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Item 7. Management’s Discussion and Analysis

2026-03-18 compared with 2025-03-18 · 182 added, 157 removed, 352 unchanged (49% of the section changed)

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This discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations.

The information in this section has been derived from the Consolidated Financial Statements and notes thereto that appear in "Part II.

Financial Statements and Supplementary Data" of this Form 10-K.

The information contained in this section should be read in conjunction with these Consolidated Financial Statements and notes and the business and financial information provided in this Form 10-K.

The discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes included in Part II, Item 8 of this Form 10-K.

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

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

We originate and retain a significant amount of commercial real estate loans, including those secured by owner-occupied and nonowner-occupied commercial real estate, multifamily properties and mobile home parks, and construction and land development loans.

We originated $32.0 million and $39.9 million of one-to-four family loans during the years ended December 31, 2025 and 2024, respectively.

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A significant portion of our commercial business and commercial and multifamily real estate loans have adjustable rates, higher yields and shorter terms, and higher credit risk than traditional residential fixed-rate mortgage loans.

In 2022 and continuing into 2023, due to a generally illiquid jumbo loan market for residential mortgage loans, we retained a higher proportion of these jumbo loans than historically, resulting in commercial business and commercial and multifamily real estate loans making up a lower percentage of our overall portfolio.

Our commercial loan portfolio (commercial and multifamily real estate and commercial business loans) totaled $387.1 million or 42.9% of our loan portfolio at December 31, 2024, up slightly from $336.0 million or 37.5% of our loan portfolio at December 31, 2023.

Our consumer loan portfolio, which includes manufactured and floating homes and other consumer loans, increased to $145.3 million or 16.2% of our loan portfolio at December 31, 2024, from $130.9 million or 14.6% of our loan portfolio at December 31, 2023.

Our commercial loan portfolio (commercial and multifamily real estate and commercial business loans) totaled $425.1 million or 46.8% of our loan portfolio at December 31, 2025, up from $387.1 million or 42.9% of our loan portfolio at December 31, 2024.

Our consumer loan portfolio, which includes manufactured and floating homes and other consumer loans, was $147.0 million or 16.1% of our loan portfolio at December 31, 2025, compared to $145.3 million or 16.2% of our loan portfolio at December 31, 2024.

Our operating revenues are derived principally from earnings on interest-earning assets, service charges and fees, and gains on the sale of loans.

The ongoing high interest rate environment is expected to continue exerting downward pressure on our net gain on sale of loans, and keeping borrowing costs elevated.

This may adversely affect our net interest income and net interest margin in 2025.

While the high interest rate environment also impacts the interest expense paid on our deposits, potentially reducing net interest margin as deposit rates rise, we expect the rates earned on our loan portfolio to continue repricing at higher yields.

To meet our funding requirements, we rely on various sources, including deposits (both retail and brokered), FHLB advances, borrowings through the Federal Reserve, and payments received on loans and securities.

We offer a diverse range of deposit accounts to our customers, including savings, money market, NOW (negotiable order of withdrawal), interest-bearing and noninterest-bearing demand accounts, as well as certificates of deposit.

This variety of deposit accounts provides customers with flexibility in terms of interest rates and terms to suit their financial preferences.

During 2025, the elevated interest rate environment continued to exert downward pressure on our net gain on sale of loans and contributed to higher borrowing costs, which modestly affected our net interest income and net interest margin.

While interest expense on deposits also increased, the rates earned on our loan portfolio continued to reprice at higher yields, partially offsetting these pressures.

Deposit costs began trending downward during the latter part of 2025 following rate reductions by the Federal Reserve Board.

To meet our funding requirements, we rely on a variety of sources, including retail and brokered deposits, FHLB advances, borrowings through the Federal Reserve, and cash received from loan and securities payments.

We offer a broad range of deposit accounts, including savings, money market, NOW (negotiable order of withdrawal), interest-bearing and noninterest-bearing demand accounts, and certificates of deposit, providing customers with flexibility in interest rates and account terms to meet their financial needs.

The provision for credit losses, or the release of such provision, is essential for maintaining the ACL at a level sufficient to cover estimated lifetime credit losses in our loan portfolio, including unfunded loan commitments.

An increase in our loan portfolio or a rise in estimated lifetime credit losses may result in additional provisions for credit losses, thereby decreasing net income.

However, improvements in loan risk ratings, increased property values, or recoveries of previously charged-off amounts may partially or fully offset the required increase in the ACL due to factors such as loan growth or an increase in

estimated lifetime losses on loans and unfunded loan commitments.

We recorded a release of provision for credit losses of $120 thousand for the year ended December 31, 2024, consisting of a release of provision for credit losses on loans of $161 thousand and a provision for credit losses on unfunded commitments of $41 thousand, compared to a release of provision for credit losses of $273 thousand for the year ended December 31, 2023, consisting of a provision for credit losses on loans of $564 thousand and a release of the provision for credit losses on unfunded commitments of $837 thousand.

Effective January 1, 2023, the Company adopted ASU No.

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

Measurement of Credit Losses on Financial Instruments, also known as CECL.

CECL replaces the existing incurred loss impairment methodology that recognizes credit losses when a probable loss has been incurred with new methodology where loss estimates are based upon lifetime expected credit losses.

As a result of the change in methodology from the incurred loss model to the CECL model, on January 1, 2023, the Company recorded a one-time upward adjustment to the ACL for loans of $760 thousand and to the ACL for unfunded loan commitments of $695 thousand, and an after-tax decrease to opening retained earnings of $1.1 million.

See “Note 2—Accounting Pronouncements Recently Issued or Adopted” in the Notes to Consolidated Financial Statements contained in “Part II.

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

We recorded a provision for credit losses of $127 thousand for the year ended December 31, 2025, consisting of a provision for credit losses on loans of $212 thousand and a release of provision for credit losses on unfunded commitments of $86 thousand, compared to a release of provision for credit losses of $120 thousand for the year ended December 31, 2024, consisting of a release of provision for credit losses on loans of $161

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thousand and a provision for credit losses on unfunded commitments of $41 thousand.

The provision recorded in 2025 primarily reflected loan growth and changes in portfolio composition, partially offset by stable credit quality trends.

Our noninterest expenses consist primarily of salaries, employee benefits, incentive pay, expenses for occupancy, online and mobile services, marketing, professional fees, data processing, charitable contributions, FDIC deposit insurance premiums and regulatory expenses.

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We continuously evaluate and update our critical accounting estimates and judgments based on changing conditions.

As part of our ongoing enhancement of the ACL methodology, during the year ended December 31, 2024, we made additional improvements to the loss model.

This included a qualitative adjustment related to our loan review process and how we adjust

for the qualitative component using a scorecard to guide management’s analysis.

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

As part of our ongoing enhancement of the ACL methodology, during the year ended December 31, 2025, we made changes to benchmark ratios and the annual loss driver analysis.

This change in the ACL is not considered a change in accounting estimate as per ASC 250-10 provisions.

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

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The Low Watermark indicates zero credit losses.

The High Watermark is established by utilizing the same historical loss rate model used to establish modified loss rates, assuming a worse-case economic scenario.

The High Watermark is established by utilizing the same historical loss rate model used to establish

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modified loss rates, assuming a worse-case economic scenario.

Risk levels are categorized as minor, moderate, major, no change, and improvement, segmenting the gap between the Low Watermark and High Watermark.

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Mortgage Servicing Rights .

We record MSRs on loans sold to Fannie Mae with servicing retained as well as for acquired servicing rights.

We record MSRs on loans sold to Fannie Mae with servicing retained, as well as on acquired servicing rights.

We stratify our capitalized MSRs based on the type, term and interest rates of the underlying loans.

MSRs are carried at fair value.

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

The fair value is determined using a discounted cash flow analysis that incorporates assumptions for interest rates, prepayment speeds, weighted average life, and delinquency rates.

All of these assumptions require a significant degree of management judgment.

If our assumptions prove to be incorrect, the value of our MSRs could be negatively impacted.

Changes in these assumptions could materially affect the fair value of our MSRs.

We use a third party to assist us in the preparation of the analysis of the market value each quarter.

This analysis is conducted using a secondary valuation to assess the sensitivity of prepayment speeds and changes in market value due to fluctuations in the weighted average life.

If interest rates were to increase, the prepayment speed of our MSR portfolio would decrease which would also lead to an increase in the weighted average life.

Conversely, if interest rates were to decrease, the prepayment speed would increase and the weighted average life would decrease.

We performed a sensitivity analysis utilizing two third-party valuations where we compared the assumptions within the models.

Under a scenario of a decrease in the prepayment speed, an increase in the discount rate, and a decrease in the weighted average life of the MSR portfolio, the fair value of the MSR portfolio would decrease by approximately $420 thousand.

No historical or recent experience has indicated notable deviations from management’s assessments.

We performed a sensitivity analysis assuming permanent changes in market interest rates.

We assumed changes in market interest rates of +/- 100 and 200 basis points.

Under each scenario, we modified both the assumed prepayment speeds and the interest rate earned on float.

Prepayment speeds were assumed to increase under declining rate scenarios and decrease under rising rate scenarios.

Based on the modeling with these revised assumptions, the valuation of the mortgage servicing rights ranged from 56 basis points under the -200 basis point scenario to 121 basis points under the +200 basis point scenario.

Historical experience and recent performance have not indicated material deviations from management’s assessments.

Business and Operating Strategies and Goals

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We seek to achieve these results by focusing on the following objectives:

Focusing on Asset Quality.

Maintaining Strong Asset Quality.

We believe that strong asset quality is a key to our long-term financial success.

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Improving Earnings by Expanding Product Offerings.

We intend to prudently maintain the percentage of our assets consisting of higher-yielding commercial and multifamily real estate and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest-rate fluctuations than one-to-four family mortgage loans, while

maintaining our focus on residential lending.

In addition, we continue to focus on consumer products, such as floating and manufactured home loans.

With our long experience and expertise in residential lending we believe we can be effective in capturing mortgage banking opportunities and grow consumer deposits.

In addition, we continue to focus on consumer loan products, such as floating and manufactured home loans.

With our long experience and expertise in residential lending, we believe we can capture mortgage banking opportunities and grow consumer deposits.

We continue to develop correspondent relationships to sell nonconforming mortgage loans servicing released.

We also intend to selectively add products to further diversify revenue sources and to capture more of each client's banking relationship by offering additional services.

We continue to refine our products and services for additional business and to automate services, such as automating consumer loan originations this past year, in an effort to improve customer service.

We continue to refine our products and services for additional business and to automate processes in an effort to improve customer service.

We intend to further build relationships with medium and small businesses through new and improving existing service offerings, including remote deposit.

Emphasizing Lower Cost Core Deposits to Manage the Funding Costs of Our Loan Growth.

Our strategic focus is to emphasize total relationship banking with our clients to internally fund our loan growth.

We also emphasize reducing wholesale funding sources, including FHLB advances, through the continued growth of core deposits.

Our strategic focus is to emphasize total relationship banking with our clients to internally fund loan growth.

We also seek to reduce our need for wholesale funding sources, including FHLB advances, through the continued growth of core deposits.

We believe that a continued focus on client relationships will help increase the level of core deposits and retail certificates of deposit from consumers and businesses in our market area.

We intend to increase demand deposits by growing retail and business banking relationships.

We intend to increase demand deposits by growing retail and business banking

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relationships.

New technology and services are generally reviewed for business development and cost saving opportunities.

We continue to experience growth in client use of our online and mobile banking services, which allow clients to conduct a full range of services on a real-time basis, including balance inquiries, transfers and electronic bill paying, while providing our clients greater flexibility and convenience in conducting their banking.

We continue to experience growth in client use of our online and mobile banking services, which allow clients to conduct a full range of services on a real-time basis, including balance inquiries, transfers and electronic bill paying, while providing them with greater flexibility and convenience in conducting their banking.

In addition to our retail branches, we believe we maintain state of the art technology-based products, such as business cash management, business remote deposit products, business and consumer mobile banking applications and consumer remote deposit products.

Total deposits increased to $837.8 million at December 31, 2024, from $826.5 million at December 31, 2023, with core deposits, which we define as our non-time deposit accounts and time deposit accounts of less than $250 thousand, increasing $15.3 million to $731.0 million at December 31, 2024, from $715.7 million at December 31, 2023.

Total deposits increased to $948.9 million at December 31, 2025, from $837.8 million at December 31, 2024, with core deposits, which we define as non-time deposit accounts and time deposit accounts of less than $250 thousand, increasing $78.5 million to $809.5 million at December 31, 2025, from $731.0 million at December 31, 2024.

Maintaining Our Client Service Focus.

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Our employees understand the importance of delivering exemplary customer service and seeking opportunities to build relationships with our clients to enhance our market position and add profitable growth opportunities.

We compete with other financial service providers by relying on the strength of our customer service and relationship banking approach.

We compete with other financial service providers by relying on the strength of our customer service and relationship banking approach, including developing an enhanced online banking user experience, significantly increasing usage and client satisfaction as identified by app scores, as well as implementing remote notary services for mortgage loan originations.

We believe that one of our strengths is that our employees are also significant stockholders through our ESOP and 401(k) plans.

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OREO and repossessed assets, net 344 —

Mortgage servicing rights, at fair value 4,183 4,769

FHLB stock, at cost 1,060 1,730

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Stockholders' equity 109,399 103,666

Total assets decreased by $1.6 million, or 0.2%, to $993.6 million at December 31, 2024, from $995.2 million at December 31, 2023.

This decrease was primarily a result of lower balances of cash and cash equivalents and investment securities, offset by an increase in loans held-for-portfolio.

Total assets increased by $98.5 million, or 9.9%, to $1.1 billion at December 31, 2025, from $993.6 million at December 31, 2024.

This increase was primarily a result of higher balances of cash and cash equivalents and an increase in loans held-for-portfolio.

Cash and Securities.

Cash, cash equivalents, AFS securities and HTM securities decreased by $6.6 million, or 10.9%, to $53.6 million at December 31, 2024 compared to the prior year-end.

Cash and cash equivalents decreased $6.0 million, or 12.2%, to $43.6 million at December 31, 2024 compared to the prior year-end due to the increase in loans held-for-portfolio and the payoff of FHLB advances, partially offset by an increase in deposits.

AFS securities decreased $497 thousand, or 6.0%, to $7.8 million at December 31, 2024 from the 2023 year end, primarily due to regularly scheduled payments and maturities, and net unrealized losses resulting from the increases in market interest rates during the past 12 months.

HTM securities totaled $2.1 million at December 31, 2024 and 2023, and consisted of municipal bonds and agency mortgage-backed securities.

Loans held-for-portfolio increased $5.7 million, or 0.6%, to $901.8 million at December 31, 2024 from $896.2 million at December 31, 2023.

Loans held-for-sale decreased to $487 thousand at December 31, 2024 from $603 thousand at December 31, 2023 primarily due to timing of originations.

The following table reflects the changes in the loan mix, excluding premiums and deferred fees, of our portfolio at December 31, 2024, as compared to December 31, 2023 (dollars in thousands):

Cash, cash equivalents, AFS securities and HTM securities increased by $94.5 million, or 176.4%, to $148.0 million at December 31, 2025 compared to the prior year-end.

Cash and cash equivalents increased $94.8 million, or 217.3%, to $138.5 million at December 31, 2025 compared to the prior year-end due to higher deposit balances, including the

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effects of a strategic decision to utilize cash balances to sell reciprocal deposits at the end of 2024 and bring them back onto the balance sheet in early 2025, partially offset by an increase in loans held-for-portfolio and the partial repayment of borrowings and partial redemption of subordinated notes during the fourth quarter of 2025.

AFS securities decreased $91 thousand, or 1.2%, to $7.7 million at December 31, 2025 and HTM securities decreased $238 thousand, or 11.2%, to $1.9 million at December 31, 2025, compared to the 2024 year end, primarily due to regularly scheduled payments and maturities, and net unrealized losses resulting from the increases in market interest rates during the past 12 months.

Gross loans held-for-portfolio increased $5.8 million, or 0.6%, to $907.6 million at December 31, 2025 from $901.8 million at December 31, 2024.

Loans held-for-sale increased to $542 thousand at December 31, 2025 from $487 thousand at December 31, 2024, primarily due to timing of originations.

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

December 31, Amount Percent

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Total loans $ 907,643 $ 901,827 $ 5,816 0.6

Commercial and multifamily loans saw the largest increase, rising by $56.2 million, or 17.8%, primarily due to the conversion of completed construction loans to permanent financing.

Floating home loans increased by $11.3 million, or 15.0%, while home equity loans grew by $3.6 million, or 15.7%, as homeowners utilized the equity in their homes.

Manufactured home loans rose by $4.9 million, or 13.6%, reflecting affordability in the current market, internal efficiencies in loan processing, and successful

marketing efforts.

Commercial and multifamily loans saw the largest increase, rising by $38.2 million, or 10.3%, 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 grew by $4.8 million, or 17.9%, 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 rose by $2.0 million, or 4.7%, reflecting affordability of these homes in the current market as well as internal efficiencies in how we process these loans.

These increases were partially offset by declines in other loan categories.

Construction and land loans experienced the largest decrease, declining by $53.7 million, or 42.3%, as completed construction loans paid off or converted to permanent financing, while new construction loans have not yet fully advanced.

Commercial business loans decreased by $5.1 million, or 24.6%, due to lower outstanding balances on lines of credit and paydowns exceeding new originations.

One-to-four family loans declined by $9.8 million, or 3.5%, as a result of elevated mortgage interest rates and a lower supply of housing.

Construction and land loans experienced the largest decrease, declining by $22.8 million, or 31.2%, largely due to project completions and a slowdown in new financing activities amid continuing elevated 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 declined by $15.8 million, or 5.9%, due to loan repayments exceeding new originations.

Additionally, other consumer loans decreased by $1.1 million, or 6.5%.

The increase in home equity loans was primarily driven by homeowners utilizing the equity in their homes, while the increase in commercial and multifamily loans was primarily due to the conversion of completed construction loans to permanent financing.

The increase in manufactured and floating home loans can be attributed to the affordability of these homes in the current market, coupled with internal efficiencies in how we process these loans and successful marketing campaigns.These increases were partially offset by decreases in one-to-four family, construction and land, and commercial business loans.

The decrease in construction and land loans was due to construction loans completing and paying off or converting to permanent financing, while new construction loans have not fully advanced.

The decrease in commercial business loans were primarily from lower outstanding balances on lines of credit and paydowns exceeding new originations.

The loan portfolio remains well-diversified with commercial and multifamily real estate loans accounting for 41.2% of the portfolio, one-to-four family real estate loans, including home equity loans, accounting for approximately 32.9% of the portfolio and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounting for 16.2% of the total loan portfolio at December 31, 2024.

Construction and land loans accounted for 8.1% of the portfolio and commercial business loans accounted for the remaining 1.7% of the portfolio at December 31, 2024.

The loan portfolio remained well-diversified at December 31, 2025, with commercial and multifamily real estate loans accounting for 45.1% of the total loan portfolio, one-to-four family real estate loans, including home equity loans, accounting for approximately 31.4% of the total loan portfolio and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounting for 16.1% of the total loan portfolio.

Construction and land loans accounted for 5.5% of the total loan portfolio and commercial business loans accounted for the remaining 1.7% of the total loan portfolio at December 31, 2025.

At December 31, 2025, loans secured by commercial real estate represented 355.2% of CBLR Capital.

While this level exceeds the 300% monitoring threshold established under interagency guidance for commercial real estate concentrations, the Company has not experienced growth in its commercial real estate portfolio of 50% or more over the preceding 36 months.

Management monitors commercial real estate concentration levels in relation to capital and has implemented risk management practices, including underwriting standards and portfolio stress testing, designed to ensure that capital levels remain commensurate with the risks inherent in this portfolio segment.

At December 31, 2025 and 2024, there were $509 thousand and $526 thousand, respectively, of real estate secured loans that had loan-to-value ratios above supervisory guidelines.

Nonperforming Assets.

Nonperforming assets, comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans to troubled borrowers) and OREO and repossessed assets, increased $3.4 million, or 81.3%, to $7.5 million, or 0.75% of total assets, at December 31, 2024 from $4.1 million, or 0.42% of total assets, at December 31, 2023.

Nonperforming assets, comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans to troubled borrowers) and OREO and repossessed assets, decreased $1.4 million, or 18.2%, to $6.1 million, or 0.56% of total assets, at December 31, 2025 from $7.5 million, or 0.75% of total assets, at December 31, 2024.

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The table below sets forth the amount of nonperforming assets at the dates indicated (dollars in thousands):

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Total nonperforming assets $ 6,126 $ 7,491 $ (1,365) (18.2) %

The increase in nonperforming assets primarily was 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, all 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 home 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.

The decrease in nonperforming assets reflects payoffs totaling $7.9 million, loans returning to accrual status of $335 thousand, and net charge-offs of $281 thousand, partially offset by the placement of $7.1 million of loans on nonaccrual status and $344 thousand of new OREO properties.

Total nonperforming loans were $5.8 million at December 31, 2025, with the largest nonperforming loan totaling $2.0 million and secured by a multi-family property, which was adequately collateralized.

Commercial and multifamily loans represented $3.2 million, or 51.6% of total nonperforming loans, reflecting a 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, with the remaining balance primarily comprised of manufactured home loans, home equity loans, and other consumer loans.

OREO and repossessed assets totaled $344 thousand, or 5.6% of total NPAs, at December 31, 2025.

Nonperforming loans were 0.64% of total loans at December 31, 2025, compared to 0.83% of total loans at December 31, 2024.

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

No loans were 90 days or more past due and still accruing at either date.

Allowance for Credit Losses.

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

Impact of adoption of ASU 2016-13

Charge-offs (135) (122)

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Net charge-offs

(Release of) provision for credit losses

Provision for (release of) credit losses 212 (161)

Balance at end of period $ 8,605 $ 8,499

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Balance at beginning of period 234 193

Impact of adoption of ASU 2016-13

Provision for (release of) credit losses

(Release of) provision for credit losses (86) 41

Balance at end of period 148 234

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

The ACL for loans decreased $261 thousand, or 3.0%, to $8.5 million at December 31, 2024, from $8.8 million at December 31, 2023, while the ACL for unfunded loan commitments increased $41 thousand, or 21.2% to $234 thousand at December 31, 2024, from $193 thousand at December 31, 2023.

The changes in the balances were primarily due to changes in the mix of the loan portfolio, enhancements to the loss model related to how we adjust for the qualitative component, including the utilization of a scorecard to drive managements analysis, and growth in our unfunded construction loan portfolio, which has a higher loss rate than our other loan portfolios.

Expected loss estimates consider various factors, such as market conditions, borrower-specific information, projected delinquencies, and the impact of economic conditions on borrowers' ability to repay.

The ACL for loans increased $106 thousand, or 1.2%, to $8.6 million at December 31, 2025, from $8.5 million at December 31, 2024, while the ACL for unfunded loan commitments decreased $86 thousand, or 36.8% to $148 thousand at December 31, 2025, from $234 thousand at December 31, 2024.

The changes in the balances were primarily due to updates to assumptions in the model related to our annual review completed during 2025, which included changes to benchmark ratios and the annual loss driver analysis, and a larger loan portfolio.

Additionally, qualitative adjustments applied to certain loan segments, specifically consumer and construction loans, reflecting increased uncertainty in market conditions tied to the impact of tariffs and other external factors affecting our clients, contributed to the change in balances.

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

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

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If the fair value of our MSRs fluctuates significantly, our financial results could be materially impacted.

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The decrease in fair value from the prior year end is primarily due to a smaller servicing portfolio and an adjustment during 2025 related to interest rate declines and changes in valuation assumptions.

See "Note 6—Mortgage Servicing Rights" in the Notes to Consolidated Financial Statements contained in "Part II.

Financial Statements and Supplementary Data" of this report on Form 10-K for a summary of the significant valuation assumptions.

Total deposits increased $111.1 million to $948.9 million at December 31, 2025, compared to the prior year-end.

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 $267.5 thousand, or 0.2%, in 2025, compared to 2024.

A summary of deposit accounts with the corresponding weighted-average cost at December 31, 2025 and 2024 is presented below (dollars in thousands):

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Savings, demand, and money market accounts have no contractual maturity.

Certificates of deposit have maturities of five or less.

Certificates of deposit have maturities of five years or less.

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

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

FHLB advances totaled $25.0 million at December 31, 2024, compared to $40.0 million at December 31, 2023.

The decrease was due to the repayment of a $15.0 million FHLB advance that matured in November 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 December 31, 2024 had maturities ranging from early 2026 through early 2028.

Subordinated notes, net totaled $11.8 million at December 31, 2024 and 2023.

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.

FHLB advances totaled $10.0 million at December 31, 2025, down from $25.0 million at December 31, 2024, due to the early repayment of a $15.0 million FHLB advance during the fourth quarter of 2025.

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

Outstanding FHLB advances at December 31, 2025 mature in early 2028.

Subordinated notes, net, decreased to $7.8 million at December 31, 2025 from $11.8 million at December 31, 2024, reflecting a $4.0 million partial redemption on the first scheduled repricing date of October 1, 2025, as part of a strategic decision to reduce higher cost debt and repurpose cash.

For additional information regarding our

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borrowings, see “Note 10—Borrowings, FHLB Stock and Subordinated Notes” in the Notes to Consolidated Financial Statements contained in “Part II.

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

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Total stockholders’ equity increased $5.7 million, or 5.5%, to $109.4 million at December 31, 2025, from $103.7 million at December 31, 2024.

This increase primarily reflects $4.6 million in net income for the year ended December 31, 2024, $390 thousand in share-based compensation, and $269 thousand in common stock options exercised, partially offset by the payment of cash dividends of $1.9 million to common stockholders, as well as unrealized gains on our securities portfolio resulting in other comprehensive income, net of tax, of $56 thousand, the repurchase of $65 thousand of common stock, and stock surrendered of $218 thousand to satisfy tax withholding obligations upon the vesting of restricted stock during the year ended December 31, 2024.

This increase primarily reflects $7.2 million in net income for the year ended December 31, 2025, $303 thousand in share-based compensation, $198 thousand in unrealized gains on our securities portfolio resulting in other comprehensive income, net of tax, and $151 thousand in common stock options exercised, partially offset by the payment of cash dividends of $1.9 million to common stockholders and stock surrendered of $130 thousand to satisfy tax withholding obligations upon the vesting of restricted stock during the year ended December 31, 2025.

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

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$ 902,033 $ 52,950 5.87 % $ 896,690 $ 50,499 5.63 %

11,354 477 4.20 12,468 508 4.07

Cash and cash equivalents

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935,289 22,630 2.42 % 960,787 26,372 2.74 %

(1) Includes loans on nonaccrual status.

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

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

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Rate/Volume Analysis

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Change in net interest income $ 3,925

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Comparison of Results of Operation for the Years Ended December 31, 2025 and 2024

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Net interest income 34,927 31,002

(Release of) provision for credit losses

Net interest income after provision for loan losses 31,122 34,123

Provision for (release of) credit losses 127 (120)

Net interest income after provision for (release of) loan losses 34,800 31,122

Service charges and fee income 2,669 2,620

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Occupancy expense 1,743 1,665

Net losses and expenses on OREO and repossessed assets (31) 13

Net loss (gain) and expenses on OREO and repossessed assets 37 (31)

Other noninterest expense 5,631 5,013

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Net income $ 7,158 $ 4,640

Net income decreased $2.8 million, or 37.6%, to $4.6 million, or $1.80 per diluted common share, for the year ended December 31, 2024, compared to $7.4 million, or $2.86 per diluted common share, for the year ended December 31, 2023.

The decrease was primarily a result of a $2.8 million decrease in net interest income, a $351 thousand decrease in noninterest income and a $153 thousand decrease in the release of credit losses, partially offset by a $555 thousand decrease in provision for income taxes.

Net income increased $2.5 million, or 54.3%, to $7.2 million, or $2.77 per diluted common share, for the year ended December 31, 2025, compared to $4.6 million, or $1.80 per diluted common share, for the year ended December 31, 2024.

The increase was primarily a result of a $3.9 million increase in net interest income, partially offset by a $247 thousand increase in the provision for credit losses, a $691 thousand decrease in noninterest income and a $508 thousand increase in provision for income taxes.

Interest Income.

Interest income increased $6.8 million, or 13.4%, to $57.4 million for the year ended December 31, 2024, from $50.6 million for the year ended December 31, 2023, due to an increase in both the average balance of and yield earned on interest earning assets.

Interest income increased $183 thousand, or 0.3%, to $57.6 million for the year ended December 31, 2025, from $57.4 million for the year ended December 31, 2024, due to an increase in the yield earned on interest earning assets, offset by a lower average balance of interest earning assets.

Interest income on loans increased $2.5 million, or 4.9%, to $53.0 million for the year ended December 31, 2025, compared to $50.5 million for the year ended December 31, 2024, driven by a higher average balance of total loans and a 24 basis points increase in the average yield on loans.

The average balance of total loans was $896.7 million for the year ended December 31, 2024, compared to $870.2 million for the year ended December 31, 2023, resulting primarily from increased average balances in commercial and multifamily, home equity, and consumer loans.

The average balance of total loans was $902.0 million for the year ended December 31, 2025, compared to $896.7 million for the year ended December 31, 2024, resulting primarily from increased average balances in commercial and multifamily, home equity, floating homes and manufactured home loans.

The average yield on total loans was 5.87% for the year ended December 31, 2025, compared to 5.63% for the year ended December 31, 2024.

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The decrease was due to lower average balances, partially offset by higher average yields.

The average yield on investments was 4.07% for the year ended December 31, 2024, compared to 3.79% for the year ended December 31, 2023, primarily due to the impact of rising rates.

Interest income on cash and cash equivalents increased $2.7 million, or 75.8%, to $6.4 million for the year ended December 31, 2024, compared to $3.6 million for the year ended December 31, 2023.

The increase was due to higher average yields and higher average balances.

The average yield on cash and cash equivalents was 5.12% for the year ended December 31, 2024, compared to 4.85% for the year ended December 31, 2023, primarily due to the impact of higher market interest rates during

The average yield on investments was 4.20% for the year ended December 31, 2025, compared to 4.07% for the year ended December 31, 2024, primarily due to the impact of a partial paydown on a lower - yielding investment during the year.

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Interest income on cash and cash equivalents decreased $2.2 million, or 35.1%, to $4.1 million for the year ended December 31, 2025, compared to $6.4 million for the year ended December 31, 2024.

The decrease was due to lower average yields and lower average balances.

The average yield on cash and cash equivalents was 4.15% for the year ended December 31, 2025, compared to 5.12% for the year ended December 31, 2024, primarily due to the impact of lower market interest rates during the year.

The average balance of cash and cash equivalents was $99.5 million for the year ended December 31, 2025, compared to $124.3 million for the year ended December 31, 2024 .

The increase in cash and cash equivalents was primarily due to the increase in deposits, offset by an increase in loans held-for-portfolio and the payoff of one FHLB borrowing.

The decrease in the average balance of cash and cash equivalents was primarily due to the partial repayment of borrowings and partial redemption of subordinated notes during 2025, as well as an increase in loans held-for-portfolio, partially offset by an increase in deposits.

Interest Expense.

Interest expense increased $9.6 million, or 57.4%, to $26.4 million for the year ended December 31, 2024, from $16.8 million for the year ended December 31, 2023, as a result of an increase in the overall average balances and costs of deposits and borrowings.

Interest expense on deposits increased $9.9 million, or 70.3%, to $24.1 million for the year ended December 31, 2024, compared to $14.1 million for the year ended December 31, 2023.

The increase was the result of an increase in the average balance of and rates paid on certificate accounts and savings and money market accounts, offset slightly by a $53.4 million decrease in the average balance of demand and NOW accounts.

The average cost of total deposits, including noninterest bearing deposits, increased 95 basis points to 2.64% for the year ended December 31, 2024, from 1.69% for the year ended December 31, 2023.

Interest expense decreased $3.7 million, or 14.2%, to $22.6 million for the year ended December 31, 2025, from $26.4 million for the year ended December 31, 2024, primarily as a result of a decrease in the overall average balances and costs of deposits and borrowings.

Interest expense on deposits decreased $3.2 million, or 13.2%, to $20.9 million for the year ended December 31, 2025, compared to $24.1 million for the year ended December 31, 2024.

The decrease was the result of a decrease in the average balance of certificate accounts and demand and NOW accounts, as well as lower average rates paid on all categories of interest-bearing deposits, reflecting lower market interest rates, offset slightly by a $31.4 million increase in the average balance of savings and money market accounts.

The average cost of total deposits, including noninterest bearing deposits, decreased 32 basis points to 2.32% for the year ended December 31, 2025, from 2.64% for the year ended December 31, 2024.

Interest expense on borrowings, comprised solely of FHLB advances, was $1.0 million for the year ended December 31, 2025, compared to $1.6 million for the year ended December 31, 2024, reflecting the decreased use of FHLB advances to supplement our liquidity needs.

The cost of FHLB advances decreased 12 basis points to 4.32% for the year ended December 31, 2024, compared to 4.44% for the year ended December 31, 2023.

The cost of FHLB advances decreased two basis points to 4.30% for the year ended December 31, 2025, compared to 4.32% for the year ended December 31, 2024.

The average balance of FHLB advances was $23.8 million for the year ended December 31, 2025, compared to $37.6 million for the year ended December 31, 2024.

Interest expense on subordinated notes was $672 thousand for both the year ended December 31, 2024 and the year ended December 31, 2023.

Interest expense on subordinated notes was $701 thousand for the year ended December 31, 2025, compared to $672 thousand for the year ended December 31, 2024.

Interest expense on our subordinated notes increased despite a lower average balance, due to the notes converting to variable-rate debt that reprices on a quarterly basis from the previous fixed-rate period.

Net Interest Income.

Net interest income decreased $2.8 million, or 8.4%, to $31.0 million for the year ended December 31, 2024, from $33.9 million for the year ended December 31, 2023.

Net interest income increased $3.9 million, or 12.7%, to $34.9 million for the year ended December 31, 2025, from $31.0 million for the year ended December 31, 2024.

Net interest margin was 3.45% and 3.00% for the year ended December 31, 2025 and 2024, respectively.

The decrease in net interest income primarily resulted from an increase in the average balances of and rates paid on deposits and borrowings, partially offset by higher average balances and yields earned on interest-earning assets.

The decrease in net interest margin primarily was due to funding costs increasing at a faster pace than the average yields earned on interest-earning assets and an increase in the average balance of interest earning assets.

During 2023, in response to inflation, the Federal Open Market Committee of the Federal Reserve (“FOMC”) increased the target range for the federal funds rate by 100 basis points to a range of 5.25% to 5.50%, where it remained until September 2024.

In light of the progress on reducing inflation and after considering the balance of risks, the FOMC decided to lower the target range 50 basis points to 4.75% to 5.00% during 2024.

The FOMC further lowered the target range by an additional 50 basis points, to 4.25% to 4.50%, in November of 2024.

The increase in net interest income primarily resulted from higher yields earned on interest-earning assets and lower average rates paid on all categories of interest-bearing deposits, partially offset by lower average balances of interest-earning assets and all categories of interest-bearing deposits.

The increase in net interest margin primarily was due to a decline in funding costs due to declines in market interest rates, as well as an increase in the average yields earned on loans as our portfolio continued to reprice at higher rates.

During 2025, the Federal Open Market Committee of the Federal Reserve (“FOMC”) lowered the target range for the federal funds rate in response to continued moderation in inflation and evolving economic conditions.

The FOMC reduced the target range by 75 basis points, from 4.25% - 4.50% at December 31, 2024, to 3.50% - 4.25% by year-end 2025.

All reductions occurred between September and December 2025.

These rate decreases contributed to lower funding costs during the latter part of the year while interest income on variable-rate loans gradually adjusted to higher market rates earlier in 2025.

Provision for Credit Losses.

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Year Ended December 31,

(Release of) provision for credit losses on loans

$ (161) $ 564

Provision for (release of) credit losses on unfunded loan commitments

Release of provision for credit losses

$ (120) $ (273)

The change in the (release of) provision for credit losses for 2024 from 2023 resulted primarily from changes in methodology used to reserve for credit losses.

During the year ended December 31, 2024, the release of credit losses on loans primarily related to lower reserves on our residential loan portfolio due to qualitative adjustments for changes in concentration, the value of underlying collateral, and market conditions, as well as lower reserves in our floating home sub-segment of other consumer loans within our quantitative analysis and in our qualitative analysis related to market conditions and value of underlying collateral, as economic conditions have improved.

These decreases were partially offset by growth in the loan portfolio, an increase in nonaccrual loans and the weighted average life of the portfolio, and enhancements to the loss model related to how we adjust for the qualitative component.

The provision for credit losses on unfunded loan commitments during the year related to an increase in the reserve rate due to model enhancements, partially offset by a decrease in unfunded loan commitments at December 31, 2024, compared to the prior year-end.

Provision for (release of) credit losses on loans $ 212 $ (161)

(Release of) provision for credit losses on unfunded loan commitments (86) 41

Provision for (release of) credit losses $ 126 $ (120)

The change in the provision for (release of) credit losses for 2025 from 2024 primarily reflects updates to assumptions in the model related to our annual review completed during 2025, which included changes to benchmark ratios and the annual loss driver analysis, and a larger loan portfolio.

Also, additional qualitative adjustments were applied to certain loan segments, specifically consumer and construction loans, reflecting increased uncertainty in market conditions tied to the impact of tariffs

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and other external factors affecting our clients.

Net charge-offs for the year ended December 31, 2025 totaled $106 thousand, compared to net charge-offs of $100 thousand for the year ended December 31, 2024.

Under CECL, the provision for credit losses for the year ended December 31, 2024 reflects assumptions related to our forecast concerning the economic environment as a result of local, national and global events.

In addition, expected loss estimates

consider various factors, including customer-specific information, changes in risk ratings, projected delinquencies, and the impact of economic conditions on borrowers' ability to repay.

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, or 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.

Under CECL, the provision for credit losses for the year ended December 31, 2025 reflects assumptions about the economic environment at the local, national, and global levels, with expected loss estimates considering factors, such as customer-specific information, changes in risk ratings, projected delinquencies, and borrowers’ ability to repay.

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.

A deterioration in national and local economic conditions due to such factors as inflation, a recession or slowed economic growth, among others, may lead to a material increase in the provision for credit losses, which could have a material adverse impact on our financial condition and results of operations.

In addition, the determination of the amount of our ACL is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment to the ACL based upon their judgment of information available to them at the time of their examination.

In addition, the determination of the amount of our ACL is subject to review by bank regulators as part of the routine examination process, which may result in adjustments to the ACL based upon their judgment of information available to them at the time of their examination.

Noninterest Income.

Noninterest income decreased $351 thousand, or 7.0%, to $4.7 million for the year ended December 31, 2024, compared to $5.0 million for the year ended December 31, 2023, as reflected below (dollars in thousands):

Year Ended December 31, Amount

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Total noninterest income $ 3,964 $ 4,655 $ (691) (14.8) %

The decrease in noninterest income during the year ended December 31, 2024, compared to 2023 primarily was due to a $554 thousand decrease in earnings on BOLI, reflecting death benefits paid under our BOLI policies in the prior year.

Additionally, an $82 thousand decrease in net gain on sale of loans resulted from lower mortgage activity, with loans sold during 2024 totaling $14.2 million compared to $19.2 million sold during 2023, and a $61 thousand decline in mortgage servicing income was due to the servicing portfolio shrinking at a faster rate than we were able to replace loans, due to the current interest rate environment.

These decreases were partially offset by a $93 thousand increase in service charges and fee income resulting from increases in late fees on loans, interchange income and income related to a new, multi-year agreement with our debit card provider that was effective in 2024.

Further, a $215 thousand upward adjustment in the fair value of MSRs was due to a change in prepayment speeds, servicing costs, and discount rate.

Finally, other income increased $38 thousand due to an insurance claim on equipment in 2024.

Noninterest income decreased $691 thousand, or 14.8%, to $4.0 million for the year ended December 31, 2025, compared to $4.7 million for the year ended December 31, 2024, primarily as a result of:

• a $707 thousand decrease in fair value adjustment on mortgage servicing rights due to changes in valuation assumptions associated with interest rate movements compared to the prior year and an overall smaller servicing portfolio;

• a $175 thousand decrease in other income due to losses recognized on the disposal of ITMs decommissioned or replaced during 2025 compared to a gain on disposal of assets in 2024 due to insurance claims on the loss of fully depreciated assets;

• a $72 thousand decline in mortgage servicing income as a result of a smaller servicing portfolio.

These decreases were partially offset by:

• a $212 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 improved yields continuing throughout 2025.

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Noninterest Expense

Noninterest expense was $30.1 million during the years ended December 31, 2024 and 2023, as reflected below (dollars in thousands):

Year Ended December 31, Amount

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Data processing 5,021 4,226 795 18.8

Net loss and expenses on OREO and repossessed assets

(31) 13 (44) (338.5)

Net loss (gain) and expenses on OREO and repossessed assets 37 (31) 68 (219.4)

Total noninterest expense $ 30,092 $ 30,131 $ (39) (0.1) %

The increase in noninterest expenses during the year ended December 31, 2024 compared to the year ended December 31, 2023, was primarily driven by a $455 thousand increase in salaries and benefits, largely due to higher incentive compensation expenses, increased medical expenses, and higher commission expenses.

This increase was partially offset by a decrease in salaries and contractor expenses.

In addition, regulatory assessments increased $99 thousand as a result of a higher deposit insurance assessment rate introduced at the beginning of 2023 and the Company’s increased asset size.

Partially offsetting these increases were several decreases in noninterest expenses.

Operations expenses decreased by $201 thousand mainly due to reductions in office expenses, loan origination fees, travel expenses, state and local taxes, and charitable contributions, partially offset by higher professional fees (tax and consulting) and increased costs related to deposit products, especially debit card processing expenses.

Data processing expenses decreased $162 thousand due to lower costs associated with the Company’s core processor and occupancy expenses decreased by 145 thousand primarily because of fully amortized leasehold improvements.

Noninterest expense was $30.1 million during the years ended December 31, 2025 and 2024.

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

• an $882 thousand decrease in salaries and benefits due to a reduction in incentive compensation, partially offset by higher expense related to our employee stock ownership plan resulting from increased contributions during 2025;

• a $177 thousand decrease in regulatory assessments, reflecting lower than expected exam costs, as well as reduced quarterly assessments resulting from a lower rate applied to a lower average asset balance.

These decreases were partially offset by:

• a $795 thousand increase in date processing 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 $79 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing;

• a $78 thousand increase in occupancy due to higher property charges and maintenance fees recognized due primarily to repair work performed on the decommission of ITMs;

• a $68 thousand increase in net loss (gain) on OREO and repossessed assets as the current year reflected a net loss on new property additions in 2025 compared to a net gain in the prior year.

The efficiency ratio for the year ended December 31, 2025 was 77.38%, compared to 84.50% for the year ended December 31, 2024.

The deterioration in the efficiency ratio was due to lower interest income and noninterest income in 2024.

The improvement in the efficiency ratio was due to higher net interest income in 2025, partially offset by lower noninterest income in the current year.

Income Tax Expense .

The provision for income taxes decreased $555 thousand, or 35.6% to $1.0 million for the year ended December 31, 2024, compared to $1.6 million for the year ended December 31, 2023 due to lower pre-tax income.

The provision for income taxes increased $508 thousand, or 50.5% to $1.5 million for the year ended December 31, 2025, compared to $1.0 million for the year ended December 31, 2024 due to higher pre-tax income.

The effective tax rates for the years ended December 31, 2025 and 2024 were 17.5% and 17.8%, respectively.

The effective tax rate was higher in 2024 as a result of nontaxable income related to the BOLI death benefit received in prior year.

The effective tax rate was lower in 2025 as a result of adjustments to our deferred tax asset related to leases and vacation expense, partially offset by an increase in taxable earnings on BOLI in 2025 resulting from the surrender and exchange of existing BOLI policies into 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 spending legislation permanently extends key business tax breaks originally enacted under the 2017 Tax Cuts and Jobs Act.

The law had minimal impact on the income tax provision.

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Capital and Liquidity

Stockholders’ equity totaled $109.4 million at December 31, 2025 and $103.7 million at December 31, 2024.

In addition to net income of $4.6 million, other sources of capital during 2024 included $390 thousand related to stock-based compensation and $269 thousand in proceeds from stock option exercises.

Uses of capital during 2024 included $56 thousand of other comprehensive income, net of tax, $1.9 million of dividends paid on common stock, $65 thousand of stock repurchases and $218 thousand of stock surrendered to satisfy tax withholding obligations upon the vesting of restricted stock awards.

In addition to net income of $7.2 million, other sources of capital during 2025 included $303 thousand related to stock-based compensation, $198 thousand of other comprehensive income, net of tax, and $151 thousand in proceeds from stock option exercises.

Uses of capital during 2025 included $1.9 million of dividends paid on common stock and $130 thousand of stock surrendered to satisfy tax withholding obligations upon the vesting of restricted stock awards.

We paid quarterly dividends aggregating $0.76 per common share during the year ended December 31, 2025 and quarterly dividends aggregating $0.76 per common share during the year ended December 31, 2024.

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Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which 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 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.

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

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As of December 31, 2025, we had $146.2 million in cash, cash equivalents and AFS securities, and $542 thousand in loans held-for-sale.

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The Company contributed $5.5 million of the net proceeds from the sale of the subordinated notes to the Bank and retained the remaining net proceeds to be used for general corporate purposes.

At December 31, 2024, Sound Financial Bancorp, on an unconsolidated basis, had $1.3 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

During 2025, the Bank paid $7.2 million in dividends to the Company to cover expenses, including a $4.0 million partial redemption of the subordinated notes on October 1, 2025.

At December 31, 2025, Sound Financial Bancorp, on an unconsolidated basis, held $1.4 million in cash, noninterest-bearing deposits, and liquid investments generally available for its cash needs.

See also the “Consolidated Statements of Cash Flows” included in “Item 8.

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Beginning January 2020, the Bank elected to use the CBLR framework.

A bank that elects to use the CBLR framework as provided for in the Economic Growth, Regulatory Relief and Consumer Protection Act will generally be considered "well-capitalized" and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio greater than 9.0%.

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greater than 9.0%.

At December 31, 2025, the Bank’s CBLR was 10.91%, which exceeded the minimum requirements.

6 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis