30, 2025 and December 31, 2024.

Available-for-sale securities totaled $7.5 million at June 30, 2025, compared to $7.8 million at December 31, 2024.

The decrease in available-for-sale securities was primarily due to regularly scheduled payments and higher net unrealized losses resulting from an increase in municipal bond yields during the first half of 2025.

Loans held-for-portfolio, net, increased $4.1 million, or 0.5%, to $895.8 million at June 30, 2025 from $891.7 million at December 31, 2024.

The following table reflects the changes in the mix of our loans held-for-portfolio at June 30, 2025, as compared to December 31, 2024 (dollars in thousands):

2025 December 31,

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Total loans held-for-portfolio, net $ 895,750 $ 891,672 $ 4,078 0.5 %

The decreases in the loan portfolio were driven primarily by decreases in construction and land loans and, to a lesser extent, one-to-four family and commercial business loans.

The $30.6 million, or 41.9%, decline in construction and land loans was the primarily driver of the overall decrease in the loan portfolio as of March 31, 2025, compared to December 31, 2024.

This decline was largely due to project completions, a slowdown in new financing activities amid higher interest rates, and the payoff of a $17.0 million loan that had been risk rated as special mention.

In addition, one-to-four-family loans and commercial business loans declined by $7.2 million, or 2.7%, and $915 thousand, or 5.9%, respectively, primarily due to loan repayments exceeding new originations.

These reductions were partially offset by a $21.3 million, or 5.7%, increase in commercial and multifamily loans, driven by the conversion of construction projects to permanent financing.

Home equity loans also rose by $1.4 million, or 5.3%, as homeowners likely utilized their home equity lines to access liquidity, particularly in response to

elevated living costs and inflationary pressures.

At March 31, 2025, our loan portfolio, net of deferred loan fees, remained well-diversified.

The increases in the loan held-for-portfolio were driven primarily by a $26.9 million, or 7.2%, increase in commercial and multifamily loans, driven by new originations and the conversion of construction projects to permanent financing, partially offset by pay downs and normal payment amortization.

Home equity loans increased by $1.9 million, or 7.1%, as homeowners likely utilized their home equity lines to access liquidity, particularly in response to elevated living costs and inflationary pressures.

Manufactured home loans and floating home loans increased by $2.0 million and $5.0 million, respectively, or 4.8% and 5.8%, primarily the result of seasonality as it relates to floating homes and affordability of manufactured homes in the current market as well internal efficiencies in how we process these loans.

The growth in these portfolios were partially offset by a $23.2 million, or 31.7%, decline in construction and land loans largely due to project completions, a slowdown in new financing activities amid higher interest rates, as well as the payoff of a $17.0 million loan that had been risk rated as special mention.

One-to-four-family loans and commercial business loans declined primarily due to loan repayments exceeding new

originations.

At June 30, 2025, our loan portfolio, net of deferred loan fees, remained well-diversified.

At that date, commercial and multifamily real estate loans accounted for 44.0% of total loans, one-to-four family loans, including home equity loans, accounted for 32.1% of total loans, commercial business loans accounted for 1.6% of total loans, and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounted for 16.8% of total loans.

Construction and land loans accounted for 4.8% of total loans at March 31, 2025.

Loans held-for-sale totaled $2.27 million at March 31, 2025, compared to $487 thousand at December 31, 2024.

Construction and land loans accounted for 5.5% of total loans at June 30, 2025.

Loans held-for-sale totaled $2.03 million at June 30, 2025, compared to $487 thousand at December 31, 2024.

The increase was primarily due to timing of mortgage originations and sales.

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The following table reflects the activity in our allowance for credit losses (“ACL”) during the periods indicated (dollars in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Balance at beginning of period $ 8,393 $ 8,598 $ 8,499 $ 8,760

2 unchanged sentences

Net charge-offs (21) (17) (42) (73)

(Release of) provision for credit losses (85) (106)

Provision for (release of) credit losses 164 (88) 79 (194)

Balance at end of period $ 8,536 $ 8,493 $ 8,536 $ 8,493

1 unchanged sentence

Balance at beginning of period 116 266 234 193

(Release of) provision for credit losses (118) 73

Provision for (release of) credit losses 6 (21) (112) 52

Balance at end of period 122 245 122 245

1 unchanged sentence

Ratio of net charge-offs during the period to average loans outstanding during the period (0.01) % (0.01) % (0.01) % (0.02) %

Our ACL — loans decreased $106 thousand, or 1.2%, to $8.4 million at March 31, 2025, from $8.5 million at December 31, 2024.

The decrease in the ACL - loans was primarily a result of a decrease in the balance of our loan portfolio, partially offset by higher reserves on our portfolio of other consumer loans and residential loans due to qualitative adjustments for uncertainty in market conditions.

See “Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024 — Provision for Credit Losses.”

Our ACL — loans increased $37 thousand, or 0.4%, to $8.5 million at June 30, 2025, from $8.5 million at December 31, 2024.

The increase in the ACL - loans was primarily a result of an increase in the balance of our loan portfolio, as well as higher reserves on our portfolio of other consumer loans and residential loans due to qualitative adjustments for uncertainty in market conditions and concentrations, partially offset by lower reserves due to qualitative adjustments for improved credit quality.

See “Comparison of Results of Operations for the Three and Six Months Ended June 30, 2025 and 2024 — Provision for Credit Losses.”

The following tables show certain credit ratios at and for the dates and periods indicated and the components of each ratio's calculation (dollars in thousands).

At March 31, 2025 At December 31, 2024

At June 30, 2025 At December 31, 2024

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

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Total nonaccrual loans $ 3,366 $ 7,491

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

($ in thousands)

1 unchanged sentence

One-to-four family:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

$ 261,685 $ 273,597 $ 264,318 $ 276,034

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

1 unchanged sentence

Commercial and multifamily real estate:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

1 unchanged sentence

Construction and land:

— % — % — % — %

Net (charge-offs)/recoveries

8 unchanged sentences

Floating homes:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

3 unchanged sentences

Net (charge-offs)

$ (21) $ (17) $ (23) $ (50)

Average loans outstanding

1 unchanged sentence

Commercial business:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

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Nonperforming Assets.

Nonperforming assets (“NPAs”), which were comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, increased $2.2 million, or 29.4%, to $9.7 million, or 0.91% of total assets, at March 31, 2025 from $7.5 million, or 0.75% of total assets, at December 31, 2024.

Nonperforming assets (“NPAs”), which were comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, decreased $3.8 million, or 51.1%, to $3.7 million, or 0.35% of total assets, at June 30, 2025 from $7.5 million, or 0.75% of total assets, at December 31, 2024.

The table below sets forth the amounts and categories of NPAs at the dates indicated (dollars in thousands):

5 unchanged sentences

Total nonperforming assets $ 3,666 $ 7,491 $ (3,825) (51.1) %

The increase in NPAs primarily was due to the addition of six loans totaling $2.4 million to nonaccrual status, including two commercial real estate loans of $1.1 million and $988 thousand.

The increase also included $41 thousand of other real estate owned properties.

These additions were partially offset by $207 thousand in regular loan payments.

Subsequent to quarter-end,

the $988 thousand commercial real estate loan added to NPAs during the quarter was paid-off.

The percentage of nonperforming loans to total loans was 1.09% at March 31, 2025, compared to 0.83% at December 31, 2024.

The decrease in NPAs from December 31, 2024 was primarily due to payoffs of nonaccrual loans totaling $6.9 million, including two commercial real estate loans and one floating home loan, the return of loans to accrual status, loans charged-off, and regular loan payments.

These decreases were partially offset by the addition of 11 loans totaling $3.4 million to nonaccrual

status and $259 thousand of other real estate owned that was not included in nonperforming assets at December 31, 2024.

The percentage of nonperforming loans to total loans was 0.37% at June 30, 2025, compared to 0.83% at December 31, 2024

Mortgage Servicing Rights.

The fair value of mortgage servicing rights decreased $81 thousand or 1.7%, to $4.7 million at March 31, 2025 from $4.8 million at December 31, 2024.

The fair value of mortgage servicing rights decreased $131 thousand, or 2.7%, to $4.6 million at June 30, 2025 from $4.8 million at December 31, 2024.

We record mortgage servicing rights on loans sold with servicing retained and upon acquisition of a servicing portfolio.

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Deposits and Borrowings.

Total deposits increased $72.5 million, or 8.7%, to $910.3 million at March 31, 2025 from $837.8 million at December 31, 2024.

Total deposits increased $61.7 million, or 7.4%, to $899.5 million at June 30, 2025 from $837.8 million at December 31, 2024.

This increase was primarily due to the return of reciprocal deposits that were temporarily moved off-balance sheet at year-end for liquidity and balance sheet management purposes.

The reintroduction of these deposits in the first quarter of 2025 contributed significantly to the overall growth.

In contrast, noninterest-bearing deposits decreased $5.8 million, or 4.4%, to $126.7 million at March 31, 2025, compared to $132.5 million at December 31, 2024.

This decline may reflect continued migration into higher-yielding interest-bearing products as customers seek better returns in a competitive rate environment.

Noninterest-bearing deposits represented 13.9% of total deposits at March 31, 2025, compared to 15.8% at December 31, 2024.

In contrast, noninterest-bearing deposits decreased $8.3 million, or 6.3%, to $124.2 million at June 30, 2025, compared to $132.5 million at December 31, 2024.

This decline was primarily the result of normal daily fluctuations in customer account balances, reflecting routine activity rather than significant changes in overall deposit levels.

Noninterest-bearing deposits represented 13.8% of total deposits at June 30, 2025, compared to 15.8% at December 31, 2024.

A summary of deposit accounts with the corresponding weighted-average cost of funds at the dates indicated is presented below (dollars in thousands):

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Rate Amount Wtd.

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

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

Scheduled maturities of time deposits at June 30, 2025, are as follows (in thousands):

Year Ending December 31, Amount

3 unchanged sentences

Certificates of deposit have maturities of five years or less.

The aggregate amount of time deposits in denominations of more than $250,000 at March 31, 2025 and December 31, 2024, totaled $96.4 million and $90.9 million, respectively.

The aggregate amount of time deposits in denominations of more than $250,000 at June 30, 2025 and December 31, 2024, totaled $104.5 million and $90.9 million, respectively.

Deposit amounts in excess of $250,000 are not federally insured.

As of March 31, 2025, uninsured deposits totaled $182.9 million, which represented 20.1% of total deposits, as compared to uninsured deposits of $167.3 million, or 20.0% of total deposits as of December 31, 2024.

As of June 30, 2025, uninsured deposits totaled $171.2 million, which represented 19.0% of total deposits, as compared to uninsured deposits of $167.3 million, or 20.0% of total deposits as of December 31, 2024.

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

The increase in uninsured deposits primarily related to jumbo tier pricing offered on some of our deposit products, as well as normal fluctuations within deposit accounts.

Borrowings, comprised of FHLB advances, were $25.0 million at both March 31, 2025 and December 31, 2024.

The increase in the balance of uninsured deposits primarily related to jumbo tier pricing offered on some of our deposit products, as well as normal fluctuations within deposit accounts.

Borrowings, comprised of FHLB advances, were $25.0 million at both June 30, 2025 and December 31, 2024.

FHLB advances are primarily used to support organic loan growth and to maintain liquidity ratios in line with our asset/liability objectives.

FHLB advances outstanding at March 31, 2025 had maturities ranging from early 2026 through early 2028.

Subordinated notes, net totaled $11.8 million at both March 31, 2025 and December 31, 2024.

FHLB advances outstanding at June 30, 2025 had maturities ranging from early 2026 through early 2028.

Subordinated notes, net totaled $11.8 million at both June 30, 2025 and December 31, 2024.

Stockholders’ Equity.

Total stockholders’ equity increased $765 thousand, or 0.7%, to $104.4 million at March 31, 2025, from $103.7 million at December 31, 2024.

This increase primarily reflects $1.2 million of net income earned during the current quarter, $81 thousand in share-based compensation, and $21 thousand in common stock options exercised, partially offset by a $17 thousand increase in accumulated other comprehensive loss, net of tax and the payment of $487 thousand in cash dividends to the Company's stockholders.

Total stockholders’ equity increased $2.3 million, or 2.3%, to $106.0 million at June 30, 2025, from $103.7 million at December 31, 2024.

This increase primarily reflects $3.2 million of net income earned during the six months ended June 30, 2025, $156 thousand in share-based compensation, and $21 thousand in common stock options exercised, partially offset by a $84 thousand decrease in accumulated other comprehensive loss, net of tax and the payment of $974 thousand in cash dividends to the Company's stockholders.

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

3 unchanged sentences

Nonaccrual loans have been included in the table as loans carrying a zero yield for the period they have been on nonaccrual (dollars in thousands).

Three Months Ended March 31,

Three Months Ended June 30,

Balance Interest

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The cost of total funding is calculated as annualized total interest expense divided by total funding.

Six Months Ended June 30,

Balance Interest

Rate Annualized Average

Balance Interest

Rate Annualized

Interest-earning assets:

Loans receivable $ 895,926 $ 26,283 5.92 % $ 893,646 $ 24,553 5.53 %

Investments 11,551 232 4.05 12,633 244 3.88

Cash and cash equivalents 99,304 2,107 4.28 114,082 3,002 5.29

Total interest-earning assets (1)

1,006,781 28,622 5.73 1,020,361 27,799 5.48

Interest-bearing liabilities:

Savings and money market accounts 341,068 4,317 2.55 292,954 3,981 2.73

Demand and NOW accounts 139,520 214 0.31 156,751 289 0.37

Certificate accounts 289,119 5,899 4.11 316,495 7,426 4.72

Subordinated notes 11,772 336 5.76 11,730 336 5.76

Borrowings 25,003 529 4.27 40,000 859 4.32

Total interest-bearing liabilities 806,482 11,295 2.82 % 817,930 12,891 3.17 %

Net interest income $ 17,327 $ 14,908

Net interest rate spread 2.91 % 2.31 %

Net earning assets $ 200,299 $ 202,431

Net interest margin 3.47 % 2.94 %

Average interest-earning assets to average interest-bearing liabilities 124.84 % 124.75 %

Noninterest-bearing deposits $ 124,048 $ 130,658

Total deposits $ 893,755 $ 10,430 2.35 % $ 896,858 $ 11,696 2.62 %

Total funding (2)

$ 930,530 $ 11,295 2.45 % $ 948,588 $ 12,891 2.73 %

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

(2) Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits.

The cost of total funding is calculated as annualized total interest expense divided by total funding.

Rate/Volume Analysis

3 unchanged sentences

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate (dollars in thousands).

Three Months Ended March 31, 2025 vs.

Three Months Ended June 30, 2025 vs.

Six Months Ended June 30, 2025 vs.

Increase (Decrease) due to Total

Increase (Decrease) Increase (Decrease) due to Total

Increase (Decrease)

Volume Rate Volume Rate

Interest-earning assets:

11 unchanged sentences

Change in net interest income $ 1,807 $ 2,419

Comparison of Results of Operation for the Three Months Ended March 31, 2025 and 2024

Net income increased $397 thousand, or 51.6%, to $1.2 million, or $0.45 per diluted common share, for the three months ended March 31, 2025, from $770 thousand for the three months ended March 31, 2024.

The increase was primarily the result of a $611 thousand increase in net interest income and a $170 thousand increase in the release of provision for credit losses, partially offset by a $258 thousand increase in noninterest expense and a $128 thousand increase in the provision for income taxes.

Noninterest income remained relatively unchanged between periods.

Comparison of Results of Operation for the Three and Six Months Ended June 30, 2025 and 2024

Q2 2025 vs Q2 2024 .

Net income increased $1.3 million, or 158.1%, to $2.1 million, or $0.79 per diluted common share, for the three months ended June 30, 2025, compared to $795 thousand, or $0.31 per diluted common share, for the three months ended June 30, 2024.

The increase was primarily the result of a $1.8 million increase in net interest income and a $72 thousand decrease in noninterest expense, partially offset by a $279 thousand increase in the provision for credit losses, a $42 thousand decrease in noninterest income and a $301 thousand increase in provision for income taxes.

Net income increased $1.7 million, or 105.8%, to $3.2 million, or $1.24 per diluted common share, for the six months ended June 30, 2025, compared to $1.6 million, or $0.61 per diluted common share, for the six months ended June 30, 2024.

The increase was primarily a result of a $2.4 million increase in net interest income, partially offset by a $109 thousand increase in the provision for credit losses, a $42 thousand decrease in noninterest income, a $184 thousand increase in noninterest expense, and a $429 thousand increase in provision for income taxes.

Interest Income

Three Months Ended March 31,

Three Months Ended June 30, Amount

Change Percent Change

Loans, including fees $ 13,695 $ 12,320 $ 1,375 11.2 %

Interest and dividends on investments, cash and cash equivalents 1,118 1,527 (409) (26.8)

Interest and dividends on investments 123 133 (10) (7.5)

Cash and cash equivalents 1,097 1,586 (489) (30.8)

Total interest income $ 14,915 $ 14,039 $ 876 6.2 %

Interest income decreased $54 thousand, or 0.4%, to $13.7 million for the three months ended March 31, 2025, from $13.8 million for the three months ended March 31, 2024, primarily due to lower average balances of interest-bearing cash and investments and a 103 basis point decline in the average yield on interest-bearing cash, partially offset by a 20 basis point increase in the average yield on loans.

Interest income on loans increased $355 thousand, or 2.9%, to $12.6 million for the three months ended March 31, 2025, from $12.2 million for the three months ended March 31, 2024.

The average yield on total loans rose to 5.69% for the three months ended March 31, 2025, from 5.49% for the three months ended March 31, 2024, primarily due to variable rate loans resetting to higher market interest rates and new loan originations at higher interest rates.

The average balance of total loans was $896.8 million for the three months ended March 31, 2025, compared to $895.4 million for the three months ended March 31, 2024.

Interest income on the investment portfolio decreased $3 thousand, or 2.7%, to $108 thousand for the three months ended March 31, 2025, compared to $111 thousand for the three months ended March 31, 2024.

The decrease was due to a decrease in the average balance, partially offset by a higher average yield.

The average balance of investments was $12.9 million for the three months ended March 31, 2025, compared to $14.0 million for the three months ended March 31, 2024, while the average yield on investments increased 21 basis points to 3.39% for the three months ended March 31, 2025, compared to 3.18% for the three months ended March 31, 2024.

The decrease in the average balance was due to regularly scheduled payments and maturities, while the increase in the average yield was due to higher market interest rates.

Interest income on cash and cash equivalents decreased $406 thousand, or 28.7%, to $1.0 million for the three months ended March 31, 2025, compared to $1.4 million for the three months ended March 31, 2024.

Q2 2025 vs Q2 2024 .

Interest income increased $876 thousand, or 6.2%, to $14.9 million for the three months ended June 30, 2025, from $14.0 million for the three months ended June 30, 2024, primarily due to a higher average balance and a 58 basis point increase in the average yield on loans, partially offset by lower average balance and a 99 basis point decline in the average yield on cash and cash equivalents.

Interest income on loans increased $1.4 million, or 11.2%, to $13.7 million for the three months ended June 30, 2025, from $12.3 million for the three months ended June 30, 2024.

The average yield on total loans rose to 6.14% for the three months ended June 30, 2025, from 5.56% for the three months ended June 30, 2024, primarily due to recognition of interest income from the payoff of loans previously on nonaccrual, the origination of new loans at higher interest rates, and upward repricing on

variable-rate loans.

The average balance of total loans was $895.0 million for the three months ended June 30, 2025, compared to $891.9 million for the three months ended June 30, 2024.

Interest income on the investment portfolio decreased $10 thousand, or 7.5%, to $123 thousand for the three months ended June 30, 2025, compared to $133 thousand for the three months ended June 30, 2024.

The decrease was due to a decrease in the average balance.

The average balance of investments was $12.8 million for the three months ended June 30, 2025, compared to $13.9 million for the three months ended June 30, 2024, while the average yield on investments remained unchanged at 3.84% for both the three months ended June 30, 2025 and June 30, 2024.

The decrease in the average balance was due to regularly scheduled payments and maturities.

Interest income on cash and cash equivalents decreased $489 thousand, or 30.8%, to $1.1 million for the three months ended June 30, 2025, compared to $1.6 million for the three months ended June 30, 2024.

The decrease was due to a lower average balance of and yield on cash and cash equivalents.

The average yield on cash and cash equivalents decreased to 4.27% for the three months ended March 31, 2025, compared to 5.30% for the three months ended March 31, 2024, as a result of the lower market interest rates generally.

The average balance of cash and cash equivalents was $96.0 million for the three months ended March 31, 2025, compared to $107.4 million for the three months ended March 31, 2024, primarily due to a lower average cash balance following the payoff of $15.0 million of FHLB advances during the fourth quarter of 2024.

The average yield on cash and cash equivalents decreased to 4.29% for the three months ended June 30, 2025, compared to 5.28% for the three months ended June 30, 2024, as a result of lower market interest rates generally.

Refer to “ Net Interest Income ” below for additional detail regarding the interest rate environment.

The average balance of cash and cash equivalents was $102.6 million for the three months ended June 30, 2025, compared to $120.8 million for the three months ended June 30, 2024, primarily due to a lower average cash balance following the payoff of $15.0 million of FHLB advances during the fourth quarter of 2024.

Six Months Ended June 30, Amount

Change Percent Change

Loans, including fees $ 26,283 $ 24,553 $ 1,730 7.0 %

Interest and dividends on investments 232 244 (12) (4.9)

Cash and cash equivalents 2,107 3,002 (895) (29.8)

Total interest income $ 28,622 $ 27,799 $ 823 3.0 %

Interest income increased $823 thousand, or 3.0%, to $28.6 million for the six months ended June 30, 2025, from $27.8 million for the six months ended June 30, 2024, primarily due to increases in average yields on loans and cash and cash equivalents of 39 basis points and 17 basis points, respectively, partially offset by a lower average balance of investments and a 101 basis point decline in the average yield on investments.

Interest income on loans increased $1.7 million, or 7.0%, to $26.3 million for the six months ended June 30, 2025, compared to $24.6 million for the six months ended June 30, 2024, driven by a 39 basis point increase in the average yield on loans.

The average yield on total loans was 5.92% for the six months ended June 30, 2025, compared to 5.53% for the six months ended June 30, 2024.

The average yield on total loans increased primarily due to recognition of interest income from the payoff of loans previously on nonaccrual, variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates.

The average balance of total loans was $895.9 million for the six months ended June 30, 2025, compared to $893.6 million for the six months ended June 30, 2024

Interest income on cash and cash equivalents decreased $895 thousand, or 29.8% to $2.1 million for the six months ended June 30, 2025, compared to $3.0 million for the six months ended June 30, 2024.

The decrease was due to a lower average balance of and yield on cash and cash equivalents.

The average yield on cash and cash equivalents declined to 4.28% for the six months ended June 30, 2025, compared to 5.29% for the six months ended June 30, 2024, as a result of lower market interest rates generally.

Refer to “ Net Interest Income ” below for additional detail regarding the interest rate environment.

The average balance of cash and cash equivalents was $99.3 million for the six months ended June 30, 2025, compared to $114.1 million for the six months ended June 30, 2024, primarily due to a lower average cash balance following the payoff of $15.0 million of FHLB advances during the fourth quarter of 2024.

Interest Expense

Three Months Ended March 31,

Three Months Ended June 30,

Change Percent Change

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Total interest expense $ 5,660 $ 6,591 $ (931) (14.1) %

Q2 2025 vs Q2 2024 .

Interest expense decreased $931 thousand, or 14.1%, to $5.7 million for the three months ended June 30, 2025, from $6.6 million for the three months ended June 30, 2024.

The decrease in total interest expense was primarily attributable to lower interest rates across most interest-bearing liabilities, resulting from lower market interest rates generally, as well as a $167 thousand decrease related to lower average balances, particularly in certificate accounts.

Interest expense on certificate accounts declined $657 thousand, driven by a $268 thousand volume-related decrease and a $389 thousand rate-relate decrease.

The average balance of certificate accounts declined to $290.0 million for the three months ended March 31, 2025, from $315.5 million a year earlier, while the average rate paid decreased to 4.25% from 4.71%.

These declines reflect the continued runoff and repricing of higher-rate time deposits originated in prior periods.

Interest expense on certificate accounts declined $871 thousand, driven by a $290 thousand volume-related decrease and a $581 thousand rate-related decrease.

The average balance of certificate accounts declined to $288.3 million for the three months ended June 30, 2025, from $317.5 million during the same period in 2024, while the average rate paid decreased to 3.98% from 4.73%.

These declines reflect the continued runoff and repricing of higher-rate time deposits originated in prior periods, and our strategy to focus on non-maturity interest-bearing deposits.

In addition, interest expense on demand and NOW accounts decreased $41 thousand, due to both lower average balances and slightly lower rates.

Partially offsetting these decreases was an increase in interest expense on savings and money market accounts, which increased $192 thousand, or 10.29%, to $2.1 million for the three months ended March 31, 2025, from $1.9 million for the same period in 2024.

This increase was driven entirely by higher average balances, which increased to $335.4 million from $284.5 million, reflecting shifts in customer deposit preferences, partially offset by a lower average rate paid on these accounts, which declined 15 basis points to 2.49% from 2.64%.

Partially offsetting these decreases was an increase in interest expense on savings and money market accounts, which increased $143 thousand, or 6.76%, to $2.3 million for the three months ended June 30, 2025, from $2.1 million for the same period in 2024.

This increase was driven entirely by higher average balances, which increased to $346.7 million from $301.5 million, reflecting shifts in customer deposit preferences, as well as higher rates offered on some of these products as compared to new certificate accounts, partially offset by a lower average rate paid on these accounts, which declined 21 basis points to 2.61% from 2.82%.

The rate decrease reflects competitive repricing strategies implemented to manage overall funding costs in a stabilizing rate environment.

Interest expense on borrowings, comprised solely of FHLB advances, decreased $162 thousand , primarily due to a $15.0 million decline in average borrowings following the payoff of an FHLB advance during the fourth quarter of 2024.

The average balance of FHLB advances was $25.0 million for the three months ended March 31, 2025, compared to $40.0 million for the three months ended March 31, 2024.

The average rate paid on borrowings decreased six basis points to 4.25% for the quarter ended March 31, 2025, compared to 4.31% for the same quarter in 2024.

Interest expense on subordinated notes was $168 thousand for both the three months ended March 31, 2025 and March 31, 2024, with no material changes in the average balance or rate paid.

The average balance of FHLB advances was $25.0 million for the three months ended June 30, 2025, compared to $40.0 million for the three months ended June 30, 2024.

The average rate paid on borrowings decreased three basis points to 4.28% for the quarter ended June 30, 2025, compared to 4.31% for the same quarter in 2024.

Interest expense on subordinated notes was $168 thousand for both the three months ended June 30, 2025 and June 30, 2024, with no material changes in the average balance or rate paid.

Six Months Ended June 30, Amount

Change Percent Change

Deposit $ 10,430 $ 11,696 $ (1,266) (10.8) %

Borrowings 529 859 (330) (38.4)

Subordinated notes 336 336 — —

Total interest expense $ 11,295 $ 12,891 $ (1,596) (12.4) %

Interest expense decreased $1.6 million, or 12.4%, to $11.3 million for the six months ended June 30, 2025, from $12.9 million for the six months ended June 30, 2024.

Interest expense on deposits decreased $1.3 million, or 10.8%, to $10.4 million for the six months ended June 30, 2025, compared to $11.7 million for the six months ended June 30, 2024.

The decrease was primarily the result of lower average rates paid on all categories of interest-bearing deposits and borrowings, as well as a lower average balance of demand and NOW accounts, certificate accounts, and borrowings, partially offset by an increase in the average balance of savings and money market accounts.

The average cost of total deposits decreased 27 basis points to 2.35% for the six months ended June 30, 2025, from 2.62% for the six months ended June 30, 2024.

Interest expense on borrowings, comprised solely of FHLB advances, was $529 thousand for the six months ended June 30, 2025, compared to $859 thousand for the six months ended June 30, 2024, reflecting the decreased use of FHLB advances to supplement our liquidity needs.

The average cost of FHLB advances decreased 5 basis points to 4.27% for the six months ended June 30, 2025, compared to 4.32% for the same period in 2024.

The average cost of FHLB advances declined due to same reason note above.

The average balance of FHLB advances was $25.0 million for the six months ended June 30, 2025, compared to $40.0 million for the six months ended June 30, 2024 following the payoff of an FHLB advance during the fourth quarter of 2024.

Interest expense on subordinated notes was $336 thousand for both the six months ended June 30, 2025 and 2024.

Net Interest Income.

Net interest income increased $611 thousand, or 8.2%, to $8.1 million for the three months ended March 31, 2025, from $7.5 million for the three months ended March 31, 2024.

Overall, the decline in funding costs contributed to a 36 basis point improvement in the net interest rate spread and a 30 basis point increase in the net interest margin, which rose to 3.25% for the three months ended March 31, 2025, compared to 2.95% for the same period in 2024.

Q2 2025 vs Q2 2024 .

Net interest income increased $1.8 million, or 24.3%, to $9.3 million for the three months ended June 30, 2025, from $7.4 million for the three months ended June 30, 2024.

The increase in net interest income was mainly the result of decreased funding costs, primarily from lower average rates paid on all categories of interest-bearing deposits and a lower average balance of borrowings, as well as higher average yield on interest-earning assets due to the recognition of interest income from the payoff of loans previously on nonaccrual, variable rate loans adjusting to higher market interest rates and new

loan originations at higher interest rates.

These increases were partially offset by a decrease in the average balance of interest-earning assets.

Overall, the combined decline in funding costs and increased yield on loans primarily contributed to an 84 basis point improvement in the net interest rate spread and a 75 basis point increase in the annualized net interest margin, which rose to 3.67% for the three months ended June 30, 2025, compared to 2.92% for the same period in 2024.

Net interest income increased $2.4 million, or 16.2%, to $17.3 million for the six months ended June 30, 2025, from $14.9 million for the six months ended June 30, 2024.

Net interest margin (annualized) was 3.47% and 2.94% for the six months ended June 30, 2025 and 2024, respectively.

The increase in net interest income primarily resulted from a decrease in the average balances of and rate paid on deposits and borrowings and higher average balances and yield earned on loans, partially offset by a lower average balance of and yield on interest-earning cash.

The increase in net interest margin primarily was due to the lower cost of funding and the increase in loan yield as a result of the reasons mentioned above.

Through most of 2024, the Federal Open Market Committee of the Federal Reserve (“FOMC”) maintained the target range for the federal funds rate at 5.25% to 5.50%, where it remained until September 18, 2024.

In light of continued progress on reducing inflation and after considering the balance of risks to the economy, the FOMC has since lowered the target range 100 basis points to 4.25% to 4.50% as March 31, 2025 .

Provision for Credit Losse s.

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

Three Months Ended March 31,

Release of credit losses on loans $ (85) $ (106)

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Provision (release of) for credit losses on loans $ 164 $ (88) $ 79 $ (194)

Release of credit losses on unfunded loan commitments 6 (21) (112) 52

(Release of) provision for credit losses $ (203) $ (33)

A release of credit losses of $203 thousand was recorded for the quarter ended March 31, 2025, compared to a release of credit losses of $33 thousand for the quarter ended March 31, 2024.

The release of credit losses on loans during the current quarter was primarily due to a decline in the balance of the loan portfolio, partially offset by higher qualitative factors which were influenced by uncertainty in the market.

The release of credit losses on unfunded loan commitments during the current quarter related to overall fewer loan commitments.

Net charge-offs for the three months ended March 31, 2025 totaled $21 thousand, compared to $56 thousand for three months ended March 31, 2024.

Provision (release of) for credit losses $ 170 $ (109) $ (33) $ (142)

A provision for credit losses of $170 thousand was recorded for the quarter ended June 30, 2025, compared to a release of credit losses of $109 thousand for the quarter ended June 30, 2024.

The provision for credit losses during the current quarter was primarily due to growth in the balance of the loan portfolio, an increase in the balance of unfunded commitments, and a qualitative adjustment applied to certain loan segments related to uncertainty in the market and concentrations, partially offset by a lower qualitative adjustment for improved credit quality.

Expected credit loss estimates are based on a range of factors, including market conditions, borrower-specific information, projected delinquencies, and anticipated effects of economic trends on borrowers' ability to repay.

Net charge-offs for the three months ended June 30, 2025 totaled $21 thousand, compared to $17 thousand for three months ended June 30, 2024.

A release of provision for credit losses of $33 thousand was recorded for the six months ended June 30, 2025, compared to a release of provision for credit losses of $142 thousand for the six months ended June 30, 2024.

The release of provision for credit losses during the current period was primarily due to a lower qualitative adjustment for improved credit quality and a decrease in the balance of unfunded commitments, partially offset by growth in the balance of the loan portfolio and a qualitative adjustment applied to certain loan segments related to uncertainty in the market and concentrations.

Net charge-offs for the six months ended June 30, 2025 totaled $42 thousand, compared to $73 thousand for six months ended June 30, 2024.

While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not have a material adverse impact on our financial condition and results of operations.

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Noninterest Income.

Noninterest income remained relatively unchanged at $1.1 million for both the three months ended March 31, 2025 and March 31, 2024, as reflected below (dollars in thousands):

Three Months Ended March 31, Amount

Noninterest income decreased $42 thousand, or 3.6%, to $1.1 million for the three months ended June 30, 2025, as compared to $1.2 million for the three months ended June 30, 2024, as reflected below (dollars in thousands):

Three Months Ended June 30, Amount

Change Percent

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Net gain on sale of loans 44 74 (30) (40.5)

Other income — 30 (30) (100.0)

Total noninterest income $ 1,120 $ 1,162 $ (42) (3.6) %

The changes in noninterest income for the three months ended March 31, 2025, compared to the same period in 2024 were primarily due to:

• a $72 thousand increase in service charges and fee income, primarily due to a volume incentive paid by Mastercard in the first quarter of 2025 and higher debit card interchange income;

• an $18 thousand increase in earnings from BOLI, primarily due to the strategic decision to surrender and exchange existing policies for higher yielding policies, partially offset by market fluctuations that reduced the value of the policies;

• a $13 thousand decrease in mortgage servicing income, resulting from portfolio paydowns occurring at a faster pace than new originations;

• a $34 thousand decrease in the fair value adjustment on mortgage servicing rights, due to a smaller servicing portfolio;

• a $41 thousand decrease in net gain on sale of loans, due to a lower volume of loans sold during the first quarter of 2025.

The lower level of noninterest income for the three months ended June 30, 2025, compared to the same period in 2024, was primarily due to:

• a $97 thousand decrease in service charges and fee income, primarily due to a recovery of potential future lost fee income recorded in the second quarter of 2024 in connection with a vendor error;

this decrease was partially offset by an increase in fees associated with new client acquisition in our specialty banking deposit accounts and higher interchange income in the current quarter;

• a $16 thousand decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than originations replaced repayments;

• a $30 thousand decrease in net gain on sale of loans due to fewer loans sold;

• a $30 thousand decrease in other income due to gain on disposal of assets due to insurance claims on the loss of fully depreciated assets in same quarter last year.

These decreases were partially offset by:

• a $95 thousand increase in earnings from BOLI primarily due to the strategic decision to surrender and exchange existing policies into higher yielding policies in the first quarter of 2025, with the benefit of improve yields continuing into the second quarter of 2025, partially offset by fluctuations in financial markets which reduced the values of policies;

• a $36 thousand improvement in the adjustment for the fair value of mortgage servicing rights due to higher market value, partially offset by a smaller servicing portfolio.

Noninterest income decreased $42 thousand, or 1.9%, to $2.2 million for the six months ended June 30, 2025, as compared to $2.3 million for the six months ended June 30, 2024, as reflected below (dollars in thousands):

Six Months Ended June 30, Amount

Change Percent

Service charges and fee income $ 1,348 $ 1,373 $ (25) (1.8) %

Earnings on BOLI 423 311 112 36.0

Mortgage servicing income 531 561 (30) (5.3)

Fair value adjustment on mortgage servicing rights (179) (181) 2 (1.1)

Net gain on sale of loans 93 164 (71) (43.3)

Other income $ — $ 30 $ (30) (100.0) %

Total noninterest income $ 2,216 $ 2,258 $ (42) (1.9) %

The reduction in noninterest income for the six months ended June 30, 2025, compared to the same period in 2024, was primarily due to:

• a $25 thousand decrease in service charges and fee income, primarily due to a recovery of potential future lost fee income recorded in the second quarter of 2024 in connection with a vendor error;

this decrease was partially offset by an increase in fees associated with new client acquisition in our specialty banking deposit accounts, higher interchange income in the current year, and the Mastercard volume incentive received in the first quarter of 2025;

• a $30 thousand decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than originations replaced repayments;

• a $71 thousand decrease in net gain on sale of loans due to fewer loans sold;

• a $30 thousand decrease in other income due to same reason noted above in the comparison of the three-month periods.

These decreases were partially offset by a $112 thousand increase in earnings from BOLI primarily due to the strategic decision to surrender and exchange existing policies into higher yielding policies in 2025, as well as changes due to market fluctuation.

Noninterest Expense.

Noninterest expense increased $258 thousand, or 3.4%, to $7.9 million during the three months ended March 31, 2025, compared to $7.7 million during the three months ended March 31, 2024, as reflected below (dollars in thousands):

Three Months Ended March 31, Amount

Noninterest expense decreased $72 thousand, or 0.9%, to $7.7 million during the three months ended June 30, 2025, compared to $7.7 million during the three months ended June 30, 2024, as reflected below (dollars in thousands):

Three Months Ended June 30, Amount

Change Percent

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Data processing 1,254 910 344 37.8 %

Net (gain) on OREO and repossessed assets 3 6 (3) (50.0) %

Net loss (gain) on OREO and repossessed assets 9 (17) 26 (152.9) %

Total noninterest expense $ 7,665 $ 7,737 $ (72) (0.9) %

The change in noninterest expense for the three months ended March 31, 2025, compared to the same period in 2024, were primarily due to:

• a $276 thousand increase in data processing expenses, due to the amortization of costs associated with various project implementations that began in the third quarter of 2024, as well as the absence of a one-time vendor reimbursement received in the first quarter of 2024;

• a $52 thousand increase in salaries and benefits, primarily due to higher salaries expense as a result of annual pay increases in the first quarter and lower deferred compensation, partially offset by lower retirement plan expense and lower commission expense.

• a $32 thousand increase in regulatory assessments, due to a higher estimated accrual for regulatory exam costs;

• a $92 thousand decrease in operations expense, primarily due to the recognition of annual fee reimbursements from Mastercard beginning in the first quarter of 2025 and lower expenses across various accounts resulting from ongoing cost saving initiatives and process improvements.

The efficiency ratio for the quarter ended March 31, 2025 was 86.31%, compared to 89.48% for the quarter ended March 31, 2024.

The improvement in the efficiency ratio was primarily due to higher net interest income resulting from lower funding costs.

The lower level of noninterest expense for the three months ended June 30, 2025, compared to the same period in 2024, was primarily due to:

• a $337 thousand decrease in salaries and benefits related to lower deferred salaries and lower incentive expense as a result of lower growth in the current quarter than in the same quarter one year ago;

• a $126 thousand decrease in operations expense primarily due to lower expenses across various accounts, resulting from ongoing cost saving initiatives and process improvements.

These decreases were partially offset by:

• a $344 thousand increase in data processing expenses due to various project implementations that began amortizing in the third quarter of 2024, as well as new software technology being deployed in 2025 that continues to streamline our operations;

• a $19 thousand increase in occupancy expense due to higher building lease charges in 2025;

• a $26 thousand increase in expenses related to OREO and repossessed assets due to the addition of a new property in the second quarter of 2025 and the absence of property sales in the same quarter last year.

The efficiency ratio for the quarter ended June 30, 2025 was 73.88%, compared to 89.86% for the quarter ended June 30, 2024.

The improvement in the efficiency ratio was primarily due to higher net interest income resulting from lower funding costs and the recognition of interest income on nonaccrual loans that paid off during the quarter, as well as lower noninterest expense.

Noninterest expense increased $184 thousand, or 1.2%, to $15.6 million during the six months ended June 30, 2025, compared to $15.4 million during the six months ended June 30, 2024, as reflected below (dollars in thousands):

Six Months Ended June 30, Amount

Change Percent

Salaries and benefits $ 8,916 $ 9,201 $ (285) (3.1) %

Operations 2,808 3,026 (218) (7.2)

Regulatory assessments 442 409 33 8.1

Occupancy 853 841 12 1.4

Data processing 2,547 1,928 619 32.1

Net loss (gain) on OREO and repossessed assets 12 (11) 23 (209.1)

Total noninterest expense $ 15,578 $ 15,394 $ 184 1.2 %

The higher level of noninterest expense for the six months ended June 30, 2025, compared to the same period in 2024, was primarily due to:

• a $619 thousand increase in data processing expenses due to various project implementations that began amortizing in the third quarter of 2024, as well as new software technology being deployed in 2025 that continues to streamline our operations;

• a $33 thousand increase in regulatory assessments due to an increase in the accrual beginning in the second quarter of 2024 related to higher forecasted regulatory exam fees;

• a $23 thousand increase in expenses related to OREO and repossessed assets due to the addition of new property in 2025 and the absence of property sales in the current year.

These increases were partially offset by:

• a $285 thousand decrease in salaries and benefits related to lower incentive compensation expense as a result of less growth in the current period than in the same period one year ago;

• a $218 thousand decrease in operations expense primarily due to lower expenses across various accounts, resulting from ongoing cost saving initiatives and process improvements.

Income Tax Expense .

The provision for income taxes was $291 thousand and $163 thousand for the three months ended March 31, 2025 and March 31, 2024, respectively.

The effective tax rates for the three months ended March 31, 2025 and March 31, 2024 were 19.96% and 17.47%, respectively.

The increase in the effective tax rate was due to taxable earnings on BOLI in the current quarter, resulting from the surrender and exchange of existing BOLI policies in to higher yielding policies.

The provision for income taxes was $488 thousand and $779 thousand for the three and six months ended June 30, 2025, compared to $187 thousand and $350 thousand for the three and six months ended June 30, 2024, respectively.

The effective tax rates for the three and six months ended June 30, 2025 were 19.21% and 19.48%, respectively.

The effective tax rates for the three and six months ended June 30, 2024 were 19.04% and 18.29%, respectively.

The increase in the effective tax rate for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, was due to taxable earnings on BOLI in 2025, resulting from the surrender and exchange of existing BOLI policies in to higher yielding policies.

On July 4, 2025, the President of the United States signed and enacted the One Big Beautiful Bill Act (“OBBBA”) into law.

Except for certain provisions, the OBBBA is effective for tax years beginning on or after January 1, 2025.

The tax and and spending legislation permanently extends key business tax breaks originally enacted under the 2017 Tax Cuts and Jobs Act.

The Company is currently evaluating the impact the law will have on the income tax provision.

Capital and Liquidity

The Management’s Discussion and Analysis in Item 7 of the Company’s 2024 Form 10-K contains an overview of Sound Financial Bancorp’s and the Bank’s liquidity management, sources of liquidity and cash flows.

Although there have been no material changes in our liquidity management, sources of liquidity and cash flows since our 2024 Form 10-K, this discussion updates that disclosure for the three months ended March 31, 2025.

Stockholders’ equity totaled $104.4 million at March 31, 2025 and $103.7 million at December 31, 2024.

In addition to net income of $1.2 million, other sources of capital during the three months ended March 31, 2025 primarily included $81 thousand related to stock-based compensation and $21 thousand in proceeds from stock option exercises.

Uses of capital during the three months ended March 31, 2025 primarily included $487 thousand of dividends paid on common stock and $17 thousand of other comprehensive income, net of tax, primarily resulting from unrealized losses on available for sale securities.

We paid cash dividends of $0.19 per common share during the three months ended March 31, 2025 and March 31, 2024, which equates to a dividend payout ratio of 41.73% and 63.12%, respectively.

Stockholders’ equity totaled $106.0 million at June 30, 2025 and $103.7 million at December 31, 2024.

In addition to net income of $3.2 million, other sources of capital during the six months ended June 30, 2025 primarily included $156 thousand related to stock-based compensation and $21 thousand in proceeds from stock option exercises.

Uses of capital during the six months ended June 30, 2025 primarily included $974 thousand of dividends paid on common stock and $84 thousand of other comprehensive income, net of tax, primarily resulting from unrealized losses on available for sale securities.

We paid cash dividends of $0.38 per common share during the six months ended June 30, 2025 and June 30, 2024, which equates to a dividend payout ratio of 30.26% and 62.15%, respectively.

The Company expects to continue paying quarterly cash dividends on its common stock, subject to the Board of Directors' discretion to change this practice at any time and for any reason, without prior notice.

Assuming continued payment of the regular quarterly cash dividend during the remainder of 2025 at the rate of $0.19 per share, our average total dividend paid each quarter would be approximately $488 thousand based on the number of outstanding shares as of March 31, 2025.

The dividends, if any, we pay may be limited as more fully discussed under “Business—How We Are Regulated—Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2024 Form 10-K.

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Liquidity measures the ability to meet current and future cash flow needs.

The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of potential opportunities presented by changes in market interest rates.

The liquidity of a financial institution reflects its ability to meet loan requests, accommodate possible outflows in deposits and take advantage of potential opportunities presented by changes in market interest rates.

The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds.

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Liquidity risk management is an important element in our asset/liability management process.

We regularly model

liquidity stress scenarios to assess potential liquidity outflows or funding challenges resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management.

We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding challenges resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management.

These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

As of March 31, 2025, we had $139.2 million in cash and cash equivalents and available-for-sale investment securities, and $2.3 million in loans held-for-sale.

At March 31, 2025, we had the ability to borrow $167.5 million in FHLB advances and access to additional borrowings of $20.3 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements.

We had $25.0 million in outstanding advances from the FHLB and none from the Federal Reserve at March 31, 2025.

We also had a $20.0 million credit facility with Pacific Coast Banker’s Bank available, with no balance outstanding, at March 31, 2025.

Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

As of March 31, 2025, management was not aware of any events reasonably likely to have a material adverse effect on our liquidity, capital resources or operations.

As of June 30, 2025, we had $110.1 million in cash and cash equivalents and available-for-sale investment securities, and $2.0 million in loans held-for-sale.

At June 30, 2025, we had the ability to borrow $161.2 million in FHLB advances and access to additional borrowings of $19.4 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements.

We had $25.0 million in outstanding advances from the FHLB and none from the Federal Reserve at June 30, 2025.

We also had a $20.0 million credit facility with Pacific Coast Banker’s Bank available, with no balance outstanding, at June 30, 2025.

Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, to repay maturing debt and to take advantage of investment opportunities to the extent feasible.

As of June 30, 2025, management was not aware of any events reasonably likely to have a material adverse effect on our liquidity, capital resources or operations.

In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.

2 unchanged sentences

In the ordinary course of business, we enter into contractual obligations and other commitments to make future payments.

Refer to the accompanying Notes to Condensed Consolidated Financial Statements elsewhere in this report for the expected timing of such payments as of March 31, 2025.

Refer to the accompanying Notes to Condensed Consolidated Financial Statements elsewhere in this report for the expected timing of

such payments as of June 30, 2025.

These include payments related to (i) long-term borrowings (Note 8—Borrowings, FHLB Stock and Subordinated Notes) and (ii) operating leases (Note 10—Leases).

11 unchanged sentences

The amount of collateral obtained, if it is deemed necessary by the Company, is based on management's credit evaluation of the client.

At March 31, 2025 and December 31, 2024, financial instrument contractual amounts representing credit risk were as follows (in thousands):

March 31, 2025 December 31, 2024

At June 30, 2025 and December 31, 2024, financial instrument contractual amounts representing credit risk were as follows (in thousands):

June 30, 2025 December 31, 2024

Residential mortgage commitments $ 2,804 $ 3,758

9 unchanged sentences

See “Business — How We Are Regulated — Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2024 Form 10-K.

At March 31, 2025 Sound Financial Bancorp, on an unconsolidated basis, had $3.9 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

At June 30, 2025, Sound Financial Bancorp, on an unconsolidated basis, had $6.8 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

See also the “Condensed Consolidated Statements of Cash Flows” included in “Item 1.

3 unchanged sentences

Qualifying institutions that elect to use the Community Bank Leverage Ratio, or CBLR, framework, such as the Bank and the Company, that maintain the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies’ PCA framework.

As of March 31, 2025, the Bank’s and the Company’s CBLRs were 10.76% and 9.98%, respectively, which exceeded the minimum requirement of 9%.

As of June 30, 2025, the Bank’s and the Company’s CBLRs were 10.60% and 10.09%, respectively, which exceeded the minimum requirement of 9%.

In February 2019, the U.S.

1 unchanged sentence

The capital relief is phased into regulatory capital at 25% per year over a three-year transition period.

The final rule was adopted and became effective in September 2020.

The final rule

was adopted and became effective in September 2020.

The Company implemented the CECL model commencing January 1, 2023 and elected to phase in the full effect of CECL on regulatory capital over the three-year transition period.

5 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis