What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-12 compared with 2025-08-12 · 197 added, 189 removed, 438 unchanged (47% of the section changed)

10 unchanged sentences

• 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;

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

• the impact of inflation and 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;

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

• changes in consumer spending, borrowing and savings habits;

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

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

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

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

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

• our ability to attract and retain deposits;

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

• 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;

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

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

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

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.

At September 30, 2025, Sound Financial Bancorp, on a consolidated basis, had total assets of $1.06 billion, net loans held-for-portfolio of $901.2 million, deposits of $898.9 million and stockholders’ equity of $107.5 million.

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

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

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

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

We also offer a variety of secured and unsecured consumer loan products, including manufactured home loans, floating home loans, automobile loans, boat loans and recreational vehicle loans.

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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 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.

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

Total assets increased $66.5 million, or 6.7%, to $1.06 billion at September 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 $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.

Cash and cash equivalents increased $57.5 million, or 131.8%, to $101.2 million at September 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 temporarily 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.

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):

Investment securities decreased $384 thousand, or 3.9%, to $9.5 million at September 30, 2025, compared to $9.9 million at December 31, 2024.

Held-to-maturity securities totaled $1.9 million and $2.1 million at September 30, 2025 and December 31, 2024, respectively.

Available-for-sale securities totaled $7.6 million at September 30, 2025, compared to $7.8 million at December 31, 2024.

The decrease in held-to-maturity securities was primarily due to principal paydowns.

The decrease in available-for-sale securities was primarily due to regularly scheduled payments, partially offset by lower net unrealized losses resulting from an increase in the market value of our portfolio in 2025.

Loans held-for-portfolio, net increased $9.5 million, or 1.1%, to $901.2 million at September 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 September 30, 2025, as compared to December 31, 2024 (dollars in thousands):

September 30,

2025 December 31,

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The increases in the loan held-for-portfolio were driven primarily by a $37.3 million, or 10.0%, 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.

Home equity loans increased by $3.2 million, or 12.1%, as demand for this product remains high with homeowners utilizing their home equity lines to access liquidity as opposed to paying off their lower rate mortgages.

Manufactured home loans and floating home loans increased by $1.6 million and $2.3 million, respectively, or 3.9% and 2.6%, primarily the result of seasonality as it relates to floating homes and affordability of manufactured homes in the current market as well as internal efficiencies in how we process these loans.

The growth in these

portfolios were partially offset by a $20.3 million, or 27.8%, decline in construction and land loans largely due to project completions and 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 September 30, 2025, our loan portfolio, net of deferred loan fees, remained well-diversified.

At that date, commercial and multifamily real estate loans accounted for 44.8% of total loans, one-to-four family loans, including home equity loans, accounted for 31.5% 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 16.3% of total loans.

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.

Construction and land loans accounted for 5.8% of total loans at September 30, 2025.

Loans held-for-sale totaled $271 thousand at September 30, 2025, compared to $487 thousand at December 31, 2024.

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

Allowance for Credit Losses.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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

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.

Our ACL — loans increased $65 thousand, or 0.8%, to $8.6 million at September 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 June 30, 2025 At December 31, 2024

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

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

At September 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 $ 2,717 $ 7,491

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

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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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, 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.

Nonperforming assets (“NPAs”), which were comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, decreased $4.4 million, or 59.1%, to $3.1 million, or 0.29% of total assets, at September 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):

Nonperforming Assets

September 30,

2025 December 31,

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Total nonperforming assets $ 3,061 $ 7,491 $ (4,430) (59.1) %

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

The decrease in NPAs from December 31, 2024 was primarily due to payoffs of nonaccrual loans totaling $7.7 million, including one commercial real estate loan, one floating home loan and one mortgage loan, the return of $334 thousand of loans

to accrual status, loan charge-offs of $261 thousand, and regular loan payments totaling $269 thousand.

These decreases were partially offset by the addition of 15 loans totaling $3.8 million to nonaccrual status and $344 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 0.30% at September 30, 2025, compared to 0.83% at December 31, 2024.

Mortgage Servicing Rights.

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.

The fair value of mortgage servicing rights decreased $464 thousand, or 9.7%, to $4.3 million at September 30, 2025 from $4.8 million at December 31, 2024.

The decrease was primarily related to a decline in the size of our mortgage servicing portfolio and an increase in the estimated cost of servicing.

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

Total deposits increased $61.1 million, or 7.3%, to $898.9 million at September 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 $8.3 million, or 6.3%, to $124.2 million at June 30, 2025, compared to $132.5 million at December 31, 2024.

In contrast, noninterest-bearing deposits decreased $1.1 million, or 0.9%, to $131.4 million at September 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.

Noninterest-bearing deposits represented 14.6% of total deposits at September 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):

June 30, 2025 December 31, 2024

September 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 June 30, 2025, are as follows (in thousands):

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

Year Ending December 31, Amount

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Certificates of deposit have maturities of five years or less.

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.

The aggregate amount of time deposits in denominations of more than $250,000 at September 30, 2025 and December 31, 2024, totaled $103.9 million and $90.9 million, respectively.

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

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.

As of September 30, 2025, uninsured deposits totaled $168.6 million, which represented 18.8% 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 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.

Borrowings, comprised of FHLB advances, were $25.0 million at both September 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 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.

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

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

Stockholders’ Equity.

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.

Total stockholders’ equity increased $3.8 million, or 3.7%, to $107.5 million at September 30, 2025, from $103.7 million at December 31, 2024.

This increase primarily reflects $4.9 million of net income earned during the nine months ended September 30, 2025, $231 thousand of share-based compensation, an $80 thousand decrease in accumulated other comprehensive loss, net of tax, and $21 thousand related to the exercise of common stock options.

These changes were partially offset by the payment of $1.5 million in cash dividends to stockholders.

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

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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 June 30,

Three Months Ended September 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,

Nine Months Ended September 30,

Balance Interest

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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 June 30, 2025 vs.

Six Months Ended June 30, 2025 vs.

Three Months Ended September 30, 2025 vs.

Nine Months Ended September 30, 2025 vs.

Increase (Decrease) due to Total

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Change in net interest income $ 1,067 $ 3,484

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

Comparison of Results of Operation for the Three and Nine Months Ended September 30, 2025 and 2024

Q3 2025 vs Q3 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.

Net income increased $541 thousand, or 46.9%, to $1.7 million, or $0.66 per diluted common share, for the three months ended September 30, 2025, compared to $1.2 million, or $0.45 per diluted common share, for the three months ended September 30, 2024, reflecting strong growth in net interest income.

The improvement was partially offset by higher provisions for credit losses, a modest decline in noninterest income, and slightly higher income taxes.

Noninterest expenses remained relatively flat contributing positively to the overall increase in net income.

Net income increased $2.2 million, or 80.7%, to $4.9 million, or $1.90 per diluted common share, for the nine months ended September 30, 2025, compared to $2.7 million, or $1.05 per diluted common share, for the nine months ended September 30, 2024, primarily driven by higher net interest income.

This was partially offset by modest increases in provisions for credit losses, higher noninterest expenses, and an increase in income taxes, as well as a decrease in noninterest income.

Overall, the Company’s strong interest income performance was the primarily factor behind the year-to-date improvement in profitability.

Interest Income

Three Months Ended June 30, Amount

Three Months Ended September 30, Amount

Change Percent Change

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Q3 2025 vs Q3 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.

Total interest income decreased $186 thousand, or 1.3%, to $14.7 million for the three months ended September 30, 2025, from $14.8 million for the three months ended September 30, 2024, primarily due to a higher average balance of loans and a 19 basis point increase in the average yield on loans, partially offset by lower average balance of cash and cash equivalents and a 105 basis point decline in the average yield on cash and cash equivalents.

Interest income on loans increased $636 thousand, or 4.9%, to $13.5 million for the three months ended September 30, 2025, from $12.9 million for the three months ended September 30, 2024.

The average yield on total loans rose to 5.89% for the three months ended September 30, 2025, from 5.70% for the three months ended September 30, 2024, primarily due to the origination of new loans at higher interest rates and upward repricing on variable-rate loans.

The average balance of total loans was $910.3 million for the three months ended September 30, 2025, compared to $898.6 million for the three months ended September 30, 2024.

Interest and dividends on investments decreased $8 thousand, or 6.1%, to $124 thousand for the three months ended September 30, 2025, compared to $132 thousand for the three months ended September 30, 2024.

The decrease was due to a lower average balance, which totaled $12.5 million for the three months ended September 30, 2025, compared to $13.8 million for the three months ended September 30, 2024, resulting from regularly scheduled payments and maturities.

Partially offsetting this decrease in balance, the average yield on investments increased to 3.92% for the three months ended September 30, 2025, from 3.80% for the same period in 2024, due to larger paydowns on lower yielding investments.

Interest income on cash and cash equivalents decreased $814 thousand, or 44.5%, to $1.0 million for the three months ended September 30, 2025, compared to $1.8 million for the three months ended September 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 4.29% 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

The average yield on cash and cash equivalents decreased to 4.22% for the three months ended September 30, 2025, compared to 5.27% for the three months ended September 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 $95.4 million for the three months ended September 30, 2025, compared to $138.2 million for the three months ended September 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, redeploying cash into higher yielding loans and a decrease in certificate accounts which contributed to the overall lower cash balance.

Nine Months Ended September 30, Amount

Change Percent Change

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Total interest income $ 43,273 $ 42,638 $ 635 1.5 %

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.

Total interest income increased $635 thousand, or 1.5%, to $43.3 million for the nine months ended September 30, 2025, from $42.6 million for the nine months ended September 30, 2024, due to a higher average loan balance and a 33 basis points increase in average yield on loans, as well as a 16 basis points increase in average yield on investments.

These increases were partially offset by a lower average balance of cash and cash equivalents, and a 102 basis point decline in average yield on cash and cash equivalents, along with a lower average balance of investments.

Interest income on loans increased $2.4 million, or 6.3%, to $39.8 million for the nine months ended September 30, 2025, compared to $37.4 million for the nine months ended September 30, 2024, primarily driven by a 33 basis point increase in the average yield on loans.

The average yield on total loans was 5.91% for the nine months ended September 30, 2025, compared to 5.58% for the nine months ended September 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 average balance of total loans was $900.8 million for the nine months ended September 30, 2025, compared to $895.3 million for the nine months ended September 30, 2024.

Interest income on cash and cash equivalents decreased $1.7 million, or 35.4% to $3.1 million for the nine months ended September 30, 2025, compared to $4.8 million for the nine months ended September 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.

The average yield on cash and cash equivalents declined to 4.26% for the nine months ended September 30, 2025, compared to 5.28% for the nine months ended September 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 $98.0 million for the nine months ended September 30, 2025, compared to $122.2 million for the nine months ended September 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, the redeployment of cash into higher yielding loans and a decrease in certificate accounts which contributed to the overall lower cash balance.

Interest Expense

Three Months Ended June 30,

Three Months Ended September 30,

Change Percent Change

Deposit $ 5,225 $ 5,994 $ (769) (12.8) %

Deposits $ 5,275 $ 6,363 $ (1,088) (17.1) %

Borrowings 269 434 (165) (38.0)

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Q3 2025 vs Q3 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.

Total interest expense decreased $1.3 million, or 18.0%, to $5.7 million for the three months ended September 30, 2025, from $7.0 million for the three months ended September 30, 2024.

The decrease was primarily attributable to lower interest rates across most interest-bearing liabilities, resulting from lower market interest rates generally, as well as a $222 thousand decrease related to lower average liability balances, particularly in certificate accounts and borrowings.

Interest expense on certificate accounts declined $719 thousand, driven by a $120 thousand volume-related decrease and a $599 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%.

The average balance of certificate accounts declined to $291.1 million for the three months ended September 30, 2025, from $303.6 million during the same period in 2024, while the average rate paid decreased to 3.82% from 4.62%.

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 $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.

In addition, interest expense on savings and money market accounts decreased $321 thousand, or 11.94%, to $2.4 million for the three months ended September 30, 2025, from $2.7 million for the same period in 2024.

The decrease was driven entirely by lower average rate paid on these accounts, which declined 46 basis points to 2.68% from 3.14%.

The rate decrease reflects repricing strategies implemented to manage overall funding costs in a stabilizing rate environment, partially offset by higher average balances, which increased to $350.6 million from $340.3 million, reflecting shifts in customer deposit preferences, as well as higher rates offered on some of these products as compared to new certificate accounts.

The interest expense on demand and NOW accounts decreased $48 thousand, due to both lower average balances and slightly lower rates.

Interest expense on borrowings, comprised solely of FHLB advances, decreased $165 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 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

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

The average rate paid on borrowings decreased five basis points to 4.27% for the quarter ended September 30, 2025, compared to 4.32% for the same quarter in 2024.

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

On October 1, 2025, we redeemed $4.0 million of the $12.0 million of our outstanding subordinated notes.

Nine Months Ended September 30, Amount

Change Percent Change

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

Deposits $ 15,705 $ 18,059 $ (2,354) (13.0) %

Borrowings 798 1,293 (495) (38.3)

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Total interest expense $ 17,007 $ 19,856 $ (2,849) (14.3) %

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.

Total interest expense decreased $2.8 million, or 14.3%, to $17.0 million for the nine months ended September 30, 2025, from $19.9 million for the nine months ended September 30, 2024.

Interest expense on deposits decreased $2.4 million, or 13.0%, to $15.7 million for the nine months ended September 30, 2025, compared to $18.1 million for the nine months ended September 30, 2024.

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

The average cost of total deposits decreased 32 basis points to 2.34% for the nine months ended September 30, 2025, from 2.66% for the nine months ended September 30, 2024.

Interest expense on borrowings, comprised solely of FHLB advances, was $798 thousand for the nine months ended September 30, 2025, compared to $1.3 million for the nine months ended September 30, 2024, reflecting the decreased use of FHLB advances to supplement our liquidity needs.

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

The average cost of FHLB advances declined due to same reason noted above in the quarterly comparison.

The average balance of FHLB advances was $25.0 million for the nine months ended September 30, 2025, compared to $40.0 million for the nine months ended

September 30, 2024, due to the payoff of an FHLB advance during the fourth quarter of 2024.

Interest expense on subordinated notes was $504 thousand for both the nine months ended September 30, 2025 and nine months ended September 30, 2024.

On October 1, 2025, we redeemed $4.0 million of the $12.0 million of our outstanding subordinated notes.

Net Interest Income.

Q3 2025 vs Q3 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.

Net interest income increased $1.1 million, or 13.6%, to $8.9 million for the three months ended September 30, 2025, from $7.9 million for the three months ended September 30, 2024.

The increase 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 yields 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.

Overall, the decline in average funding costs and increase in average yield on loans primarily contributed to a 57 basis point improvement in the net interest rate spread and a 50 basis point increase in the annualized net interest margin, which rose to 3.48% for the three months ended September 30, 2025, compared to 2.98% for the same period in 2024.

Net interest income increased $3.5 million, or 15.3%, to $26.3 million for the nine months ended September 30, 2025, from $22.8 million for the nine months ended September 30, 2024.

Net interest margin (annualized) was 3.48% and 2.95% for the nine months ended September 30, 2025 and 2024, respectively.

The increases in net interest income and net interest margin primarily were due to the lower average cost of funding and the increase in average loan yields, as described above in the quarterly comparison.

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 June 30, 2025, with all rate cuts occurring in the latter half of 2024.

In light of continued progress on reducing inflation and after considering the balance of risks to the economy, the FOMC lowered the target range 100 basis points to 4.25% to 4.50% between September 2024 and December 2024.

The target rate range remained at this level until September 2025, when the FOMC implemented an additional 25 basis point reduction, lowering the target range to 4.00% to 4.25%.

The lower interest rate environment has contributed to decreased funding costs, while loan yields have remained elevated due to repricing of variable-rate loans and higher rates on new loan originations.

Provision for Credit 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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

Provision for (release of) credit losses on loans $ 65 $ 106 $ 144 $ (88)

Release of credit losses on unfunded loan commitments (10) (98) (122) (46)

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.

Provision for (release of) credit losses $ 55 $ 8 $ 22 $ (134)

A provision for credit losses of $55 thousand was recorded for the quarter ended September 30, 2025, compared to a provision for credit losses of $8 thousand for the quarter ended September 30, 2024.

The larger provision in the current quarter, primarily reflects the significant release of unfunded commitment reserves in the third quarter of 2024.

That release was largely driven by both a reduction in unfunded balances as projects were completed and improvements in qualitative factors within the construction loan segment due to improved economic conditions.

The provision for credit losses on loans in the current quarter was lower relative to the third quarter of 2024 due to lower loan portfolio growth during the current quarter as compared to the same quarter one year ago and a lower loss reserve rate, which was partially influenced by improving credit quality.

Net charge-offs for the three months ended September 30, 2025 totaled $37 thousand, compared to $14 thousand for three months ended September 30, 2024.

A provision for credit losses of $22 thousand was recorded for the nine months ended September 30, 2025, compared to a release of credit losses of $134 thousand for the nine months ended September 30, 2024.

The provision for credit losses during the current year period was due primarily to a larger overall loan portfolio, largely contributing to the need for a provision in the current year period, as compared to a decline in loan growth in the prior year period.

Qualitative adjustments remained largely consistent throughout 2025, with the exception of new adjustments for increased uncertainty about economic conditions and a decline in commercial real estate values.

During the prior year period, the release of credit losses on loans primarily related to lower reserves on our other consumer loan portfolio and residential loan portfolios due to qualitative adjustments for changes in concentration, the value of underlying collateral, and market conditions, partially offset by growth in the loan portfolio, an increase in nonaccrual loans, the weighted average life of the portfolio, and enhancements to the loss model, including an

additional qualitative adjustment related to loan review.

Net charge-offs for the nine months ended September 30, 2025 totaled $79 thousand, compared to $87 thousand for nine months ended September 30, 2024.

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 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

Total noninterest income decreased $354 thousand, or 28.7%, to $881 thousand for the three months ended September 30, 2025, as compared to $1.2 million for the three months ended September 30, 2024, as reflected below (dollars in thousands):

Three Months Ended September 30, Amount

Change Percent

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Net gain on sale of loans 94 40 54 135.0

Other income — 30 (30) (100.0)

Total noninterest income $ 881 $ 1,235 $ (354) (28.7) %

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.

The decrease in noninterest income was primarily due to:

• a $473 thousand decline in the fair value adjustment on mortgage servicing rights due to an overall smaller servicing portfolio, as well as a lower market valuation due to a change in one of our assumptions which assumed higher costs to service loans than previously estimated;

• an $18 thousand decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than originations replaced repayments;

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

• a $44 thousand increase in service charges and fee income, primarily due to higher interchange income in the current quarter;

• a $39 thousand increase in earnings on BOLI, primarily due to the strategic surrender and exchange of existing policies into higher yielding policies in the first quarter of 2025, with the benefit of improved yields continuing to the third quarter.

• a $54 thousand increase in net gain on sale of loans due to an increase in the volume of loans sold.

Total noninterest income decreased $396 thousand, or 11.3%, to $3.1 million for the nine months ended September 30, 2025, as compared to $3.5 million for the nine months ended September 30, 2024, as reflected below (dollars in thousands):

Nine Months Ended September 30, Amount

Change Percent

6 unchanged sentences

Total noninterest income $ 3,098 $ 3,494 $ (396) (11.3) %

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;

The decrease in noninterest income was primarily due to:

• a $470 thousand decrease in fair value adjustment on mortgage servicing rights, for the same reasons noted above in the quarterly comparison;

• a $47 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 other income due to a prior year gain on disposal of assets due to insurance claims on the loss of fully depreciated assets and no comparable gain in the current period;

• a $18 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.

These decreases were partially offset by;

• a $150 thousand increase in earnings on BOLI, primarily due to the strategic surrender and exchange of existing policies into higher-yielding policies in 2025, as well as changes due to market fluctuations;

• a $19 thousand increase in service charges and fee income, reflecting higher fees from new client acquisitions in specialty banking deposit accounts, increased interchange income, and a Mastercard volume incentive received in the first quarter of 202, partially offset by a second-quarter 2024 recovery of potential lost fee income related to a vendor error.

Noninterest Expense.

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

Total noninterest expense remained relatively unchanged during the three months ended September 30, 2025, compared the three months ended September 30, 2024, as reflected below (dollars in thousands):

Three Months Ended September 30, Amount

Change Percent

6 unchanged sentences

Total noninterest expense $ 7,676 $ 7,679 $ (3) — %

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.

While overall noninterest expense remained flat, there were fluctuations within certain expense categories, as noted below:

• a $210 thousand decrease in salaries and benefits related to higher deferred salaries resulting from higher loan originations in the current quarter than in the same quarter one year ago;

• a $57 thousand decrease in operations expense, primarily due to lower expenses across various accounts, resulting from ongoing cost-saving initiatives and process improvements, as well as the impact of timing of expenses, including marketing campaigns and charitable contributions.

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

• a $207 thousand increase in data processing expenses, reflecting the amortization of projects implemented at the end of the third quarter of 2024, as well as the deployment of new software technology in 2025 that continues to streamline operations and processes;

• a $32 thousand increase in regulatory assessments, due to higher accruals in the current year based on an increase in estimated exam costs;

• a $17 thousand increase in occupancy expense, due to higher building lease charges in 2025 resulting from lease renewals and maintenance charges.

The efficiency ratio for the quarter ended September 30, 2025 was 78.16%, compared to 84.31% for the quarter ended September 30, 2024.

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

Total noninterest expense increased $179 thousand, or 0.8%, to $23.3 million during the nine months ended September 30, 2025, compared to $23.1 million during the nine months ended September 30, 2024, as reflected below (dollars in thousands):

Nine Months Ended September 30, Amount

Change Percent

6 unchanged sentences

Total noninterest expense $ 23,253 $ 23,074 $ 179 0.8 %

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.

The increase in noninterest expense was primarily due to:

• an $826 thousand increase in data processing expenses, due to the reasons stated above in the quarterly comparison, as well as new software technology being deployed in 2025 that continues to streamline our operations;

• a $65 thousand increase in regulatory assessments, due to higher accruals in the current year based on an increase in estimated exam costs;

• a $29 thousand increase in occupancy expense due to same reason noted above in the quarterly comparison;

• a $29 thousand increase in OREO and repossessed assets related-expense, due to the addition of new properties 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 $495 thousand decrease in salaries and benefits related to lower incentive compensation expense as a result of changes to the calculation of incentive compensation;

• a $275 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 $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.

The provision for income taxes was $395 thousand and $1.2 million for the three and nine months ended September 30, 2025, compared to $267 thousand and $617 thousand for the three and nine months ended September 30, 2024, respectively.

The effective tax rates for the three and nine months ended September 30, 2025 were 18.90% and 19.30%, compared to 18.79% and 18.50% for the same periods in 2024.

The increase in the effective tax rate for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, was primarily 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 into law the One Big Beautiful Bill Act (“OBBBA”).

Except for certain provisions, the OBBBA is effective for tax years beginning on or after January 1, 2025 and permanently extends key business tax breaks originally enacted under the 2017 Tax Cuts and Jobs Act.

The Company evaluated the potential impact of this legislation on its income tax provision and determined that the impact was not material to our consolidated financial statements.

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 six months ended June 30, 2025.

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.

Stockholders’ equity totaled $107.5 million at September 30, 2025 and $103.7 million at December 31, 2024.

In addition to net income of $4.9 million, other sources of capital during the nine months ended September 30, 2025 primarily included $231 thousand related to stock-based compensation, $80 thousand of other comprehensive income, net of tax, primarily resulting from lower unrealized losses on available for sale securities, and $21 thousand in proceeds from stock option exercises.

Uses of capital during the nine months ended September 30, 2025 primarily included $1.5 million of dividends paid on common stock.

We paid cash dividends of $0.57 per common share during the nine months ended September 30, 2025 and September 30, 2024, which equates to a dividend payout ratio of 29.75% and 53.66%, 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 June 30, 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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Asset liquidity is provided by assets that are readily marketable or pledgeable or that will mature in the near future.

Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flows from securities, sales of fixed rate residential mortgage loans in the secondary market and federal funds sold.

Liquid asset sources generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flows from securities, sales of fixed rate residential mortgage loans in the secondary market and federal funds sold.

Liability liquidity generally is provided by access to funding sources, which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.

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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 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 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.

As of September 30, 2025, we had $108.8 million in cash and cash equivalents and available-for-sale investment securities, and $271 thousand in loans held-for-sale.

At September 30, 2025, we had the ability to borrow $158.9 million in FHLB advances and access to additional borrowings of $19.5 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 September 30, 2025.

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

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

As of September 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.

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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 June 30, 2025.

Refer to the accompanying Notes to Condensed Consolidated Financial Statements elsewhere in this report for the expected timing of such payments as of September 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).

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

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

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

September 30, 2025 December 31, 2024

Residential mortgage commitments $ 4,372 $ 3,758

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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 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.

At September 30, 2025, Sound Financial Bancorp, on an unconsolidated basis, had $6.3 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

Subsequent to September 30, 2025, the Company utilized $4.0 million to partially redeem its outstanding subordinated notes.

See “Note 8 — Borrowings” for additional detail.

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

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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 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%.

As of September 30, 2025, the Bank’s and the Company’s CBLRs were 10.71% and 10.14%, respectively, which exceeded the minimum requirement of 9%.

In February 2019, the U.S.

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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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis