sfbc-20250331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35633


Sound Financial Bancorp, Inc.
(Exact name of registrant as specified in its charter)


Maryland						45-5188530
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2400 3rd Avenue, Suite 150, Seattle, Washington						98121
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (206) 448-0884

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, $0.01 par value	SFBC	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

As of May 9, 2025, there were 2,566,069 shares of the registrant’s common stock outstanding.

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SOUND FINANCIAL BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS


			Page Number
PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024 (unaudited)			3

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2025 and 2024 (unaudited)			4

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2025 and 2024 (unaudited)			5

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2025 and 2024 (unaudited)			6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 (unaudited)			7

Notes to Condensed Consolidated Financial Statements (unaudited)			8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			27

Item 3. Quantitative and Qualitative Disclosures About Market Risk			41

Item 4. Controls and Procedures			41

PART II OTHER INFORMATION

Item 1. Legal Proceedings			43

Item 1A. Risk Factors			43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43

Item 3. Defaults Upon Senior Securities			43

Item 4. Mine Safety Disclosures			43

Item 5. Other Information			43

Item 6. Exhibits			44

SIGNATURES			45

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets (unaudited)

(In thousands, except share and per share amounts)


	March 31, 2025		December 31, 2024
ASSETS
Cash and cash equivalents	$	131,494	$	43,641
Available-for-sale (“AFS”) securities, at fair value (amortized cost of $9,032 and $9,112 as of March 31, 2025 and December 31, 2024, respectively)	7,689		7,790
Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $1,711 and $1,712 at March 31, 2025 and December 31, 2024, respectively)	2,121		2,130
Loans held-for-sale	2,267		487
Loans held-for-portfolio	886,226		900,171
Allowance for credit losses (“ACL”) on loans	(8,393)		(8,499)
Total loans held-for-portfolio, net	877,833		891,672
Accrued interest receivable	3,540		3,471
Bank-owned life insurance (“BOLI”), net	22,685		22,490
Other real estate owned (“OREO”) and repossessed assets, net	41		—
Mortgage servicing rights (“MSRs”), at fair value	4,688		4,769
Federal Home Loan Bank ("FHLB") stock, at cost	1,734		1,730
Premises and equipment, net	4,591		4,697
Right of use assets	3,546		3,725
Other assets	6,957		7,031
Total assets	$	1,069,186	$	993,633
LIABILITIES
Deposits
Interest-bearing	$	783,660	$	705,267
Noninterest-bearing demand	126,687		132,532
Total deposits	910,347		837,799
Borrowings	25,000		25,000
Accrued interest payable	586		765
Lease liabilities	3,828		4,013
Other liabilities	10,774		9,371
Advance payments from borrowers for taxes and insurance	2,450		1,260
Subordinated notes, net	11,770		11,759
Total liabilities	964,755		889,967
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, 2,566,069 and 2,564,907 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively	25		25
Additional paid-in capital	28,515		28,413

Retained earnings	76,952		76,272
Accumulated other comprehensive loss, net of tax	(1,061)		(1,044)
Total stockholders’ equity	104,431		103,666
Total liabilities and stockholders’ equity	$	1,069,186	$	993,633

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 March 31,
	2025		2024
INTEREST INCOME
Loans, including fees	$	12,588	$	12,233
Interest and dividends on investments, cash and cash equivalents	1,118		1,527
Total interest income	13,706		13,760
INTEREST EXPENSE
Deposits	5,205		5,703
Borrowings	262		429
Subordinated notes	168		168
Total interest expense	5,635		6,300
Net interest income	8,071		7,460
RELEASE OF CREDIT LOSSES	(203)		(33)
Net interest income after release of credit losses	8,274		7,493
NONINTEREST INCOME
Service charges and fee income	684		612
Earnings on BOLI	195		177
Mortgage servicing income	269		282
Fair value adjustment on MSRs	(99)		(65)
Net gain on sale of loans	49		90

Total noninterest income	1,098		1,096
NONINTEREST EXPENSE
Salaries and benefits	4,595		4,543
Operations	1,365		1,457
Regulatory assessments	221		189
Occupancy	437		444
Data processing	1,293		1,017
Net loss on OREO and repossessed assets	3		6
Total noninterest expense	7,914		7,656
Income before provision for income taxes	1,458		933
Provision for income taxes	291		163
Net income	$	1,167	$	770

Earnings per common share:
Basic	$	0.45	$	0.30
Diluted	$	0.45	$	0.30
Weighted-average number of common shares outstanding:
Basic	2,554,265		2,539,213
Diluted	2,578,609		2,556,958

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 March 31,
	2025		2024
Net income	$	1,167	$	770
Available for sale securities:
Unrealized losses arising during the period	(21)		(78)
Income tax benefit related to unrealized losses	4		16
Other comprehensive loss, net of tax	(17)		(62)
Comprehensive income	$	1,150	$	708

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 Months Ended March 31, 2025 and 2024 (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 December 31, 2024	2,564,907	$	25	$	28,413	$	76,272	$	(1,044)	$	103,666

Net income	—	—		—		1,167		—		1,167
Other comprehensive loss, net of tax	—	—		—		—		(17)		(17)
Share-based compensation	—	—		81		—		—		81

Cash dividends paid on common stock ($0.19 per share)	—	—		—		(487)		—		(487)



Common stock options exercised	1,162	—		21		—		—		21

Balance, at March 31, 2025	2,566,069	$	25	$	28,515	$	76,952	$	(1,061)	$	104,431


	Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, net of tax		Total Stockholders’ Equity













Balance, at December 31, 2023	2,549,427	$	25	$	27,990	$	73,627	$	(988)	$	100,654

Net income	—	—		—		770		—		770
Other comprehensive loss, net of tax	—	—		—		—		(62)		(62)
Share-based compensation	—	—		95		—		—		95
Restricted common stock awards issued	8,048	—				—		—		—
Cash dividends paid on common stock ($0.19 per share)	—	—				(486)		—		(486)
Common stock repurchased	(164)	—		(1)		(4)		—		(5)


Common stock options exercised	1,235	—		26		—		—		26

Balance, at March 31, 2024	2,558,546	$	25	$	28,110	$	73,907	$	(1,050)	$	100,992

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)


	Three Months Ended March 31,
	2025		2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,167	$	770
Adjustments to reconcile net income to net cash from operating activities:
Amortization of net premiums on investments	22		22
Release of credit losses	(203)		(33)
Depreciation and amortization	144		178
Share based compensation	81		95
Fair value adjustment on mortgage servicing rights	99		65
Right of use assets amortization	245		237
Change in lease liabilities	(251)		(245)
Change in cash surrender value of BOLI	(195)		(177)

Net change in advances from borrowers for taxes and insurance	1,190		1,099
Deferred income tax	(273)		—

Net gain on sale of loans	(49)		(90)
Proceeds from sale of loans held-for-sale	2,023		4,234
Originations of loans held-for-sale	(3,772)		(3,937)

Change in operating assets and liabilities:
Accrued interest receivable	(69)		(165)
Other assets	351		1,549
Accrued interest payable	(179)		(98)
Other liabilities	1,521		15
Net cash provided by operating activities	1,852		3,519
CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from principal payments, maturities and sales of available-for-sale securities	69		83

Proceeds from principal payments of held-to-maturity securities	9		9
Net decrease (increase) in loans	13,883		(3,570)

Purchases of premises and equipment, net	(38)		(1,623)


Net cash provided by (used in) investing activities	13,923		(5,101)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	72,548		90,344



FHLB stock purchased	(4)		(10)
Common stock repurchases	—		(5)


Dividends paid on common stock	(487)		(486)
Proceeds from common stock option exercises	21		26
Net cash provided by financing activities	72,078		89,869
Net change in cash and cash equivalents	87,853		88,287
Cash and cash equivalents, beginning of period	43,641		49,690
Cash and cash equivalents, end of period	$	131,494	$	137,977
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes	$	—	$	—
Interest paid on deposits and borrowings	5,814		6,398

Loans transferred from loans held-for-portfolio to OREO and repossessed assets	41		115
ROU assets obtained in exchange for new operating lease liabilities	66		—

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, 2024, as filed with the SEC on March 18, 2025 (“2024 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 2024 Form 10-K.

Note 2 – Accounting Pronouncements Recently Issued or Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The Company adopted this ASU on January 1, 2024. ASU 2023-07 did not have an impact on the Company's financial position or results of operation as it impacts disclosures only. The adoption of this ASU did not have a material impact on the Company’s disclosures as the Company operates under one segment.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires public business entities to annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. This ASU was released in response to stakeholder feedback indicating that the existing income tax disclosures should be enhanced to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

In November 2024, the FASB issued 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’s amendments are 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.

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Note 3 – Investments

At March 31, 2025, the Company did not own any debt securities classified as trading or any equity investment securities, except for the FHLB securities described in “Note 8 — Borrowings, FHLB Stock and Subordinated Notes.”

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
March 31, 2025

Municipal bonds	$	6,344	$	10	$	(1,013)	$	5,341
Agency mortgage-backed securities	2,688		10		(350)		2,348

Total	$	9,032	$	20	$	(1,363)	$	7,689

December 31, 2024

Municipal bonds	$	6,354	$	11	$	(991)	$	5,374
Agency mortgage-backed securities	2,758		7		(349)		2,416

Total	$	9,112	$	18	$	(1,340)	$	7,790

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
March 31, 2025

Municipal bonds	$	703	$	—	$	(174)	$	529
Agency mortgage-backed securities	1,418		—		(236)		1,182

Total	$	2,121	$	—	$	(410)	$	1,711

December 31, 2024

Municipal bonds	$	704	$	—	$	(163)	$	541
Agency mortgage-backed securities	1,426		—		(255)		1,171

Total	$	2,130	$	—	$	(418)	$	1,712

The amortized cost and estimated fair value of AFS and HTM securities at March 31, 2025, 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.


	March 31, 2025
	Available-for-sale				Held-to-maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Due after one year through five years	$	455	$	455	$	—	$	—
Due after five years through ten years	1,200		1,210		—		—
Due after ten years	4,689		3,676		703		529
Agency mortgage-backed securities	2,688		2,348		1,418		1,182
Total	$	9,032	$	7,689	$	2,121	$	1,711

There were no pledged securities at March 31, 2025 or December 31, 2024.

There were no sales of AFS or HTM securities during both the three months ended March 31, 2025 and 2024.

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Accrued interest receivable on securities totaled $76 thousand at March 31, 2025 and $48 thousand at December 31, 2024, 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):


	March 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	$	—	$	—	$	3,676	$	(1,013)	$	3,676	$	(1,013)
Agency mortgage-backed securities	44		(1)		1,960		(349)		2,004		(350)

Total available-for-sale securities	$	44	$	(1)	$	5,636	$	(1,362)	$	5,680	$	(1,363)
Held-to-maturity securities

Municipal bonds	$	—	$	—	$	529	$	(174)	$	529	$	(174)
Agency mortgage-backed securities	—		—		1,181		(236)		1,182		(236)

Total held-to-maturity securities	$	—	$	—	$	1,710	$	(410)	$	1,711	$	(410)


	December 31, 2024
	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	$	—	$	—	$	3,708	$	(991)	$	3,708	$	(991)
Agency mortgage-backed securities	44		(2)		2,020		(347)		2,064		(349)

Total	$	44	$	(2)	$	5,728	$	(1,338)	$	5,772	$	(1,340)
Held-to-maturity securities

Municipal bonds	$	—	$	—	$	540	$	(163)	$	540	$	(163)
Agency mortgage-backed securities	—		—		1,172		(255)		1,172		(255)

Total held-to-maturity securities	$	—	$	—	$	1,712	$	(418)	$	1,712	$	(418)

There was no allowance for credit losses on securities at March 31, 2025 or December 31, 2024. At both March 31, 2025 and December 31, 2024, the total securities portfolio consisted of 11 agency mortgage-backed securities and 11 municipal bonds, with a total portfolio fair value of $9.4 million and $9.5 million, respectively. At both March 31, 2025 and December 31, 2024, there was one security in an unrealized loss position for less than 12 months and 15 securities in an unrealized loss position for more than 12 months. 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 months ended March 31, 2025 and 2024, 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.

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Note 4 – Loans

Loans-held-for portfolio (which excludes loans held-for-sale) at the dates indicated were as follows (in thousands):


	March 31, 2025		December 31, 2024
Real estate loans:
One-to-four family	$	262,457	$	269,684
Home equity	28,112		26,686
Commercial and multifamily	392,798		371,516
Construction and land	42,492		73,077
Total real estate loans	725,859		740,963
Consumer loans:
Manufactured homes	42,448		41,128
Floating homes	86,626		86,411
Other consumer	18,224		17,720
Total consumer loans	147,298		145,259
Commercial business loans	14,690		15,605
Total loans held-for-portfolio	887,847		901,827
Premiums for purchased loans(1)	688		718
Deferred fees, net	(2,309)		(2,374)
Total loans held-for-portfolio, gross	886,226		900,171
Allowance for credit losses — loans	(8,393)		(8,499)
Total loans held-for-portfolio, net	$	877,833	$	891,672

(1)Includes premiums resulting from purchased loans of $386 thousand related to one-to-four family loans, $236 thousand related to commercial and multifamily loans, and $66 thousand related to commercial business loans as of March 31, 2025. Includes premiums resulting from purchased loans of $404 thousand related to one-to-four family loans, $244 thousand related to commercial and multifamily loans, and $70 thousand related to commercial business loans as of December 31, 2024.

As of March 31, 2025, there was one collateral dependent consumer mortgage loan, totaling $260 thousand, that was 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):


	Three Months Ended March 31,
	2025						2024
	ACL - Loans		Reserve for Unfunded Loan Commitments		ACL		ACL - Loans		Reserve for Unfunded Loan Commitments		ACL
Balance at beginning of period	$	8,499	$	234	$	8,733	$	8,760	$	193	$	8,953

(Release of) provision for credit losses during the period	(85)		(118)		(203)		(106)		73		(33)
Net charge-offs during the period	(21)		—		(21)		(56)		—		(56)
Balance at end of period	$	8,393	$	116	$	8,509	$	8,598	$	266	$	8,864

Accrued interest receivable on loans receivable totaled $3.3 million at March 31, 2025 and $3.4 million at December 31, 2024, in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the ACL.

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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 nature and volume of the portfolio; change in staff experience level; 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 2024 Form 10-K for further information on the Company’s ACL accounting policy.

The following tables summarize the activity in the ACL - loans for the periods indicated (in thousands):


	Three Months Ended March 31, 2025
	Beginning Allowance		Charge-offs		Recoveries		Provision for (Release of) Credit Losses		Ending Allowance
One-to-four family	$	3,025	$	—	$	—	$	303	$	3,328
Home equity	307		—		—		55		362
Commercial and multifamily	1,218		—		—		(37)		1,181
Construction and land	992		—		—		(713)		279
Manufactured homes(1)	1,172		(19)		—		150		1,303
Floating homes	1,282		—		—		127		1,409
Other consumer(2)	401		(8)		6		49		448
Commercial business	102		—		—		(19)		83

Total	$	8,499	$	(27)	$	6	$	(85)	$	8,393

(1)During the three months ended March 31, 2025, there was one manufactured home loan originated in 2022 that was charged off and then subsequently foreclosed upon.

(2)During the three months ended March 31, 2025, the gross charge-offs of other consumer loans related entirely to deposit overdrafts that were charged off.



	Three Months Ended March 31, 2024
	Beginning Allowance		Charge-offs		Recoveries		Provision for (Release of) Credit Losses		Ending Allowance
One-to-four family	$	2,630	$	—	$	—	$	280	$	2,910
Home equity	185		—		—		(6)		179
Commercial and multifamily	1,070		—		—		36		1,106
Construction and land	1,349		—		—		(20)		1,329
Manufactured homes(1)	971		(23)		—		(115)		833
Floating homes	2,022		—		—		(223)		1,799
Other consumer(2)	426		(39)		6		(60)		333
Commercial business	107		—		—		2		109

Total	$	8,760	$	(62)	$	6	$	(106)	$	8,598

(1)During the three months ended March 31, 2024, there was one manufactured home loan originated in 2020 that was charged off and then subsequently foreclosed upon.

(2)During the three months ended March 31, 2024, the gross charge-offs of other consumer loans related entirely to deposit overdrafts that were charged off.

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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 of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

Management regularly reviews loans in the portfolio to assess credit quality indicators 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 which do not rise to the levels described for substandard, doubtful, or loss. These are loans which have been criticized and deserve 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. Loans identified as watch, special mention, substandard, doubtful, or loss are subject to additional problem loan reporting to management every three months.

When we classify problem assets as either substandard or doubtful, we may determine that these assets should be individually analyzed 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 valuation allowances is subject to review by the FDIC (the Bank’s federal regulator) and the Washington Department of Financial Institutions (the Bank’s state banking regulator), which can order the establishment of additional credit loss allowances. 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 March 31, 2025 and December 31, 2024.

The following tables present the internally assigned grades as of March 31, 2025 and December 31, 2024, by type of loan and origination year (in thousands):

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	At March 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	$	2,112	$	23,262	$	22,393	$	74,764	$	96,929	$	42,317	$	—	$	—	$	261,777

Substandard	—		—		—		491		101		209		—		—		801


Total one-to-four family	$	2,112	$	23,262	$	22,393	$	75,255	$	97,030	$	42,526	$	—	$	—	$	262,578
Home equity:
Pass	$	59	$	2,996	$	2,911	$	2,359	$	862	$	1,468	$	16,278	$	967	$	27,900

Substandard	—		—		—		—		—		55		309		62		426


Total home equity	$	59	$	2,996	$	2,911	$	2,359	$	862	$	1,523	$	16,587	$	1,029	$	28,326
Commercial and multifamily:
Pass	$	23,140	$	34,755	$	24,960	$	88,745	$	109,532	$	84,509	$	—	$	—	$	365,641

Substandard	—		—		—		—		6,453		19,443		—		—		25,896


Total commercial and multifamily	$	23,140	$	34,755	$	24,960	$	88,745	$	115,985	$	103,952	$	—	$	—	$	391,537
Construction and land:
Pass	$	753	$	17,844	$	18,856	$	2,143	$	849	$	1,742	$	—	$	—	$	42,187

Substandard	—		—		—		69		—		23		—		—		92


Total construction and land	$	753	$	17,844	$	18,856	$	2,212	$	849	$	1,765	$	—	$	—	$	42,279
Manufactured homes:
Pass	$	2,631	$	9,202	$	11,976	$	6,610	$	3,678	$	7,563	$	—	$	—	$	41,660

Substandard	—		—		305		141		—		195		—		—		641


Total manufactured homes	$	2,631	$	9,202	$	12,281	$	6,751	$	3,678	$	7,758	$	—	$	—	$	42,301
Floating homes:
Pass	$	1,986	$	20,256	$	6,367	$	15,165	$	23,734	$	16,353	$	—	$	—	$	83,861

Substandard	—		—		—		2,350		—		—		—		—		2,350


Total floating homes	$	1,986	$	20,256	$	6,367	$	17,515	$	23,734	$	16,353	$	—	$	—	$	86,211
Other consumer:
Pass	$	1,250	$	2,131	$	2,911	$	379	$	3,562	$	7,224	$	704	$	—	$	18,161

Substandard	—		—		74		—		9		—		—		—		83


Total other consumer	$	1,250	$	2,131	$	2,985	$	379	$	3,571	$	7,224	$	704	$	—	$	18,244
Commercial business:
Pass	$	—	$	292	$	1,148	$	1,636	$	2,901	$	3,849	$	4,700	$	—	$	14,526

Substandard	—		37		—		—		—		—		187		—		224


Total commercial business	$	—	$	329	$	1,148	$	1,636	$	2,901	$	3,849	$	4,887	$	—	$	14,750

Total loans
Pass	$	31,931	$	110,738	$	91,522	$	191,801	$	242,047	$	165,025	$	21,682	$	967	$	855,713

Substandard	—		37		379		3,051		6,563		19,925		496		62		30,513


Total loans	$	31,931	$	110,775	$	91,901	$	194,852	$	248,610	$	184,950	$	22,178	$	1,029	$	886,226

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	At December 31, 2024
	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term
	2024		2023		2022		2021		2020		Prior						Total
One-to-four family:
Pass	$	26,327	$	22,470	$	78,427	$	98,379	$	14,095	$	29,534	$	—	$	—	$	269,232

Substandard	—		—		259		104		—		214		—		—		577


Total one-to-four family	$	26,327	$	22,470	$	78,686	$	98,483	$	14,095	$	29,748	$	—	$	—	$	269,809
Home equity:
Pass	$	3,084	$	2,951	$	2,420	$	908	$	210	$	1,320	$	14,578	$	1,069	$	26,540

Substandard	—		—		—		—		—		56		234		66		356


Total home equity	$	3,084	$	2,951	$	2,420	$	908	$	210	$	1,376	$	14,812	$	1,135	$	26,896
Commercial and multifamily:
Pass	$	34,844	$	20,736	$	90,067	$	111,601	$	21,240	$	67,336	$	—	$	—	$	345,824
Special mention	—		—		—		—		—		1,375		—		—		1,375
Substandard	—		—		—		5,775		2,165		15,143		—		—		23,083


Total commercial and multifamily	$	34,844	$	20,736	$	90,067	$	117,376	$	23,405	$	83,854	$	—	$	—	$	370,282
Construction and land:
Pass	$	26,458	$	22,846	$	2,166	$	968	$	593	$	2,338	$	—	$	—	$	55,369
Special mention	—		—		17,349		—		—		—		—		—		17,349
Substandard	—		—		70		—		—		24		—		—		94


Total construction and land	$	26,458	$	22,846	$	19,585	$	968	$	593	$	2,362	$	—	$	—	$	72,812
Manufactured homes:
Pass	$	9,396	$	12,095	$	7,039	$	3,822	$	1,816	$	6,180	$	—	$	—	$	40,348

Substandard	—		427		—		—		—		205		—		—		632


Total manufactured homes	$	9,396	$	12,522	$	7,039	$	3,822	$	1,816	$	6,385	$	—	$	—	$	40,980
Floating homes:
Pass	$	20,587	$	6,395	$	16,225	$	23,902	$	6,059	$	10,472	$	—	$	—	$	83,640

Substandard	—		—		2,350		—		—		—		—		—		2,350


Total floating homes	$	20,587	$	6,395	$	18,575	$	23,902	$	6,059	$	10,472	$	—	$	—	$	85,990
Other consumer:
Pass	$	2,273	$	3,297	$	622	$	3,615	$	5,387	$	1,925	$	618	$	—	$	17,737

Substandard	—		—		—		1		—		—		—		—		1


Total other consumer	$	2,273	$	3,297	$	622	$	3,616	$	5,387	$	1,925	$	618	—		$	17,738
Commercial business:
Pass	$	314	$	1,256	$	1,811	$	3,032	$	257	$	3,895	$	4,862	$	—	$	15,427

Substandard	38		—		—		—		—		11		188		—		237


Total commercial business	$	352	$	1,256	$	1,811	$	3,032	$	257	$	3,906	$	5,050	$	—	$	15,664
Total loans
Pass	$	123,283	$	92,046	$	198,777	$	246,227	$	49,657	$	123,000	$	20,058	$	1,069	$	854,117
Special mention	—		—		17,349		—		—		1,375		—		—		18,724
Substandard	38		427		2,679		5,880		2,165		15,653		422		66		27,330


Total loans	$	123,321	$	92,473	$	218,805	$	252,107	$	51,822	$	140,028	$	20,480	$	1,135	$	900,171

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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):


	March 31, 2025				December 31, 2024
	Total Nonaccrual Loans		Total Nonaccrual Loans with no ACL		Total Nonaccrual Loans		Total Nonaccrual Loans with no ACL
One-to-four family	$	762	$	762	$	537	$	537
Home equity	368		368		298		298
Commercial and multifamily	5,627		5,627		3,734		3,734
Construction and land	22		22		24		24
Manufactured homes	501		501		521		521
Floating homes	2,363		2,363		2,363		2,363
Other consumer	10		9		3		1
Commercial business	—		—		11		11
Total	$	9,653	$	9,652	$	7,491	$	7,489

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):


	March 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	$	668	$	49	$	351	$	—	$	1,068	$	261,510	$	262,578
Home equity	35		—		138		—		173		28,153		28,326
Commercial and multifamily	967		—		5,621		—		6,588		384,949		391,537
Construction and land	—		—		—		—		—		42,279		42,279
Manufactured homes	770		—		200		—		970		41,331		42,301
Floating homes	—		—		2,350		—		2,350		83,861		86,211
Other consumer	5		3		9		—		17		18,227		18,244
Commercial business	—		—		—		—		—		14,750		14,750
Total	$	2,445	$	52	$	8,669	$	—	$	11,166	$	875,060	$	886,226

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	December 31, 2024
	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	$	34	$	339	$	352	$	—	$	725	$	269,084	$	269,809
Home equity	249		—		66		—		315		26,581		26,896
Commercial and multifamily	—		—		3,733		—		3,731		366,551		370,282
Construction and land	24		—		—		—		24		72,788		72,812
Manufactured homes	402		287		394		—		1,083		39,897		40,980
Floating homes	—		—		2,350		—		2,350		83,640		85,990
Other consumer	6		12		—		—		18		17,720		17,738
Commercial business	—		—		—		—		—		15,664		15,664
Total	$	715	$	638	$	6,895	$	—	$	8,246	$	891,925	$	900,171

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 March 31, 2025, 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 months ended March 31, 2025 and 2024.

At March 31, 2025 and December 31, 2024, we had no loan receivables that defaulted subsequent to their modification.

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 $1.3 million at both March 31, 2025 and December 31, 2024.

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):


	March 31, 2025
	Commercial Real Estate		Residential Real Estate		Land		Other Residential		RVs/Automobiles		Business Assets		Total
Real estate loans:
One- to four- family	$	—	$	305	$	—	$	594	$	—	$	—	$	899
Home equity	—		368		—		—		—		—		368
Commercial and multifamily	4,561		—		—		—		—		1,065		5,626
Construction and land	—		—		22		—		—		—		22
Total real estate loans	4,561		673		22		594		—		1,065		6,915
Consumer loans:
Manufactured homes	—		—		—		501		—		—		501
Floating homes	—		—		—		2,363		—		—		2,363
Other consumer	—		—		—		—		9		—		9
Total consumer loans	—		—		—		2,864		9		—		2,873
Commercial business loans	—		—		—		—		—		—		—
Total loans	$	4,561	$	673	$	22	$	3,458	$	9	$	1,065	$	9,789

	December 31, 2024
	Commercial Real Estate		Residential Real Estate		Land		Other Residential		RVs/Automobiles		Business Assets		Total
Real estate loans:
One- to four- family	$	—	$	311	$	—	$	364	$	—	$	—	$	675
Home equity	—		298		—		—		—		—		298
Commercial and multifamily	3,734		—		—		—		—		—		3,734
Construction and land	—		—		24		—		—		—		24
Total real estate loans	3,734		609		24		364		—		—		4,731
Consumer loans:
Manufactured homes	—		—		—		521		—		—		521
Floating homes	—		—		—		2,363		—		—		2,363
Other consumer	—		—		—		—		1		—		1
Total consumer loans	—		—		—		2,884		1		—		2,885
Commercial business loans	—		—		—		—		—		11		11
Total loans	$	3,734	$	609	$	24	$	3,248	$	1	$	11	$	7,627

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 an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The Company’s fair values for financial instruments at March 31, 2025 and December 31, 2024 were determined based on these requirements.

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 is equal to the carrying amount.

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Available-for-sale securities – AFS securities are recorded at fair value 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 from dealers in the specific instruments (Level 2). Level 2 securities include those traded on an active exchange, as well as U.S. government securities.

Held-to-maturity securities – The fair value is based on quoted market prices, if available. If quoted market prices are not available, management utilizes third-party pricing services or broker quotations from dealers in the specific instruments. Level 2 securities include those traded on an active exchange, as well as U.S. government securities.

Loans held-for-sale - The fair value of fixed-rate one-to-four family loans is based on whole loan forward prices obtained from government sponsored enterprises.

Loans held-for-portfolio - The estimated fair value of loans held-for-portfolio consists of a credit adjustment to reflect the estimated adjustment to the carrying value of the loans due to credit-related factors and a yield adjustment to reflect the estimated adjustment to the carrying value of the loans due to a differential in yield between the portfolio loan yields and estimated current market rate yields on loans with similar characteristics. The estimated fair values of loans held-for-portfolio reflect exit price assumptions. The liquidity premiums/discounts are part of the valuation for exit pricing.

Mortgage servicing rights –The fair value of MSRs is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs.

Time deposits - The estimated fair value of time deposits 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 fair value of borrowings is estimated using the contractual cash flows of each debt instrument discounted using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated notes - The fair value of subordinated notes is estimated using discounted cash flows based on 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 fair value of collateral dependent loans is based on the current appraised value of the collateral less estimated costs to sell.

OREO and repossessed assets – The fair value of OREO and repossessed assets is based on the current appraised value of the collateral less estimated costs to sell.

Off-balance sheet financial instruments - The fair value of off-balance sheet financial instruments, which consisted entirely of loan commitments at March 31, 2025 and December 31, 2024, is estimated 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 Company’s clients. The estimated fair value of these commitments was not significant at March 31, 2025 and December 31, 2024.

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 months ended March 31, 2025 and 2024.

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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):


	March 31, 2025				Fair Value Measurements Using:
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
FINANCIAL ASSETS:
Cash and cash equivalents	$	131,494	$	131,494	$	131,494	$	—	$	—
Available-for-sale securities	7,689		7,689		—		7,689		—
Held-to-maturity securities	2,121		1,711		—		1,711		—
Loans held-for-sale	2,267		2,267		—		2,267		—
Loans held-for-portfolio, net	877,833		840,425		—		—		840,425

Mortgage servicing rights	4,688		4,688		—		—		4,688

FINANCIAL LIABILITIES:

Time deposits	289,474		290,245		—		290,245		—

Borrowings	25,000		25,000		—		25,000		—
Subordinated notes	11,770		12,310		—		12,310		—


	December 31, 2024				Fair Value Measurements Using:
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
FINANCIAL ASSETS:
Cash and cash equivalents	$	43,641	$	43,641	$	43,641	$	—	$	—
Available-for-sale securities	7,790		7,790		—		7,790		—
Held-to-maturity securities	2,130		1,712		—		1,712		—
Loans held-for-sale	487		487		—		487		—
Loans held-for-portfolio, net	891,672		850,813		—		—		850,813
Mortgage servicing rights	4,769		4,769		—		—		4,769

FINANCIAL LIABILITIES:

Time deposits	295,822		296,575		—		296,575		—
Borrowings	25,000		25,000		—		25,000		—
Subordinated notes	11,759		12,653		—		12,653		—

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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 March 31, 2025
Description	Total		Level 1		Level 2		Level 3

Municipal bonds	$	5,341	$	—	$	5,341	$	—
Agency mortgage-backed securities	2,348		—		2,348		—

Mortgage servicing rights	4,688		—		—		4,688


	Fair Value at December 31, 2024
Description	Total		Level 1		Level 2		Level 3

Municipal bonds	$	5,374	$	—	$	5,374	$	—
Agency mortgage-backed securities	2,416		—		2,416		—

Mortgage servicing rights	4,769		—		—		4,769

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:

March 31, 2025

Financial Instrument

Valuation Technique

Unobservable Input(s)

Range
(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

125%-364% (125%)

Discount rate

10.0%-10.3% (10%)

December 31, 2024

Financial Instrument

Valuation Technique

Unobservable Input(s)

Range
(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

125%-556% (125%)

Discount rate

(10%)

Generally, any significant increases in the prepayment speed assumption and discount rate utilized in the fair value measurement of the MSRs will result in a negative fair value adjustment (and decrease in the fair value measurement). Conversely, a significant decrease in the prepayment speed assumption and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement). An increase in the weighted average life assumptions will result in a decrease in the prepayment speed assumption and conversely, a decrease in the weighted average life assumptions will result in an increase in the prepayment speed assumption. As a result of the difficulty in observing certain significant valuation inputs affecting our “Level 3” fair value assets, we are required to make judgments regarding these items’ 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 nine months ended March 31, 2025 and 2024.

MSRs are measured at fair value using significant unobservable inputs (Level 3) on a recurring basis, and a reconciliation of these assets can be found 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 March 31, 2025
	Total		Level 1		Level 2		Level 3
OREO and repossessed assets	$	41	$	—	$	—	$	41
Collateral dependent loans	9,789		—		—		9,789


	Fair Value at December 31, 2024
	Total	Level 1	Level 2	Level 3

Collateral dependent loans	7,627	—	—	7,627

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both March 31, 2025 and December 31, 2024.

Note 6 – Mortgage Servicing Rights

The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $418.6 million at March 31, 2025 compared to $425.8 million at December 31, 2024. Of these total balances, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at March 31, 2025 and December 31, 2024 were $416.5 million and $423.7 million, respectively. The unpaid principal balance of loans serviced for other financial institutions totaled $2.1 million at both March 31, 2025 and December 31, 2024. 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 March 31,
	2025		2024
Beginning balance, at fair value	$	4,769	$	4,632
Servicing rights that result from transfers and sale of financial assets	18		45
Changes in fair value:
Due to changes in model inputs or assumptions and other(1)	(99)		(65)

Ending balance, at fair value	$	4,688	$	4,612

(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:


	March 31, 2025		December 31, 2024
Prepayment speed (Public Securities Association “PSA” model)	125	%	125	%
Weighted-average life	10.8 years		10.6 years
Weighted average discount rate	10.0	%	10.0	%

The amount of contractually specified servicing, late and ancillary fees earned on mortgage servicing rights are included in

mortgage servicing income on the Condensed Consolidated Statements of Income and totaled $269 thousand and $282 thousand for the three months ended March 31, 2025 and 2024, 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.

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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):


	March 31, 2025		December 31, 2024


FHLB advances:

Short-term advances	$	15,000	$	—
Long-term advances	10,000		25,000
Total	$	25,000	$	25,000


	March 31, 2025			December 31, 2024
Fixed Rate:
Outstanding balance	$	25,000		$	25,000
Interest rates ranging from	4.06		%	4.06		%
Interest rates ranging to	4.27		%	4.27		%
Weighted average interest rate	4.16		%	4.16		%

The following table presents the maturity of our FHLB advances (dollars in thousands):


	March 31, 2025
Remainder of 2025	$	—
2026	15,000
2027	—
2028	10,000
2029	—
Thereafter	—
	$	25,000

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, 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:


	March 31, 2025		December 31, 2024
Amount available to borrow under credit facility(1)	$	347,813	$	385,366
Advance equivalent of collateral:
One-to-four family loans	176,342		175,907
Commercial and multifamily loans	28,951		29,180
Home equity loans	237		241
Notional amount of letters of credit outstanding	13,000		8,000
Remaining FHLB borrowing capacity(2)	$	167,529	$	172,327

(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 both March 31, 2025 and December 31, 2024, the Company had an investment of $1.7 million in FHLB of Des Moines stock.

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 based on the Company’s outstanding borrowing balance. At March 31, 2025 and December 31, 2024, the amount available to borrow under this credit facility was $20.3 million and $20.8 million, respectively, subject to eligible pledged collateral. The Company had no outstanding borrowings under this arrangement at March 31, 2025 and December 31, 2024.

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 one year term maturing on June 30, 2025 and is renewable annually. As of March 31, 2025, the amount available under this line of credit was $20.0 million. There was no balance on this line of credit as of March 31, 2025 and December 31, 2024.

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 have an initial fixed interest rate of 5.25% to, but excluding, October 1, 2025, payable semi-annually in arrears. From, and including, October 1, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark rate, which is expected to be 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 may be redeemed by the Company, in whole or in part, on October 1, 2025, or on any subsequent interest payment date. Prior to October 1, 2025, the Company may redeem these notes, in whole but not in part, only under certain limited circumstances set forth in the terms of the subordinated notes. The balance of the subordinated notes was $11.8 million as of both March 31, 2025 and December 31, 2024.

Note 9 – Earnings Per Common Share

The following table summarizes the calculation of earnings per share for the periods indicated (in thousands, except per share data):


	Three Months Ended
	2025		2024
Net income	$	1,167	$	770
LESS: Participating dividends - Unvested Restricted Stock Awards (“RSAs”)	(2)		(3)
LESS: Income allocated to participating securities - Unvested RSAs	(3)		(2)
Net income available to common stockholders - basic	1,162		765
ADD BACK: Income allocated to participating securities - Unvested RSAs	3		2
LESS: Income reallocated to participating securities - Unvested RSAs	(3)		(2)
Net income available to common stockholders - diluted	$	1,162	$	765

Weighted average number of shares outstanding, basic	2,554,265		2,539,213
Effect of potentially dilutive common shares	24,344		17,745
Weighted average number of shares outstanding, diluted	2,578,609		2,556,958
Earnings per share, basic	$	0.45	$	0.30
Earnings per share, diluted	$	0.45	$	0.30

There were no anti-dilutive securities during the three months ended March 31, 2025 and 7,596 anti-dilutive securities during the three months ended March 31, 2024.

Note 10 – Leases

We currently have operating leases for branch locations, a loan production office and our corporate office and in the past, we also had operating leases for certain equipment. The term for our leases begins on the date we become legally obligated for the

rent payments or we take possession of the building premises, whichever is earlier. Our real estate leases have initial terms ranging from one to 10.5 years and typically include one renewal option. As of March 31, 2025, our leases had remaining terms ranging from 11 months to 5.2 years. The operating leases require us to pay property taxes and operating expenses for the properties.

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):


	March 31, 2025		December 31, 2024
Operating lease right-of-use assets	$	3,546	$	3,725
Operating lease liabilities	$	3,828	$	4,013

The following table presents the components of lease expense for the periods indicated (in thousands):


	Three Months Ended March 31,
	2025		2024
Operating lease expense
Office leases	$	273	$	270

Sublease income	—		(3)
Net lease expense	$	273	$	267

The following table presents the schedule of lease liability payments at the date indicated (in thousands):


	March 31, 2025
Remainder of 2025	$	1,061
2026	1,012
2027	997
2028	844
2029	136
Thereafter	—
Total lease payments	4,050
Less: Present value discount	222
Present value of lease liabilities	$	3,828

Lease term and discount rate by lease type consisted of the following at the dates indicated:

March 31,
2025

December 31,
2024

Weighted-average remaining lease term:

Office leases

4.0 years

4.3 years

Weighted-average discount rate (annualized):

Office leases

2.90

2.88

Supplemental cash flow information related to leases was as follows for the periods indicated (in thousands):


	Three Months Ended March 31,
	2025		2024
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows
Office leases	$	279	$	278

Note 11 – Subsequent Events

On April 29, 2025, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.19 per common share, payable on May 23, 2025 to stockholders of record at the close of business on May 9, 2025.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. 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:

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

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

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

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

•the effects of any federal government shutdown;

•changes in consumer spending, borrowing and savings habits;

•the risks of lending and investing activities, including delinquencies write-offs and changes in our allowance for credit losses, and provision for credit losses;

•monetary and fiscal policies of the Federal Reserve and the U.S. 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;

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

•fluctuations in real estate values and both residential and commercial and multifamily real estate market conditions in our market area;

•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;

•our ability to control operating costs and expenses;

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

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

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

•our ability to attract and retain deposits;

•competitive pressures among financial services companies;

•our ability to successfully integrate into our operations any assets, liabilities, clients, systems, and management personnel we may acquire and our ability to realize related revenue synergies and expected cost savings and other benefits within the anticipated time frames or at all;

•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;

•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;

•legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and other

governmental initiatives affecting the financial services industry and the availability of resources to address such changes;

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

•costs and effects of litigation, including settlements and judgments;

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

•environmental, social and governance goals;

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

•our ability to pay dividends on and repurchase our common stock;

•the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;

•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on those of our third-party vendors;

•the potential for new or increased tariffs, trade restrictions, or geopolitical tensions that could affect economic activity or specific industry sectors;

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

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

•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”).

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.

General

Sound Financial Bancorp, a Maryland corporation, is a bank holding company for its wholly owned subsidiary, Sound Community Bank. Substantially all of Sound Financial Bancorp’s business is conducted through Sound Community Bank, a Washington state-chartered commercial bank. As a Washington commercial bank that is not a member of the Federal Reserve System, the Bank’s regulators are the Washington Department of Financial Institutions and the Federal Deposit Insurance Corporation (the “FDIC”). As a bank holding company, Sound Financial Bancorp is regulated by the Federal Reserve. We also sell insurance products and services through Sound Community Insurance Agency, Inc., a wholly owned subsidiary of the Bank.

Sound Community Bank’s deposits are insured up to applicable limits by the FDIC. At March 31, 2025, Sound Financial Bancorp, on a consolidated basis, had assets of $1.07 billion, net loans held-for-portfolio of $877.8 million, deposits of $910.3 million and stockholders’ equity of $104.4 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.

Our principal business consists of attracting retail and commercial deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences (including home equity loans and lines of credit), commercial and multifamily real estate, construction and land, and consumer and commercial business loans. Our commercial business loans include unsecured lines of credit and secured term loans and lines of credit secured by inventory, equipment and accounts receivable. We also offer a variety of secured and unsecured consumer loan products, including manufactured home loans, floating home loans, automobile loans, boat loans and recreational vehicle loans. 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”) in which we retain the servicing of the loan 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. We originate and retain a significant amount of commercial real estate loans, including those secured by owner-occupied and nonowner-occupied commercial real estate, multifamily properties and mobile home parks, and construction and land development loans.

Critical Accounting Estimates

Certain of our accounting policies require management to make difficult, complex or subjective judgments, which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, other changes in economic conditions and changes in the financial condition and performance of borrowers. Management believes that its critical accounting estimates include determining the allowance for credit losses and accounting for mortgage servicing rights. There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2024 Form 10-K.

Comparison of Financial Condition at March 31, 2025 and December 31, 2024

General. Total assets increased $75.6 million, or 7.6%, to $1.07 billion at March 31, 2025 from $993.6 million at December 31, 2024. The increase primarily was a result of an increase in cash and cash equivalents, partially offset by a lower balance of loans held-for-portfolio.

Cash and Cash Equivalents, and Investment Securities. Cash and cash equivalents increased $87.9 million, or 201.3%, to $131.5 million at March 31, 2025 from $43.6 million at December 31, 2024. The increase was primarily due to the strategic decision to sell reciprocal deposits at the end of 2024, which reduced our cash balances. 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, except for time deposits.

Investment securities decreased $110 thousand, or 1.1%, to $9.8 million at March 31, 2025, compared to $9.9 million at December 31, 2024. Held-to-maturity securities totaled $2.1 million at both March 31, 2025 and December 31, 2024. Available-for-sale securities totaled $7.7 million at March 31, 2025, compared to $7.8 million at December 31, 2024. The decrease in available-for-sale securities was primarily due to regularly scheduled payments, as well as lower net unrealized losses resulting from an increase in yields on our agency mortgage-backed securities during the first quarter of 2025.

Loans. Loans held-for-portfolio, net, decreased $13.8 million, or 1.6%, to $877.8 million at March 31, 2025 from $891.7 million at December 31, 2024.

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


	March 31, 2025		December 31, 2024		Amount Change		Percent Change
One-to-four family	$	262,457	$	269,684	$	(7,227)	(2.7)	%
Home equity	28,112		26,686		1,426		5.3
Commercial and multifamily	392,798		371,516		21,282		5.7
Construction and land	42,492		73,077		(30,585)		(41.9)
Manufactured homes	42,448		41,128		1,320		3.2
Floating homes	86,626		86,411		215		0.2
Other consumer	18,224		17,720		504		2.8
Commercial business	14,690		15,605		(915)		(5.9)
Premiums for purchased loans	688		718		(30)		(4.2)
Deferred loan fees	(2,309)		(2,374)		65		(2.7)
Total loans held-for-portfolio, gross	886,226		900,171		(13,945)		(1.5)
Allowance for credit losses — loans	(8,393)		(8,499)		106		(1.2)
Total loans held-for-portfolio, net	$	877,833	$	891,672	$	(13,839)	(1.6)	%

The decreases in the loan portfolio were driven primarily by decreases in construction and land loans and, to a lesser extent, one-to-four family and commercial business loans. The $30.6 million, or 41.9%, decline in construction and land loans was the primarily driver of the overall decrease in the loan portfolio as of March 31, 2025, compared to December 31, 2024. This decline was largely due to project completions, a slowdown in new financing activities amid higher interest rates, and the payoff of a $17.0 million loan that had been risk rated as special mention. In addition, one-to-four-family loans and commercial business loans declined by $7.2 million, or 2.7%, and $915 thousand, or 5.9%, respectively, primarily due to loan repayments exceeding new originations. These reductions were partially offset by a $21.3 million, or 5.7%, increase in commercial and multifamily loans, driven by the conversion of construction projects to permanent financing. Home equity loans also rose by $1.4 million, or 5.3%, as homeowners likely utilized their home equity lines to access liquidity, particularly in response to

elevated living costs and inflationary pressures.

At March 31, 2025, our loan portfolio, net of deferred loan fees, remained well-diversified. At that date, commercial and multifamily real estate loans accounted for 44.2% of total loans, one-to-four family loans, including home equity loans, accounted for 32.6% of total loans, commercial business loans accounted for 1.7% of total loans, and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounted for 16.7% of total loans. Construction and land loans accounted for 4.8% of total loans at March 31, 2025.

Loans held-for-sale totaled $2.27 million at March 31, 2025, compared to $487 thousand at December 31, 2024. The increase was primarily due to timing of mortgage originations and sales.

Allowance for Credit Losses.

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


	Three Months Ended March 31,
	2025			2024
ACL — Loans:
Balance at beginning of period	$	8,499		$	8,760

Charge-offs	(27)			(62)
Recoveries	6			6
Net charge-offs	(21)			(56)
(Release of) provision for credit losses	(85)			(106)
Balance at end of period	$	8,393		$	8,598
Reserve for Unfunded Commitments:
Balance at beginning of period	234			193

(Release of) provision for credit losses	(118)			73
Balance at end of period	116			266
ACL	$	8,509		$	8,864
Ratio of net charge-offs during the period to average loans outstanding during the period	(0.01)		%	(0.03)		%

Our ACL — loans decreased $106 thousand, or 1.2%, to $8.4 million at March 31, 2025, from $8.5 million at December 31, 2024. The decrease in the ACL - loans was primarily a result of a decrease in the balance of our loan portfolio, partially offset by higher reserves on our portfolio of other consumer loans and residential loans due to qualitative adjustments for uncertainty in market conditions. See “Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024 — Provision for Credit Losses.”

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


	At March 31, 2025			At December 31, 2024
ACL - loans as a percentage of total loans outstanding	0.95		%	0.94		%
ACL — loans	$	8,393		$	8,499
Total loans outstanding	$	887,847		$	901,827

Nonaccrual loans as a percentage of total loans outstanding	1.09		%	0.83		%
Total nonaccrual loans	$	9,653		$	7,491
Total loans outstanding	$	887,847		$	901,827

ACL - loans as a percentage of nonaccrual loans	86.95		%	113.46		%
ACL — loans	$	8,393		$	8,499
Total nonaccrual loans	$	9,653		$	7,491

ACL as a percentage of total loans outstanding	0.96		%	0.97		%
ACL	$	8,509		$	8,733
Total loans outstanding	$	887,847		$	901,827

ACL as a percentage of nonaccrual loans	88.15		%	116.58		%
ACL	$	8,509		$	8,733
Total nonaccrual loans	$	9,653		$	7,491


	Three Months Ended March 31,
	2025			2024
	($ in thousands)
Net recoveries (charge-offs) during period to average loans outstanding:
One-to-four family:	—		%	—		%
Net (charge-offs)/recoveries	$	—		$	—
Average loans outstanding	$	266,980		$	278,472

Home equity:	—		%	—		%
Net (charge-offs)/recoveries	$	—		$	—
Average loans outstanding	$	27,562		$	23,300

Commercial and multifamily real estate:	—		%	—		%
Net (charge-offs)/recoveries	$	—		$	—
Average loans outstanding	$	377,925		$	313,139

Construction and land:	—		%	—		%
Net (charge-offs)/recoveries	$	—		$	—
Average loans outstanding	$	65,187		$	125,643

Manufactured homes:	(0.19)		%	(0.25)		%
Net (charge-offs)/recoveries	$	(19)		$	(23)
Average loans outstanding	$	41,587		$	36,716

Floating homes:	—		%	—		%
Net (charge-offs)/recoveries	$	—		$	—
Average loans outstanding	$	85,593		$	78,797

Other consumer:	(0.05)		%	(0.70)		%
Net (charge-offs)	$	(2)		$	(33)
Average loans outstanding	$	17,633		$	18,945

Commercial business:	—		%	—		%
Net (charge-offs)/recoveries	$	—		$	—
Average loans outstanding	$	15,269		$	21,198

Total loans:	(0.01)		%	(0.03)		%
Net (charge-offs)	$	(21)		$	(56)
Average loans outstanding	$	897,736		$	896,210

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, increased $2.2 million, or 29.4%, to $9.7 million, or 0.91% of total assets, at March 31, 2025 from $7.5 million, or 0.75% of total assets, at December 31, 2024.

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


	Nonperforming Assets
	March 31, 2025		December 31, 2024		Amount Change		Percent Change


Total nonperforming loans	$	9,653	$	7,491	$	2,162	28.9
OREO and repossessed assets	41		—		41		—
Total nonperforming assets	$	9,694	$	7,491	$	2,203	29.4	%

The increase in NPAs primarily was due to the addition of six loans totaling $2.4 million to nonaccrual status, including two commercial real estate loans of $1.1 million and $988 thousand. The increase also included $41 thousand of other real estate owned properties. These additions were partially offset by $207 thousand in regular loan payments. Subsequent to quarter-end,

the $988 thousand commercial real estate loan added to NPAs during the quarter was paid-off. The percentage of nonperforming loans to total loans was 1.09% at March 31, 2025, compared to 0.83% at December 31, 2024.

Mortgage Servicing Rights. The fair value of mortgage servicing rights decreased $81 thousand or 1.7%, to $4.7 million at March 31, 2025 from $4.8 million at December 31, 2024. We record mortgage servicing rights on loans sold with servicing retained and upon acquisition of a servicing portfolio. Mortgage servicing rights are carried at fair value. If the fair value of our mortgage servicing rights fluctuates significantly, our financial results could be materially impacted.

Deposits and Borrowings. Total deposits increased $72.5 million, or 8.7%, to $910.3 million at March 31, 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 $5.8 million, or 4.4%, to $126.7 million at March 31, 2025, compared to $132.5 million at December 31, 2024. This decline may reflect continued migration into higher-yielding interest-bearing products as customers seek better returns in a competitive rate environment. Noninterest-bearing deposits represented 13.9% of total deposits at March 31, 2025, compared to 15.8% at December 31, 2024.

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


	March 31, 2025				December 31, 2024
	Amount		Wtd. Avg. Rate		Amount		Wtd. Avg. Rate
Noninterest-bearing demand	$	121,977	—	%	$	130,095	—	%
Interest-bearing demand	143,595		0.28		142,126		0.34
Savings	63,533		0.10		61,252		0.10
Money market	287,058		3.07		206,067		3.60
Time deposits	289,474		4.18		295,822		4.57
Escrow (1)	4,710		—		2,437		—
Total deposits	$	910,347	2.36	%	$	837,799	2.63	%

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

Scheduled maturities of time deposits at March 31, 2025, are as follows (in thousands):


Year Ending December 31,	Amount
2025	$	219,367
2026	46,314
2027	10,184
2028	11,783
2029	356
Thereafter	1,470
	$	289,474

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 March 31, 2025 and December 31, 2024, totaled $96.4 million and $90.9 million, respectively. Deposit amounts in excess of $250,000 are not federally insured. As of March 31, 2025, uninsured deposits totaled $182.9 million, which represented 20.1% of total deposits, as compared to uninsured deposits of $167.3 million, or 20.0% of total deposits as of December 31, 2024. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The increase in 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 March 31, 2025 and December 31, 2024. FHLB advances are primarily used to support organic loan growth and to maintain liquidity ratios in line with our asset/liability objectives. FHLB advances outstanding at March 31, 2025 had maturities ranging from early 2026 through early 2028. Subordinated notes, net totaled $11.8 million at both March 31, 2025 and December 31, 2024.

Stockholders’ Equity. Total stockholders’ equity increased $765 thousand, or 0.7%, to $104.4 million at March 31, 2025, from $103.7 million at December 31, 2024. This increase primarily reflects $1.2 million of net income earned during the current quarter, $81 thousand in share-based compensation, and $21 thousand in common stock options exercised, partially offset by a $17 thousand increase in accumulated other comprehensive loss, net of tax and the payment of $487 thousand in cash dividends to the Company's stockholders.

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

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances. 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 March 31,
	2025							2024
	Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized		Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized
Interest-earning assets:
Loans receivable	$	896,822	$	12,588		5.69	%	$	895,430	$	12,233		5.49	%
Investments	12,924		108			3.39		14,038		111			3.18
Cash and cash equivalents	95,999		1,010			4.27		107,361		1,416			5.30
Total interest-earning assets (1)	1,005,745		13,706			5.53		1,016,829		13,760			5.44
Interest-bearing liabilities:
Savings and money market accounts	335,419		2,058			2.49		284,455		1,866			2.64
Demand and NOW accounts	140,905		108			0.31		159,762		141			0.35
Certificate accounts	289,960		3,039			4.25		315,495		3,696			4.71
Subordinated notes	11,766		168			5.79		11,724		168			5.76
Borrowings	25,000		262			4.25		40,000		429			4.31
Total interest-bearing liabilities	803,050		5,635			2.85	%	811,436		6,300			3.12	%
Net interest income			$	8,071						$	7,460
Net interest rate spread						2.68	%						2.32	%
Net earning assets	$	202,695						$	205,393
Net interest margin						3.25	%						2.95	%
Average interest-earning assets to average interest-bearing liabilities			125.24		%					125.31		%
Noninterest-bearing deposits	$	126,215						$	132,438
Total deposits	$	892,499	$	5,205		2.37	%	$	892,150	$	5,703		2.57	%
Total funding(2)	$	929,265	$	5,635		2.46	%	$	943,874	$	6,300		2.68	%

(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.

Rate/Volume Analysis

The following table presents, for the periods indicated, the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between changes related to outstanding balances and changes due to interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). 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 March 31, 2025 vs. 2024
	Increase (Decrease) due to				Total Increase (Decrease)
	Volume		Rate
Interest-earning assets:
Loans receivable	$	20	$	335	$	355
Investments	(9)		6		(3)
Cash and cash equivalents	(120)		(286)		(406)
Total interest-earning assets	(109)		55		(54)
Interest-bearing liabilities:
Savings and Money Market accounts	313		(121)		192
Demand and NOW accounts	(14)		(19)		(33)
Certificate accounts	(268)		(389)		(657)
Subordinated notes	1		(1)		—
Borrowings	(157)		(10)		(167)
Total interest-bearing liabilities	$	(125)	$	(540)	$	(665)
Change in net interest income					$	611

Comparison of Results of Operation for the Three Months Ended March 31, 2025 and 2024

General.

Net income increased $397 thousand, or 51.6%, to $1.2 million, or $0.45 per diluted common share, for the three months ended March 31, 2025, from $770 thousand for the three months ended March 31, 2024. The increase was primarily the result of a $611 thousand increase in net interest income and a $170 thousand increase in the release of provision for credit losses, partially offset by a $258 thousand increase in noninterest expense and a $128 thousand increase in the provision for income taxes. Noninterest income remained relatively unchanged between periods.

Interest Income


	Three Months Ended March 31,				Amount Change		Percent Change
	2025		2024
Loans, including fees	$	12,588	$	12,233	$	355	2.9	%
Interest and dividends on investments, cash and cash equivalents	1,118		1,527		(409)		(26.8)
Total interest Income	$	13,706	$	13,760	$	(54)	(0.4)	%

Interest income decreased $54 thousand, or 0.4%, to $13.7 million for the three months ended March 31, 2025, from $13.8 million for the three months ended March 31, 2024, primarily due to lower average balances of interest-bearing cash and investments and a 103 basis point decline in the average yield on interest-bearing cash, partially offset by a 20 basis point increase in the average yield on loans.

Interest income on loans increased $355 thousand, or 2.9%, to $12.6 million for the three months ended March 31, 2025, from $12.2 million for the three months ended March 31, 2024. The average yield on total loans rose to 5.69% for the three months ended March 31, 2025, from 5.49% for the three months ended March 31, 2024, primarily due to variable rate loans resetting to higher market interest rates and new loan originations at higher interest rates. The average balance of total loans was $896.8 million for the three months ended March 31, 2025, compared to $895.4 million for the three months ended March 31, 2024.

Interest income on the investment portfolio decreased $3 thousand, or 2.7%, to $108 thousand for the three months ended March 31, 2025, compared to $111 thousand for the three months ended March 31, 2024. The decrease was due to a decrease in the average balance, partially offset by a higher average yield. The average balance of investments was $12.9 million for the three months ended March 31, 2025, compared to $14.0 million for the three months ended March 31, 2024, while the average yield on investments increased 21 basis points to 3.39% for the three months ended March 31, 2025, compared to 3.18% for the three months ended March 31, 2024. The decrease in the average balance was due to regularly scheduled payments and maturities, while the increase in the average yield was due to higher market interest rates.

Interest income on cash and cash equivalents decreased $406 thousand, or 28.7%, to $1.0 million for the three months ended March 31, 2025, compared to $1.4 million for the three months ended March 31, 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 4.27% for the three months ended March 31, 2025, compared to 5.30% for the three months ended March 31, 2024, as a result of the lower market interest rates generally. The average balance of cash and cash equivalents was $96.0 million for the three months ended March 31, 2025, compared to $107.4 million for the three months ended March 31, 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.

Interest Expense


	Three Months Ended March 31,				Amount Change		Percent Change
	2025		2024
Deposit	$	5,205	$	5,703	$	(498)	(8.7)	%
Borrowings	262		429		(167)		(38.9)
Subordinated notes	168		168		—		—
Total interest expense	$	5,635	$	6,300	$	(665)	(10.6)

The decrease in total interest expense was primarily attributable to lower interest rates across most interest-bearing liabilities, resulting from lower market interest rates generally, as well as a $125 thousand decrease related to lower average balances, particularly in certificate accounts.

Interest expense on certificate accounts declined $657 thousand, driven by a $268 thousand volume-related decrease and a $389 thousand rate-relate decrease. The average balance of certificate accounts declined to $290.0 million for the three months ended March 31, 2025, from $315.5 million a year earlier, while the average rate paid decreased to 4.25% from 4.71%. These declines reflect the continued runoff and repricing of higher-rate time deposits originated in prior periods. In addition, interest expense on demand and Now accounts decreased $33 thousand, due to both lower average balances and slightly lower rates. Partially offsetting these decreases was an increase in interest expense on savings and money market accounts, which increased $192 thousand, or 10.29%, to $2.1 million for the three months ended March 31, 2025, from $1.9 million for the same period in 2024. This increase was driven entirely by higher average balances, which increased to $335.4 million from $284.5 million, reflecting shifts in customer deposit preferences, partially offset by a lower average rate paid on these accounts, which declined 15 basis points to 2.49% from 2.64%. The rate decrease reflects competitive repricing strategies implemented to manage overall funding costs in a stabilizing rate environment.

Interest expense on borrowings, comprised solely of FHLB advances, decreased $167 thousand , primarily due to a $15.0 million decline in average borrowings following the payoff of an FHLB advance during the fourth quarter of 2024. The average balance of FHLB advances was $25.0 million for the three months ended March 31, 2025, compared to $40.0 million for the three months ended March 31, 2024. The average rate paid on borrowings decreased six basis points to 4.25% for the quarter ended March 31, 2025, compared to 4.31% for the same quarter in 2024. Interest expense on subordinated notes was $168 thousand for both the three months ended March 31, 2025 and March 31, 2024, with no material changes in the average balance or rate paid.

Net Interest Income.

Net interest income increased $611 thousand, or 8.2%, to $8.1 million for the three months ended March 31, 2025, from $7.5 million for the three months ended March 31, 2024. The increase in net interest income was mainly the result of decreased funding costs, primarily from lower average rates paid on all categories of interest-bearing deposits and a lower average balance of borrowings, partially offset by a decrease in the average balance of interest-earning assets. Overall, the decline in funding costs contributed to a 36 basis point improvement in the net interest rate spread and a 30 basis point increase in the net interest margin, which rose to 3.25% for the three months ended March 31, 2025, compared to 2.95% for the same period in 2024.

Through most of 2024, the Federal Open Market Committee of the Federal Reserve (“FOMC”) maintained the target range for the federal funds rate at 5.25% to 5.50%, where it remained until September 18, 2024. In light of continued progress on reducing inflation and after considering the balance of risks to the economy, the FOMC has since lowered the target range 100 basis points to 4.25% to 4.50% as March 31, 2025 .

Provision for Credit Losses.

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


	Three Months Ended March 31,
	2025		2024
Release of credit losses on loans	$	(85)	$	(106)
Release of credit losses on unfunded loan commitments	(118)		73
(Release of) provision for credit losses	$	(203)	$	(33)

A release of credit losses of $203 thousand was recorded for the quarter ended March 31, 2025, compared to a release of credit losses of $33 thousand for the quarter ended March 31, 2024. The release of credit losses on loans during the current quarter was primarily due to a decline in the balance of the loan portfolio, partially offset by higher qualitative factors which were influenced by uncertainty in the market. The release of credit losses on unfunded loan commitments during the current quarter related to overall fewer loan commitments. Net charge-offs for the three months ended March 31, 2025 totaled $21 thousand, compared to $56 thousand for three months ended March 31, 2024.

While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not have a material adverse impact on our financial condition and results of operations. A further decline in national and local economic conditions, as a result of the effects of inflation, and a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on our financial condition and results of operations. In addition, the determination of the amount of our ACL is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination.

Noninterest Income. Noninterest income remained relatively unchanged at $1.1 million for both the three months ended March 31, 2025 and March 31, 2024, as reflected below (dollars in thousands):


	Three Months Ended March 31,				Amount Change		Percent Change
	2025		2024
Service charges and fee income	$	684	$	612	$	72	11.8	%
Earnings on BOLI	195		177		18		10.2
Mortgage servicing income	269		282		(13)		(4.6)
Fair value adjustment on mortgage servicing rights	(99)		(65)		(34)		52.3
Net gain on sale of loans	49		90		(41)		(45.6)

Total noninterest income	$	1,098	$	1,096	$	2	0.2	%

The changes in noninterest income for the three months ended March 31, 2025, compared to the same period in 2024 were primarily due to:

•a $72 thousand increase in service charges and fee income, primarily due to a volume incentive paid by Mastercard in the first quarter of 2025 and higher debit card interchange income;

•an $18 thousand increase in earnings from BOLI, primarily due to the strategic decision to surrender and exchange existing policies for higher yielding policies, partially offset by market fluctuations that reduced the value of the policies;

•a $13 thousand decrease in mortgage servicing income, resulting from portfolio paydowns occurring at a faster pace than new originations;

•a $34 thousand decrease in the fair value adjustment on mortgage servicing rights, due to a smaller servicing portfolio; and

•a $41 thousand decrease in net gain on sale of loans, due to a lower volume of loans sold during the first quarter of 2025.

Noninterest Expense. Noninterest expense increased $258 thousand, or 3.4%, to $7.9 million during the three months ended March 31, 2025, compared to $7.7 million during the three months ended March 31, 2024, as reflected below (dollars in thousands):


	Three Months Ended March 31,				Amount Change		Percent Change
	2025		2024
Salaries and benefits	$	4,595	$	4,543	$	52	1.1	%
Operations	1,365		1,457		(92)		(6.3)	%
Regulatory assessments	221		189		32		16.9	%
Occupancy	437		444		(7)		(1.6)	%
Data processing	1,293		1,017		276		27.1	%
Net (gain) on OREO and repossessed assets	3		6		(3)		(50.0)	%
Total noninterest expense	$	7,914	$	7,656	$	258	3.4	%

The change in noninterest expense for the three months ended March 31, 2025, compared to the same period in 2024, were primarily due to:

•a $276 thousand increase in data processing expenses, due to the amortization of costs associated with various project implementations that began in the third quarter of 2024, as well as the absence of a one-time vendor reimbursement received in the first quarter of 2024;

•a $52 thousand increase in salaries and benefits, primarily due to higher salaries expense as a result of annual pay increases in the first quarter and lower deferred compensation, partially offset by lower retirement plan expense and lower commission expense.

•a $32 thousand increase in regulatory assessments, due to a higher estimated accrual for regulatory exam costs; and

•a $92 thousand decrease in operations expense, primarily due to the recognition of annual fee reimbursements from Mastercard beginning in the first quarter of 2025 and lower expenses across various accounts resulting from ongoing cost saving initiatives and process improvements.

The efficiency ratio for the quarter ended March 31, 2025 was 86.31%, compared to 89.48% for the quarter ended March 31, 2024. The improvement in the efficiency ratio was primarily due to higher net interest income resulting from lower funding costs.

Income Tax Expense. The provision for income taxes was $291 thousand and $163 thousand for the three months ended March 31, 2025 and March 31, 2024, respectively. The effective tax rates for the three months ended March 31, 2025 and March 31, 2024 were 19.96% and 17.47%, respectively. The increase in the effective tax rate was due to taxable earnings on BOLI in the current quarter, resulting from the surrender and exchange of existing BOLI policies in to higher yielding policies.

Capital and Liquidity

The Management’s Discussion and Analysis in Item 7 of the Company’s 2024 Form 10-K contains an overview of Sound Financial Bancorp’s and the Bank’s liquidity management, sources of liquidity and cash flows. Although there have been no material changes in our liquidity management, sources of liquidity and cash flows since our 2024 Form 10-K, this discussion updates that disclosure for the three months ended March 31, 2025.

Capital. Stockholders’ equity totaled $104.4 million at March 31, 2025 and $103.7 million at December 31, 2024. In addition to net income of $1.2 million, other sources of capital during the three months ended March 31, 2025 primarily included $81 thousand related to stock-based compensation and $21 thousand in proceeds from stock option exercises. Uses of capital during the three months ended March 31, 2025 primarily included $487 thousand of dividends paid on common stock and $17 thousand of other comprehensive income, net of tax, primarily resulting from unrealized losses on available for sale securities.

We paid cash dividends of $0.19 per common share during the three months ended March 31, 2025 and March 31, 2024, which equates to a dividend payout ratio of 41.73% and 63.12%, 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 March 31, 2025.

The dividends, if any, we pay may be limited as more fully discussed under “Business—How We Are Regulated—Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2024 Form 10-K.

Stock Repurchase Programs. From time to time, our Board of Directors has authorized stock repurchase programs. In general, stock repurchases allow us to proactively manage our capital position and return excess capital to stockholders. 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. 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.

Liquidity. Liquidity measures the ability to meet current and future cash flow needs. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of potential opportunities presented by changes in market interest rates. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to manage cash flows and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that our funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.

Asset liquidity is provided by assets that are readily marketable or pledgeable or that will mature in the near future. Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flows from securities, sales of fixed rate residential mortgage loans in the secondary market and federal funds sold. Liability liquidity generally is provided by access to funding sources, which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.

We continuously monitor our liquidity position and adjust the balance between sources and uses of funds as we deem appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model

liquidity stress scenarios to assess potential liquidity outflows or funding challenges resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

As of March 31, 2025, we had $139.2 million in cash and cash equivalents and available-for-sale investment securities, and $2.3 million in loans held-for-sale. At March 31, 2025, we had the ability to borrow $167.5 million in FHLB advances and access to additional borrowings of $20.3 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 March 31, 2025. We also had a $20.0 million credit facility with Pacific Coast Banker’s Bank available, with no balance outstanding, at March 31, 2025. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible. As of March 31, 2025, management was not aware of any events reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us. For additional details, see “Note 8—Borrowings, FHLB Stock and Subordinated Notes” in the Notes to Condensed Consolidated Financial Statements contained in "Item 1. Financial Statements" of this Form 10-Q.

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 March 31, 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). See the discussion below for information regarding commitments to extend credit and standby letters of credit.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments generally represent commitments to extend credit in the form of loans. The instruments involve, to varying degrees, elements of credit- and interest-rate risk in excess of the amount recognized in the Condensed Consolidated Balance Sheets.

The Company's exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established by the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the client. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These commitments are not reflected in the condensed consolidated financial statements. The Company evaluates each client's creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management's credit evaluation of the client.

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


	March 31, 2025		December 31, 2024
Residential mortgage commitments	$	10,143	$	3,758
Unfunded construction commitments	18,737		25,810
Unused lines of credit	26,986		26,105
Irrevocable letters of credit	163		163
Total loan commitments	$	56,029	$	55,836

Sound Financial Bancorp is a separate legal entity from Sound Community Bank and must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to Sound Community Bank), Sound Financial Bancorp is responsible for paying for any stock repurchases, dividends declared to its stockholders, interest and principal on its outstanding debt, and other general corporate expenses.

Sound Financial Bancorp is a holding company and does not conduct operations; 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. See “Business — How We Are Regulated — Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2024 Form 10-K. At March 31, 2025 Sound Financial Bancorp, on an unconsolidated basis, had $3.9 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. Financial Statements and Supplementary Data” of this Form 10-Q, for further information.

Regulatory Capital

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 March 31, 2025, the Bank’s and the Company’s CBLRs were 10.76% and 9.98%, 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.

See "Part I, Item 1. Business – Regulation of Sound Community Bank – Capital Rules " in the Company's 2024 Form 10-K for additional information related to regulatory capital.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company provided information about market risk in Item 7A of its 2024 Form 10-K. There have been no material changes in our market risk since our 2024 Form 10-K.

Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures.

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a -15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of March 31, 2025, was carried out under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, and several other members of the Company’s senior management. The Company’s principal executive officer and principal financial officer concluded that, as of March 31, 2025, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management (including the Company’s principal executive officer and principal financial officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

We intend to continually review and evaluate the design and effectiveness of the Company’s disclosure controls and procedures and to improve the Company’s controls and procedures over time and to correct any deficiencies that we may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company’s business. While we believe the present design of our disclosure controls and procedures is effective to achieve this goal, future events affecting our business may cause the Company to modify its disclosure controls and procedures.

The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

(b)Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1 Legal Proceedings

In the normal course of business, the Company occasionally becomes involved in various legal proceedings. Any liability from such currently pending proceedings is not expected to have a material adverse effect on the business or financial condition of the Company.

Item 1A Risk Factors

There have been no material changes in the Risk Factors previously disclosed in Item 1A of our 2024 Form 10-K.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b)Not applicable.

(c)The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended March 31, 2025:


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximated Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs(1)
January 1, 2025 - January 31, 2025	—	$	—	—	$	1,435,350
February 1, 2025 - February 28, 2025	—	$	—	—
March 1, 2025 - March 31, 2025	—	$	—	—
Total	—			—	$	—

(1)On January 26, 2024, the Company announced that its 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 from time to time over a period of 12 months in the open market, based on prevailing market prices, or in privately negotiated transactions. This stock repurchase program expired on January 26, 2025.

Item 3 Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a) Not applicable.

(b) Not applicable.

(c) Trading Plans. During the three months ended March 31, 2025, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits


Exhibits:
3.1			Articles of Incorporation of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
3.2			Amended and Restated Bylaws of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on October 26, 2021 (File No. 001-35633))
4.1			Form of Common Stock Certificate of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
4.3			Forms of 5.25% Fixed-to-Floating Rate Subordinated Note due October 1, 2030 (included as Exhibit A to the Subordinate Note Purchase Agreement included in Exhibit 10.16) (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September 21, 2020 (File No. 001-35633)).
10.1+			Amended and Restated Employment Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 30, 2019 (File No. 001-35633))
10.2+			Amended and Restated Supplemental Executive Retirement Agreement dated July 11, 2022, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on July 14, 2022 (File No. 001-35633))
10.3+			Amended and Restated Long Term Compensation Agreement dated November 23, 2015, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 27, 2015 (File No. 001-35633))
10.4+			Amended and Restated Confidentiality, Non-Competition and Non-Solicitation Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 30, 2019 (File No. 001-35633))
10.5+			2008 Equity Incentive Plan (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 31, 2009 (File No. 000-52889))
10.6+			Forms of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreements under the 2008 Equity Incentive Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 29, 2009 (File No. 000-52889))
10.7+			Summary of Annual Bonus Plan (included as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and incorporated herein by reference (File No. 001-35633))
10.8+			2013 Equity Incentive Plan (included as Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2013 and incorporated herein by reference (File No. 001-35633))
10.9+			Form of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreement under the 2013 Equity Incentive Plan (included as Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2013 and incorporated herein by reference (File No. 001-35633))
10.10+			Amended Form of Adoption Agreement for the Sound Community Bank Nonqualified Deferred Compensation Plan (included as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and incorporated herein by reference (File No. 001-35633))
10.11+			The Sound Community Bank Nonqualified Deferred Compensation Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on March 24, 2017 (File No. 001-35633))
10.12+			Change of Control Agreement dated October 25, 2018, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Heidi Sexton (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on October 26, 2018 (File No. (001-35633))
10.13+			Credit Union of the Pacific Incentive Compensation Achievement Plan, dated January 1, 1994 (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 14, 2019 (File No. (001-35633))
10.14+			Form of Subordinated Note Purchase Agreement, dated September 18, 2020, by and among Sound Financial Bancorp, Inc. and the Purchasers (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September 21, 2020 (File No. 001-35633)).
10.15+			Change in Control Agreement dated August 25, 2021 by and among Sound Financial Bancorp, Inc., Sound Community Bank and Wes Ochs (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on August 31, 2021 (File No. 001-35633)).
10.16+			Amendment No 1 to Change of Control Agreement dated October 25, 2018, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Heidi Sexton, effective as of October 30, 2024 (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 5, 2024 (File No. (001-35633))
10.17+			Amendment No. 1 to Change in Control Agreement dated August 25, 2021 by and among Sound Financial Bancorp, Inc., Sound Community Bank and Wes Ochs, effective as of October 30, 2024 (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 5, 2024 (File No. 001-35633)).
31.1			Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2			Rule 13(a)-14(a) Certification (Chief Financial Officer)
32			Section 1350 Certification
101			The following financial statements from the Sound Financial Bancorp, Inc. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025, formatted in Extensive Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income, (iii) condensed consolidated statements of comprehensive income, (iv) condensed consolidated statements of equity (v) condensed consolidated statements of cash flows and (vi) the notes to condensed consolidated financial statements
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

+ Indicates management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Sound Financial Bancorp, Inc.

Date: May 12, 2025	By:	/s/ Laura Lee Stewart
		Laura Lee Stewart
		President/Chief Executive Officer
		(Principal Executive Officer and Duly Authorized Officer)

	By:	/s/ Wes Ochs
		Wes Ochs
		Executive Vice President/Chief Strategy Officer and Chief Financial Officer
		(Principal Financial Officer)