Item 1. Financial Statements
Item 1. Financial Statements
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share and per share amounts)
June 30,
2026 December 31,
2025
ASSETS
Cash and cash equivalents $ 120,072 $ 138,453
Available-for-sale (“AFS”) securities, at fair value (amortized cost of $ 8,586 and $ 8,770 as of June 30, 2026 and December 31, 2025, respectively)
7,575 7,699
Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $ 1,572 and $ 1,578 at June 30, 2026 and December 31, 2025, respectively)
1,876 1,892
Equity securities 5,000 —
Loans held-for-sale 1,591 542
Loans held-for-portfolio 891,969 905,533
Allowance for credit losses (“ACL”) on loans ( 8,420 ) ( 8,605 )
Total loans held-for-portfolio, net 883,549 896,928
Accrued interest receivable 3,747 3,771
Bank-owned life insurance (“BOLI”), net 24,055 23,327
Other real estate owned (“OREO”) and repossessed assets, net 47 344
Mortgage servicing rights (“MSRs”), at fair value 4,277 4,183
Federal Home Loan Bank ("FHLB") stock, at cost 670 1,060
Premises and equipment, net 4,127 4,239
Right of use assets 2,889 3,423
Other assets 6,249 6,312
Total assets $ 1,065,724 $ 1,092,173
LIABILITIES
Deposits
Interest-bearing $ 801,541 $ 816,309
Noninterest-bearing demand 129,340 132,566
Total deposits 930,881 948,875
Borrowings — 10,000
Accrued interest payable 634 674
Lease liabilities 3,103 3,671
Other liabilities 9,597 10,366
Advance payments from borrowers for taxes and insurance 1,119 1,387
Subordinated notes, net 7,822 7,801
Total liabilities 953,156 982,774
COMMITMENTS AND CONTINGENCIES (NOTE 7) — —
STOCKHOLDERS’ EQUITY
Preferred stock, $ 0.01 par value, 10,000,000 shares authorized, none issued or outstanding
— —
Common stock, $ 0.01 par value, 40,000,000 shares authorized, 2,568,043 and 2,567,953 shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively
25 25
Additional paid-in capital 28,846 28,737
Retained earnings 84,496 81,483
Accumulated other comprehensive loss, net of tax ( 799 ) ( 846 )
Total stockholders’ equity 112,568 109,399
Total liabilities and stockholders’ equity $ 1,065,724 $ 1,092,173
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except share and per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
INTEREST INCOME
Loans, including fees $ 13,777 $ 13,695 $ 27,083 $ 26,283
Interest and dividends on investments, cash and cash equivalents 1,069 1,220 2,227 2,339
Total interest income 14,846 14,915 29,310 28,622
INTEREST EXPENSE
Deposits 4,976 5,225 10,100 10,430
Borrowings 90 267 198 529
Subordinated notes 189 168 375 336
Total interest expense 5,255 5,660 10,673 11,295
Net interest income 9,591 9,255 18,637 17,327
(RELEASE OF) PROVISION FOR CREDIT LOSSES ( 223 ) 170 ( 100 ) ( 33 )
Net interest income after (release of) provision for credit losses 9,814 9,085 18,737 17,360
NONINTEREST INCOME
Service charges and fee income 684 664 1,307 1,348
Earnings on BOLI 277 229 407 423
Mortgage servicing income 245 263 493 531
Fair value adjustment on MSRs 119 ( 80 ) ( 21 ) ( 179 )
Net gain on sale of loans 112 44 212 93
Other income (loss) ( 8 ) — ( 61 ) —
Total noninterest income 1,429 1,120 2,337 2,216
NONINTEREST EXPENSE
Salaries and benefits 4,645 4,321 9,103 8,916
Operations 1,617 1,443 3,118 2,808
Regulatory assessments 129 222 327 442
Occupancy 388 416 815 853
Data processing 1,332 1,254 2,619 2,547
Net loss and expenses on OREO and repossessed assets 17 9 20 12
Total noninterest expense 8,128 7,665 16,002 15,578
Income before provision for income taxes 3,115 2,540 5,072 3,998
Provision for income taxes 597 488 981 779
Net income $ 2,518 $ 2,052 $ 4,091 $ 3,219
Earnings per common share:
Basic $ 0.98 $ 0.80 $ 1.59 $ 1.25
Diluted $ 0.98 $ 0.79 $ 1.59 $ 1.24
Weighted-average number of common shares outstanding:
Basic 2,564,165 2,556,562 2,563,316 2,555,413
Diluted 2,574,631 2,577,990 2,574,389 2,578,287
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Net income $ 2,518 $ 2,052 $ 4,091 $ 3,219
Available for sale securities:
Unrealized gains (losses) arising during the period 161 ( 85 ) 59 ( 106 )
Income tax (expense) benefit related to unrealized gains (losses) ( 34 ) 18 ( 12 ) 22
Other comprehensive income (loss), net of tax 127 ( 67 ) 47 ( 84 )
Comprehensive income $ 2,645 $ 1,985 $ 4,138 $ 3,135
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 2026 and 2025 (unaudited)
(In thousands, except share and per share amounts)
Shares Common
Stock Additional Paid-in Capital Retained
Earnings Accumulated Other
Comprehensive Loss, net of tax Total
Stockholders’
Equity
Balance, at March 31, 2026
2,568,043 $ 25 $ 28,797 $ 82,518 $ ( 926 ) $ 110,414
Net income — — — 2,518 — 2,518
Other comprehensive income, net of tax expense — — — — 127 127
Share-based compensation — — 49 — — 49
Cash dividends paid on common stock ($ 0.21 per share)
— — — ( 540 ) — ( 540 )
Balance, at June 30, 2026
2,568,043 $ 25 $ 28,846 $ 84,496 $ ( 799 ) $ 112,568
Balance, at December 31, 2025
2,567,953 $ 25 $ 28,737 $ 81,483 $ ( 846 ) $ 109,399
Net income — — — 4,091 — 4,091
Other comprehensive income, net of tax expense — — — — 47 47
Share-based compensation — — 106 — — 106
Cash dividends paid on common stock ($ 0.42 per share)
— — — ( 1,078 ) — ( 1,078 )
Common stock options exercised 90 — 3 — — 3
Balance, at June 30, 2026
2,568,043 $ 25 $ 28,846 $ 84,496 $ ( 799 ) $ 112,568
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Shares Common
Stock Additional Paid-in Capital Retained
Earnings Accumulated Other Comprehensive
Loss, net of tax Total
Stockholders’
Equity
Balance, at March 31, 2025
2,566,069 $ 25 $ 28,515 $ 76,952 $ ( 1,061 ) $ 104,431
Net income — — — 2,052 — 2,052
Other comprehensive loss, net of tax benefit — — — — ( 67 ) ( 67 )
Share-based compensation — — 75 — — 75
Cash dividends paid on common stock ($ 0.19 per share)
— — — ( 487 ) — ( 487 )
Balance, at June 30, 2025
2,566,069 $ 25 $ 28,590 $ 78,517 $ ( 1,128 ) $ 106,004
Balance, at December 31, 2024
2,564,907 $ 25 $ 28,413 $ 76,272 $ ( 1,044 ) $ 103,666
Net income — — — 3,219 — 3,219
Other comprehensive loss, net of tax benefit — — — — ( 84 ) ( 84 )
Share-based compensation — — 156 — — 156
Cash dividends paid on common stock ($ 0.38 per share)
— — — ( 974 ) — ( 974 )
Common stock options exercised 1,162 — 21 — — 21
Balance, at June 30, 2025
2,566,069 $ 25 $ 28,590 $ 78,517 $ ( 1,128 ) $ 106,004
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six Months Ended June 30,
2026 2025
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,091 $ 3,219
Adjustments to reconcile net income to net cash from operating activities:
Amortization of net premiums on investments 42 42
(Release of) provision for credit losses ( 100 ) ( 33 )
Depreciation and amortization 202 261
Share-based compensation 106 156
Fair value adjustment on mortgage servicing rights 21 179
Right of use assets amortization 503 505
Change in lease liabilities ( 536 ) ( 513 )
Change in cash surrender value of BOLI ( 407 ) ( 423 )
Net change in advances from borrowers for taxes and insurance ( 268 ) ( 346 )
Net loss on disposal of assets, net 53 —
Net gain on sale of loans ( 212 ) ( 93 )
Proceeds from sale of loans held-for-sale 13,463 5,621
Originations of loans held-for-sale ( 14,415 ) ( 8,314 )
Net loss on OREO and repossessed assets 9 —
Change in operating assets and liabilities:
Accrued interest receivable 24 ( 187 )
Other assets 51 436
Accrued interest payable ( 40 ) ( 131 )
Other liabilities ( 858 ) 979
Net cash provided by operating activities 1,729 1,358
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments, maturities and sales of available-for-sale securities 162 142
Proceeds from principal payments of held-to-maturity securities 16 17
Purchase of equity investments ( 5,000 ) —
Net change in loans 13,454 ( 3,257 )
FHLB stock redeemed (purchased) 390 ( 4 )
Purchase of BOLI ( 321 ) —
Purchases of premises and equipment, net ( 90 ) ( 62 )
Proceeds from sale of OREO and other repossessed assets 349 —
Net cash provided by/(used in) investing activities 8,960 ( 3,164 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits ( 17,994 ) 61,660
Repayment of borrowings ( 10,000 ) —
Dividends paid on common stock ( 1,078 ) ( 974 )
Proceeds from common stock option exercises 3 21
Net cash (used in)/provided by financing activities ( 29,069 ) 60,707
Net change in cash and cash equivalents ( 18,380 ) 58,901
Cash and cash equivalents, beginning of period 138,453 43,641
Cash and cash equivalents, end of period $ 120,073 $ 102,542
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ 397 $ 762
Interest paid on deposits and borrowings 10,713 11,426
Noncash investing and financing activities:
Loans transferred from loans held-for-sale to loans held-for-portfolio — 1,200
Loans transferred from loans held-for-portfolio to OREO and repossessed assets 61 300
Cash paid for principal portion from finance leases 12 12
ROU assets obtained in exchange for new operating lease liabilities 66 583
ROU assets obtained in exchange for new finance lease liabilities — 130
Derecognition of ROU asset 98 —
Derecognition of lease liability 98 —
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 – Basis of Presentation
The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Sound Financial Bancorp, Inc, and its wholly owned subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc. References in this document to “Sound Financial Bancorp” refer to Sound Financial Bancorp, Inc. and references to the “Bank” refer to Sound Community Bank. References to “we,” “us,” and “our” or the “Company” refer to Sound Financial Bancorp, the Bank and Sound Community Insurance Agency, Inc., collectively, unless the context otherwise requires.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 18, 2026 (“2025 Form 10-K”). The results for the interim periods are not necessarily indicative of results for a full year or any other future period.
We have not made any changes in our significant accounting policies from those disclosed in the 2025 Form 10-K.
Note 2 – Accounting Pronouncements Recently Issued or Adopted
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) , which will change the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (for example, employee compensation, depreciation and amortization) in expense captions. This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its disclosures and expects adoption will result in a more disaggregated presentation of expense line items in its financial statement footnotes.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software , which simplifies and modernizes the accounting for internal-use software by removing prescriptive project stage guidance and introducing a new capitalization threshold. Under the revised standard, software development costs are capitalized when management authorizes and commits funding for the project, and it is probable the software will be completed and used as intended. This ASU is effective for annual and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.
In November 2025, the FASB issued ASU 2025‑08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans , which expands the scope of the “gross‑up” method, formerly applicable only to purchased credit‑deteriorated ("PCD") assets, to include acquired non‑PCD loans that meet certain criteria, now referred to as “purchased seasoned loans” (PSLs). Under this model, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized cost basis, thereby eliminating the day-one credit‑loss expense previously required for non‑PCD assets. PSLs are defined as non‑PCD loans acquired either (i) through a business combination, or (ii) purchased more than 90 days after origination when the acquirer was not involved in origination. This ASU is effective on a prospective basis for loans acquired on or after the adoption date, which is for interim and annual reporting periods beginning after December 15, 2026. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s consolidated financial statements.
In December 2025, the FASB issued ASU 2025‑11, Interim Reporting (Topic 270): Narrow‑Scope Improvements , which clarifies and enhances guidance under ASC 270 on interim financial reporting by (i) clarifying the scope of ASC 270 such that it now explicitly applies only to entities that issue complete interim financial statements and related notes under U.S. GAAP, (ii) establishing clear guidance on the form of interim financial statements and notes, incorporating a comprehensive list of
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required interim disclosures drawn from across the ASC, and (iii) introducing a requirement to disclose material events and changes occurring after the end of the last annual period that could impact interim results. This ASU is effective for interim and annual reporting periods beginning after December 15, 2027. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s consolidated financial statements.
Note 3 – Investments
At June 30, 2026, the Company did not own any debt securities classified as trading.
Debt securities
The amortized cost and estimated fair value of our AFS securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
June 30, 2026
Municipal bonds $ 6,292 $ 9 $ ( 768 ) $ 5,533
Agency mortgage-backed securities 2,294 6 ( 258 ) 2,042
Total $ 8,586 $ 15 $ ( 1,026 ) $ 7,575
December 31, 2025
Municipal bonds $ 6,313 $ 10 $ ( 841 ) $ 5,482
Agency mortgage-backed securities 2,457 10 ( 250 ) 2,217
Total $ 8,770 $ 20 $ ( 1,091 ) $ 7,699
The amortized cost and estimated fair value of our HTM securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
June 30, 2026
Municipal bonds $ 703 $ — $ ( 133 ) $ 570
Agency mortgage-backed securities 1,173 — ( 171 ) 1,002
Total $ 1,876 $ — $ ( 304 ) $ 1,572
December 31, 2025
Municipal bonds $ 703 $ — $ ( 147 ) $ 556
Agency mortgage-backed securities 1,189 — ( 167 ) 1,022
Total $ 1,892 $ — $ ( 314 ) $ 1,578
The amortized cost and estimated fair value of AFS and HTM securities at June 30, 2026, by contractual maturity, are shown below (in thousands). Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, consisting of agency mortgage-backed securities, are shown separately.
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June 30, 2026
Available-for-sale Held-to-maturity
Amortized
Cost Estimated Fair Value Amortized
Cost Estimated Fair Value
Due within one year $ 150 $ 150 $ — $ —
Due after one year through five years 305 305 — —
Due after five years through ten years 1,715 1,646 — —
Due after ten years 4,122 3,432 703 570
Agency mortgage-backed securities 2,294 2,042 1,173 1,002
Total $ 8,586 $ 7,575 $ 1,876 $ 1,572
There were no pledged securities at June 30, 2026 or December 31, 2025.
There were no sales of AFS or HTM securities during the three and six months ended June 30, 2026 and 2025.
Accrued interest receivable on securities totaled $ 47 thousand at both June 30, 2026 and December 31, 2025, in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the allowance for credit losses.
The following table summarizes the aggregate fair value and gross unrealized loss by length of time of those investments for which an allowance for credit losses has not been recorded that have been in a continuous unrealized loss position at the dates indicated (in thousands):
June 30, 2026
Less Than 12 Months 12 Months or Longer Total
Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Available-for-sale securities
Municipal bonds $ — $ — $ 3,868 $ ( 768 ) $ 3,868 $ ( 768 )
Agency mortgage-backed securities 41 — 1,735 ( 258 ) 1,776 ( 258 )
Total available-for-sale securities $ 41 $ — $ 5,603 $ ( 1,026 ) $ 5,644 $ ( 1,026 )
Held-to-maturity securities
Municipal bonds $ — $ — $ 570 $ ( 133 ) $ 570 $ ( 133 )
Agency mortgage-backed securities — — 1,002 ( 171 ) 1,002 ( 171 )
Total held-to-maturity securities $ — $ — $ 1,572 $ ( 304 ) $ 1,572 $ ( 304 )
December 31, 2025
Less Than 12 Months 12 Months or Longer Total
Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Available-for-sale securities
Municipal bonds $ — $ — $ 3,816 $ ( 841 ) $ 3,816 $ ( 841 )
Agency mortgage-backed securities — — 1,871 ( 250 ) 1,871 ( 250 )
Total $ — $ — $ 5,687 $ ( 1,091 ) $ 5,687 $ ( 1,091 )
Held-to-maturity securities
Municipal bonds $ — $ — $ 556 $ ( 147 ) $ 556 $ ( 147 )
Agency mortgage-backed securities — — 1,022 ( 167 ) 1,022 ( 167 )
Total held-to-maturity securities $ — $ — $ 1,578 $ ( 314 ) $ 1,578 $ ( 314 )
There was no allowance for credit losses on securities at June 30, 2026 or December 31, 2025. At both June 30, 2026 and December 31, 2025, the total securities portfolio consisted of 11 agency mortgage-backed securities and 11 municipal bonds. There was one security in an unrealized loss position for less than 12 months and 15 securities in an unrealized loss position for
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more than 12 months at June 30, 2026 and no securities in an unrealized loss position for less than 12 months and 15 securities in an unrealized loss position for more than 12 months at December 31, 2025. The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and not related to the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. There was no provision for credit losses recognized for investment securities during the three and six months ended June 30, 2026 and 2025, because the declines in fair value were not attributable to credit quality and because we do not intend, and it is not likely that we will be required, to sell these securities before recovery of their amortized cost basis.
Equity Securities
At June 30, 2026, the Company held equity securities without readily determinable fair values with a carrying value of $ 5.0 million, accounted for under the measurement alternative in accordance with ASC 321. During the three and six months ended June 30, 2026, there was no impairment and no observable price changes. The Company held no equity securities at December 31, 2025.
Note 4 – Loans
Loans-held-for portfolio (which excludes loans held-for-sale) at the dates indicated were as follows (in thousands):
June 30,
2026 December 31,
2025
Real estate loans:
One-to-four family $ 244,168 $ 253,841
Home equity 32,107 31,468
Commercial and multifamily 381,809 409,729
Construction and land 76,158 50,261
Total real estate loans 734,242 745,299
Consumer loans:
Manufactured homes 42,668 43,080
Floating homes 87,566 87,315
Other consumer 13,832 16,571
Total consumer loans 144,066 146,966
Commercial business loans 15,748 15,378
Total loans held-for-portfolio 894,056 907,643
Premiums for purchased loans (1)
583 627
Deferred fees, net ( 2,670 ) ( 2,737 )
Total loans held-for-portfolio, gross 891,969 905,533
Allowance for credit losses — loans ( 8,420 ) ( 8,605 )
Total loans held-for-portfolio, net $ 883,549 $ 896,928
(1) Includes premiums resulting from purchased loans of $ 343 thousand related to one-to-four family loans, $ 196 thousand related to commercial and multifamily loans, and $ 43 thousand related to commercial business loans as of June 30, 2026. Includes premiums resulting from purchased loans of $ 367 thousand related to one-to-four family loans, $ 212 thousand related to commercial and multifamily loans, and $ 49 thousand related to commercial business loans as of December 31, 2025.
As of June 30, 2026, there were six collateral dependent one-to-four-family real estate loans, totaling $ 1.2 million, that were in process of foreclosure .
The following table presents a summary of activity in the ACL on loans and the reserve for unfunded loan commitments for the periods indicated (in thousands):
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Three Months Ended June 30,
2026 2025
ACL - Loans Reserve for Unfunded Loan Commitments ACL ACL - Loans Reserve for Unfunded Loan Commitments ACL
Balance at beginning of period $ 8,635 $ 222 $ 8,857 $ 8,393 $ 116 $ 8,509
(Release of) provision for credit losses during the period ( 185 ) ( 38 ) ( 223 ) 164 6 170
Net charge-offs during the period ( 30 ) — ( 30 ) ( 21 ) — ( 21 )
Balance at end of period $ 8,420 $ 184 $ 8,604 $ 8,536 $ 122 $ 8,658
Six Months Ended June 30,
2026 2025
ACL - Loans Reserve for Unfunded Loan Commitments ACL ACL - Loans Reserve for Unfunded Loan Commitments ACL
Balance at beginning of period $ 8,605 $ 148 $ 8,753 $ 8,499 $ 234 $ 8,733
(Release of) provision for credit losses during the period ( 136 ) 36 ( 100 ) 79 ( 112 ) ( 33 )
Net charge-offs during the period ( 49 ) — ( 49 ) ( 42 ) — ( 42 )
Balance at end of period $ 8,420 $ 184 $ 8,604 $ 8,536 $ 122 $ 8,658
Accrued interest receivable on loans receivable totaled $ 3.5 million at June 30, 2026 and $ 3.6 million December 31, 2025, in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the ACL.
The ACL is measured using the current expected credit losses (“CECL”) approach for financial instruments measured at amortized cost and for other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts. We estimate the ACL using relevant information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. The ACL is measured on a collective (segment) basis when similar risk characteristics exist. Historical credit loss experience for both the Company and segment-specific peers provides the basis for the estimate of expected credit losses. Segments are based upon federal call report segmentation. The reserve was applied on a loan-by-loan basis and condensed into the applicable segments reported below. The ACL is determined using quantitative and qualitative analysis. The quantitative analysis utilizes macroeconomic variables to establish a quantitative relationship between economic conditions and loan performance through an economic cycle. Qualitative adjustments include but are not limited to changes in lending policies; changes in the nature and volume of the portfolio; changes in staff experience levels; changes in the volume or trends of classified loans, delinquencies, and nonaccrual loans; concentration risk; value of underlying collateral; competitive, legal, and regulatory factors; changes in the loan review system; and economic conditions. We evaluate our ACL policy and judgments on an ongoing basis and update them as necessary based on changing conditions. See “Note 1—Organization and Significant Accounting Policies” in the Company’s 2025 Form 10-K for further information on the Company’s ACL accounting policy.
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The following tables summarize the activity in the ACL - loans for the periods indicated (in thousands):
Three Months Ended June 30, 2026
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
One-to-four family $ 3,264 $ — $ — $ ( 82 ) $ 3,182
Home equity 363 — — ( 26 ) 337
Commercial and multifamily 1,658 — — ( 171 ) 1,487
Construction and land 584 — — 15 599
Manufactured homes 1,085 — — 70 1,155
Floating homes 1,225 — — 34 1,259
Other consumer (1)
332 ( 3 ) 3 ( 22 ) 310
Commercial business (2)
124 ( 30 ) — ( 3 ) 91
Total $ 8,635 $ ( 33 ) $ 3 $ ( 185 ) $ 8,420
(1) During the three months ended June 30,2026, gross charge-offs of other consumer loans related entirely to deposit overdrafts.
(2) During the three months ended June 30,2026, there was one commercial business loan for $ 30 thousand originated in 2024 that was charged off.
Three Months Ended June 30, 2025
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
One-to-four family $ 3,328 $ — $ — $ ( 1 ) $ 3,327
Home equity 362 — — ( 2 ) 360
Commercial and multifamily 1,181 — — 55 1,236
Construction and land 279 — — ( 10 ) 269
Manufactured homes 1,303 — — 92 1,395
Floating homes 1,409 — — 1 1,410
Other consumer (1)
448 ( 23 ) 2 24 451
Commercial business 83 — — 5 88
Total $ 8,393 $ ( 23 ) $ 2 $ 164 $ 8,536
(1) During the three months ended June 30, 2025, there was one other consumer loan for $ 16 thousand originated in 2024 related to a consumer line of credit that was charged off with the remainder of the gross charge-offs of other consumer loans related entirely to deposit overdrafts.
Six Months Ended June 30, 2026
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
One-to-four family $ 3,340 $ — $ — $ ( 158 ) $ 3,182
Home equity 343 — — ( 6 ) 337
Commercial and multifamily 1,484 — — 3 1,487
Construction and land 519 — — 80 599
Manufactured homes (1)
1,174 ( 20 ) — 1 1,155
Floating homes 1,259 — — — 1,259
Other consumer (2)
370 ( 9 ) 10 ( 61 ) 310
Commercial business (3)
116 ( 30 ) — 5 91
Total $ 8,605 $ ( 59 ) $ 10 $ ( 136 ) $ 8,420
(1) During the six months ended June 30, 2026, there was one manufactured home loan for $ 20 thousand originated in 2017 that was charged off.
(2) During the six months ended June 30, 2026, gross charge-offs of other consumer loans related entirely to deposit overdrafts
(3) During the six months ended June 30, 2026, there was one commercial business loan for $ 30 thousand originated in 2024 that was charged off.
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Six Months Ended June 30, 2025
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
One-to-four family $ 3,025 $ — $ — $ 302 $ 3,327
Home equity 307 — — 53 360
Commercial and multifamily 1,218 — — 18 1,236
Construction and land 992 — — ( 723 ) 269
Manufactured homes (1)
1,172 ( 19 ) — 242 1,395
Floating homes 1,282 — — 128 1,410
Other consumer (2)
401 ( 31 ) 8 73 451
Commercial business 102 — — ( 14 ) 88
Total $ 8,499 $ ( 50 ) $ 8 $ 79 $ 8,536
(1) During the six months ended June 30, 2025, there was one manufactured home loan for $ 19 thousand originated in 2022 that was charged off and then subsequently foreclosed upon.
(2) During the six months ended June 30, 2025, there was one other consumer loan for $ 16 thousand originated in 2024 related to a consumer line of credit that was charged off, with the remainder of the gross charge-offs of other consumer loans related entirely to deposit overdrafts.
Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans and other assets (such as OREO and repossessed assets), as well as debt and equity securities considered as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets have well-defined weaknesses that could result in loss if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified as "substandard," with the added characteristic that the weaknesses make collection or liquidation in full, highly questionable and improbable. Assets classified as "loss" are considered "uncollectible" and of such little value that their continuance as assets is not warranted.
Management regularly reviews loans in the portfolio to assess credit quality and to determine appropriate loan classification and grading. The grades for "watch" and "special mention" loans are used by the Company to identify and track potential problem loans that warrant management’s close attention based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan, or collateral concerns. These loans do not rise to the level of regulatory classifications such as substandard, doubtful, or loss. Loans identified as watch, special mention, substandard, doubtful, or loss are subject to additional problem loan reporting to management quarterly.
When we classify problem assets as either substandard or doubtful, these assets are evaluated to determine whether they should be individually assessed if they no longer share common risk characteristics with the rest of the portfolio. When we classify problem assets as a loss, we are required to charge off those assets in the period in which they are deemed uncollectible. Our determination as to the classification of our assets and the amount of our allowance for credit losses is subject to review by the FDIC (the Bank’s federal banking regulator) and the Washington Department of Financial Institutions (the Bank’s state banking regulator), which can order the establishment of additional credit loss allowance. Assets which do not currently expose us to sufficient risk to warrant classification as substandard or doubtful but possess weaknesses are required to be designated as special mention. There were no loans classified as doubtful or loss as of June 30, 2026 and December 31, 2025.
The following tables present the internally assigned grades as of June 30, 2026 and December 31, 2025, by type of loan and origination year (in thousands):
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At June 30, 2026
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Amortized Cost Basis Converted to Term
2026 2025 2024 2023 2022 Prior Total
One-to-four family:
Pass $ 10,857 $ 12,739 $ 17,123 $ 16,243 $ 62,973 $ 121,613 $ — $ — $ 241,548
Substandard — — — 1,473 286 894 — — 2,653
Total one-to-four family $ 10,857 $ 12,739 $ 17,123 $ 17,716 $ 63,259 $ 122,507 $ — $ — $ 244,201
Home equity:
Pass $ 228 $ 1,272 $ 2,149 $ 2,259 $ 2,046 $ 1,487 $ 21,181 $ 1,378 $ 32,000
Substandard — — — — — — 313 — 313
Total home equity $ 228 $ 1,272 $ 2,149 $ 2,259 $ 2,046 $ 1,487 $ 21,494 $ 1,378 $ 32,313
Commercial and multifamily:
Pass $ 9,012 $ 90,437 $ 33,568 $ 19,429 $ 77,403 $ 130,519 $ — $ — $ 360,368
Substandard — — — 4,990 4,956 10,034 — — 19,980
Total commercial and multifamily $ 9,012 $ 90,437 $ 33,568 $ 24,419 $ 82,359 $ 140,553 $ — $ — $ 380,348
Construction and land:
Pass $ 21,217 $ 31,423 $ 12,872 $ 7,479 $ 994 $ 1,501 $ — $ — $ 75,486
Substandard — — — 27 147 78 — — 252
Total construction and land $ 21,217 $ 31,423 $ 12,872 $ 7,506 $ 1,141 $ 1,579 $ — $ — $ 75,738
Manufactured homes:
Pass $ 2,215 $ 7,769 $ 7,462 $ 10,130 $ 5,429 $ 8,662 $ — $ — $ 41,667
Substandard — — 127 204 218 333 — — 882
Total manufactured homes $ 2,215 $ 7,769 $ 7,589 $ 10,334 $ 5,647 $ 8,995 $ — $ — $ 42,549
Floating homes:
Pass $ 4,558 $ 9,890 $ 18,136 $ 6,236 $ 13,536 $ 34,790 $ — $ — $ 87,146
Total floating homes $ 4,558 $ 9,890 $ 18,136 $ 6,236 $ 13,536 $ 34,790 $ — $ — $ 87,146
Other consumer:
Pass $ 816 $ 2,160 $ 1,311 $ 1,624 $ 298 $ 6,724 $ 692 $ — $ 13,625
Substandard — — — — — 240 1 — 241
Total other consumer $ 816 $ 2,160 $ 1,311 $ 1,624 $ 298 $ 6,964 $ 693 $ — $ 13,866
Commercial business:
Pass $ 225 $ 3,068 $ 186 $ 49 $ 254 $ 3,207 $ 8,793 $ — $ 15,782
Substandard — — 26 — — — — — 26
Total commercial business $ 225 $ 3,068 $ 212 $ 49 $ 254 $ 3,207 $ 8,793 $ — $ 15,808
Total loans
Pass $ 49,128 $ 158,758 $ 92,807 $ 63,449 $ 162,933 $ 308,503 $ 30,666 $ 1,378 $ 867,622
Substandard — — 153 6,694 5,607 11,579 314 — 24,347
Total loans $ 49,128 $ 158,758 $ 92,960 $ 70,143 $ 168,540 $ 320,082 $ 30,980 $ 1,378 $ 891,969
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At December 31, 2025
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Amortized Cost Basis
Converted to Term
2025 2024 2023 2022 2021 Prior Total
One-to-four family:
Pass $ 17,896 $ 18,112 $ 17,717 $ 66,239 $ 93,367 $ 38,871 $ — $ — $ 252,202
Substandard — — 1,117 289 91 200 — — 1,697
Total one-to-four family $ 17,896 $ 18,112 $ 18,834 $ 66,528 $ 93,458 $ 39,071 $ — $ — $ 253,899
Home equity:
Pass $ 1,292 $ 2,277 $ 2,534 $ 2,086 $ 771 $ 777 $ 20,827 $ 881 $ 31,445
Substandard — — — — — 50 68 121 239
Total home equity $ 1,292 $ 2,277 $ 2,534 $ 2,086 $ 771 $ 827 $ 20,895 $ 1,002 $ 31,684
Commercial and multifamily:
Pass $ 97,005 $ 33,810 $ 24,641 $ 78,185 $ 87,836 $ 72,359 $ — $ — $ 393,836
Substandard — — — 4,990 6,069 3,197 — — 14,256
Total commercial and multifamily $ 97,005 $ 33,810 $ 24,641 $ 83,175 $ 93,905 $ 75,556 $ — $ — $ 408,092
Construction and land:
Pass $ 22,342 $ 16,867 $ 7,785 $ 1,025 $ 668 $ 1,134 $ — $ — $ 49,821
Substandard — — — 150 — — — — 150
Total construction and land $ 22,342 $ 16,867 $ 7,785 $ 1,175 $ 668 $ 1,134 $ — $ — $ 49,971
Manufactured homes:
Pass $ 8,124 $ 8,183 $ 10,684 $ 5,678 $ 3,265 $ 6,316 $ — $ — $ 42,250
Substandard — — 228 219 — 254 — — 701
Total manufactured homes $ 8,124 $ 8,183 $ 10,912 $ 5,897 $ 3,265 $ 6,570 $ — $ — $ 42,951
Floating homes:
Pass $ 10,100 $ 18,833 $ 6,291 $ 14,636 $ 22,632 $ 14,404 $ — $ — $ 86,896
Total floating homes $ 10,100 $ 18,833 $ 6,291 $ 14,636 $ 22,632 $ 14,404 $ — $ — $ 86,896
Other consumer:
Pass $ 2,471 $ 1,604 $ 2,144 $ 327 $ 3,283 $ 5,837 $ 667 $ — $ 16,333
Substandard — — — — 6 256 — — 262
Total other consumer $ 2,471 $ 1,604 $ 2,144 $ 327 $ 3,289 $ 6,093 $ 667 — $ 16,595
Commercial business:
Pass $ 3,324 $ 255 $ 253 $ 288 $ 1,255 $ 2,747 $ 7,293 $ — $ 15,415
Substandard — — — — — — 30 — 30
Total commercial business $ 3,324 $ 255 $ 253 $ 288 $ 1,255 $ 2,747 $ 7,323 $ — $ 15,445
Total loans
Pass $ 162,554 $ 99,941 $ 72,049 $ 168,464 $ 213,077 $ 142,445 $ 28,787 $ 881 $ 888,198
Substandard — — 1,345 5,648 6,166 3,957 98 121 17,335
Total loans $ 162,554 $ 99,941 $ 73,394 $ 174,112 $ 219,243 $ 146,402 $ 28,885 $ 1,002 $ 905,533
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Nonaccrual and Past Due Loans . Loans are considered past due if the required principal and interest payments were not received as of the dates such payments were due.
The following table presents the amortized cost of nonaccrual loans as of the dates indicated, by type of loan (in thousands):
June 30, 2026 December 31, 2025
Total
Nonaccrual
Loans Total
Nonaccrual
Loans
with no ACL Total
Nonaccrual
Loans Total
Nonaccrual
Loans
with no ACL
One-to-four family $ 2,458 $ 2,458 $ 1,597 $ 1,597
Home equity 310 310 187 187
Commercial and multifamily 4,191 4,191 3,163 3,163
Construction and land 159 159 82 82
Manufactured homes 696 696 461 461
Other consumer 241 241 262 262
Commercial business — — 30 —
Total $ 8,055 $ 8,055 $ 5,782 $ 5,752
The following tables present the aging of past due loans, based on amortized cost, as of the dates indicated, by type of loan (in thousands):
June 30, 2026
30-59 Days
Past Due 60-89 Days
Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Accruing Total Past
Due Current Total Loans
One-to-four family $ — $ 222 $ 2,362 $ — $ 2,584 $ 241,617 $ 244,201
Home equity 422 6 — — 428 31,885 32,313
Commercial and multifamily — 939 4,025 — 4,964 375,384 380,348
Construction and land — — 158 — 158 75,580 75,738
Manufactured homes — 346 623 — 969 41,580 42,549
Floating homes — — — — — 87,146 87,146
Other consumer 7 152 — — 159 13,707 13,866
Commercial business — — — — — 15,808 15,808
Total $ 429 $ 1,665 $ 7,168 $ — $ 9,262 $ 882,707 $ 891,969
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December 31, 2025
30-59 Days
Past Due 60-89 Days
Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Accruing Total Past
Due Current Total Loans
One-to-four family $ 529 $ 491 $ 1,358 $ — $ 2,378 $ 251,521 $ 253,899
Home equity 522 275 — — 797 30,887 31,684
Commercial and multifamily 2,228 — 2,993 — 5,221 402,871 408,092
Construction and land — — 82 — 82 49,889 49,971
Manufactured homes 702 641 336 — 1,679 41,272 42,951
Floating homes 849 — — — 849 86,047 86,896
Other consumer 7 4 262 — 273 16,322 16,595
Commercial business 32 — 30 — 62 15,383 15,445
Total $ 4,869 $ 1,411 $ 5,061 $ — $ 11,341 $ 894,192 $ 905,533
Loan Modifications to Borrowers Experiencing Financial Difficulty. The Company has granted modifications which can generally be described in the following categories:
Principal Forgiveness : A modification in which the principal is reduced.
Rate Modification : A modification in which the interest rate is changed.
Term Modification : A modification in which the maturity date, timing of payments or frequency of payments is changed.
Payment Modification : A modification in which the dollar amount of the payment is changed. Interest-only modifications in which a loan is converted to interest-only payments for a period of time are included in this category.
Combination Modification : Any other type of modification, including the use of multiple categories above.
At June 30, 2026, the Company had no commitments to extend additional credit to borrowers owing loan receivables with modified terms.
There were no loans modified within the three and six months ended June 30, 2026 and 2025.
We have no modified loan receivables that have subsequently defaulted within 12 months of modification at June 30, 2026 and December 31, 2025.
Troubled debt restructurings (“TDRs”). Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs. Loans classified as legacy TDRs totaled $ 1.1 million at both June 30, 2026 and December 31, 2025 .
Collateral Dependent Loans . Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated fair value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.
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The following tables summarize collateral dependent loans by collateral type as of the dates indicated (in thousands):
June 30, 2026
Commercial Real Estate Residential Real Estate Land Other Residential RVs/Automobiles Business Assets Total
Real estate loans:
One- to four- family $ — $ 1,948 $ — $ 654 $ — $ — $ 2,602
Home equity — 372 — — — — 372
Commercial and multifamily 3,151 — — — — 1,040 4,191
Construction and land — — 79 80 — — 159
Total real estate loans 3,151 2,320 79 734 — 1,040 7,324
Consumer loans:
Manufactured homes — — — 696 — — 696
Other consumer — — — 241 — — 241
Total consumer loans — — — 937 — — 937
Commercial business loans — — — — — — —
Total loans $ 3,151 $ 2,320 $ 79 $ 1,671 $ — $ 1,040 $ 8,261
December 31, 2025
Commercial Real Estate Residential Real Estate Land Other Residential RVs/Automobiles Business Assets Total
Real estate loans:
One- to four- family $ — $ 1,416 $ — $ 314 $ — $ — $ 1,730
Home equity — 187 — — — — 187
Commercial and multifamily 2,123 — — — — 1,040 3,163
Construction and land — — — 82 — — 82
Total real estate loans 2,123 1,603 — 396 — 1,040 5,162
Consumer loans:
Manufactured homes — — — 480 — — 480
Other consumer — — — 256 6 — 262
Total consumer loans — — — 736 6 — 742
Commercial business loans — — — — — 30 30
Total loans $ 2,123 $ 1,603 $ — $ 1,132 $ 6 $ 1,070 $ 5,934
Note 5 – Fair Value Measurements
The Company determines the fair values of its financial instruments based on the requirements established in ASC 820 , Fair Value Measurements (“ASC 820”), which provides a framework for measuring fair value in accordance with U.S. GAAP and requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair value as the exit price that would be received to sell an asset or paid to transfer a liability in the principal (or most advantageous) market in an orderly transaction between market participants at the measurement date. The Company’s fair values for financial instruments at June 30, 2026 and December 31, 2025 were determined based on this guidance.
The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments:
Cash and cash equivalents - The estimated fair value equals the carrying amount.
Available-for-sale securities – The fair value is based on quoted market prices, if available (Level 1). If quoted market prices are not available, management utilizes third-party pricing services or broker quotations (Level 2). Level 2 measurements generally include U.S. government and agency securities and other securities valued using observable market inputs.
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Held-to-maturity securities – The estimated fair value is determined using quoted market prices, if available. If quoted market prices are not available, management utilizes third-party pricing services or broker quotations.
Equity investments - Equity investments consist of securities without readily determinable fair values and are accounted for under the measurement alternative in accordance with ASC 321. Accordingly, these investments are carried at cost, less impairment, and adjusted for observable price changes in orderly transactions for identical or similar investments, with any such adjustments or impairment recognized in net income.
Loans held-for-sale - The fair value of is based on whole loan forward prices obtained from government-sponsored enterprises.
Loans held-for-portfolio - The estimated fair value is determined by applying adjustments for credit-related factors and differences between the contractual yields on the portfolio and current market yields for loans with similar characteristics. The estimated fair value reflects exit price assumptions, including liquidity premiums or discounts.
Mortgage servicing rights –The fair value is determined using a discounted cash flow model that incorporated interest rates, prepayment speeds, discount rates, and delinquency assumptions as inputs.
Time deposits - The estimated fair value is based on the difference between interest rates paid on the Company’s time deposits and current market rates for time deposits with comparable characteristics.
Borrowings - The estimated fair value is determined using the contractual cash flows of each debt instrument discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.
Subordinated notes - The estimated fair value is determined using the contractual cash flows discounted at current borrowing rates for similar long-term debt instruments with similar terms and remaining time to maturity.
A description of the valuation methodologies used for collateral dependent loans, OREO and repossessed assets, and off-balance sheet loan commitments is as follows:
Collateral dependent loans - The estimated fair value is determined using the current appraised value of the collateral, less estimated costs to sell.
OREO and repossessed assets – The fair value is determined using the current appraised value of the collateral less estimated costs to sell.
Off-balance sheet financial instruments - The estimated fair value, which consisted entirely of loan commitments at June 30, 2026 and December 31, 2025, is determined based on fees charged to others to enter into similar agreements, taking into account the remaining terms of the agreements and credit standing of the counterparties. The estimated fair value of these commitments was not significant at June 30, 2026 and December 31, 2025.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the lowest-level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. There were no transfers between levels during the three and six months ended June 30, 2026 and 2025.
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The following tables present information about the level in the fair value hierarchy for the Company’s financial assets and liabilities, whether recognized or recorded at fair value or not as of the dates indicated (in thousands):
June 30, 2026 Fair Value Measurements Using:
Carrying
Value Estimated
Fair Value Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Cash and cash equivalents $ 120,072 $ 120,072 $ 120,072 $ — $ —
Available-for-sale securities 7,575 7,575 — 7,575 —
Held-to-maturity securities 1,876 1,572 — 1,572 —
Equity securities 5,000 5,000 — — 5,000
Loans held-for-sale 1,591 1,591 — 1,591 —
Loans held-for-portfolio, net 883,549 850,960 — — 850,960
Mortgage servicing rights 4,277 4,277 — — 4,277
FINANCIAL LIABILITIES:
Time deposits 298,045 298,072 — 298,072 —
Subordinated notes 7,822 8,227 — 8,227 —
December 31, 2025 Fair Value Measurements Using:
Carrying
Value Estimated
Fair Value Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Cash and cash equivalents $ 138,453 $ 138,453 $ 138,453 $ — $ —
Available-for-sale securities 7,699 7,699 — 7,699 —
Held-to-maturity securities 1,892 1,578 — 1,578 —
Loans held-for-sale 542 542 — 542 —
Loans held-for-portfolio, net 896,928 868,356 — — 868,356
Mortgage servicing rights 4,183 4,183 — — 4,183
FINANCIAL LIABILITIES:
Time deposits 299,593 300,290 — 300,290 —
Borrowings 10,000 10,000 — 10,000 —
Subordinated notes 7,801 8,102 — 8,102 —
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The following tables present the balance of assets measured at fair value on a recurring basis as of the dates indicated (in thousands):
Fair Value at June 30, 2026
Description Total Level 1 Level 2 Level 3
Municipal bonds $ 5,533 $ — $ 5,533 $ —
Agency mortgage-backed securities 2,042 — 2,042 —
Mortgage servicing rights 4,277 — — 4,277
Fair Value at December 31, 2025
Description Total Level 1 Level 2 Level 3
Municipal bonds $ 5,482 $ — $ 5,482 $ —
Agency mortgage-backed securities 2,217 — 2,217 —
Mortgage servicing rights 4,183 — — 4,183
The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis as of the dates indicated:
June 30, 2026
Financial Instrument Valuation Technique Unobservable Input(s) Range
(Weighted-Average)
Mortgage Servicing Rights Discounted cash flow Prepayment speed assumption 125 %- 579 % ( 125 %)
Discount rate 9.0 %- 13.5 % ( 10 %)
Average debt service cost per residential loan $ 96.00
December 31, 2025
Financial Instrument Valuation Technique Unobservable Input(s) Range
(Weighted-Average)
Mortgage Servicing Rights Discounted cash flow Prepayment speed assumption 125 %- 368 % ( 125 %)
Discount rate 9.0 %- 13.5 % ( 10 %)
Average debt service cost per residential loan $ 96.00
Generally, significant increases in the prepayment speed assumption or discount rate utilized in the fair value measurement of the MSRs will result in a negative fair value adjustment (and a decrease in fair value). Conversely, a significant decrease in the prepayment speed assumption and discount rate will result in a positive fair value adjustment (and an increase in fair value). An increase in the weighted average life assumption will result in a decrease in the prepayment speed assumption and, conversely, a decrease in the weighted average life assumption will result in an increase in the prepayment speed assumption. Because certain significant valuation inputs used to measure Level 3 assets are unobservable, management is required to make judgments in estimating their fair values.
There were no assets or liabilities (excluding MSRs) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and six months ended June 30, 2026 and 2025.
MSRs are measured at fair value using significant unobservable inputs (Level 3) on a recurring basis, and a reconciliation of changes in the carrying amount of MSRs in presented in “Note 6—Mortgage Servicing Rights.
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The following tables present the balance of assets measured at fair value on a nonrecurring basis at the dates indicated (in thousands):
Fair Value at June 30, 2026
Total Level 1 Level 2 Level 3
Equity securities $ 5,000 $ — $ — $ 5,000
OREO and repossessed assets 47 — — 47
Collateral dependent loans 8,261 — — 8,261
Fair Value at December 31, 2025
Total Level 1 Level 2 Level 3
OREO and repossessed assets $ 344 $ — $ — $ 344
Collateral dependent loans 5,934 — — 5,934
There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis at both June 30, 2026 and December 31, 2025.
Note 6 – Mortgage Servicing Rights
The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $ 392.4 million at June 30, 2026, compared to $ 398.4 million at December 31, 2025. Of these total balances, the unpaid principal balances of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at June 30, 2026 and December 31, 2025 were $ 390.6 million and $ 396.3 million, respectively. The unpaid principal balance of loans serviced for other financial institutions totaled $ 1.8 million at June 30, 2026 compared to $ 2.0 million at December 31, 2025. Loans serviced for Fannie Mae and others are not included in the Company’s financial statements as they are not assets of the Company.
A summary of the change in the balance of mortgage servicing assets during the periods indicated were as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Beginning balance, at fair value $ 4,096 $ 4,688 $ 4,183 $ 4,769
Servicing rights that result from transfers and sale of financial assets 62 30 115 48
Changes in fair value:
Due to changes in model inputs or assumptions and other (1)
119 ( 80 ) ( 21 ) ( 179 )
Ending balance, at fair value $ 4,277 $ 4,638 $ 4,277 $ 4,638
(1) Represents changes due to collection/realization of expected cash flows and curtailments.
The key economic assumptions used in determining the fair value of mortgage servicing rights at the dates indicated are as follows:
June 30, 2026 December 31, 2025
Prepayment speed (Public Securities Association “PSA” model) 125 % 125 %
Weighted-average life 10.0 years 10.1 years
Weighted average discount rate 10.0 % 10.0 %
Average debt service cost per residential loan $ 96.00 $ 96.00
The amount of contractually specified servicing, late and ancillary fees earned on mortgage servicing rights, which are included in mortgage servicing income on the Condensed Consolidated Statements of Income, totaled $ 245 thousand and $ 493 thousand
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for the three and six months ended June 30, 2026, respectively, and $ 263 thousand and $ 531 thousand for the three and six months ended June 30, 2025, respectively.
Note 7 – Commitments and Contingencies
In the normal course of operations, the Company engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage clients’ requests for funding and take the form of loan commitments and lines of credit.
Note 8 – Borrowings, FHLB Stock and Subordinated Notes
FHLB Advances
The following tables present advances from the FHLB as of the dates indicated (dollars in thousands):
June 30, 2026 December 31, 2025
FHLB advances:
Short-term advances (one year or less) $ — $ —
Long-term advances (over one year) — 10,000
Total
$ — $ 10,000
June 30, 2026 December 31, 2025
Fixed Rate:
Outstanding balance $ — $ 10,000
Interest rates ranging from — % 4.06 %
Interest rates ranging to — % 4.06 %
Weighted average interest rate — % 4.06 %
FHLB Des Moines Borrowing Capacity
The Company has a loan agreement with the FHLB of Des Moines. The terms of the agreement call for a blanket pledge of a portion of the Company’s mortgage and commercial and multifamily loan portfolio based on the Company’s outstanding borrowing balance. Additionally, at June 30, 2026 and December 31, 2025, the Company had outstanding letters of credit from the FHLB of Des Moines to secure public deposits. The following table presents the Company’s borrowing capacity from the FHLB as of the dates indicated:
June 30, 2026 December 31, 2025
Amount available to borrow under credit facility (1)
$ 485,376 $ 347,095
Advance equivalent of collateral:
One-to-four family loans $ 197,352 $ 190,290
Commercial and multifamily loans 19,080 21,097
Home equity loans 275 278
Notional amount of letters of credit outstanding 15,000 14,000
Remaining FHLB borrowing capacity (2)
$ 201,708 $ 187,665
(1) Subject to eligible pledged collateral.
(2) Amount remaining from the advance equivalent of collateral less letters of credit outstanding and FHLB advances.
As a member of the FHLB, the Company is required to maintain a minimum level of investment in FHLB of Des Moines stock based on specific percentages of its outstanding FHLB advances. At June 30, 2026 and December 31, 2025, the Company had an investment of $ 670 thousand and $ 1.1 million, respectively, in FHLB of Des Moines stock.
25
Federal Reserve Bank of San Francisco (“FRB SF”) Borrowings
The Company has a borrowing agreement with the FRB SF. The terms of the agreement call for a blanket pledge of a portion of the Company’s consumer and commercial business loans as collateral for borrowings under this arrangement. At June 30, 2026 and December 31, 2025, the amount available to borrow under this credit facility was $ 21.1 million and $ 18.5 million, respectively, subject to eligible pledged collateral. The Company had no outstanding borrowings under this arrangement at June 30, 2026 and December 31, 2025.
Other Borrowings
The Company has access to an unsecured Fed Funds line of credit from Pacific Coast Banker’s Bank (“PCBB”). The line has a 1.5 years term maturing on December 31, 2027, and is renewable upon conclusion of its term. As of June 30, 2026, the amount available under this line of credit was $ 20.0 million. There were no outstanding borrowings under this line of credit as of June 30, 2026 and December 31, 2025.
Subordinated Debt
In September 2020, the Company issued $ 12.0 million of fixed -to -floating rate subordinated notes that mature in 2030. The subordinated notes had an initial fixed interest rate of 5.25 % through September 30, 2025, payable semi-annually in arrears. From, and including, October 1, 2025, the interest rate on the subordinated notes reset quarterly to a floating rate per annum equal to the then-current three-month term Secured Overnight Financing Rate, or SOFR, plus 513 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030, and are redeemable by the Company, in whole or in part, on any interest payment date on or after October 1, 2025. The Company completed a partial redemption of $ 4.0 million on October 1, 2025, the first date on which partial redemptions were permitted, and completed another partial redemption of $ 2.0 million subsequent to June 30, 2026. The subordinated notes may be included in Tier 2 capital for Sound Financial Bancorp under current regulatory guidelines and interpretations. The balance of the subordinated notes, net of debt issuance costs, was $ 7.8 million at both June 30, 2026 and December 31, 2025, prior to giving effect to the $ 2.0 million partial redemption completed subsequent to June 30, 2026.
Note 9 – Earnings Per Common Share
The following table summarizes the calculation of earnings per share for the periods indicated (dollars in thousands, except per share data):
Three Months Ended Six Months Ended
2026 2025 2026 2025
Net income $ 2,518 $ 2,052 $ 4,091 $ 3,219
LESS: Participating dividends - Unvested Restricted Stock Awards (“RSAs”) ( 1 ) ( 2 ) ( 2 ) ( 4 )
LESS: Income allocated to participating securities - Unvested RSAs ( 3 ) ( 6 ) ( 6 ) ( 9 )
Net income available to common stockholders - basic 2,514 2,044 4,083 3,206
ADD BACK: Income allocated to participating securities - Unvested RSAs 3 6 6 9
LESS: Income reallocated to participating securities - Unvested RSAs ( 3 ) ( 6 ) ( 5 ) ( 9 )
Net income available to common stockholders - diluted $ 2,514 $ 2,044 $ 4,084 $ 3,206
Weighted average number of shares outstanding, basic 2,564,165 2,556,562 2,563,316 2,555,413
Effect of potentially dilutive common shares 10,466 21,428 11,073 22,874
Weighted average number of shares outstanding, diluted 2,574,631 2,577,990 2,574,389 2,578,287
Earnings per share, basic $ 0.98 $ 0.80 $ 1.59 $ 1.25
Earnings per share, diluted $ 0.98 $ 0.79 $ 1.59 $ 1.24
There were no anti-dilutive securities during the three and six months ended June 30, 2026 and June 30, 2025.
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Note 10 – Leases
The Company currently has operating leases for branch locations, a loan production office, and its corporate office. The lease term generally begins on the date the Company becomes legally obligated for the rent payments or takes possession of the building premises, whichever is earlier. The Company’s real estate leases have initial terms ranging from one to 10.5 years and typically include one renewal option. As of June 30, 2026, The Company’s leases had remaining terms ranging from 8 months to 3.9 years. The operating leases require the Company to pay property taxes and operating expenses for the properties. The Company also has finance leases for certain equipment, including copier machines, which had an initial term of five years and a remaining term of approximately 3.5 years as of June 30, 2026. During the three months ended June 30, 2026, the Company completed the closure of the Tacoma branch as part of ongoing strategic consolidation efforts. In connection with this closure, the lease was modified in the first quarter of 2026 to a shorten the lease term, which expired during ended in the second quarter of 2026. The modification resulted in the derecognition of $ 98 thousand of the operating right-of-use asset and corresponding operating lease liability during the six months ended June 30, 2026.
The following table presents the lease right-of-use assets and lease liabilities recorded on the Condensed Consolidated Balance Sheets at the dates indicated (in thousands):
June 30,
2026 December 31,
2025
Operating lease right-of-use assets $ 2,798 $ 3,319
Finance lease right-of-use assets 91 104
Operating lease liabilities 3,009 3,565
Finance lease liabilities 94 106
The following table presents the components of lease expense for the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Lease expense
Operating leases $ 262 $ 275 $ 540 $ 548
Finance leases
Amortization of right-of-use assets 6 13 13 13
Interest on lease liabilities 1 3 2 3
Sublease income — — — —
Net lease expense $ 269 $ 291 $ 555 $ 564
The following table presents the schedule of lease liability payments at the date indicated (in thousands):
June 30, Finance Leases Operating Leases Total Lease Payments
Remainder of 2026 $ 14 $ 565 $ 579
2027 29 1,084 1,113
2028 29 996 1,025
2029 29 456 485
2030 — 48 48
Total lease payments 101 3,149 3,250
Less: Present value discount 7 140 147
Present value of lease liabilities $ 94 $ 3,009 $ 3,103
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Lease term and discount rate by lease type consisted of the following at the dates indicated:
June 30,
2026 December 31,
2025
Weighted-average remaining lease term:
Operating leases 3.0 years 3.5 years
Finance leases 3.5 years 4.0 years
Weighted-average discount rate (annualized):
Operating leases 3.04 % 3.08 %
Finance leases 4.41 % 4.41 %
Supplemental cash flow information related to leases was as follows for the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows:
Operating leases $ 285 $ 280 $ 579 $ 559
Finance leases 1 3 2 3
Financing cash flows:
Finance leases 6 12 12 12
Note 11 – Subsequent Events
On July 1, 2026, the Company redeemed $ 2.0 million of its $ 8.0 million outstanding subordinated notes. This transaction represented a partial redemption under the terms of the subordinated notes. Refer to “Note-8 Borrowings” for additional information regarding the terms of the redemption.
On July 28, 2026, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.21 per common share, payable on August 21, 2026, to stockholders of record at the close of business on August 7, 2026.
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Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.