What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-05-12 compared with 2025-11-12 · 161 added, 307 removed, 328 unchanged (59% of the section changed)

5 unchanged sentences

These statements relate to our financial condition, results of operations, plans, objectives, future performance or business.

Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision.

Forward-looking statements are not statements of historical fact but are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions, or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision.

These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties.

Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to:

Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide range of factors including, but not limited to:

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

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

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

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

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

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

• 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;

2 unchanged sentences

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;

1 unchanged sentence

• our ability to access cost-effective funding, including maintaining the confidence of depositors;

• the possibility that unexpected outflows of uninsured deposits may require us to sell investment securities at a loss;

• the possibility that unexpected outflows of deposits may require us to sell investment securities at a loss;

• our ability to control operating costs and expenses;

2 unchanged sentences

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

• our ability to attract and retain deposits;

• our ability to attract and retain deposits, including the risk that changes to federal deposit insurance limits or coverage rules, or customer concerns regarding the safety of uninsured deposits, could adversely affect deposit stability;

• competitive pressures among financial services companies;

1 unchanged sentence

• 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 (“AI”), the use of AI models in credit decisioning, customer service, and operations, including risks of model error, bias, regulatory scrutiny under fair lending laws, and third-party AI dependencies, digital banking platforms, and cybersecurity;

• risk associated with the evolving regulatory and market environment for digital assets and cryptocurrency, including potential impacts on customer behavior, deposit flows, and our ability to offer or support related products or services;

• 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;

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 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;

2 unchanged sentences

• 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;

2 unchanged sentences

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

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

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

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

• 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;

• the other risks described from time to time in our reports filed with or furnished to the SEC, including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”).

• the other risks described from time to time in our documents filed with or furnished to the U.S.

Securities and Exchange Commission (the “SEC”), including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”).

We caution readers not to place undue reliance on any forward-looking statements.

The factors described above could materially affect our financial performance, cause our actual results for future periods to differ materially from those expressed in forward-looking statements, and negatively affect our stock price performance.

We do not undertake and specifically decline any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

The factors listed above could materially affect our financial performance and cause our actual results for future periods to differ materially from any forward-looking statements expressed or implied with respect to future periods and could negatively affect our stock price performance.

We do not undertake, and specifically decline, any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the dates of such statements or to reflect the occurrence of anticipated or unanticipated events.

Sound Financial Bancorp, a Maryland corporation, is a bank holding company for its wholly owned subsidiary, Sound Community Bank.

4 unchanged sentences

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

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

At March 31, 2026, Sound Financial Bancorp, on a consolidated basis, had total assets of $1.11 billion, net loans held-for-portfolio of $912.9 million, deposits of $968.5 million and stockholders’ equity of $110.4 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 3rd Avenue, Suite 150, Seattle, Washington, 98121.

3 unchanged sentences

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

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

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

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

6 unchanged sentences

There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2025 Form 10-K.

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

Total assets increased $66.5 million, or 6.7%, to $1.06 billion at September 30, 2025 from $993.6 million at December 31, 2024.

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

Comparison of Financial Condition at March 31, 2026 and December 31, 2025

Total assets increased $19.9 million, or 1.8%, to $1.11 billion at March 31, 2026 from $1.09 billion at December 31, 2025.

The increase was primarily a result of higher balance of loans held-for-portfolio and a new equity investment in the first quarter of 2026.

Cash and Cash Equivalents, and Investment Securities.

Cash and cash equivalents increased $57.5 million, or 131.8%, to $101.2 million at September 30, 2025 from $43.6 million at December 31, 2024.

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

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

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

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

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

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

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

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

Loans held-for-portfolio, net increased $9.5 million, or 1.1%, to $901.2 million at September 30, 2025, from $891.7 million at December 31, 2024.

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

September 30,

Cash and cash equivalents decreased $469.0 thousand, or 0.3%, to $138.0 million at March 31, 2026 from $138.5 million at December 31, 2025.

The decrease reflects cash deployed into higher-yielding assets, primarily loans held-for-portfolio and a new $5.0 million equity investment, partially offset by higher deposit balances.

Investment securities decreased $190 thousand, or 2.0%, to $9.4 million at March 31, 2026, compared to $9.6 million at December 31, 2025.

Held-to-maturity securities totaled $1.9 million at both March 31, 2026 and December 31, 2025.

Available-for-sale securities totaled $7.5 million at March 31, 2026, compared to $7.7 million at December 31, 2025.

The decrease in available-for-sale securities was related to principal paydowns or payoffs, as well as decreases in fair value.

Equity securities totaled $5.0 million at March 31, 2026, compared to zero at both December 31, 2025 and March 31, 2025.

The increase primarily related to the strategic decision to deploy some of our interest-earning cash into a higher yielding Community Reinvestment Act (“CRA”)-eligible workforce housing equity investment in the first quarter of 2026.

While this investment carries more risk, the level of investment remains low compared to our total assets and partially replaces the runoff of our CRA-eligible available-for-sale debt securities over the past few years.

Loans held-for-portfolio, net increased $16.0 million, or 1.8%, to $912.9 million at March 31, 2026, from $896.9 million at December 31, 2025.

The following table reflects the changes in the mix of our loans held-for-portfolio at March 31, 2026, as compared to December 31, 2025 (dollars in thousands):

2026 December 31,

13 unchanged sentences

Total loans held-for-portfolio, net $ 912,883 $ 896,928 $ 15,955 1.8 %

The increases in the loan held-for-portfolio were driven primarily by a $37.3 million, or 10.0%, increase in commercial and multifamily loans, driven by new originations and the conversion of construction projects to permanent financing, partially offset by pay-downs and normal payment amortization.

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

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

The growth in these

portfolios were partially offset by a $20.3 million, or 27.8%, decline in construction and land loans largely due to project completions and a slowdown in new financing activities amid higher interest rates, as well as the payoff of a $17.0 million loan that had been risk rated as special mention.

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

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

The increase in total loans held-for-portfolio was driven primarily by a $21.6 million, or 43.0%, increase in construction and land loans largely due to new project loan originations in the current quarter.

Given the growth in this loan category and current macroeconomic uncertainty, we have applied qualitative adjustments to our ACL for construction and land loans, as discussed further in the “Allowance for Credit Losses” section below.

Home equity loans increased by $435 thousand, or 1.4%, 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.

The growth in these segments of the portfolio was partially offset by decreases in one-to-four-family loans and floating home loans of $2.7 million and $2.4 million, respectively, or 1.1% and 2.7%, primarily due to loan repayments exceeding new originations.

At March 31, 2026, our loan portfolio, net of deferred loan fees, remained well-diversified.

At that date, commercial and multifamily real estate loans accounted for 44.4% of total loans, one-to-four family loans, including home equity loans, accounted for 30.6% of total loans, commercial business loans accounted for 1.6% of total loans, and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounted for 15.6% of total loans.

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

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

Construction and land loans accounted for 7.8% of total loans at March 31, 2026.

Loans held-for-sale totaled $281 thousand at March 31, 2026, compared to $542 thousand at December 31, 2025.

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

1 unchanged sentence

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

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

2025 2024 2025 2024

Three Months Ended March 31,

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

10 unchanged sentences

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

Our ACL — loans increased $65 thousand, or 0.8%, to $8.6 million at September 30, 2025, from $8.5 million at December 31, 2024.

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

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

Our ACL — loans increased $30 thousand, or 0.3%, to $8.6 million at March 31, 2026, from $8.6 million at December 31, 2025.

The increase in the ACL - loans was primarily a result of an increase in the balance of our loan portfolio, as well as higher reserves on our portfolio of construction loan and land loans due to qualitative adjustments for uncertainty in market conditions and concentrations, partially offset by improvement in other consumer past due loans and commercial construction collateral values.

See “Comparison of Results of Operations for the Three Months Ended March 31, 2026 and 2025 — Provision for Credit Losses.”

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

At September 30, 2025 At December 31, 2024

At March 31, 2026 At December 31, 2025

ACL - loans as a percentage of total loans outstanding 0.93 % 0.95 %

15 unchanged sentences

Total nonaccrual loans $ 7,379 $ 5,782

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

2025 2024 2025 2024

Three Months Ended March 31,

($ in thousands)

1 unchanged sentence

One-to-four family:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

$ 251,815 $ 266,980

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

1 unchanged sentence

Commercial and multifamily real estate:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

1 unchanged sentence

Construction and land:

— % — % — % — %

Net (charge-offs)/recoveries

8 unchanged sentences

Floating homes:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

2 unchanged sentences

0.03 % (0.05) %

Net (charge-offs)

$ 10 $ (14) $ (13) $ (64)

Net (charge-offs)/recoveries $ 1 $ (2)

Average loans outstanding

1 unchanged sentence

Commercial business:

— % — % — % — %

Net (charge-offs)/recoveries

$ — $ — $ — $ —

Average loans outstanding

5 unchanged sentences

$ 915,480 $ 897,736

The ratio of ACL - loans to nonaccrual loans decreased to 117.0% at March 31, 2026, from 148.8% at December 31, 2025, reflecting the increase in nonaccrual loans during the quarter.

Despite this decrease, we believe our allowance remains adequate given the collateralized nature of the nonaccrual loans and the overall performance of our loan portfolio.

Nonperforming Assets.

Nonperforming assets (“NPAs”), which were comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, decreased $4.4 million, or 59.1%, to $3.1 million, or 0.29% of total assets, at September 30, 2025 from $7.5 million, or 0.75% of total assets, at December 31, 2024.

Nonperforming assets (“NPAs”), which were comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, increased $1.4 million, or 22.1%, to $7.5 million, or 0.67% of total assets, at March 31, 2026 from $6.1 million, or 0.56% of total assets, at December 31, 2025.

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

Nonperforming Assets

September 30,

2026 December 31,

3 unchanged sentences

Total nonperforming assets $ 7,478 $ 6,126 $ 1,352 22.1 %

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

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

These decreases were partially offset by the addition of 15 loans totaling $3.8 million to nonaccrual status and $344 thousand of other real estate owned that was not included in nonperforming assets at December 31, 2024.

The percentage of nonperforming loans to total loans was 0.30% at September 30, 2025, compared to 0.83% at December 31, 2024.

The increase in NPAs from December 31, 2025 was primarily due to the placement of $1.8 million of loans on nonaccrual status during the quarter, including one multifamily real estate loan of $1.1 million.

These additions were partially offset by loan repayments, the return of certain credits to accrual status, and the sale of OREO properties.

The percentage of nonperforming loans to total loans was 0.80% at March 31, 2026, compared to 0.64% at December 31, 2025.

We believe the collateral value of the multifamily real estate loan placed on nonaccrual status during the quarter is sufficient to minimize loss exposure.

We continue to monitor this credit and other nonaccrual loans closely.

While we believe the increase in nonperforming loans reflects isolated credit events rather than a systemic portfolio trend, we remain attentive to macroeconomic conditions that may affect borrower performance.

Mortgage Servicing Rights.

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

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

The fair value of mortgage servicing rights decreased $87 thousand, or 2.1%, to $4.1 million at March 31, 2026 from $4.2 million at December 31, 2025.

The decrease was primarily related to a decline in the size of our mortgage servicing portfolio and modest changes in valuation assumptions, including prepayment speed assumptions reflecting current interest rate expectations.

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

2 unchanged sentences

Deposits and Borrowings.

Total deposits increased $61.1 million, or 7.3%, to $898.9 million at September 30, 2025 from $837.8 million at December 31, 2024.

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

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

In contrast, noninterest-bearing deposits decreased $1.1 million, or 0.9%, to $131.4 million at September 30, 2025, compared to $132.5 million at December 31, 2024.

Total deposits increased $19.6 million, or 2.1%, to $968.5 million at March 31, 2026 from $948.9 million at December 31, 2025.

This increase was primarily due to seasonal fluctuations in customer account balances, new client deposits, and higher balances from large depositors.

Noninterest-bearing deposits decreased $1.5 million, or 1.1%, to $131.1 million at March 31, 2026, compared to $132.6 million at December 31, 2025.

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

Noninterest-bearing deposits represented 14.6% of total deposits at September 30, 2025, compared to 15.8% at December 31, 2024.

Noninterest-bearing deposits represented 13.5% of total deposits at March 31, 2026, compared to 14.0% at December 31, 2025.

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

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

Rate Amount Wtd.

7 unchanged sentences

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

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

Scheduled maturities of time deposits at March 31, 2026, are as follows (in thousands):

Year Ending December 31, Amount

1 unchanged sentence

Thereafter 79

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

Certificates of deposit have maturities of five years or less.

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

The aggregate amount of time deposits in denominations of more than $250,000 at March 31, 2026 and December 31, 2025, totaled $106.8 million and $112.4 million, respectively.

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

As of September 30, 2025, uninsured deposits totaled $168.6 million, which represented 18.8% of total deposits, as compared to uninsured deposits of $167.3 million, or 20.0% of total deposits as of December 31, 2024.

As of March 31, 2026, uninsured deposits totaled $197.9 million, which represented 20.4% of total deposits, as compared to uninsured deposits of $184.7 million, or 19.5% of total deposits as of December 31, 2025.

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

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

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

We actively manage our uninsured deposit exposure through diversification of our deposit base, maintenance of robust liquidity resources, and ongoing monitoring of large depositor relationships.

We believe our current liquidity position is sufficient to meet potential demands from uninsured depositors.

Borrowings, comprised of FHLB advances, were $10.0 million at both March 31, 2026 and December 31, 2025.

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 September 30, 2025 had maturities ranging from early 2026 through early 2028.

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

A single FHLB advance outstanding at March 31, 2026 matures in early 2028.

Subordinated notes, net totaled $7.8 million at both March 31, 2026 and December 31, 2025.

Stockholders’ Equity.

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

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

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

Total stockholders’ equity increased $1.0 million, or 0.9%, to $110.4 million at March 31, 2026, from $109.4 million at December 31, 2025.

This increase primarily reflects $1.6 million of net income earned during the three months ended March 31, 2026, partially offset by the payment of $541 thousand in cash dividends to stockholders and an $80 thousand increase in accumulated other comprehensive loss, net of tax.

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

3 unchanged sentences

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

Three Months Ended September 30,

Balance Interest

Rate Annualized Average

Balance Interest

Rate Annualized

Interest-earning assets:

Loans receivable $ 910,330 $ 13,512 5.89 % $ 898,570 $ 12,876 5.70 %

Investments 12,541 124 3.92 13,806 132 3.80

Cash and cash equivalents 95,422 1,016 4.22 138,240 1,830 5.27

Total interest-earning assets (1)

1,018,293 14,652 5.71 1,050,616 14,838 5.62

Interest-bearing liabilities:

Savings and money market accounts 350,582 2,367 2.68 340,281 2,688 3.14

Demand and NOW accounts 132,309 103 0.31 148,252 151 0.41

Certificate accounts 291,139 2,805 3.82 303,632 3,524 4.62

Subordinated notes 11,787 168 5.65 11,745 168 5.69

Borrowings 25,000 269 4.27 40,000 434 4.32

Total interest-bearing liabilities 810,817 5,712 2.79 % 843,910 6,965 3.28 %

Net interest income $ 8,940 $ 7,873

Net interest rate spread 2.91 % 2.34 %

Net earning assets $ 207,476 $ 206,706

Net interest margin 3.48 % 2.98 %

Average interest-earning assets to average interest-bearing liabilities 125.59 % 124.49 %

Noninterest-bearing deposits $ 127,970 $ 132,762

Total deposits $ 902,000 $ 5,275 2.32 % $ 924,927 $ 6,363 2.74 %

Total funding (2)

$ 938,787 $ 5,712 2.41 % $ 976,672 $ 6,965 2.84 %

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

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

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

Nine Months Ended September 30,

Three Months Ended March 31,

Balance Interest

32 unchanged sentences

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

Three Months Ended September 30, 2025 vs.

Nine Months Ended September 30, 2025 vs.

Three Months Ended March 31, 2026 vs.

Increase (Decrease) due to Total

Increase (Decrease) Increase (Decrease) due to Total

Increase (Decrease)

Volume Rate Volume Rate

Interest-earning assets:

11 unchanged sentences

Change in net interest income $ 976

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

Q3 2025 vs Q3 2024 .

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

Comparison of Results of Operation for the Three Months Ended March 31, 2026 and 2025

Net income increased $409 thousand, or 35.0%, to $1.6 million, or $0.61 per diluted common share, for the three months ended March 31, 2026, compared to $1.2 million, or $0.45 per diluted common share, for the three months ended March 31, 2025, reflecting strong growth in net interest income.

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

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

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

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

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

Noninterest expenses remained relatively flat.

Interest Income

Three Months Ended September 30, Amount

Change Percent Change

Loans, including fees $ 13,512 $ 12,876 $ 636 4.9 %

Interest and dividends on investments 124 132 (8) (6.1)

Cash and cash equivalents 1,016 1,830 (814) (44.5)

Total interest income $ 14,652 $ 14,838 $ (186) (1.3) %

Q3 2025 vs Q3 2024 .

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

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

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

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

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

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

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

Interest income on cash and cash equivalents decreased $814 thousand, or 44.5%, to $1.0 million for the three months ended September 30, 2025, compared to $1.8 million for the three months ended September 30, 2024.

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

The average yield on cash and cash equivalents decreased to 4.22% for the three months ended September 30, 2025, compared to 5.27% for the three months ended September 30, 2024, as a result of lower market interest rates generally.

(Refer to “ Net Interest Income ” below for additional detail regarding the interest rate environment.) The average balance of cash and cash equivalents was $95.4 million for the three months ended September 30, 2025, compared to $138.2 million for the three months ended September 30, 2024, primarily due to a lower average cash balance following the payoff of $15.0 million of FHLB advances during the fourth quarter of 2024, redeploying cash into higher yielding loans and a decrease in certificate accounts which contributed to the overall lower cash balance.

Nine Months Ended September 30, Amount

Three Months Ended March 31, Amount

Change Percent Change

3 unchanged sentences

Total interest income $ 14,465 $ 13,706 $ 759 5.5 %

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

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

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

The average yield on total loans was 5.91% for the nine months ended September 30, 2025, compared to 5.58% for the nine months ended September 30, 2024.

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

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

Interest income on cash and cash equivalents decreased $1.7 million, or 35.4% to $3.1 million for the nine months ended September 30, 2025, compared to $4.8 million for the nine months ended September 30, 2024.

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

The average yield on cash and cash equivalents declined to 4.26% for the nine months ended September 30, 2025, compared to 5.28% for the nine months ended September 30, 2024, as a result of lower market interest rates generally.

(Refer to “ Net Interest Income ” below for additional detail regarding the interest rate environment.) The average balance of cash and cash equivalents was $98.0 million for the nine months ended September 30, 2025, compared to $122.2 million for the nine months ended September 30, 2024, primarily due to a lower average cash balance following the payoff of $15.0 million of FHLB advances during the fourth quarter of 2024, the redeployment of cash into higher yielding loans and a decrease in certificate accounts which contributed to the overall lower cash balance.

Total interest income increased $759 thousand, or 5.5%, to $14.5 million for the three months ended March 31, 2026, from $13.7 million for the three months ended March 31, 2025, primarily due to higher average balances of loans and interest earning cash, and a 21 basis point increase in the average yield on loans, partially offset by a 70 basis point decline in the average yield on cash and cash equivalents.

Interest income on loans increased $719 thousand, or 5.7%, to $13.3 million for the three months ended March 31, 2026, from $12.6 million for the three months ended March 31, 2025.

The average yield on total loans rose to 5.90% for the three months ended March 31, 2026, from 5.69% for the three months ended March 31, 2025, primarily due to the origination of new loans at higher interest rates and upward repricing on variable-rate loans.

The average balance of total loans was $914.1 million for the three months ended March 31, 2026, compared to $896.8 million for the three months ended March 31, 2025.

Interest and dividends on investments decreased $11 thousand, or 10.2%, to $97 thousand for the three months ended March 31, 2026, compared to $108 thousand for the three months ended March 31, 2025.

The decrease was primarily due to a decline in the average balance of investments to $11.7 million from $12.9 million, reflecting continued paydown of the investment portfolio, with a modest further impact from a three basis point decline in average yield to 3.36% from 3.39%.

Interest income on cash and cash equivalents increased $51 thousand, or 5.0%, to $1.1 million for the three months ended March 31, 2026, compared to $1.0 million for the three months ended March 31, 2025.

The increase was primarily due to a higher average balance of $120.7 million compared to $96.0 million for the same period in 2025, mainly attributable to higher deposit inflows and the repayment of borrowings and subordinated debt during the fourth quarter of 2025.

The increase in average balance was partially offset by a 70 basis point decline in average yield to 3.57% from 4.27%, reflecting the lower market interest rate environment.

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

Interest Expense

Three Months Ended September 30,

Three Months Ended March 31,

Change Percent Change

3 unchanged sentences

Total interest expense $ 5,418 $ 5,635 $ (217) (3.9) %

Q3 2025 vs Q3 2024 .

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

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

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

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

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

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

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

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

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

Total interest expense decreased $217 thousand, or 3.9%, to $5.4 million for the three months ended March 31, 2026, from $5.6 million for the three months ended March 31, 2025.

The decrease was primarily attributable to lower interest rates across most interest-bearing liabilities, resulting from lower market interest rates generally, partially offset by an increase in our average balance of interest-bearing liabilities.

Interest expense on certificate accounts declined $303 thousand, driven by a $379 thousand rate-related decrease, partially offset by a $76 thousand volume-related increase.

The average balance of certificate accounts rose to $301.3 million for the three months ended March 31, 2026, from $293.0 million during the same period in 2025, while the average rate paid fell to 3.68% from 4.21%.

The decline in the average rate reflected lower market interest rates and the repricing of maturing certificates into the current rate environment.

In addition, interest expense on demand and NOW accounts decreased $26 thousand, due to both lower average balances and slightly lower rates.

Interest expense on savings and money market accounts increased $248 thousand, or 12.1%, to $2.3 million for the three months ended March 31, 2026, from $2.1 million for the same period in 2025, primarily due to an increase in average balances to $388.6 million from $332.4 million, reflecting shifts in customer deposit preferences from certificate accounts into more liquid deposit products.

This increase was partially offset by a 10 basis point decline in the average rate paid to 2.41% from 2.51%, as we implemented repricing strategies to manage overall funding costs.

Interest expense on borrowings, comprised solely of FHLB advances, decreased $154 thousand , primarily due to a $14.4 million decline in average borrowings following the payoff of an FHLB advance during the fourth quarter of 2025.

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

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

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

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

Nine Months Ended September 30, Amount

Change Percent Change

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

Borrowings 798 1,293 (495) (38.3)

Subordinated notes 504 504 — —

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

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

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

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

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

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

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

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

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

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

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

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

The average balance of FHLB advances was $10.6 million for the three months ended March 31, 2026, compared to $25.0 million for the three months ended March 31, 2025.

The average rate paid on borrowings decreased ten basis points to 4.15% for the quarter ended March 31, 2026, compared to 4.25% for the same quarter in 2025.

Interest expense on subordinated notes was $186 thousand for the three months ended March 31, 2026, compared to $168 thousand for the three months ended March 31, 2025.

The increase was due to the debt converting to a variable-rate instrument that reprices on a quarterly basis from the previous fixed-rate period, partially offset by a lower average balance as a result of the paydown of $4.0 million of our subordinated debt balance in the fourth quarter of 2025.

Net Interest Income.

Q3 2025 vs Q3 2024 .

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

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

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

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

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

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

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

Net interest income increased $976 thousand, or 12.1%, to $9.0 million for the three months ended March 31, 2026, from $8.1 million for the three months ended March 31, 2025, driven by both growth in interest-earning asset balances and improvement in the net interest rate spread, reflecting higher loan yields and lower funding costs across most categories of interest-bearing liabilities.

These changes were partially offset by a decrease in the average yield on investments and interest-bearing cash.

Overall, the decline in average funding costs and increase in average yield on loans resulted in a 29 basis point improvement in the net interest rate spread and a 26 basis point increase in the annualized net interest margin, which rose to 3.51% for the three months ended March 31, 2026, compared to 3.25% for the same period in 2025.

Through most of 2025, the Federal Open Market Committee of the Federal Reserve (“FOMC”) maintained the target range for the federal funds rate at 4.25% to 4.50%, where it remained until September 2025.

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

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

The FOMC subsequently lowered the target

range 75 basis points to 3.50% to 3.75% between September 2025 and December 2025.

The FOMC maintained the target range for the federal funds rate through the first quarter of 2026.

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

1 unchanged sentence

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

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

2025 2024 2025 2024

Three Months Ended March 31,

Provision for (release of) credit losses on loans $ 49 $ (85)

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

Provision for (release of) credit losses on unfunded loan commitments 74 (118)

Provision for (release of) credit losses $ 123 $ (203)

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

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

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

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

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

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

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

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

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

additional qualitative adjustment related to loan review.

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

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

A provision for credit losses of $123 thousand was recorded for the quarter ended March 31, 2026, compared to a release of provision for credit losses of $203 thousand for the quarter ended March 31, 2025.

The swing to a provision in the current quarter resulted primarily from annual updates to model assumptions that increased estimated loss factors, growth in the loan portfolio, and additional qualitative adjustments applied to the commercial loan segment, reflecting uncertainty surrounding geopolitical conditions and the potential impact of tariffs on our borrowers.

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.

Net charge-offs for the three months ended March 31, 2026 totaled $19 thousand, compared to $21 thousand for the three months ended March 31, 2025.

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.

2 unchanged sentences

Noninterest Income.

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

Three Months Ended September 30, Amount

Change Percent

Service charges and fee income $ 672 $ 628 $ 44 7.0 %

Earnings on BOLI 225 186 39 21.0

Mortgage servicing income 262 280 (18) (6.4)

Fair value adjustment on mortgage servicing rights (372) 101 (473) (468.3)

Net gain on sale of loans 94 40 54 135.0

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

The decrease in noninterest income was primarily due to:

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

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

These decreases were partially offset by:

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

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

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

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

Nine Months Ended September 30, Amount

Total noninterest income decreased $188 thousand, or 17.1%, to $910 thousand for the three months ended March 31, 2026, as compared to $1.1 million for the three months ended March 31, 2025, as reflected below (dollars in thousands):

Three Months Ended March 31, Amount

Change Percent

7 unchanged sentences

The decrease in noninterest income was primarily due to:

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

• a $47 thousand decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than originations replaced repayments;

• a $30 thousand decrease in other income due to a prior year gain on disposal of assets due to insurance claims on the loss of fully depreciated assets and no comparable gain in the current period;

• a $18 thousand decrease in net gain on sale of loans due to fewer loans sold.

These decreases were partially offset by;

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

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

• a $60 thousand decrease in service charges and fee income, primarily due to differences in the volume incentive paid by Mastercard in 2025 and 2026;

• a $65 thousand decrease in earnings from BOLI, primarily due to a one-time benefit recognized in the first quarter of 2025 in connection with the surrender and exchange of existing policies into higher-yielding policies, which did not recur in the current quarter, partially offset by improved yields on the new policies;

• a $21 thousand decrease in mortgage servicing income as a result of a smaller servicing portfolio;

• a $41 thousand increase in the fair value adjustment loss on mortgage servicing rights, reflecting a smaller servicing portfolio and changes in valuation assumptions related to servicing costs and interest rate movements;

• a $53 thousand decrease in other income due to estimated costs related to the Tacoma branch closure announced in the January 2026 and which closed in April 2026.

These decreases were partially offset by a $52 thousand increase in net gain on sale of loans due to an increase in the volume of loans sold.

Noninterest Expense.

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

Three Months Ended September 30, Amount

Change Percent

Salaries and benefits $ 4,259 $ 4,469 $ (210) (4.7) %

Operations 1,483 1,540 (57) (3.7) %

Regulatory assessments 221 189 32 16.9 %

Occupancy 431 414 17 4.1 %

Data processing 1,274 1,067 207 19.4 %

Net loss (gain) on OREO and repossessed assets 8 — 8 — %

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

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

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

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

These decreases were partially offset by:

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

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

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

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

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

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

Nine Months Ended September 30, Amount

Total noninterest expense remained relatively unchanged during the three months ended March 31, 2026, compared to the three months ended March 31, 2025, as reflected below (dollars in thousands):

Three Months Ended March 31, Amount

Change Percent

4 unchanged sentences

Data processing 1,287 1,293 (6) (0.5) %

Net loss (gain) on OREO and repossessed assets 19 (10) 29 (290.0)

Net loss on OREO and repossessed assets 3 3 — — %

Total noninterest expense $ 7,874 $ 7,914 $ (40) (0.5) %

The increase in noninterest expense was primarily due to:

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

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

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

• a $29 thousand increase in OREO and repossessed assets related-expense, due to the addition of new properties in 2025 and the absence of property sales in the current year.

These increases were partially offset by:

• a $495 thousand decrease in salaries and benefits related to lower incentive compensation expense as a result of changes to the calculation of incentive compensation;

• a $275 thousand decrease in operations expense, primarily due to lower expenses across various accounts resulting from ongoing cost saving initiatives and process improvements.

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

• a $137 thousand decrease in salaries and benefits due to the impact of deferred compensation accruals for key executives and an increase in deferred salary costs associated with loan growth, partially offset by higher medical insurance premiums;

• a $23 thousand decrease in regulatory assessments, primarily due to reduced quarterly assessments resulting from a lower rate applied to a lower average asset balance;

• a $10 thousand decrease in occupancy expense, due to higher building lease charges in the first quarter of 2025 resulting from lease renewals and maintenance charges.

These decreases were partially offset by a $136 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing.

These costs reflect higher transaction volumes and vendor rate adjustments and are expected to continue at a similar level in future quarters.

The efficiency ratio improved 723 basis points to 79.08% for the quarter ended March 31, 2026 from 86.31% for the same period in 2025, primarily reflecting significant growth in net interest income driven by lower funding costs and higher loan yields.

Income Tax Expense .

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

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

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

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

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

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

The provision for income taxes was $384 thousand for the three months ended March 31, 2026, compared to $291 thousand for the three months ended March 31, 2025.

The effective tax rate decreased to 19.59% from 19.96% primarily because the first quarter of 2025 included a taxable gain recognized in connection with the surrender and exchange of BOLI policies, which elevated the prior year effective tax rate and did not recur in the current quarter.

Capital and Liquidity

The Management’s Discussion and Analysis in Item 7 of the Company’s 2025 Form 10-K contains an overview of Sound Financial Bancorp’s and the Bank’s liquidity management, sources of liquidity and cash flows.

Although there have been no material changes in our liquidity management, sources of liquidity and cash flows since our 2024 Form 10-K, this discussion updates that disclosure for the nine months ended September 30, 2025.

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

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

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

We paid cash dividends of $0.57 per common share during the nine months ended September 30, 2025 and September 30, 2024, which equates to a dividend payout ratio of 29.75% and 53.66%, respectively.

Although there have been no material changes in our liquidity management, sources of liquidity and cash flows since December 31, 2025, this discussion updates that disclosure for the three months ended March 31, 2026.

Stockholders’ equity totaled $110.4 million at March 31, 2026 and $109.4 million at December 31, 2025.

In addition to net income of $1.6 million, other sources of capital during the three months ended March 31, 2026 included $57 thousand related to stock-based compensation and $3 thousand in proceeds from stock option exercises.

Uses of capital during the three months ended March 31, 2026 primarily included $541 thousand of dividends paid on common stock and an $80 thousand increase in accumulated other comprehensive loss, net of tax, primarily resulting from additional unrealized losses on available-for-sale securities.

We paid cash dividends of $0.21 per common share during the three months ended March 31, 2026, compared to $0.19 per common share during the three months ended March 31, 2025, which equates to a dividend payout ratio of 34.33% and 41.73%, respectively.

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

Assuming continued payment of the regular quarterly cash dividend during the remainder of 2025 at the rate of $0.19 per share, our average total dividend paid each quarter would be approximately $488 thousand based on the number of outstanding shares as of September 30, 2025.

Assuming continued payment of the regular quarterly cash dividend during the remainder of 2026 at the rate of $0.21 per share, our average total dividend paid each quarter would be approximately $539 thousand based on the number of outstanding shares as of March 31, 2026.

The dividends, if any, we pay may be limited as more fully discussed under “Business—How We Are Regulated—Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2025 Form 10-K.

3 unchanged sentences

Stock repurchases may also offset the dilutive effects of stock compensation awards.

In January 2024, the Board of Directors approved a new stock repurchase program authorizing the Company to purchase up to $1.5 million of the Company’s issued and outstanding common stock over a period of 12 months, which expired on January 26, 2025 and was not renewed.

The Company does not currently have a stock repurchase program in place.

For additional details on our stock repurchase activity, see “Unregistered Sales of Equity Securities and Use of Proceeds” contained in Part II, Item 2 of this Form 10-Q.

12 unchanged sentences

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

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

At September 30, 2025, we had the ability to borrow $158.9 million in FHLB advances and access to additional borrowings of $19.5 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements.

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

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

As of March 31, 2026, we had $145.5 million in cash and cash equivalents and available-for-sale investment securities, and $281 thousand in loans held-for-sale.

At March 31, 2026, we had the ability to borrow $182.6 million in FHLB advances and access to additional borrowings of $19.1 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements.

We had $10.0 million in outstanding advances from the FHLB and none from the Federal Reserve at March 31, 2026.

We also had a $20.0 million credit facility with Pacific Coast Bankers’ Bank available, with no balance outstanding, at March 31, 2026.

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

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

As of March 31, 2026, management was not aware of any events reasonably likely to have a material adverse effect on our liquidity, capital resources or operations.

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

2 unchanged sentences

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

Refer to the accompanying Notes to Condensed Consolidated Financial Statements elsewhere in this report for the expected timing of such payments as of September 30, 2025.

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

Refer to the accompanying Notes to Condensed Consolidated Financial Statements elsewhere in this report for the expected timing of such payments as of March 31, 2026.

These include payments related to (i) long-term borrowings (Note 8—Borrowings, FHLB

Stock and Subordinated Notes) and (ii) operating leases (Note 10—Leases).

See the discussion below for information regarding commitments to extend credit and standby letters of credit.

10 unchanged sentences

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

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

September 30, 2025 December 31, 2024

At March 31, 2026 and December 31, 2025, financial instrument contractual amounts representing credit risk were as follows (in thousands):

March 31, 2026 December 31, 2025

Residential mortgage commitments $ 6,769 $ 1,008

7 unchanged sentences

its sources of liquidity are generally dividends up-streamed from Sound Community Bank, interest on investment securities, if any, and borrowings from outside sources.

Banking regulations may limit the dividends that may be paid to Sound Financial Bancorp by Sound Community Bank.

Banking regulations limit the dividends that may be paid to Sound Financial Bancorp by Sound Community Bank.

See “Business — How We Are Regulated — Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2025 Form 10-K.

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

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

See “Note 8 — Borrowings” for additional detail.

At March 31, 2026, Sound Financial Bancorp, on an unconsolidated basis, had $2.2 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

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

2 unchanged sentences

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action (“PCA”).

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

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

In February 2019, the U.S.

federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of the CECL accounting standard.

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

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

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

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

under the agencies’ PCA framework.

As of March 31, 2026, the Bank’s CBLR was 10.62%, which exceeded the minimum requirement of 9%.

Subsequent to March 31, 2026, the federal banking agencies finalized a rule lowering the minimum CBLR requirement from 9% to 8%, effective July 1, 2026.

The Bank’s CBLR of 10.62% at March 31, 2026 exceeds both the current and the forthcoming minimum requirements.

See "Part I, Item 1.

2 unchanged sentences

The Company provided information about market risk in Item 7A of its 2025 Form 10-K.

There have been no material changes in our market risk since our 2024 Form 10-K.

There have been no material changes in our market risk since December 31, 2025.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis