What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2026-03-18 compared with 2025-03-18 · 207 added, 133 removed, 967 unchanged (26% of the section changed)

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

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

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

• the effects of any federal government shutdown;

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

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

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

• changes in consumer spending, borrowing and savings habits;

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Government and other governmental initiatives affecting the financial services industry;

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

• bank failures or adverse developments at other banks and related negative publicity about the banking industry on investor and depositor sentiment;

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

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

• our ability to keep pace with technological changes;

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

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

• changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Financial Accounting Standards Board, the U.S.

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

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

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

• environmental, social and governance goals;

• environmental, social and governance matters;

• staffing fluctuations in response to product demand or corporate implementation strategies;

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• 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 imposition of new tariffs or changes to existing trade policies that could affect economic activity or specific industry sectors;

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

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

• geopolitical developments and international conflicts, or the imposition of new or increased tariffs and trade restrictions, any of which may disrupt financial markets, global supply chains, commodity prices, or economic activity in specific industry sectors;

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

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

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

At December 31, 2024, the Company had total consolidated assets of $993.6 million, including $900.2 million of loans held-for-portfolio, deposits of $837.8 million and stockholders' equity of $103.7 million.

At December 31, 2025, the Company had total consolidated assets of $1.1 billion, including $905.5 million of loans held-for-portfolio, deposits of $948.9 million and stockholders' equity of $109.4 million.

The common stock of Sound Financial Bancorp is listed on the NASDAQ Capital Market under the symbol "SFBC." Our executive offices are located at 2400 3 rd Avenue, Suite 150, Seattle, Washington, 98121 and our telephone number is 206-448-0884.

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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.

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

As part of our business, we focus on residential mortgage loan originations, a significant portion of which we sell to the Federal National Mortgage Association ("Fannie Mae") and other correspondents and the remainder of which we retain for our loan portfolio consistent with our asset/liability objectives.

We sell loans that conform to the underwriting standards of Fannie Mae

("conforming") but generally retain the servicing of the loan in order to maintain the direct customer relationship and to generate noninterest income.

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

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

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We serve these markets through our headquarters in Seattle and eight branch offices, four located in the Seattle MSA, three in Clallam County and one in Jefferson County.

We have provided notice that the Tacoma branch, located in the Seattle MSA (Pierce County), will close in April 2026 as part of ongoing strategic consolidation efforts.

We also have a loan production office in the Madison Park neighborhood of Seattle.

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Joint Base Lewis-McChord.

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

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

Economic conditions in our markets reflect the effects of inflationary pressures and higher interest rates.

While unemployment rates remain relatively low, recent data indicates a modest increase compared to prior periods.

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

For December 2025, the preliminary Seattle MSA reported an unemployment rate of 5.0%, compared to the national average of 4.4%, according to the latest available information from the Bureau of Labor Statistics.

Home prices in our markets increased over the past year.

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

Home prices in the majority of our markets remained relatively flat over the past year.

Based on information from Case-Shiller, the average home price in the Seattle MSA decreased 0.4% in 2025.

King County has the largest population of any county in the state of Washington, with approximately 2.4 million residents and a median household income of approximately $122 thousand.

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Snohomish County has approximately 892 thousand residents and a median household income of approximately $108 thousand.

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

Based on information from the MLS, the median home sales price in Snohomish County was $750 thousand at both December 2025 and December 2024.

Clallam County, with a population of approximately 79 thousand, has a median household income of approximately $71 thousand.

The economy of Clallam County is primarily medical, retail and construction.

The Sequim Dungeness Valley continues to be a growing retirement location.

Based on information from the MLS, the median home sales price in Clallam County in December 2024 was $500 thousand, a 10% increase from December 2023's median home sales price of $455 thousand.

Based on information from the MLS, the median home sales price in Clallam County in December 2025 was $496 thousand, a 1% decrease from December 2024's median home sales price of $500 thousand.

Jefferson County, with a population of approximately 34 thousand, has a median household income of approximately $88 thousand.

Based on information from the MLS, the average home sales price in Jefferson County in December 2024 was $640 thousand, a 2% increase from December 2023's median home sales price of $625 thousand.

Based on information from the MLS, the median home sales price in Jefferson County in December 2025 was $650 thousand, a 2% increase from December 2024's median home sales price of $640 thousand.

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

Lending Activities

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Total loans, net $ 896,928 $ 891,672

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

The following table shows the composition of our loan portfolio in dollar amounts and in percentages by fixed and adjustable-rate loans as of the dates indicated (dollars in thousands):

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At December 31, 2025, a total of $332.3 million of our floating or variable rate loans had interest rate floors below which the loan's contractual interest rate may not adjust, of which $120.5 million were at their floors.

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

Loan Maturity and Repricing.

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Lending Authority .

Our President and Chief Executive Officer (“CEO”) may approve unsecured loans up to $1.0 million and all types of secured loans up to 30% of our legal lending limit, or approximately $7.4 million at December 31, 2024.

Our Senior Vice President and Chief Credit Officer (“CCO”) may approve unsecured loans up to $400,000 and secured loans up to 15% of our legal lending limit, or approximately $3.7 million at December 31, 2024.

The Chief Banking Offer may approve unsecured loans up to $50,000 and all types of secured loans up to approximately $1.5 million at December 31, 2024.

The Chief Financial/Strategy Officer may approve unsecured loans up to $400,000 and all types of secured loans up to approximately $2.5 million at December 31, 2024.

Any loans over the CEO’s lending authority or loans significantly outside our general underwriting

guidelines must be approved by the Management Loan Committee and approved loans are subsequently reviewed by the Board of Directors Loan Committee, consisting of four independent directors, and the CEO.

Lending authority is also granted to certain other lending staff at lower amounts.

Our Chief Executive Officer (“CEO”) and our President/Chief Financial Officer (“CFO”) may both approve unsecured loans up to $1.0 million and all types of secured loans up to 30% of our legal lending limit, or approximately $7.5 million at December 31, 2025.

Our Senior Vice President and Chief Credit Officer (“CCO”) may approve unsecured loans up to $400,000 and all type of secured loans up to 15% of our legal lending limit, or approximately $3.8 million at December 31, 2025.

The Executive Vice President and Chief Banking Officer may approve unsecured loans up to $50,000 and all types of secured loans up to approximately $1.5 million at December 31, 2025.

Loans exceeding the CEO or CFO’s lending authority, or loans significantly outside our general underwriting guidelines, must be approved by the Management Loan

SOUND FINANCIAL BANCORP, INC.

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Committee and are subsequently reviewed by the Board of Directors’ Loan Committee, consisting of four independent directors, and the CEO.

Lending authority is also granted to certain other lending staff at lower amounts, subject to internal delegation limits and oversight.

Largest Borrowing Relationships .

At December 31, 2025, the maximum amount under federal law that we could lend to any one borrower and the borrower's related entities was approximately $25.0 million.

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

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

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

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

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

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

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

Our five largest lending relationships (including unfunded commitments) totaled $83.8 million in the aggregate, or 9.2% of our $907.6 million total loan portfolio, at December 31, 2025.

At December 31, 2025, the largest lending relationship totaled $18.3 million, consisting of a commercial real estate loan.

The second largest relationship totaled $17.6 million, consisting of two loans:

a construction and land loan totaling $12.7 million (of which $7.1 million was funded and $5.5 million remained unfunded) and a $5.0 million multifamily real estate loan.

The third largest relationship totaled $16.6 million, consisting of two commercial real estate loans.

The fourth largest relationship totaled $15.7 million, consisting of a multifamily loan of $14.0 million and a construction and land loan of $1.7 million, of which $781 thousand had been funded and $919 thousand remained unfunded at December 31, 2025.

The fifth largest relationship totaled $15.5 million, consisting of three loans to two businesses:

a $10.4 million loan collateralized by multifamily real estate and a $5.1 million loan collateralized by commercial real estate.

The ten next largest lending relationships totaled $122.8 million in funded loans and $4.2 million in unfunded commitments, with an average funded loan balance of $12.3 million and average unfunded commitments of $424 thousand.

All of the foregoing loans were performing in accordance with their repayment terms at December 31, 2025.

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We originate both fixed-rate and adjustable-rate one-to-four family loans, including jumbo loans (generally loans above the conforming Fannie Mae limits of $832,750 or $1,066,250, depending on location within our market area).

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

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

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

During 2025, our fixed-rate, one-to-four family loan originations decreased $757 thousand, or 3.2%, to $22.7 million compared to $23.5 million in 2024.

Additionally, one-to-four family adjustable-rate loan originations decreased $7.1 million, or 43.5% to $9.3 million compared to $16.4 million in 2024.

These decreases reflect the high interest rate environment, economic uncertainty, and the limited housing supply coupled with elevated housing prices in our market area.

At December 31, 2025, our average adjustable-rate, one-to-four family residential loan was $583 thousand.

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A portion of the one-to-four family loans we originate are retained in our portfolio, and the remaining loans are sold into the secondary market to Fannie Mae or other private investors.

Loans that are sold into the secondary market to Fannie Mae are generally sold with the servicing retained to maintain the client relationship and to generate noninterest income.

Loans that are sold into the secondary market to Fannie Mae are generally sold with the servicing retained to maintain the client relationship and generate noninterest income.

We also originate a small portion of government guaranteed and jumbo loans for sale, servicing released, to certain correspondent purchasers.

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At December 31, 2025, one-to-four family residential mortgage loans (excluding loans held-for-sale) totaled $253.8 million, or 28.1%, of our gross loan portfolio, of which $158.9 million were fixed-rate loans and $95.0 million were adjustable-rate loans, compared to $269.7 million (excluding loans held-for-sale), or 29.8% of our gross loan portfolio at December 31, 2024, of which $170.3 million were fixed-rate loans and $99.4 million were adjustable-rate loans.

Substantially all of the one-to-four family residential mortgage loans we retain in our portfolio consist of loans that do not satisfy acreage limits, income, credit, conforming loan limits (i.e., jumbo mortgages) or various other requirements imposed by Fannie Mae or private investors.

Some of these loans are also originated to meet the needs of borrowers who cannot otherwise satisfy Fannie Mae credit requirements because of personal and financial reasons (i.e., bankruptcy, length of time employed, etc.), and other aspects, which do not conform to Fannie Mae’s guidelines.

Such borrowers may have higher debt-to-income ratios, or the loans are secured by unique properties in rural markets for which there are no sales of comparable properties to support the value according to secondary market requirements.

A significant portion of the one-to-four family residential mortgage loans we retain in our portfolio consist of loans that do not satisfy acreage limits, income, credit, conforming loan limits (i.e., jumbo mortgages) or various other requirements imposed by Fannie Mae or private investors.

Some of these loans are also originated to meet the needs of borrowers who cannot otherwise satisfy Fannie Mae credit requirements because of personal and financial reasons (e.g., bankruptcy, length of time employed, etc.), and other aspects that do not conform to Fannie Mae’s guidelines.

Such borrowers may have higher debt-to-income ratios, or the loans may be secured by unique properties in rural markets for which there are no sales of comparable properties to support the value according to secondary market requirements.

We may require additional collateral or lower loan-to-value ratios to reduce the risk of these loans.

We believe that these loans satisfy the needs of borrowers in our market area.

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

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

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

We also retain jumbo loans, which exceed the conforming loan limits and are therefore ineligible for purchase by Fannie Mae.

At December 31, 2025, $135.5 million or 53.4% of our one-to-four family loan portfolio consisted of jumbo loans.

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The average balance of our one-to-four family residential loans was approximately $457 thousand at December 31, 2025.

SOUND FINANCIAL BANCORP, INC.

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Fixed-rate loans secured by one-to-four family residences have contractual maturities of up to 30 years.

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We continue to offer our fully amortizing adjustable-rate loans with a fixed interest rate for the first one, three, five or seven years, followed by a periodic adjustable interest rate for the remaining term.

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

Although adjustable-rate mortgage loans can help mitigate interest rate risk because they periodically re-price, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower.

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

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

Moreover, the interest rates on most of our adjustable-rate loans do not adjust within the next year and may not adjust for up to ten years after origination.

As a result, the effectiveness of adjustable-rate mortgage loans in compensating for changes in general interest rates may be limited during periods of rapidly rising interest rates.

Moreover, the interest rates on most of our adjustable-rate loans may not adjust for up to ten years after origination, which may limit the effectiveness of these loans in compensating for changes in general interest rates during periods of rapidly rising rates.

At December 31, 2025, $25.8 million, or 10.2% of our one-to-four family residential portfolio consisted of nonowner-occupied loans, compared to $29.4 million, or 10.9% of our one-to-four family residential portfolio at December 31, 2024.

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Of primary concern in nonowner-occupied real estate lending is the consistency of rental income of the property.

Payments on loans secured by rental properties may depend primarily on the tenants’ continuing ability to pay rent to the property owner, the character of the borrower or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream.

In addition, successful operation and management of nonowner-occupied properties, including property maintenance standards, may affect repayment.

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If the borrower has multiple rental property loans with us, the loans are typically not cross collateralized.

In 2016, we introduced a loan program aimed at assisting individuals in acquiring a new residence before selling their existing one.

We also have a loan program aimed at assisting individuals in acquiring a new residence before selling their existing one.

This program enables borrowers to leverage the equity in their current residence for the purchase of a new one.

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During 2025, we originated $4.1 million of loans under this program, compared to $4.6 million in 2024.

At December 31, 2024, we had $6.7 million of these interest-only residential loans in our one-to-four family residential mortgage loan portfolio.

At December 31, 2025, $4.1 million of these loans were included in our one-to-four family residential mortgage loan portfolio.

The primary focus of our underwriting guidelines for interest-only residential loans is on the value of the collateral rather than the ability of the borrower to repay the loan.

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

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

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

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

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

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

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We offer a variety of commercial and multifamily real estate loans.

Most of these loans are secured by owner-occupied and nonowner-occupied commercial income producing properties, apartment buildings, warehouses, office buildings, gas station/convenience stores and mobile home parks located in our market area.

Most of these loans are secured by owner-occupied and nonowner-occupied commercial income producing properties, multifamily apartment buildings, warehouses, office buildings, gas station/convenience stores and mobile home parks located in our market area.

At December 31, 2025, commercial and multifamily real estate loans totaled $409.7 million, or 45.1% of our total loan portfolio, compared to $371.5 million, or 41.2% of our total loan portfolio at December 31, 2024.

Loans secured by commercial and multifamily real estate are generally originated with a variable interest rate, fixed for an initial three- to ten-year term, and have a 20- to 30-year amortization period.

At the end of the initial term, the balance is due in full or the loan re-prices based on an independent index plus a margin over the applicable index of 1% to 4% for another five years.

At the end of the initial term, the balance is due in full, or the loan re-prices based on an independent index plus a margin over the applicable index of 1% to 4% for another three- to five-year term.

Loan-to-value ratios on our commercial and multifamily real estate loans typically do not exceed 80% of the lower of cost or appraised value of the property securing the loan at origination.

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

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

The largest single commercial and multifamily real estate loan at December 31, 2025, totaled $18.3 million and was collateralized by commercial real estate.

At December 31, 2025, this loan was performing in accordance with its repayment terms.

SOUND FINANCIAL BANCORP, INC.

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The following table provides information on commercial and multifamily real estate loans by type at December 31, 2025 and 2024 (dollars in thousands):

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however, we generally do not originate construction loans which exceed these limits without some form of credit enhancement to mitigate the higher loan to value.

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

At December 31, 2025, our largest residential construction loan commitment was for $2.3 million, $1.3 million of which had been disbursed.

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

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

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

Development plans are required prior to making the loan.

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

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

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

At December 31, 2025, commercial and multifamily construction loans, excluding speculative residential construction and land development and acquisition loans, totaled $10.6 million or 21.0% of our construction and land portfolio, compared to $37.0 million, or 50.6% of our construction and land portfolio at December 31, 2024.

The three largest construction and land loans at December 31, 2025 included a $9.5 million loan secured by a multi-unit townhome development, a $7.1 million loan secured by multifamily property under renovation and a $4.2 million loan secured by commercial land.

At December 31, 2025, all these loans were performing in accordance with their repayment terms.

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

SOUND FINANCIAL BANCORP, INC.

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

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

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

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

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

In the case of speculative construction loans, identifying an end purchaser for the finished project is an added risk.

In the case of speculative construction loans, having to identify an end purchaser for the finished project is an added risk.

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

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Nonetheless, commercial business loans are believed to carry higher credit risk than residential mortgage and commercial real estate loans.

At December 31, 2024, approximately $1.5 million of our commercial business loans were unsecured.

At December 31, 2025, approximately $589 thousand of our commercial business loans were unsecured.

Our interest rates on commercial business loans are dependent on the type of loan.

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

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

The primary risk in

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

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

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

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

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

family residential loans and other types of consumer loans.

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

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

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

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

At December 31, 2025, we had twelve nonperforming manufactured home loans, totaling $461 thousand.

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

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In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing client base by increasing the number of client relationships and providing additional marketing opportunities.

Consumer loans generally entail greater risk than do one-to-four family residential mortgage loans, particularly in the case of consumer loans that are secured by rapidly depreciable assets, such as manufactured homes, automobiles, boats and recreational vehicles.

Consumer loans generally entail greater risk than those of one-to-four family residential mortgage loans, particularly in the case of consumer loans that are secured by rapidly depreciable assets, such as manufactured homes, automobiles, boats and recreational vehicles.

In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance.

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

During the past few years, we, like many other financial institutions, have experienced significant prepayments on loans due to the prevailing low interest-rate environment in the U.S.

During 2025, we experienced significant prepayments on commercial and multifamily loans due primarily to interest rates being lower than those in effect during the high interest-rate environment when these loans were originated over the past few years.

In periods of economic uncertainty, the ability of financial institutions, including us, to originate large dollar volumes of real estate loans may be substantially reduced or restricted, with a resultant decrease in interest income.

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We did not sell any commercial loan participations in 2025 or 2024.

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

We had no purchases of commercial business loan participations from other financial institutions in 2025 and $2.0 million of such purchases in 2024.

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

The term “subprime” refers to the credit characteristics of individual borrowers which may include payment delinquencies, judgements, foreclosures, bankruptcies, low credit scores and/or high debt-to-income ratios.

The term “subprime” refers to the credit characteristics of individual borrowers which may include payment delinquencies, judgments, foreclosures, bankruptcies, low credit scores and/or high debt-to-income ratios.

In exchange for the additional risk we take with such borrowers, we may require them to pay higher interest rates, require a lower debt-to-income ratio or require other enhancements to manage the additional risk.

While no single credit characteristic defines a subprime loan, one commonly used indicator is a loan originated to a borrower with a credit score of 660 or lower.

Of the $39.9 million in one-to-four-family loans originated in 2024, $407 thousand or 1.0% were to borrowers with a credit score under 660.

Of the $32.0 million in one-to-four-family loans originated in 2025, no loans were to borrowers with a credit score under 660.

Additionally, of the $8.2 million in manufactured home loans originated in 2025, $623 thousand or 7.6% were to borrowers with a credit score of 660 or lower.

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

At December 31, 2025, the total amount of residential and consumer loans held in our loan portfolio to borrowers with a credit

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score of 660 or lower was $13.1 million, of which $611 thousand were nonaccrual.

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

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

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

We repurchased no loans in 2025 and 2024.

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

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

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

We sold $938 thousand of loans with servicing released during 2025, compared to none in 2024.

Asset Quality

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The following table sets forth our loan delinquencies by type, by amount and by percentage of type at December 31, 2025 (dollars in thousands):

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Loans Delinquent For:

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Other consumer 17 11 0.1 2 262 1.6 19 273 1.6

Commercial Business 1 32 0.2 1 30 0.2 2 62 0.4

Total 55 $ 6,281 0.7 % 21 $ 5,061 0.6 % 76 $ 11,342 1.2 %

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The table below sets forth the amounts and categories of nonperforming assets in our loan portfolio (in thousands).

Loans are placed on nonaccrual status when the collection of principal and/or interest become doubtful or when the loan is 90 days or more past due.

Loans are placed on nonaccrual status when the collection of principal and/or interest becomes doubtful or when the loan is 90 days or more past due.

Other real estate owned ("OREO") and repossessed assets include assets acquired in settlement of loans.

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OREO and repossessed assets:

Commercial and multifamily — 575

One-to-four family 259 —

Manufactured homes 85 —

Total OREO and repossessed assets 344 —

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Home equity 49 56

Commercial and multifamily — —

Construction and land — —

Manufactured homes 19 20

Floating homes — —

Other consumer 65 70

Commercial business — —

Total performing modified loans

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(1) Nonaccrual loans included $49 thousand and $66 thousand in modified loans to borrowers experiencing financial difficulty at December 31, 2025 and 2024, respectively.

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

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

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

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

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

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

We had no accruing loan 90 days or more past due at December 31, 2025 and 2024.

Nonaccrual loans, including nonaccrual modified loans to borrowers experiencing financial difficulty, decreased $1.7 million to $5.8 million at December 31, 2025, compared to $7.5 million at December 31, 2024.

The decrease was primarily due to loan

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payoffs totaling $7.9 million, the return of $335 thousand of loans to accrual status, $281 thousand of loans charged-off, and regular loan payments.

Included within the $7.9 million of payoffs was one floating home loan totaling $2.4 million that was paid off during the second quarter of 2025.

These factors were partially offset by the placement of an additional $7.1 million of loans on nonaccrual status, including a $1.0 million matured commercial real estate loan where the borrower is in the process of securing alternative financing, and a $2.0 million multi-family loan, both of which are well secured.

Our largest nonperforming loan relationship at December 31, 2025 was the $2.0 million multifamily loan noted above.

Including the $2.0 million multifamily loan, nonperforming loans totaled $5.8 million at December 31, 2025, with commercial and multifamily loans representing $3.2 million, or 51.6% of total nonperforming loans, reflecting the concentration in larger relationships.

At December 31, 2025 one-to-four family nonperforming loans totaled $1.6 million, or 26.1% of total nonperforming loans, and the remaining balance of nonperforming loans was primarily comprised of manufactured home, home equity, and other consumer loans.

OREO and other repossessed assets totaled $344 thousand at December 31, 2025, representing 5.6% of total NPAs as of that date.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition at December 31, 2025 Compared to December 31, 2024—Delinquencies and Nonperforming Assets" contained in Item 7 of this report on Form 10-K for more information on troubled assets.

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

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

At December 31, 2025 and 2024 ,we had $344 thousand and zero of OREO and repossessed assets, respectively.

Classified Assets.

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Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention.

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

At December 31, 2025, we had no special mention assets.

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

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

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The following table shows certain credit ratios at and for the periods indicated and each component of the ratio's calculations (dollars in thousands).

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Manufactured homes:

(0.16) % (0.06) %

Net (charge-offs)/recoveries

$ (66) $ (23)

Average loans outstanding

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Net (charge-offs)

$ (20) $ (77)

Average loans outstanding

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Net (charge-offs)

$ (106) $ (100)

Average loans outstanding

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

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

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

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

loans has remained strong despite these challenges.

have been affected by inflation, elevated interest rates, and a limited housing supply.

While inflation and interest rates have begun to decline modestly, these changes have been partially offset by a small increase in unemployment.

Recent housing price trends in our market areas have been relatively flat or slightly

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declining, reflecting the impact of higher interest rates, yet demand for loans has remained strong.

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

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in Each Category

to Total Loans Amount Percent of Loans

to Total Loans Percent of ACL in Each Category to Total ACL Amount Percent of Loans

in Each Category

to Total Loans

to Total Loans Percent of ACL in Each Category to Total ACL

Allocated at end of period to:

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See “—How We Are Regulated—Sound Community Bank” for a discussion of additional restrictions on our investment activities.

Our CEO and Chief Financial Officer (“CFO”) have the responsibility for the management of our investment portfolio, subject to the direction and guidance of the Board of Directors.

Our CEO and President/CFO have the responsibility for the management of our investment portfolio, subject to the direction and guidance of the Board of Directors.

These officers consider various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment.

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

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

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During the year ended December 31, 2025, we did not recognize any credit losses on investment securities.

At December 31, 2024, there was one security in an unrealized loss position for less than 12 months, and 15 securities in an unrealized loss position for more than 12 months, although management determined the decline in value was not related to specific credit deterioration.

At December 31, 2025, there were no securities in an unrealized loss position for less than 12 months, and 15 securities in an unrealized loss position for more than 12 months, although management determined the decline in value was not related to specific credit deterioration.

We do not intend to sell these securities and it is more likely than not that we will not be required to sell any securities before anticipated recovery of the remaining amortized cost basis.

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We offer a variety of deposit accounts to both consumers and businesses with a wide range of interest rates and terms.

Our deposits consist of savings accounts, money market deposit accounts, NOW accounts, demand accounts and certificates of deposit.

Our deposits consist of savings accounts, money market deposit accounts, NOW accounts, demand accounts, reciprocal deposit network accounts and certificates of deposit.

We solicit deposits primarily in our market area;

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At December 31, 2025, core deposits, which we define as our non-time deposit accounts and time deposit accounts less than $250 thousand (excluding brokered deposits and public funds), represented approximately 85.3% of total deposits, compared to 87.3% at December 31, 2024.

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

We had no brokered deposits at December 31, 2025 and December 31, 2024.

We had $133.9 million and $14.4 million of reciprocal deposits at December 31, 2025 and December 31, 2024, respectively.

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

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Based on our experience, we believe

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that our deposits are relatively stable sources of funds.

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(1) Noninterest-bearing

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

The following table sets forth, for the periods indicated, the average amount of and the average rate paid on deposit categories.

Year Ended December 31,

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The increase in total deposits primarily was the result of a $125.5 million, or 60.9% increase in money market accounts.

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

Management attributes this increase primarily to the strategic decision to sell reciprocal money market deposits at the end of 2024 and bring them back onto the balance sheet in early 2025, as well as interest rate sensitive clients moving a portion of their non-operating deposit balances from lower interest-bearing demand and savings accounts into higher interest-bearing money market accounts.

Certificate accounts increased $3.8 million, or 1.3% to $299.6 million at December 31, 2025, compared to the 2024 year-end.

Interest-bearing demand and saving accounts decreased $16.5 million, or 11.6%, and $1.8 million, or 2.9%, respectively, from December 31, 2024 to December 31, 2025.

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

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

Noninterest-bearing demand accounts (excluding escrow accounts) decreased $267 thousand, or 0.2%, in 2025, compared to 2024.

We are a public funds depository and at December 31, 2025, we had $27.0 million in public fund deposits compared to $15.9 million at December 31, 2024.

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

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

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

These deposits consisted of $23.1 million in certificates of deposit, $3.9 million in money market accounts and $17 thousand in checking accounts at December 31, 2025.

These accounts must be 50% collateralized if

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the amount on deposit exceeds FDIC insurance of $250 thousand.

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

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

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

loans and home equity loans.

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

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

Based on eligible collateral, the total amount available under this agreement at December 31,

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2025 was $187.7 million.

At the same date, we had $10.0 million of outstanding FHLB fixed-rate advances, with a maturity of January 2028.

Additionally, we had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $14.0 million at December 31, 2025, which was used to secure public fund deposits.

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

We are required to own stock in the FHLB of Des Moines, the amount of which varies based on the amount of our advance activity.

We are required to own stock in the FHLB of Des Moines, the amount of which varies based on the level of our advance activity.

From time to time, we also may borrow from the Federal Reserve Bank of San Francisco's "discount window" for overnight liquidity needs.

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The Company completed a private placement of $12.0 million in aggregate principal of 5.25% Fixed-to-Floating Rate Subordinated Notes (the "subordinated notes") due 2030 resulting in net proceeds, after placement fees and offering expenses, of approximately $11.6 million during the year ended December 31, 2020.

The subordinated notes have a stated maturity of October 1, 2030 and bear interest at a fixed rate of 5.25% per year until October 1, 2025.

From October 1, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR, plus 513 basis points.

The subordinated notes have a stated maturity of October 1, 2030 and bore interest at a fixed rate of 5.25% per year until October 1, 2025.

From October 1, 2025 to the maturity date or early redemption date, the interest rate resets quarterly at a variable rate equal to the then current three-month term SOFR, plus 513 basis points.

As provided in the subordinated notes, the interest rate on the subordinated notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR.

Prior to October 1, 2025, the Company may redeem the subordinated notes, in whole but not in part, only under certain limited circumstances set forth in the subordinated notes.

On or after October 1, 2025, the Company may redeem the subordinated notes, in whole or in part, at its option, on any interest payment date.

Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the subordinated notes being redeemed, together with any accrued and unpaid interest on the subordinated notes being redeemed to but excluding the date of redemption.

Prior to October 1, 2025, the Company could redeem the subordinated notes, in whole but not in part, only under certain limited circumstances set forth in the subordinated notes.

On October 1, 2025, the subordinated notes became redeemable at the Company’s option, in whole or in part, on any interest payment date.

The redemption price is equal to 100% of the principal amount of the subordinated notes being redeemed, together with any accrued and unpaid interest on the subordinated notes being redeemed to but excluding the date of redemption.

The Company chose to complete a partial redemption of $4.0 million in principal amount of the subordinated notes on October 1, 2025, the first date on which partial redemptions were allowed, with the remaining $8.0 million continuing to accrue interest according to the floating rate provisions described above.

For additional information regarding our borrowings, see "Note 10—Borrowings, FHLB Stock and Subordinated Notes" in the Notes to Consolidated Financial Statements contained in "Part II.

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Our share of deposits in Jefferson County is approximately 5.36%, while the five largest institutions in that county have 86.6% of those deposits.

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How We Are Regulated

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

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

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

Regulation by the WDFI and the FDIC .

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Sound Community Bank’s Board of

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

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The FDIC has authority to increase insurance assessments.

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

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

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At December 31, 2025, Sound Community Bank’s aggregate recorded loan balances for construction, land development and land loans were 42.4% of CBLR Capital.

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

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

In addition, at December 31, 2025, Sound Community Bank’s loans on all commercial real estate, including construction, owner and non-owner occupied commercial real estate, and multi-family lending, as defined by the FDIC, were 355.2% of CBLR Capital.

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Transactions with Related Parties.

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If an institution either fails to meet all the qualifying criteria within the grace period or has a leverage ratio that falls more than one percent below the required percentage, it becomes ineligible to use the CBLR framework and must instead comply with generally applicable capital rules, sometimes referred to as Basel III rules.

On November 25, 2025, the federal banking agencies, including the FDIC, proposed to lower the CBLR requirement to 8%.

Institutions that fail to meet the qualifying criteria after opting into the CBLR framework would have four reporting periods to meet the qualifying criteria again, provided they maintain a leverage ratio above 7% and have not used the grace period for more than eight of the prior 20 quarters.

The federal banking agencies also proposed removing the provisions under the CBLR framework that provided temporary relief for qualifying community banks during the COVID-19 outbreak.

At December 31, 2025, the Bank’s CBLR was 10.91%.

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

These include, among others, the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Community Reinvestment Act (“CRA”).

These include, among others, the Equal Credit Opportunity Act, the Truth-in-Lending

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Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Community Reinvestment Act (“CRA”).

Among other things, these laws:

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

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

In early 2025, CFPB leadership significantly scaled back the agency’s rulemaking, enforcement and supervisory activities, including pausing major enforcement actions, rescinding guidance, and narrowing priorities, which has significantly reduced active oversight of financial institutions.

Although statutory consumer protection requirements remain in force, the agency’s diminished operations have created regulatory uncertainty with respect to the supervision and enforcement of the existing consumer financial protection laws.

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

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

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

The final rule was published with an April 1, 2024, effective date and staggered compliance dates;

however, implementation of the 2023 final rule was stayed by a preliminary injunction.

In 2025, the federal banking agencies issued a Joint Notice of Proposed Rulemaking to rescind the 2023 final rule and reinstate the prior CRA regulations.

As a result, the Bank will continue to be evaluated under the pre-2023 CRA regulatory framework.

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

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These regulations require Sound Community Bank to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.

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In addition, Washington and other federal and state cybersecurity and data privacy laws and regulations may expose Sound Community Bank to risk and result in certain risk management costs.

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

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

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

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

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

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In addition, all long-term borrowings are required to provide funds for residential home financing.

Sound Community Bank had $25.0 million of outstanding borrowings with the FHLB of Des Moines and an available line of credit of $172.3 million at December 31, 2024.

Sound Community Bank had $10.0 million of outstanding borrowings with the FHLB of Des

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Moines and an available line of credit of $187.7 million at December 31, 2025.

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

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

These contributions have

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

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

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

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However, the Federal Reserve Board has provided a “Small Bank Holding Company” exception to its consolidated capital requirements, and bank holding companies, such as Sound Financial Bancorp, with less than $3.0 billion of consolidated assets are not subject to the consolidated holding company capital requirements unless otherwise directed by the Federal Reserve.

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Federal Securities Law.

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

A bank holding company subject to the Small Bank

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

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

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

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Therefore, any dividends Sound Financial Bancorp receives from Sound Community Bank will not be included as income to Sound Financial Bancorp.

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State Taxation

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Interest received and servicing income both on loans secured by mortgages or deeds of trust on residential properties and certain investment securities are exempt from business and occupation tax.

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Employees and Human Capital

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and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.

In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate.

The employment practices developed during the pandemic continue to apply to our remote workers and allow us to recruit and retain skilled workers from areas outside our geographic footprint

The employment practices we implemented to support flexible work arrangements and employee well-being continue to apply to remote workers and allow us to recruit and retain skilled workers from areas outside our geographic footprint.

A core value of our talent management approach is to both develop talent from within and supplement with external hires.

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

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

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

We maintain a website;

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Information pertaining to us, including SEC filings, can be found by clicking the link on our site called “Investor Relations.” For more information regarding access to these filings on our website, please contact our Corporate Secretary, Sound Financial Bancorp, Inc., 2400 3rd Avenue, Suite 150, Seattle, Washington, 98121 or by calling (206) 448-0884.

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

What changed 10-K

Item 1. Business