SFBC 10-Q
Sound Financial Bancorp, Inc. (SFBC)
10-Q
2026-08-10
For: 2026-06-30
View Original
Added on
August 10, 2026
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 June 30, 2026
or
| 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
| (Exact name of registrant as specified in its charter) | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (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 | ||||||
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 | ☐ | ||||||||
| ☒ | 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 August 7, 2026, there were 2,568,043 shares of the registrant’s common stock outstanding.
SOUND FINANCIAL BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
| Page Number | |||||
| PART I FINANCIAL INFORMATION | |||||
2
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)
| June 30, 2026 | December 31, 2025 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Available-for-sale (“AFS”) securities, at fair value (amortized cost of $ | |||||||||||
Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $ | |||||||||||
| Equity securities | |||||||||||
| Loans held-for-sale | |||||||||||
| Loans held-for-portfolio | |||||||||||
| Allowance for credit losses (“ACL”) on loans | ( | ( | |||||||||
| Total loans held-for-portfolio, net | |||||||||||
| Accrued interest receivable | |||||||||||
| Bank-owned life insurance (“BOLI”), net | |||||||||||
| Other real estate owned (“OREO”) and repossessed assets, net | |||||||||||
| Mortgage servicing rights (“MSRs”), at fair value | |||||||||||
| Federal Home Loan Bank ("FHLB") stock, at cost | |||||||||||
| Premises and equipment, net | |||||||||||
| Right of use assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Deposits | |||||||||||
| Interest-bearing | $ | $ | |||||||||
| Noninterest-bearing demand | |||||||||||
| Total deposits | |||||||||||
| Borrowings | |||||||||||
| Accrued interest payable | |||||||||||
| Lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Advance payments from borrowers for taxes and insurance | |||||||||||
| Subordinated notes, net | |||||||||||
| Total liabilities | |||||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 7) | |||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss, net of tax | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements
3
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except share and per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| INTEREST INCOME | |||||||||||||||||||||||
| Loans, including fees | $ | $ | $ | $ | |||||||||||||||||||
| Interest and dividends on investments, cash and cash equivalents | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| INTEREST EXPENSE | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Borrowings | |||||||||||||||||||||||
| Subordinated notes | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| (RELEASE OF) PROVISION FOR CREDIT LOSSES | ( | ( | ( | ||||||||||||||||||||
| Net interest income after (release of) provision for credit losses | |||||||||||||||||||||||
| NONINTEREST INCOME | |||||||||||||||||||||||
| Service charges and fee income | |||||||||||||||||||||||
| Earnings on BOLI | |||||||||||||||||||||||
| Mortgage servicing income | |||||||||||||||||||||||
| Fair value adjustment on MSRs | ( | ( | ( | ||||||||||||||||||||
| Net gain on sale of loans | |||||||||||||||||||||||
| Other income (loss) | ( | ( | |||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||
| NONINTEREST EXPENSE | |||||||||||||||||||||||
| Salaries and benefits | |||||||||||||||||||||||
| Operations | |||||||||||||||||||||||
| Regulatory assessments | |||||||||||||||||||||||
| Occupancy | |||||||||||||||||||||||
| Data processing | |||||||||||||||||||||||
| Net loss and expenses on OREO and repossessed assets | |||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
4
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Available for sale securities: | |||||||||||||||||||||||
| Unrealized gains (losses) arising during the period | ( | ( | |||||||||||||||||||||
| Income tax (expense) benefit related to unrealized gains (losses) | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
5
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 2026 and 2025 (unaudited)
(In thousands, except share and per share amounts)
| Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss, net of tax | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
Balance, at March 31, 2026 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends paid on common stock ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Balance, at June 30, 2026 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
Balance, at December 31, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends paid on common stock ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Common stock options exercised | — | — | — | ||||||||||||||||||||||||||||||||
Balance, at June 30, 2026 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
6
| Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss, net of tax | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
Balance, at March 31, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax benefit | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends paid on common stock ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Balance, at June 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
Balance, at December 31, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax benefit | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends paid on common stock ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Common stock options exercised | — | — | — | ||||||||||||||||||||||||||||||||
Balance, at June 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
7
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
| Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Amortization of net premiums on investments | |||||||||||
| (Release of) provision for credit losses | ( | ( | |||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Fair value adjustment on mortgage servicing rights | |||||||||||
| Right of use assets amortization | |||||||||||
| Change in lease liabilities | ( | ( | |||||||||
| Change in cash surrender value of BOLI | ( | ( | |||||||||
| Net change in advances from borrowers for taxes and insurance | ( | ( | |||||||||
| Net loss on disposal of assets, net | |||||||||||
| Net gain on sale of loans | ( | ( | |||||||||
| Proceeds from sale of loans held-for-sale | |||||||||||
| Originations of loans held-for-sale | ( | ( | |||||||||
| Net loss on OREO and repossessed assets | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accrued interest receivable | ( | ||||||||||
| Other assets | |||||||||||
| Accrued interest payable | ( | ( | |||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Proceeds from principal payments, maturities and sales of available-for-sale securities | |||||||||||
| Proceeds from principal payments of held-to-maturity securities | |||||||||||
| Purchase of equity investments | ( | ||||||||||
| Net change in loans | ( | ||||||||||
| FHLB stock redeemed (purchased) | ( | ||||||||||
| Purchase of BOLI | ( | ||||||||||
| Purchases of premises and equipment, net | ( | ( | |||||||||
| Proceeds from sale of OREO and other repossessed assets | |||||||||||
| Net cash provided by/(used in) investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Net (decrease) increase in deposits | ( | ||||||||||
| Repayment of borrowings | ( | ||||||||||
| Dividends paid on common stock | ( | ( | |||||||||
| Proceeds from common stock option exercises | |||||||||||
| Net cash (used in)/provided by financing activities | ( | ||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Interest paid on deposits and borrowings | |||||||||||
| Noncash investing and financing activities: | |||||||||||
| Loans transferred from loans held-for-sale to loans held-for-portfolio | |||||||||||
| Loans transferred from loans held-for-portfolio to OREO and repossessed assets | |||||||||||
| Cash paid for principal portion from finance leases | |||||||||||
| ROU assets obtained in exchange for new operating lease liabilities | |||||||||||
| ROU assets obtained in exchange for new finance lease liabilities | |||||||||||
| Derecognition of ROU asset | |||||||||||
| Derecognition of lease liability | |||||||||||
See Notes to Condensed Consolidated Financial Statements
8
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 – Basis of Presentation
The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Sound Financial Bancorp, Inc, and its wholly owned subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc. References in this document to “Sound Financial Bancorp” refer to Sound Financial Bancorp, Inc. and references to the “Bank” refer to Sound Community Bank. References to “we,” “us,” and “our” or the “Company” refer to Sound Financial Bancorp, the Bank and Sound Community Insurance Agency, Inc., collectively, unless the context otherwise requires.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 18, 2026 (“2025 Form 10-K”). The results for the interim periods are not necessarily indicative of results for a full year or any other future period.
We have not made any changes in our significant accounting policies from those disclosed in the 2025 Form 10-K.
Note 2 – Accounting Pronouncements Recently Issued or Adopted
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which will change the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (for example, employee compensation, depreciation and amortization) in expense captions. This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its disclosures and expects adoption will result in a more disaggregated presentation of expense line items in its financial statement footnotes.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which simplifies and modernizes the accounting for internal-use software by removing prescriptive project stage guidance and introducing a new capitalization threshold. Under the revised standard, software development costs are capitalized when management authorizes and commits funding for the project, and it is probable the software will be completed and used as intended. This ASU is effective for annual and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.
In November 2025, the FASB issued ASU 2025‑08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans, which expands the scope of the “gross‑up” method, formerly applicable only to purchased credit‑deteriorated ("PCD") assets, to include acquired non‑PCD loans that meet certain criteria, now referred to as “purchased seasoned loans” (PSLs). Under this model, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized cost basis, thereby eliminating the day-one credit‑loss expense previously required for non‑PCD assets. PSLs are defined as non‑PCD loans acquired either (i) through a business combination, or (ii) purchased more than 90 days after origination when the acquirer was not involved in origination. This ASU is effective on a prospective basis for loans acquired on or after the adoption date, which is for interim and annual reporting periods beginning after December 15, 2026. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s consolidated financial statements.
In December 2025, the FASB issued ASU 2025‑11, Interim Reporting (Topic 270): Narrow‑Scope Improvements, which clarifies and enhances guidance under ASC 270 on interim financial reporting by (i) clarifying the scope of ASC 270 such that it now explicitly applies only to entities that issue complete interim financial statements and related notes under U.S. GAAP, (ii) establishing clear guidance on the form of interim financial statements and notes, incorporating a comprehensive list of
9
required interim disclosures drawn from across the ASC, and (iii) introducing a requirement to disclose material events and changes occurring after the end of the last annual period that could impact interim results. This ASU is effective for interim and annual reporting periods beginning after December 15, 2027. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s consolidated financial statements.
Note 3 – Investments
At June 30, 2026, the Company did not own any debt securities classified as trading.
Debt securities
The amortized cost and estimated fair value of our AFS securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| June 30, 2026 | |||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | ( | $ | ||||||||||||||||||
| Agency mortgage-backed securities | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | ( | $ | ||||||||||||||||||
| Agency mortgage-backed securities | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
The amortized cost and estimated fair value of our HTM securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
June 30, 2026 | |||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | ( | $ | ||||||||||||||||||
| Agency mortgage-backed securities | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
December 31, 2025 | |||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | ( | $ | ||||||||||||||||||
| Agency mortgage-backed securities | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
The amortized cost and estimated fair value of AFS and HTM securities at June 30, 2026, by contractual maturity, are shown below (in thousands). Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, consisting of agency mortgage-backed securities, are shown separately.
10
| June 30, 2026 | |||||||||||||||||||||||
| Available-for-sale | Held-to-maturity | ||||||||||||||||||||||
| Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||||||||||
| Due within one year | $ | $ | $ | $ | |||||||||||||||||||
| Due after one year through five years | |||||||||||||||||||||||
| Due after five years through ten years | |||||||||||||||||||||||
| Due after ten years | |||||||||||||||||||||||
| Agency mortgage-backed securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
There were no
There were no
Accrued interest receivable on securities totaled $47
The following table summarizes the aggregate fair value and gross unrealized loss by length of time of those investments for which an allowance for credit losses has not been recorded that have been in a continuous unrealized loss position at the dates indicated (in thousands):
| June 30, 2026 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||
| Available-for-sale securities | |||||||||||||||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| Held-to-maturity securities | |||||||||||||||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Total held-to-maturity securities | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||
| Available-for-sale securities | |||||||||||||||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| Held-to-maturity securities | |||||||||||||||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Total held-to-maturity securities | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
There was no 11 11 one security in an unrealized loss position for less than 12 months and 15
11
more than 12 months at June 30, 2026 and no securities in an unrealized loss position for less than 12 months and 15 securities in an unrealized loss position for more than 12 months at December 31, 2025. The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and not related to the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. There was no provision for credit losses recognized for investment securities during the three and six months ended June 30, 2026 and 2025, because the declines in fair value were not attributable to credit quality and because we do not intend, and it is not likely that we will be required, to sell these securities before recovery of their amortized cost basis.
Equity Securities
At June 30, 2026, the Company held equity securities without readily determinable fair values with a carrying value of $5.0 million, accounted for under the measurement alternative in accordance with ASC 321. During the three and six months ended June 30, 2026, there was no impairment and no observable price changes. The Company held no equity securities at December 31, 2025.
Note 4 – Loans
Loans-held-for portfolio (which excludes loans held-for-sale) at the dates indicated were as follows (in thousands):
| June 30, 2026 | December 31, 2025 | ||||||||||
| Real estate loans: | |||||||||||
| One-to-four family | $ | $ | |||||||||
| Home equity | |||||||||||
| Commercial and multifamily | |||||||||||
| Construction and land | |||||||||||
| Total real estate loans | |||||||||||
| Consumer loans: | |||||||||||
| Manufactured homes | |||||||||||
| Floating homes | |||||||||||
| Other consumer | |||||||||||
| Total consumer loans | |||||||||||
| Commercial business loans | |||||||||||
| Total loans held-for-portfolio | |||||||||||
Premiums for purchased loans(1) | |||||||||||
| Deferred fees, net | ( | ( | |||||||||
| Total loans held-for-portfolio, gross | |||||||||||
| Allowance for credit losses — loans | ( | ( | |||||||||
| Total loans held-for-portfolio, net | $ | $ | |||||||||
(1)Includes premiums resulting from purchased loans of $343 thousand related to one-to-four family loans, $196 thousand related to commercial and multifamily loans, and $43 thousand related to commercial business loans as of June 30, 2026. Includes premiums resulting from purchased loans of $367 thousand related to one-to-four family loans, $212 thousand related to commercial and multifamily loans, and $49 thousand related to commercial business loans as of December 31, 2025.
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):
12
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| ACL - Loans | Reserve for Unfunded Loan Commitments | ACL | ACL - Loans | Reserve for Unfunded Loan Commitments | ACL | ||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| (Release of) provision for credit losses during the period | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Net charge-offs during the period | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| ACL - Loans | Reserve for Unfunded Loan Commitments | ACL | ACL - Loans | Reserve for Unfunded Loan Commitments | ACL | ||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| (Release of) provision for credit losses during the period | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net charge-offs during the period | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Accrued interest receivable on loans receivable totaled $3.5 million at June 30, 2026 and $3.6 million December 31, 2025, in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the ACL.
The ACL is measured using the current expected credit losses (“CECL”) approach for financial instruments measured at amortized cost and for other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts. We estimate the ACL using relevant information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. The ACL is measured on a collective (segment) basis when similar risk characteristics exist. Historical credit loss experience for both the Company and segment-specific peers provides the basis for the estimate of expected credit losses. Segments are based upon federal call report segmentation. The reserve was applied on a loan-by-loan basis and condensed into the applicable segments reported below. The ACL is determined using quantitative and qualitative analysis. The quantitative analysis utilizes macroeconomic variables to establish a quantitative relationship between economic conditions and loan performance through an economic cycle. Qualitative adjustments include but are not limited to changes in lending policies; changes in the nature and volume of the portfolio; changes in staff experience levels; changes in the volume or trends of classified loans, delinquencies, and nonaccrual loans; concentration risk; value of underlying collateral; competitive, legal, and regulatory factors; changes in the loan review system; and economic conditions. We evaluate our ACL policy and judgments on an ongoing basis and update them as necessary based on changing conditions. See “Note 1—Organization and Significant Accounting Policies” in the Company’s 2025 Form 10-K for further information on the Company’s ACL accounting policy.
13
The following tables summarize the activity in the ACL - loans for the periods indicated (in thousands):
| Three Months Ended June 30, 2026 | |||||||||||||||||||||||||||||
| Beginning Allowance | Charge-offs | Recoveries | Provision for (Release of) Credit Losses | Ending Allowance | |||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Home equity | ( | ||||||||||||||||||||||||||||
| Commercial and multifamily | ( | ||||||||||||||||||||||||||||
| Construction and land | |||||||||||||||||||||||||||||
| Manufactured homes | |||||||||||||||||||||||||||||
| Floating homes | |||||||||||||||||||||||||||||
Other consumer(1) | ( | ( | |||||||||||||||||||||||||||
Commercial business(2) | ( | ( | |||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
(1)During the three months ended June 30,2026, gross charge-offs of other consumer loans related entirely to deposit overdrafts.
(2)During the three months ended June 30,2026, there was one commercial business loan for $30 thousand originated in 2024 that was charged off.
| Three Months Ended June 30, 2025 | |||||||||||||||||||||||||||||
| Beginning Allowance | Charge-offs | Recoveries | Provision for (Release of) Credit Losses | Ending Allowance | |||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Home equity | ( | ||||||||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||||||||
| Construction and land | ( | ||||||||||||||||||||||||||||
| Manufactured homes | |||||||||||||||||||||||||||||
| Floating homes | |||||||||||||||||||||||||||||
Other consumer(1) | ( | ||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||
(1)During the three months ended June 30, 2025, there was one other consumer loan for $16 thousand originated in 2024 related to a consumer line of credit that was charged off with the remainder of the gross charge-offs of other consumer loans related entirely to deposit overdrafts.
| Six Months Ended June 30, 2026 | |||||||||||||||||||||||||||||
| Beginning Allowance | Charge-offs | Recoveries | Provision for (Release of) Credit Losses | Ending Allowance | |||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Home equity | ( | ||||||||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||||||||
| Construction and land | |||||||||||||||||||||||||||||
Manufactured homes(1) | ( | ||||||||||||||||||||||||||||
| Floating homes | |||||||||||||||||||||||||||||
Other consumer(2) | ( | ( | |||||||||||||||||||||||||||
Commercial business(3) | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
(1)During the six months ended June 30, 2026, there was one manufactured home loan for $20 thousand originated in 2017 that was charged off.
(2)During the six months ended June 30, 2026, gross charge-offs of other consumer loans related entirely to deposit overdrafts
(3)During the six months ended June 30, 2026, there was one commercial business loan for $30 thousand originated in 2024 that was charged off.
14
| Six Months Ended June 30, 2025 | |||||||||||||||||||||||||||||
| Beginning Allowance | Charge-offs | Recoveries | Provision for (Release of) Credit Losses | Ending Allowance | |||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||||||||
| Construction and land | ( | ||||||||||||||||||||||||||||
Manufactured homes(1) | ( | ||||||||||||||||||||||||||||
| Floating homes | |||||||||||||||||||||||||||||
Other consumer(2) | ( | ||||||||||||||||||||||||||||
| Commercial business | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||
(1)During the six months ended June 30, 2025, there was one manufactured home loan for $19 thousand originated in 2022 that was charged off and then subsequently foreclosed upon.
(2)During the six months ended June 30, 2025, there was one other consumer loan for $16 thousand originated in 2024 related to a consumer line of credit that was charged off, with the remainder of the gross charge-offs of other consumer loans related entirely to deposit overdrafts.
Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans and other assets (such as OREO and repossessed assets), as well as debt and equity securities considered as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets have well-defined weaknesses that could result in loss if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified as "substandard," with the added characteristic that the weaknesses make collection or liquidation in full, highly questionable and improbable. Assets classified as "loss" are considered "uncollectible" and of such little value that their continuance as assets is not warranted.
Management regularly reviews loans in the portfolio to assess credit quality and to determine appropriate loan classification and grading. The grades for "watch" and "special mention" loans are used by the Company to identify and track potential problem loans that warrant management’s close attention based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan, or collateral concerns. These loans do not rise to the level of regulatory classifications such as substandard, doubtful, or loss. Loans identified as watch, special mention, substandard, doubtful, or loss are subject to additional problem loan reporting to management quarterly.
When we classify problem assets as either substandard or doubtful, these assets are evaluated to determine whether they should be individually assessed if they no longer share common risk characteristics with the rest of the portfolio. When we classify problem assets as a loss, we are required to charge off those assets in the period in which they are deemed uncollectible. Our determination as to the classification of our assets and the amount of our allowance for credit losses is subject to review by the FDIC (the Bank’s federal banking regulator) and the Washington Department of Financial Institutions (the Bank’s state banking regulator), which can order the establishment of additional credit loss allowance. Assets which do not currently expose us to sufficient risk to warrant classification as substandard or doubtful but possess weaknesses are required to be designated as special mention. There were no loans classified as doubtful or loss as of June 30, 2026 and December 31, 2025.
15
| At June 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Amortized Cost Basis Converted to Term | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| One-to-four family: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total one-to-four family | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Home equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total home equity | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and multifamily: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and multifamily | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Construction and land: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction and land | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Manufactured homes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total manufactured homes | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Floating homes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Total floating homes | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Other consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial business: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial business | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
16
| At December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Amortized Cost Basis Converted to Term | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| One-to-four family: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total one-to-four family | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Home equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total home equity | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and multifamily: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and multifamily | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Construction and land: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction and land | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Manufactured homes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total manufactured homes | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Floating homes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Total floating homes | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Other consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial business: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial business | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
17
Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments were not received as of the dates such payments were due.
The following table presents the amortized cost of nonaccrual loans as of the dates indicated, by type of loan (in thousands):
| June 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Total Nonaccrual Loans | Total Nonaccrual Loans with no ACL | Total Nonaccrual Loans | Total Nonaccrual Loans with no ACL | ||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | |||||||||||||||||||
| Home equity | |||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||
| Construction and land | |||||||||||||||||||||||
| Manufactured homes | |||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The following tables present the aging of past due loans, based on amortized cost, as of the dates indicated, by type of loan (in thousands):
| June 30, 2026 | |||||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 Days and Greater Past Due | 90 Days and Greater Past Due and Accruing | Total Past Due | Current | Total Loans | |||||||||||||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||||||||||||||||||||
| Construction and land | |||||||||||||||||||||||||||||||||||||||||
| Manufactured homes | |||||||||||||||||||||||||||||||||||||||||
| Floating homes | |||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
18
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 Days and Greater Past Due | 90 Days and Greater Past Due and Accruing | Total Past Due | Current | Total Loans | |||||||||||||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||||||||||||||||||||
| Construction and land | |||||||||||||||||||||||||||||||||||||||||
| Manufactured homes | |||||||||||||||||||||||||||||||||||||||||
| Floating homes | |||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Loan Modifications to Borrowers Experiencing Financial Difficulty. The Company has granted modifications which can generally be described in the following categories:
Principal Forgiveness: A modification in which the principal is reduced.
Rate Modification: A modification in which the interest rate is changed.
Term Modification: A modification in which the maturity date, timing of payments or frequency of payments is changed.
Payment Modification: A modification in which the dollar amount of the payment is changed. Interest-only modifications in which a loan is converted to interest-only payments for a period of time are included in this category.
Combination Modification: Any other type of modification, including the use of multiple categories above.
At June 30, 2026, the Company had no commitments to extend additional credit to borrowers owing loan receivables with modified terms.
There were no loans modified within the three and six months ended June 30, 2026 and 2025.
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.
19
The following tables summarize collateral dependent loans by collateral type as of the dates indicated (in thousands):
| June 30, 2026 | |||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | Residential Real Estate | Land | Other Residential | RVs/Automobiles | Business Assets | Total | |||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||
| One- to four- family | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||||||||||||||||||||
| Construction and land | |||||||||||||||||||||||||||||||||||||||||
| Total real estate loans | |||||||||||||||||||||||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||||||||||||||
| Manufactured homes | |||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||
| Total consumer loans | |||||||||||||||||||||||||||||||||||||||||
| Commercial business loans | |||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | Residential Real Estate | Land | Other Residential | RVs/Automobiles | Business Assets | Total | |||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||
| One- to four- family | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||
| Commercial and multifamily | |||||||||||||||||||||||||||||||||||||||||
| Construction and land | |||||||||||||||||||||||||||||||||||||||||
| Total real estate loans | |||||||||||||||||||||||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||||||||||||||
| Manufactured homes | |||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||
| Total consumer loans | |||||||||||||||||||||||||||||||||||||||||
| Commercial business loans | |||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Note 5 – Fair Value Measurements
The Company determines the fair values of its financial instruments based on the requirements established in ASC 820, Fair Value Measurements (“ASC 820”), which provides a framework for measuring fair value in accordance with U.S. GAAP and requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair value as the exit price that would be received to sell an asset or paid to transfer a liability in the principal (or most advantageous) market in an orderly transaction between market participants at the measurement date. The Company’s fair values for financial instruments at June 30, 2026 and December 31, 2025 were determined based on this guidance.
The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments:
Cash and cash equivalents - The estimated fair value equals the carrying amount.
Available-for-sale securities – The fair value is based on quoted market prices, if available (Level 1). If quoted market prices are not available, management utilizes third-party pricing services or broker quotations (Level 2). Level 2 measurements generally include U.S. government and agency securities and other securities valued using observable market inputs.
20
Held-to-maturity securities – The estimated fair value is determined using quoted market prices, if available. If quoted market prices are not available, management utilizes third-party pricing services or broker quotations.
Equity investments - Equity investments consist of securities without readily determinable fair values and are accounted for under the measurement alternative in accordance with ASC 321. Accordingly, these investments are carried at cost, less impairment, and adjusted for observable price changes in orderly transactions for identical or similar investments, with any such adjustments or impairment recognized in net income.
Loans held-for-sale - The fair value of is based on whole loan forward prices obtained from government-sponsored enterprises.
Loans held-for-portfolio - The estimated fair value is determined by applying adjustments for credit-related factors and differences between the contractual yields on the portfolio and current market yields for loans with similar characteristics. The estimated fair value reflects exit price assumptions, including liquidity premiums or discounts.
Mortgage servicing rights –The fair value is determined using a discounted cash flow model that incorporated interest rates, prepayment speeds, discount rates, and delinquency assumptions as inputs.
Time deposits - The estimated fair value is based on the difference between interest rates paid on the Company’s time deposits and current market rates for time deposits with comparable characteristics.
Borrowings - The estimated fair value is determined using the contractual cash flows of each debt instrument discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.
Subordinated notes - The estimated fair value is determined using the contractual cash flows discounted at current borrowing rates for similar long-term debt instruments with similar terms and remaining time to maturity.
A description of the valuation methodologies used for collateral dependent loans, OREO and repossessed assets, and off-balance sheet loan commitments is as follows:
Collateral dependent loans - The estimated fair value is determined using the current appraised value of the collateral, less estimated costs to sell.
OREO and repossessed assets – The fair value is determined using the current appraised value of the collateral less estimated costs to sell.
Off-balance sheet financial instruments - The estimated fair value, which consisted entirely of loan commitments at June 30, 2026 and December 31, 2025, is determined based on fees charged to others to enter into similar agreements, taking into account the remaining terms of the agreements and credit standing of the counterparties. The estimated fair value of these commitments was not significant at June 30, 2026 and December 31, 2025.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the lowest-level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. There were no transfers between levels during the three and six months ended June 30, 2026 and 2025.
21
The following tables present information about the level in the fair value hierarchy for the Company’s financial assets and liabilities, whether recognized or recorded at fair value or not as of the dates indicated (in thousands):
| June 30, 2026 | Fair Value Measurements Using: | ||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| FINANCIAL ASSETS: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Available-for-sale securities | |||||||||||||||||||||||||||||
| Held-to-maturity securities | |||||||||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||||
| Loans held-for-sale | |||||||||||||||||||||||||||||
| Loans held-for-portfolio, net | |||||||||||||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||||||||||||
| FINANCIAL LIABILITIES: | |||||||||||||||||||||||||||||
| Time deposits | |||||||||||||||||||||||||||||
| Subordinated notes | |||||||||||||||||||||||||||||
| December 31, 2025 | Fair Value Measurements Using: | ||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| FINANCIAL ASSETS: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Available-for-sale securities | |||||||||||||||||||||||||||||
| Held-to-maturity securities | |||||||||||||||||||||||||||||
| Loans held-for-sale | |||||||||||||||||||||||||||||
| Loans held-for-portfolio, net | |||||||||||||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||||||||||||
| FINANCIAL LIABILITIES: | |||||||||||||||||||||||||||||
| Time deposits | |||||||||||||||||||||||||||||
| Borrowings | |||||||||||||||||||||||||||||
| Subordinated notes | |||||||||||||||||||||||||||||
22
The following tables present the balance of assets measured at fair value on a recurring basis as of the dates indicated (in thousands):
| Fair Value at June 30, 2026 | |||||||||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| Agency mortgage-backed securities | |||||||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||||||
| Fair Value at December 31, 2025 | |||||||||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| Agency mortgage-backed securities | |||||||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||||||
The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis as of the dates indicated:
| June 30, 2026 | |||||||||||||||||||||||||||||
| Financial Instrument | Valuation Technique | Unobservable Input(s) | Range (Weighted-Average) | ||||||||||||||||||||||||||
| Mortgage Servicing Rights | Discounted cash flow | Prepayment speed assumption | |||||||||||||||||||||||||||
| Discount rate | |||||||||||||||||||||||||||||
| Average debt service cost per residential loan | $ | ||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Financial Instrument | Valuation Technique | Unobservable Input(s) | Range (Weighted-Average) | ||||||||||||||||||||||||||
| Mortgage Servicing Rights | Discounted cash flow | Prepayment speed assumption | |||||||||||||||||||||||||||
| Discount rate | |||||||||||||||||||||||||||||
| Average debt service cost per residential loan | $ | ||||||||||||||||||||||||||||
Generally, significant increases in the prepayment speed assumption or discount rate utilized in the fair value measurement of the MSRs will result in a negative fair value adjustment (and a decrease in fair value). Conversely, a significant decrease in the prepayment speed assumption and discount rate will result in a positive fair value adjustment (and an increase in fair value). An increase in the weighted average life assumption will result in a decrease in the prepayment speed assumption and, conversely, a decrease in the weighted average life assumption will result in an increase in the prepayment speed assumption. Because certain significant valuation inputs used to measure Level 3 assets are unobservable, management is required to make judgments in estimating their fair values.
There were no assets or liabilities (excluding MSRs) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and six months ended June 30, 2026 and 2025.
MSRs are measured at fair value using significant unobservable inputs (Level 3) on a recurring basis, and a reconciliation of changes in the carrying amount of MSRs in presented in “Note 6—Mortgage Servicing Rights.
23
The following tables present the balance of assets measured at fair value on a nonrecurring basis at the dates indicated (in thousands):
| Fair Value at June 30, 2026 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Equity securities | $ | $ | $ | $ | |||||||||||||||||||
| OREO and repossessed assets | |||||||||||||||||||||||
| Collateral dependent loans | |||||||||||||||||||||||
| Fair Value at December 31, 2025 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| OREO and repossessed assets | $ | $ | $ | $ | |||||||||||||||||||
| Collateral dependent loans | |||||||||||||||||||||||
There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis at both June 30, 2026 and December 31, 2025.
Note 6 – Mortgage Servicing Rights
The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $392.4 million at June 30, 2026, compared to $398.4 million at December 31, 2025. Of these total balances, the unpaid principal balances of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at June 30, 2026 and December 31, 2025 were $390.6 million and $396.3 million, respectively. The unpaid principal balance of loans serviced for other financial institutions totaled $1.8 million at June 30, 2026 compared to $2.0 million at December 31, 2025. Loans serviced for Fannie Mae and others are not included in the Company’s financial statements as they are not assets of the Company.
A summary of the change in the balance of mortgage servicing assets during the periods indicated were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Beginning balance, at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Servicing rights that result from transfers and sale of financial assets | |||||||||||||||||||||||
| Changes in fair value: | |||||||||||||||||||||||
Due to changes in model inputs or assumptions and other(1) | ( | ( | ( | ||||||||||||||||||||
| Ending balance, at fair value | $ | $ | $ | $ | |||||||||||||||||||
(1) Represents changes due to collection/realization of expected cash flows and curtailments.
The key economic assumptions used in determining the fair value of mortgage servicing rights at the dates indicated are as follows:
| June 30, 2026 | December 31, 2025 | ||||||||||
| Prepayment speed (Public Securities Association “PSA” model) | % | % | |||||||||
| Weighted-average life | |||||||||||
| Weighted average discount rate | % | % | |||||||||
| Average debt service cost per residential loan | $ | $ | |||||||||
The amount of contractually specified servicing, late and ancillary fees earned on mortgage servicing rights, which are included in mortgage servicing income on the Condensed Consolidated Statements of Income, totaled $245 thousand and $493 thousand
24
Note 7 – Commitments and Contingencies
In the normal course of operations, the Company engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage clients’ requests for funding and take the form of loan commitments and lines of credit.
Note 8 – Borrowings, FHLB Stock and Subordinated Notes
FHLB Advances
The following tables present advances from the FHLB as of the dates indicated (dollars in thousands):
| June 30, 2026 | December 31, 2025 | ||||||||||
FHLB advances: | |||||||||||
| Short-term advances (one year or less) | $ | $ | |||||||||
| Long-term advances (over one year) | |||||||||||
Total | $ | $ | |||||||||
| June 30, 2026 | December 31, 2025 | ||||||||||
| Fixed Rate: | |||||||||||
| Outstanding balance | $ | $ | |||||||||
| Interest rates ranging from | % | % | |||||||||
| Interest rates ranging to | % | % | |||||||||
| Weighted average interest rate | % | % | |||||||||
FHLB Des Moines Borrowing Capacity
The Company has a loan agreement with the FHLB of Des Moines. The terms of the agreement call for a blanket pledge of a portion of the Company’s mortgage and commercial and multifamily loan portfolio based on the Company’s outstanding borrowing balance. Additionally, at June 30, 2026 and December 31, 2025, the Company had outstanding letters of credit from the FHLB of Des Moines to secure public deposits. The following table presents the Company’s borrowing capacity from the FHLB as of the dates indicated:
| June 30, 2026 | December 31, 2025 | ||||||||||
Amount available to borrow under credit facility(1) | $ | $ | |||||||||
| Advance equivalent of collateral: | |||||||||||
| One-to-four family loans | $ | $ | |||||||||
| Commercial and multifamily loans | |||||||||||
| Home equity loans | |||||||||||
| Notional amount of letters of credit outstanding | |||||||||||
Remaining FHLB borrowing capacity(2) | $ | $ | |||||||||
(1)Subject to eligible pledged collateral.
(2)Amount remaining from the advance equivalent of collateral less letters of credit outstanding and FHLB advances.
As a member of the FHLB, the Company is required to maintain a minimum level of investment in FHLB of Des Moines stock based on specific percentages of its outstanding FHLB advances. At June 30, 2026 and December 31, 2025, the Company had an investment of $670 thousand and $1.1 million, respectively, in FHLB of Des Moines stock.
25
Federal Reserve Bank of San Francisco (“FRB SF”) Borrowings
The Company has a borrowing agreement with the FRB SF. The terms of the agreement call for a blanket pledge of a portion of the Company’s consumer and commercial business loans as collateral for borrowings under this arrangement. At June 30, 2026 and December 31, 2025, the amount available to borrow under this credit facility was $21.1 million and $18.5 million, respectively, subject to eligible pledged collateral. The Company had no
Other Borrowings
The Company has access to an unsecured Fed Funds line of credit from Pacific Coast Banker’s Bank (“PCBB”). The line has a 1.5 years term maturing on December 31, 2027, and is renewable upon conclusion of its term. As of June 30, 2026, the amount available under this line of credit was $20.0 million. There were no
Subordinated Debt
In September 2020, the Company issued $12.0 million of fixed -to -floating rate subordinated notes that mature in 2030. The subordinated notes had an initial fixed interest rate of 5.25 % through September 30, 2025, payable semi-annually in arrears. From, and including, October 1, 2025, the interest rate on the subordinated notes reset quarterly to a floating rate per annum equal to the then-current three-month term Secured Overnight Financing Rate, or SOFR, plus 513 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030, and are redeemable by the Company, in whole or in part, on any interest payment date on or after October 1, 2025. The Company completed a partial redemption of $4.0 million on October 1, 2025, the first date on which partial redemptions were permitted, and completed another partial redemption of $2.0 million subsequent to June 30, 2026. The subordinated notes may be included in Tier 2 capital for Sound Financial Bancorp under current regulatory guidelines and interpretations. The balance of the subordinated notes, net of debt issuance costs, was $7.8 2.0 million partial redemption completed subsequent to June 30, 2026.
Note 9 – Earnings Per Common Share
The following table summarizes the calculation of earnings per share for the periods indicated (dollars in thousands, except per share data):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| LESS: Participating dividends - Unvested Restricted Stock Awards (“RSAs”) | ( | ( | ( | ( | |||||||||||||||||||
| LESS: Income allocated to participating securities - Unvested RSAs | ( | ( | ( | ( | |||||||||||||||||||
| Net income available to common stockholders - basic | |||||||||||||||||||||||
| ADD BACK: Income allocated to participating securities - Unvested RSAs | |||||||||||||||||||||||
| LESS: Income reallocated to participating securities - Unvested RSAs | ( | ( | ( | ( | |||||||||||||||||||
| Net income available to common stockholders - diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of shares outstanding, basic | |||||||||||||||||||||||
| Effect of potentially dilutive common shares | |||||||||||||||||||||||
| Weighted average number of shares outstanding, diluted | |||||||||||||||||||||||
| Earnings per share, basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share, diluted | $ | $ | $ | $ | |||||||||||||||||||
There were no
26
Note 10 – Leases
The Company currently has operating leases for branch locations, a loan production office, and its corporate office. The lease term generally begins on the date the Company becomes legally obligated for the rent payments or takes possession of the building premises, whichever is earlier. The Company’s real estate leases have initial terms ranging from to 10.5 years and typically include one renewal option. As of June 30, 2026, The Company’s leases had remaining terms ranging from 8 months to 3.9 years. The operating leases require the Company to pay property taxes and operating expenses for the properties. The Company also has finance leases for certain equipment, including copier machines, which had an initial term of five years and a remaining term of approximately 3.5 years as of June 30, 2026. During the three months ended June 30, 2026, the Company completed the closure of the Tacoma branch as part of ongoing strategic consolidation efforts. In connection with this closure, the lease was modified in the first quarter of 2026 to a shorten the lease term, which expired during ended in the second quarter of 2026. The modification resulted in the derecognition of $98 thousand of the operating right-of-use asset and corresponding operating lease liability during the six months ended June 30, 2026.
The following table presents the lease right-of-use assets and lease liabilities recorded on the Condensed Consolidated Balance Sheets at the dates indicated (in thousands):
| June 30, 2026 | December 31, 2025 | |||||||||||||
| Operating lease right-of-use assets | $ | $ | ||||||||||||
| Finance lease right-of-use assets | ||||||||||||||
| Operating lease liabilities | ||||||||||||||
| Finance lease liabilities | ||||||||||||||
The following table presents the components of lease expense for the periods indicated (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Lease expense | |||||||||||||||||||||||
| Operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Finance leases | |||||||||||||||||||||||
| Amortization of right-of-use assets | |||||||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Sublease income | |||||||||||||||||||||||
| Net lease expense | $ | $ | $ | $ | |||||||||||||||||||
The following table presents the schedule of lease liability payments at the date indicated (in thousands):
| June 30, | Finance Leases | Operating Leases | Total Lease Payments | |||||||||||||||||
| Remainder of 2026 | $ | $ | $ | |||||||||||||||||
| 2027 | ||||||||||||||||||||
| 2028 | ||||||||||||||||||||
| 2029 | ||||||||||||||||||||
| 2030 | ||||||||||||||||||||
| Total lease payments | ||||||||||||||||||||
| Less: Present value discount | ||||||||||||||||||||
| Present value of lease liabilities | $ | $ | $ | |||||||||||||||||
27
Lease term and discount rate by lease type consisted of the following at the dates indicated:
| June 30, 2026 | December 31, 2025 | |||||||||||||
| Weighted-average remaining lease term: | ||||||||||||||
| Operating leases | ||||||||||||||
| Finance leases | ||||||||||||||
| Weighted-average discount rate (annualized): | ||||||||||||||
| Operating leases | % | % | ||||||||||||
| Finance leases | % | % | ||||||||||||
Supplemental cash flow information related to leases was as follows for the periods indicated (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities for operating leases: | |||||||||||||||||||||||
| Operating cash flows: | |||||||||||||||||||||||
| Operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Finance leases | |||||||||||||||||||||||
| Financing cash flows: | |||||||||||||||||||||||
| Finance leases | |||||||||||||||||||||||
Note 11 – Subsequent Events
On July 1, 2026, the Company redeemed $2.0 million of its $8.0 million outstanding subordinated notes. This transaction represented a partial redemption under the terms of the subordinated notes. Refer to “Note-8 Borrowings” for additional information regarding the terms of the redemption.
28
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 but are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions, or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide 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 interest rate levels and volatility, and the timing and pace of such changes, including actions by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;
•the impact of inflation and related monetary and fiscal policy responses thereto, including their effects on consumer and business behavior;
•the effects of any federal government shutdown, debt ceiling standoff, or other fiscal uncertainties;
•changes in consumer spending, borrowing and savings habits;
•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 publicity about the banking industry 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 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, or affect our ability to borrow funds or maintain or increase deposits;
•the inability of key third-party providers to perform their obligations to us;
•our ability to attract and retain deposits, including the risk that changes to federal deposit insurance limits or coverage rules, or customer concerns regarding the safety of uninsured deposits, could adversely affect deposit stability;
•competitive pressures among financial services companies;
•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 adapt to rapid technological changes, including advancements related to artificial intelligence (“AI”), the use of AI models in credit decisioning, customer service, and operations, including risks of model error, bias, regulatory scrutiny under fair lending laws, and third-party AI dependencies, digital banking platforms, and cybersecurity;
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•risk associated with the evolving regulatory and market environment for digital assets and cryptocurrency, including potential impacts on customer behavior, deposit flows, and our ability to offer or support related products or services;
•changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Financial Accounting Standards Board, the U.S. Securities and Exchange Commission (the “SEC”), or the Public Company Accounting Oversight Board (“PCAOB”);
•legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax laws, in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and other governmental initiatives affecting the financial services industry and the availability of resources to address such changes;
•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 matters;
•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;
•vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;
•geopolitical developments and international conflicts, or the imposition of new or increased tariffs and trade restrictions, any of which may disrupt financial markets, global supply chains, commodity prices, or economic activity in specific industry sectors;
•the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, domestic civil unrest and other external events;
•other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and
•the other risks described from time to time in our documents filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”), including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”).
We caution readers not to place undue reliance on any forward-looking statements. The factors listed above could materially affect our financial performance and cause our actual results for future periods to differ materially from any forward-looking statements expressed or implied with respect to future periods and could negatively affect our stock price performance.
We do not undertake, and specifically decline, any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the dates of such statements or to reflect the occurrence of anticipated or unanticipated events.
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 June 30, 2026, Sound Financial Bancorp, on a consolidated basis, had total assets of $1.07 billion, net loans held-for-portfolio of $883.5 million, deposits of $930.9 million and stockholders’ equity of $112.6 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 loans, construction and land loans, and consumer and commercial business loans. Our commercial business loans include unsecured lines of credit, 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
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loans which conform to the underwriting standards of Fannie Mae (“conforming”) and retain the servicing of such loans in order to maintain the direct customer relationship and to generate noninterest income. Residential loans which do not conform to the underwriting standards of Fannie Mae (“non-conforming”) are either held in our loan portfolio or sold with servicing released. 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 2025 Form 10-K.
Comparison of Financial Condition at June 30, 2026 and December 31, 2025
General. Total assets decreased $26.4 million, or 2.4%, to $1.07 billion at June 30, 2026 from $1.09 billion at December 31, 2025. The decrease was primarily the result of an $18.4 million decrease in cash and cash equivalents and a $13.4 million decrease in loans held-for-portfolio, net, partially offset by a $5.0 million increase in equity securities.
Cash and Cash Equivalents, and Investment Securities. Cash and cash equivalents decreased $18.4 million, or 13.3%, to $120.1 million at June 30, 2026 from $138.5 million at December 31, 2025. The decrease reflects lower deposits, repayment of FHLB borrowings, and a new $5.0 million equity investment, partially offset by cash flows from lower loan balances resulting from loan repayments exceeding new originations.
Investment securities decreased $140 thousand, or 1.5%, to $9.5 million at June 30, 2026, compared to $9.6 million at December 31, 2025. Held-to-maturity securities totaled $1.9 million at both June 30, 2026 and December 31, 2025. Available-for-sale securities totaled $7.6 million at June 30, 2026, compared to $7.7 million at December 31, 2025. The decrease in available-for-sale securities was related to principal paydowns or payoffs, partially offset by changes in fair value.
Equity securities totaled $5.0 million at both June 30, 2026 and March 31, 2026, compared to zero at June 30, 2025. The increase primarily related to the decision to deploy some of our interest-earning cash into a higher yielding Community Reinvestment Act (“CRA”)-eligible workforce housing equity investment in the first half of 2026. While this investment has different risk characteristics than our prior CRA-eligible available-for-sale debt securities, the level of investment remains low compared to our total assets and partially replaces the runoff of those securities over the past few years.
Loans. Loans held-for-portfolio, net decreased $13.4 million, or 1.5%, to $883.5 million at June 30, 2026, from $896.9 million at December 31, 2025.
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The following table reflects the changes in the mix of our loans held-for-portfolio at June 30, 2026, as compared to December 31, 2025 (dollars in thousands):
| June 30, 2026 | December 31, 2025 | Amount Change | Percent Change | ||||||||||||||||||||
| One-to-four family | $ | 244,168 | $ | 253,841 | $ | (9,673) | (3.8) | % | |||||||||||||||
| Home equity | 32,107 | 31,468 | 639 | 2.0 | |||||||||||||||||||
| Commercial and multifamily | 381,809 | 409,729 | (27,920) | (6.8) | |||||||||||||||||||
| Construction and land | 76,158 | 50,261 | 25,897 | 51.5 | |||||||||||||||||||
| Manufactured homes | 42,668 | 43,080 | (412) | (1.0) | |||||||||||||||||||
| Floating homes | 87,566 | 87,315 | 251 | 0.3 | |||||||||||||||||||
| Other consumer | 13,832 | 16,571 | (2,739) | (16.5) | |||||||||||||||||||
| Commercial business | 15,748 | 15,378 | 370 | 2.4 | |||||||||||||||||||
| Premiums for purchased loans | 583 | 627 | (44) | (7.0) | |||||||||||||||||||
| Deferred loan fees | (2,670) | (2,737) | 67 | (2.4) | |||||||||||||||||||
| Total loans held-for-portfolio, gross | 891,969 | 905,533 | (13,564) | (1.5) | |||||||||||||||||||
| Allowance for credit losses — loans | (8,420) | (8,605) | 185 | (2.1) | |||||||||||||||||||
| Total loans held-for-portfolio, net | $ | 883,549 | $ | 896,928 | $ | (13,379) | (1.5) | % | |||||||||||||||
The decrease in total loans held-for-portfolio was driven primarily by a decrease of $27.9 million, or 6.8%, in commercial and multifamily loans as a result of two large loans paying off early which had lower yields than our FRB cash balances and which resulted in prepayment penalties. Additional decreases in one-to-four-family loans and other consumer loans of $9.7 million and $2.7 million, respectively, or 3.8% and 16.5%, occurred primarily due to loan repayments exceeding new originations. The declines in these segments of the portfolio were partially offset by a $25.9 million, or 51.5%, increase in construction and land loans largely due to new project loan originations in the current period. Constructions and land loans generally involve greater credit risk than completed commercial real estate loans due to increased exposure to construction execution, market demand, and project completion risks. Given the growth in this loan category and current macroeconomic uncertainty, we applied qualitative adjustments to our ACL for construction and land loans beginning in the first quarter of 2026, as discussed further in the “Allowance for Credit Losses” section below. Home equity loans increased by $639 thousand, or 2.0%, as demand for this product remains high with homeowners utilizing their home equity lines to access liquidity as opposed to paying off their lower rate mortgages.
At June 30, 2026, our loan portfolio, net of deferred loan fees, remained diversified across multiple loan categories. At that date, commercial and multifamily real estate loans accounted for 42.7% of total loans, one-to-four family loans, including home equity loans, accounted for 30.9% of total loans, commercial business loans accounted for 1.8% of total loans, and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounted for 16.1% of total loans. Construction and land loans accounted for 8.5% of total loans at June 30, 2026.
Loans held-for-sale totaled $1.6 million at June 30, 2026, compared to $542 thousand at December 31, 2025. The increase was primarily due to timing of mortgage originations and sales, as well as increased volume of saleable loans throughout the first half of 2026.
Allowance for Credit Losses.
The following table reflects the activity in our allowance for credit losses (“ACL”) during the periods indicated (dollars in thousands):
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| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| ACL — Loans: | |||||||||||||||||||||||
| Balance at beginning of period | $ | 8,635 | $ | 8,393 | $ | 8,605 | $ | 8,499 | |||||||||||||||
| Charge-offs | (33) | (23) | (59) | (50) | |||||||||||||||||||
| Recoveries | 3 | 2 | 10 | 8 | |||||||||||||||||||
| Net charge-offs | (30) | (21) | (49) | (42) | |||||||||||||||||||
| (Release of) provision for credit losses | (185) | 164 | (136) | 79 | |||||||||||||||||||
| Balance at end of period | $ | 8,420 | $ | 8,536 | $ | 8,420 | $ | 8,536 | |||||||||||||||
| Reserve for Unfunded Commitments: | |||||||||||||||||||||||
| Balance at beginning of period | 222 | 116 | 148 | 234 | |||||||||||||||||||
| (Release of) provision for credit losses | (38) | 6 | 36 | (112) | |||||||||||||||||||
| Balance at end of period | 184 | 122 | 184 | 122 | |||||||||||||||||||
| ACL | $ | 8,604 | $ | 8,658 | $ | 8,604 | $ | 8,658 | |||||||||||||||
| Ratio of net charge-offs during the period to average loans outstanding during the period | (0.01) | % | (0.01) | % | (0.01) | % | (0.01) | % | |||||||||||||||
Our ACL - loans decreased $185 thousand, or 2.1%, to $8.4 million at June 30, 2026, from $8.6 million at December 31, 2025. The decrease in the ACL - loans was primarily a result of a decrease in the balance of our loan portfolio, as well as changes in the composition of our loan portfolio, including changes in the relative mix of construction and land loans and other loan categories with differing loss rates, partially offset by higher reserves on our portfolio of construction loan and land loans due to qualitative adjustments for uncertainty in market conditions and concentrations added in the first quarter of 2026. See “Comparison of Results of Operations for the Three and Six Months Ended June 30, 2026 and 2025 — Provision for Credit Losses.”
The following tables show certain credit ratios at the dates and for the periods indicated and the components of each ratio's calculation (dollars in thousands).
| At June 30, 2026 | At December 31, 2025 | ||||||||||
| ACL - loans as a percentage of total loans outstanding | 0.94 | % | 0.95 | % | |||||||
| ACL — loans | $ | 8,420 | $ | 8,605 | |||||||
| Total loans outstanding | $ | 894,056 | $ | 907,643 | |||||||
Nonaccrual loans as a percentage of total loans outstanding | 0.90 | % | 0.64 | % | |||||||
| Total nonaccrual loans | $ | 8,055 | $ | 5,782 | |||||||
| Total loans outstanding | $ | 894,056 | $ | 907,643 | |||||||
ACL - loans as a percentage of nonaccrual loans | 104.53 | % | 148.82 | % | |||||||
| ACL — loans | $ | 8,420 | $ | 8,605 | |||||||
| Total nonaccrual loans | $ | 8,055 | $ | 5,782 | |||||||
| ACL as a percentage of total loans outstanding | 0.96 | % | 0.96 | % | |||||||
| ACL | $ | 8,604 | $ | 8,753 | |||||||
| Total loans outstanding | $ | 894,056 | $ | 907,643 | |||||||
| ACL as a percentage of nonaccrual loans | 106.82 | % | 151.38 | % | |||||||
| ACL | $ | 8,604 | $ | 8,753 | |||||||
| Total nonaccrual loans | $ | 8,055 | $ | 5,782 | |||||||
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| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
Net recoveries (charge-offs) during period to average loans outstanding: | |||||||||||||||||||||||
One-to-four family: | — | % | — | % | — | % | — | % | |||||||||||||||
Net (charge-offs)/recoveries | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Average loans outstanding | $ | 248,056 | $ | 261,685 | $ | 249,925 | $ | 264,318 | |||||||||||||||
Home equity: | — | % | — | % | — | % | — | % | |||||||||||||||
Net (charge-offs)/recoveries | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Average loans outstanding | $ | 32,116 | $ | 28,514 | $ | 31,893 | $ | 28,041 | |||||||||||||||
Commercial and multifamily real estate: | — | % | — | % | — | % | — | % | |||||||||||||||
Net (charge-offs)/recoveries | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Average loans outstanding | $ | 399,407 | $ | 395,683 | $ | 403,845 | $ | 386,853 | |||||||||||||||
Construction and land: | — | % | — | % | — | % | — | % | |||||||||||||||
Net (charge-offs)/recoveries | $ | — | $ | — | — | — | |||||||||||||||||
Average loans outstanding | $ | 74,268 | $ | 45,332 | $ | 69,331 | $ | 55,205 | |||||||||||||||
Manufactured homes: | — | % | — | % | (0.09) | % | (0.09) | % | |||||||||||||||
Net (charge-offs)/recoveries | $ | — | $ | — | $ | (20) | $ | (19) | |||||||||||||||
Average loans outstanding | $ | 42,816 | $ | 42,751 | $ | 42,794 | $ | 42,172 | |||||||||||||||
Floating homes: | — | % | — | % | — | % | — | % | |||||||||||||||
Net (charge-offs)/recoveries | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Average loans outstanding | $ | 86,236 | $ | 89,704 | $ | 85,973 | $ | 87,660 | |||||||||||||||
Other consumer: | — | % | (0.48) | % | 0.01 | % | (0.26) | % | |||||||||||||||
| Net (charge-offs)/recoveries | $ | — | $ | (21) | $ | 1 | $ | (23) | |||||||||||||||
Average loans outstanding | $ | 14,407 | $ | 17,519 | $ | 15,223 | $ | 17,576 | |||||||||||||||
Commercial business: | (0.78) | % | — | % | (0.40) | % | — | % | |||||||||||||||
Net (charge-offs)/recoveries | $ | (30) | $ | — | $ | (30) | $ | — | |||||||||||||||
Average loans outstanding | $ | 15,389 | $ | 14,446 | $ | 15,096 | $ | 14,855 | |||||||||||||||
| Total loans: | (0.01) | % | (0.01) | % | (0.01) | % | (0.01) | % | |||||||||||||||
Net (charge-offs) | $ | (30) | $ | (21) | $ | (49) | $ | (42) | |||||||||||||||
Average loans outstanding | $ | 912,695 | $ | 895,634 | $ | 914,080 | $ | 896,680 | |||||||||||||||
The ratio of ACL - loans to nonaccrual loans decreased to 104.53% at June 30, 2026, from 148.82% at December 31, 2025, reflecting the increase in nonaccrual loans during the period. Despite this decrease, we believe our allowance remains adequate given the collateralized nature of the nonaccrual loans and the overall performance of our loan portfolio.
Nonperforming Assets.
Nonperforming assets (“NPAs”), which were comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, increased $2.0 million, or 32.3%, to $8.1 million, or 0.76% of total assets, at June 30, 2026 from $6.1 million, or 0.56% of total assets, at December 31, 2025.
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The table below sets forth the amounts and categories of NPAs at the dates indicated (dollars in thousands):
| Nonperforming Assets | |||||||||||||||||||||||
| June 30, 2026 | December 31, 2025 | Amount Change | Percent Change | ||||||||||||||||||||
| Total nonperforming loans | $ | 8,055 | $ | 5,782 | $ | 2,273 | 39.3 | ||||||||||||||||
| OREO and repossessed assets | 47 | 344 | (297) | (86.3) | |||||||||||||||||||
| Total nonperforming assets | $ | 8,102 | $ | 6,126 | $ | 1,976 | 32.3 | % | |||||||||||||||
The increase in NPAs from December 31, 2025 was primarily due to the placement of $2.7 million of loans on nonaccrual status during the period, including one multifamily real estate loan of $1.1 million, three one-to-four family home loans totaling $976 thousand, and one home equity loan totaling $251 thousand, with the remaining additions comprised of manufactured housing, land and other consumer loans. These additions were partially offset by loan repayments, the return of certain credits to accrual status, and the sale of OREO properties. The percentage of nonperforming loans to total loans was 0.90% at June 30, 2026, compared to 0.64% at December 31, 2025.
We believe the collateral value of the multifamily real estate loan and three one-to-four family loans placed on nonaccrual status during the period is sufficient to minimize loss exposure. We continue to monitor these credits and other nonaccrual loans closely. While we believe the increase in nonperforming loans primarily reflects specific borrower circumstances rather than broader deterioration in portfolio credit quality, we remain attentive to macroeconomic conditions that may affect borrower performance.
Mortgage Servicing Rights. The fair value of mortgage servicing rights increased $94 thousand, or 2.2%, to $4.3 million at June 30, 2026 from $4.2 million at December 31, 2025. The increase was primarily related to changes in valuation assumptions, including prepayment speed assumptions reflecting current interest rate expectations, partially offset by a decline in the size of our mortgage servicing portfolio. 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 decreased $18.0 million, or 1.9%, to $930.9 million at June 30, 2026 from $948.9 million at December 31, 2025. This decrease was primarily due to seasonal fluctuations in customer account balances and the managed reduction of certain higher-cost deposits, including reciprocal deposits. Noninterest-bearing deposits decreased $3.2 million, or 2.4%, to $129.3 million at June 30, 2026, compared to $132.6 million at December 31, 2025. This decline was primarily the result of normal daily fluctuations in customer account balances, reflecting routine activity rather than significant changes in overall deposit levels. Noninterest-bearing deposits represented 13.9% of total deposits at June 30, 2026, compared to 14.0% at December 31, 2025.
A summary of deposit accounts with the corresponding weighted-average cost of funds at the dates indicated is presented below (dollars in thousands):
| June 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Amount | Wtd. Avg. Rate | Amount | Wtd. Avg. Rate | ||||||||||||||||||||
| Noninterest-bearing demand | $ | 126,145 | — | % | $ | 129,828 | — | % | |||||||||||||||
| Interest-bearing demand | 130,210 | 0.25 | 125,634 | 0.27 | |||||||||||||||||||
| Savings | 59,081 | 0.10 | 59,478 | 0.10 | |||||||||||||||||||
| Money market | 314,205 | 2.81 | 331,604 | 3.13 | |||||||||||||||||||
| Time deposits | 298,045 | 3.61 | 299,593 | 3.89 | |||||||||||||||||||
Escrow (1) | 3,195 | — | 2,738 | — | |||||||||||||||||||
| Total deposits | $ | 930,881 | 2.17 | % | $ | 948,875 | 2.31 | % | |||||||||||||||
(1) Escrow balances shown in noninterest-bearing deposits on the Condensed Consolidated Balance Sheets.
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Scheduled maturities of time deposits at June 30, 2026, are as follows (in thousands):
| Year Ending December 31, | Amount | |||||||
| 2026 | $ | 213,305 | ||||||
| 2027 | 69,138 | |||||||
| 2028 | 12,887 | |||||||
| 2029 | 522 | |||||||
| 2030 | 1,867 | |||||||
| Thereafter | 326 | |||||||
| $ | 298,045 | |||||||
The aggregate amount of time deposits in denominations of more than $250,000 at June 30, 2026 and December 31, 2025, totaled $104.8 million and $112.4 million, respectively. Deposit amounts in excess of $250,000 are not federally insured. As of June 30, 2026, uninsured deposits totaled $188.9 million, which represented 20.3% of total deposits, as compared to uninsured deposits of $184.7 million, or 19.5% of total deposits as of December 31, 2025. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The increase in the balance of uninsured deposits primarily related to jumbo tier pricing offered on some of our deposit products, as well as normal fluctuations within deposit accounts.
We actively manage our uninsured deposit exposure through diversification of our deposit base, maintenance of robust liquidity resources, and ongoing monitoring of large depositor relationships. We believe our current liquidity position is sufficient to meet potential demands from uninsured depositors.
Borrowings, comprised of FHLB advances, were zero at June 30, 2026 and $10.0 million at December 31, 2025. FHLB advances are primarily used to support organic loan growth and to maintain liquidity ratios in line with our asset/liability objectives. The single remaining FHLB advance at December 31, 2025 was scheduled to mature in early 2028, which the Company repaid during the three months ended June 30, 2026. Subordinated notes, net totaled $7.8 million at both June 30, 2026 and December 31, 2025.
Stockholders’ Equity. Total stockholders’ equity increased $3.2 million, or 2.9%, to $112.6 million at June 30, 2026, from $109.4 million at December 31, 2025. This increase primarily reflects $4.1 million of net income earned during the six months ended June 30, 2026, partially offset by the payment of $1.1 million in cash dividends to stockholders and a $47 thousand decrease in accumulated other comprehensive loss, net of tax.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
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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 June 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Average Outstanding Balance | Interest Earned/ Paid | Yield/ Rate Annualized | Average Outstanding Balance | Interest Earned/ Paid | Yield/ Rate Annualized | ||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Loans receivable | $ | 911,869 | $ | 13,777 | 6.06 | % | $ | 895,039 | $ | 13,695 | 6.14 | % | |||||||||||||||||||||||
| Investments | 16,566 | 187 | 4.53 | 12,842 | 123 | 3.84 | |||||||||||||||||||||||||||||
| Cash and cash equivalents | 98,902 | 882 | 3.58 | 102,572 | 1,097 | 4.29 | |||||||||||||||||||||||||||||
Total interest-earning assets (1) | 1,027,337 | 14,846 | 5.80 | 1,010,453 | 14,915 | 5.92 | |||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Savings and money market accounts | 370,406 | 2,177 | 2.36 | 344,553 | 2,258 | 2.63 | |||||||||||||||||||||||||||||
| Demand and NOW accounts | 130,208 | 95 | 0.29 | 138,150 | 107 | 0.31 | |||||||||||||||||||||||||||||
| Certificate accounts | 299,654 | 2,704 | 3.62 | 290,388 | 2,860 | 3.95 | |||||||||||||||||||||||||||||
| Subordinated notes | 7,819 | 189 | 9.70 | 11,777 | 168 | 5.72 | |||||||||||||||||||||||||||||
| Borrowings | 8,571 | 90 | 4.21 | 25,007 | 267 | 4.28 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 816,658 | 5,255 | 2.58 | % | 809,875 | 5,660 | 2.80 | % | |||||||||||||||||||||||||||
| Net interest income | $ | 9,591 | $ | 9,255 | |||||||||||||||||||||||||||||||
| Net interest rate spread | 3.22 | % | 3.12 | % | |||||||||||||||||||||||||||||||
| Net earning assets | $ | 210,679 | $ | 200,578 | |||||||||||||||||||||||||||||||
| Net interest margin | 3.74 | % | 3.67 | % | |||||||||||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 125.80 | % | 124.77 | % | |||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | $ | 128,204 | $ | 121,906 | |||||||||||||||||||||||||||||||
| Total deposits | $ | 928,472 | $ | 4,976 | 2.15 | % | $ | 894,997 | $ | 5,225 | 2.34 | % | |||||||||||||||||||||||
Total funding(2) | $ | 944,862 | $ | 5,255 | 2.23 | % | $ | 931,781 | $ | 5,660 | 2.44 | % | |||||||||||||||||||||||
(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.
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| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Average Outstanding Balance | Interest Earned/ Paid | Yield/ Rate Annualized | Average Outstanding Balance | Interest Earned/ Paid | Yield/ Rate Annualized | ||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Loans receivable | $ | 912,985 | $ | 27,083 | 5.98 | % | $ | 895,926 | $ | 26,283 | 5.92 | % | |||||||||||||||||||||||
| Investments | 16,109 | 284 | 3.56 | 12,883 | 232 | 3.63 | |||||||||||||||||||||||||||||
| Cash and cash equivalents | 109,732 | 1,943 | 3.57 | 99,304 | 2,107 | 4.28 | |||||||||||||||||||||||||||||
Total interest-earning assets (1) | 1,038,826 | 29,310 | 5.69 | 1,008,113 | 28,622 | 5.73 | |||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Savings and money market accounts | 379,469 | 4,484 | 2.38 | 338,514 | 4,317 | 2.57 | |||||||||||||||||||||||||||||
| Demand and NOW accounts | 128,082 | 176 | 0.28 | 139,520 | 214 | 0.31 | |||||||||||||||||||||||||||||
| Certificate accounts | 300,493 | 5,440 | 3.65 | 291,673 | 5,899 | 4.08 | |||||||||||||||||||||||||||||
| Subordinated notes | 7,813 | 375 | 9.68 | 11,772 | 336 | 5.76 | |||||||||||||||||||||||||||||
| Borrowings | 9,558 | 198 | 4.18 | 25,003 | 529 | 4.27 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 825,415 | 10,673 | 2.61 | % | 806,482 | 11,295 | 2.82 | % | |||||||||||||||||||||||||||
| Net interest income | $ | 18,637 | $ | 17,327 | |||||||||||||||||||||||||||||||
| Net interest rate spread | 3.08 | % | 2.90 | % | |||||||||||||||||||||||||||||||
| Net earning assets | $ | 213,411 | $ | 201,631 | |||||||||||||||||||||||||||||||
| Net interest margin | 3.62 | % | 3.47 | % | |||||||||||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 125.85 | % | 125.00 | % | |||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | $ | 130,933 | $ | 124,048 | |||||||||||||||||||||||||||||||
| Total deposits | $ | 938,977 | $ | 10,100 | 2.17 | % | $ | 893,755 | $ | 10,430 | 2.35 | % | |||||||||||||||||||||||
Total funding(2) | $ | 956,348 | $ | 10,673 | 2.25 | % | $ | 930,530 | $ | 11,295 | 2.45 | % | |||||||||||||||||||||||
(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).
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Three Months Ended June 30, 2026 vs. 2025 | Six Months Ended June 30, 2026 vs. 2025 | ||||||||||||||||||||||||||||||||||
| Increase (Decrease) due to | Total Increase (Decrease) | Increase (Decrease) due to | Total Increase (Decrease) | ||||||||||||||||||||||||||||||||
| Volume | Rate | Volume | Rate | ||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Loans receivable | $ | 254 | $ | (172) | $ | 82 | $ | 506 | $ | 294 | $ | 800 | |||||||||||||||||||||||
| Investments | 42 | 22 | 64 | 57 | (5) | 52 | |||||||||||||||||||||||||||||
| Cash and cash equivalents | (33) | (182) | (215) | 185 | (349) | (164) | |||||||||||||||||||||||||||||
| Total interest-earning assets | 263 | (332) | (69) | 748 | (60) | 688 | |||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Savings and Money Market accounts | 152 | (233) | (81) | 484 | (317) | 167 | |||||||||||||||||||||||||||||
| Demand and NOW accounts | (6) | (6) | (12) | (16) | (22) | (38) | |||||||||||||||||||||||||||||
| Certificate accounts | 84 | (240) | (156) | 160 | (619) | (459) | |||||||||||||||||||||||||||||
| Subordinated notes | (96) | 117 | 21 | (190) | 229 | 39 | |||||||||||||||||||||||||||||
| Borrowings | (173) | (4) | (177) | (320) | (11) | (331) | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | (39) | $ | (366) | $ | (405) | $ | 118 | $ | (740) | $ | (622) | |||||||||||||||||||||||
| Change in net interest income | $ | 336 | $ | 1,310 | |||||||||||||||||||||||||||||||
Comparison of Results of Operation for the Three and Six Months Ended June 30, 2026 and 2025
General.
Q2 2026 vs Q2 2025. Net income increased $466 thousand, or 22.7%, to $2.5 million, or $0.98 per diluted common share, for the three months ended June 30, 2026, compared to $2.1 million, or $0.79 per diluted common share, for the three months ended June 30, 2025, reflecting a favorable change in the provision for credit losses, as the Company recorded a release of provision for credit losses in the current quarter compared to a provision for credit losses in the prior-year quarter, growth in net interest income, and an increase in noninterest income. These improvements were partially offset by higher noninterest expenses and an increase in income taxes.
YTD 2026 vs. YTD 2025. Net income increased $872 thousand, or 27.1%, to $4.1 million, or $1.59 per diluted common share, for the six months ended June 30, 2026, compared to $3.2 million, or $1.24 per diluted common share, for the six months ended June 30, 2025, a favorable change in the provision for credit losses, as the Company recorded a release of provision for credit losses during the current-year period compared to a provision for credit losses in the prior-year period, higher net interest income, and an increase in noninterest income. This was partially offset by higher noninterest expenses and an increase in income taxes. Overall, the improvement in net interest income, primarily resulting from lower funding costs, growth in average loan balances, and an improved net interest margin, was the primary factor behind the year-to-date improvement in profitability.
Interest Income
| Three Months Ended June 30, | Amount Change | Percent Change | ||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||
| Loans, including fees | $ | 13,777 | $ | 13,695 | $ | 82 | 0.6 | % | ||||||||||||||||||
| Interest and dividends on investments | 187 | 123 | 64 | 52.0 | ||||||||||||||||||||||
| Cash and cash equivalents | 882 | 1,097 | (215) | (19.6) | ||||||||||||||||||||||
| Total interest income | $ | 14,846 | $ | 14,915 | $ | (69) | (0.5) | % | ||||||||||||||||||
Q2 2026 vs Q2 2025. Total interest income decreased $69 thousand, or 0.5%, to $14.8 million for the three months ended June 30, 2026 from $14.9 million for the three months ended June 30, 2025, primarily due to lower yield on interest earning assets, including a 71 basis point decline in the average yield on cash and cash equivalents and an eight basis point decline in the average yield on loans. These decreases were partially offset by growth in average loan balances and investments, which increased the volume of interest-earning assets. The benefit from higher average loan balances and investments was more than offset by lower average balances of cash and cash equivalents.
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Interest income on loans increased $82 thousand, or 0.6%, to $13.8 million for the three months ended June 30, 2026, from $13.7 million for the three months ended June 30, 2025. The increase was primarily due to a higher average balance of loans, partially offset by a decline in the average yield on loans to 6.06% from 6.14%. The decrease in average loan yield primarily reflected interest income recognized during the second quarter of 2025 upon the payoff of loans that had previously been classified as nonaccrual, which increased the prior-year period average yield, as well as lower yields on certain variable-rate loans following reductions in market interest rates. These decreases were partially offset by new loan originations at higher interest rates and upward repricing of certain on variable-rate loans.
Interest and dividends on investments increased $64 thousand, or 52.0%, to $187 thousand for the three months ended June 30, 2026, compared to $123 thousand for the three months ended June 30, 2025. The increase was due to a 69 basis point increase in average yield to 4.53% from 3.84% resulting from the receipt of a dividend paid from our equity investment in the second quarter of 2026, as well as an increase in the average balance of investments to $16.6 million from $12.8 million, reflecting the new $5.0 million equity investment partially offset by the continued paydown of the AFS and HTM investment portfolio.
Interest income on cash and cash equivalents decreased $215 thousand, or 19.6%, to $882 thousand for the three months ended June 30, 2026, compared to $1.1 million for the three months ended June 30, 2025. The decrease was primarily due to a 71 basis point decline in the average yield on cash and cash equivalents to 3.58% from 4.29%, reflecting the lower market interest rate environment. The decrease was also impacted by a lower average balance of $98.9 million compared to $102.6 million for the same period in 2025, reflecting the managed reduction of higher-cost reciprocal deposits and lower liquidity needs following the repayment of borrowings and subordinated debt. (Refer to “Net Interest Income” below for additional detail regarding the interest rate environment.)
| Six Months Ended June 30, | Amount Change | Percent Change | ||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||
| Loans, including fees | $ | 27,083 | $ | 26,283 | $ | 800 | 3.0 | % | ||||||||||||||||||
| Interest and dividends on investments | 284 | 232 | 52 | 22.4 | ||||||||||||||||||||||
| Cash and cash equivalents | 1,943 | 2,107 | (164) | (7.8) | ||||||||||||||||||||||
| Total interest income | $ | 29,310 | $ | 28,622 | $ | 688 | 2.4 | % | ||||||||||||||||||
YTD 2026 vs. YTD 2025. Total interest income increased $688 thousand, or 2.4%, to $29.3 million for the six months ended June 30, 2026, from $28.6 million for the six months ended June 30, 2025, due to higher average balances on our loans and cash and cash equivalents, a six basis points increase in average yield on loans and a higher average balance of investments. These increases were partially offset by a seven basis point decline in average yield on investments and a 71 basis point decline in average yield on cash and cash equivalents.
Interest income on loans increased $800 thousand, or 3.0%, to $27.1 million for the six months ended June 30, 2026, compared to $26.3 million for the six months ended June 30, 2025, primarily driven by a six basis point increase in the average yield on loans and a higher average balance. The average yield on total loans was 5.98% for the six months ended June 30, 2026, compared to 5.92% for the six months ended June 30, 2025. The average yield on total loans increased primarily due to variable-rate loans that repriced earlier in the year at higher market interest rates and new loan originations at higher interest rates, partially offset by the recognition of interest income from the payoff of loans previously on nonaccrual during the prior year and subsequent reductions in rates for loans with indexes tied to the Prime rate. The average balance of total loans was $913.0 million for the six months ended June 30, 2026, compared to $895.9 million for the six months ended June 30, 2025.
Interest and dividends on investments increased $52 thousand, or 22.4%, to $284 thousand for the six months ended June 30, 2026, compared to $232 thousand for the six months ended June 30, 2025. The increase was due to an increase in the average balance of investments to $16.1 million from $12.9 million, reflecting the new $5.0 million equity investment partially offset by the continued paydown of the AFS and HTM investment portfolio. This increase was partially offset by a seven basis point decline in average yield to 3.56% from 3.63% due to larger paydowns on higher yielding investments offset by the receipt of a dividend paid from our equity investment in the second quarter of 2026.
Interest income on cash and cash equivalents decreased $164 thousand, or 7.8%, to $1.9 million for the six months ended June 30, 2026, compared to $2.1 million for the six months ended June 30, 2025. The decrease was due to a 71 basis point decline in the average yield on cash and cash equivalents to 3.57% from 4.28%, which more than offset the benefit from a higher average balance of cash and cash equivalents. The decline in average yield was primarily attributable to lower market interest rates generally. The average balance of cash and cash equivalents increased to $109.7 million for the six months ended June 30, 2026, compared to $99.3 million for the same period in 2025, partially offset by the repayment of FHLB advances and the redemption of $4.0 million of subordinated debt during the fourth quarter of 2025. (Refer to “Net Interest Income” below for additional detail regarding the interest rate environment.)
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Interest Expense
Three Months Ended June 30, | Amount Change | Percent Change | ||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||
| Deposits | $ | 4,976 | $ | 5,225 | $ | (249) | (4.8) | % | ||||||||||||||||||
| Borrowings | 90 | 267 | (177) | (66.3) | ||||||||||||||||||||||
| Subordinated notes | 189 | 168 | 21 | 12.5 | ||||||||||||||||||||||
| Total interest expense | $ | 5,255 | $ | 5,660 | $ | (405) | (7.2) | % | ||||||||||||||||||
Q2 2026 vs Q2 2025. Total interest expense decreased $405 thousand, or 7.2%, to $5.3 million for the three months ended June 30, 2026, from $5.7 million for the three months ended June 30, 2025. The decrease was primarily attributable to lower interest rates across all interest-bearing liabilities excluding subordinated debt, resulting from lower market interest rates generally, partially offset by an increase in our average balance of interest-bearing liabilities and an increase in the rate paid on our subordinated debt.
Interest expense on certificate accounts declined $156 thousand, driven by a $240 thousand rate-related decrease, partially offset by an $84 thousand volume-related increase. The average balance of certificate accounts rose to $299.7 million for the three months ended June 30, 2026, from $290.4 million during the same period in 2025, while the average rate paid fell to 3.62% from 3.95%. The decline in the average rate reflected lower market interest rates and the repricing of maturing certificates into the current rate environment. In addition, interest expense on demand and NOW accounts decreased $12 thousand, due to both lower average balances and slightly lower rates. Interest expense on savings and money market accounts decreased $81 thousand, or 3.6%, to $2.2 million for the three months ended June 30, 2026, from $2.3 million for the same period in 2025, primarily due to a 27 basis point decline in the average rate paid to 2.36% from 2.63%, as we implemented repricing strategies to manage overall funding costs. This decrease was partially offset by an increase in average balances to $370.4 million from $344.6 million, reflecting shifts in customer deposit preferences from certificate accounts into more liquid deposit products.
Interest expense on borrowings, comprised solely of FHLB advances, decreased $177 thousand, primarily due to a $16.4 million decline in average borrowings following the payoff of an FHLB advance during the fourth quarter of 2025. The average balance of FHLB advances was $9.6 million for the three months ended June 30, 2026, compared to $25.0 million for the three months ended June 30, 2025. The average rate paid on borrowings decreased 7 basis points to 4.21% for the quarter ended June 30, 2026, compared to 4.28% for the same quarter in 2025. Interest expense on subordinated notes was $189 thousand for the three months ended June 30, 2026, compared to $168 thousand for the three months ended June 30, 2025. The increase was due to the debt converting to a variable-rate instrument that reprices on a quarterly basis from the previous fixed-rate period, partially offset by a lower average balance as a result of the paydown of $4.0 million of our subordinated debt balance in the fourth quarter of 2025.
| Six Months Ended June 30, | Amount Change | Percent Change | ||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||
| Deposits | $ | 10,100 | $ | 10,430 | $ | (330) | (3.2) | % | ||||||||||||||||||
| Borrowings | 198 | 529 | (331) | (62.6) | ||||||||||||||||||||||
| Subordinated notes | 375 | 336 | 39 | 11.6 | ||||||||||||||||||||||
| Total interest expense | $ | 10,673 | $ | 11,295 | $ | (622) | (5.5) | % | ||||||||||||||||||
YTD 2026 vs. YTD 2025. Total interest expense decreased $622 thousand, or 5.5%, to $10.7 million for the six months ended June 30, 2026, from $11.3 million for the six months ended June 30, 2025. Interest expense on deposits decreased $330 thousand, or 3.2%, to $10.1 million for the six months ended June 30, 2026, compared to $10.4 million for the six months ended June 30, 2025. The decrease was primarily the result of lower average rates paid on all categories of interest-bearing deposits, as well as a lower average balance of demand and NOW accounts, partially offset by an increase in the average balance of savings and money market accounts and certificate accounts. The average cost of total deposits decreased 18 basis points to 2.17% for the six months ended June 30, 2026, from 2.35% for the six months ended June 30, 2025.
Interest expense on borrowings, comprised solely of FHLB advances, was $198 thousand for the six months ended June 30, 2026, compared to $529 thousand for the six months ended June 30, 2025, reflecting the decreased use of FHLB advances to supplement our liquidity needs. The average cost of FHLB advances decreased nine basis points to 4.18% for the six months ended June 30, 2026, compared to 4.27% for the same period in 2025. The average cost of FHLB advances declined due to
41
same reason noted above in the quarterly comparison. The average balance of FHLB advances was $9.6 million for the six months ended June 30, 2026, compared to $25.0 million for the six months ended June 30, 2025, due to the payoff of an FHLB advance during the fourth quarter of 2025. Interest expense on subordinated notes was $375 thousand for the six months ended June 30, 2026 and $336 thousand for the six months ended June 30, 2025. The increase was due to the same reasons noted above in the quarterly comparison.
Net Interest Income.
Q2 2026 vs Q2 2025. Net interest income increased $336 thousand, or 3.6%, to $9.6 million for the three months ended June 30, 2026, from $9.3 million for the three months ended June 30, 2025, driven by both growth in interest-earning asset balances and improvement in the net interest rate spread, reflecting the impact of higher average loan balances and the improvement in loan yields excluding the impact of prior-year nonaccrual loan activity, and lower funding costs across most categories of interest-bearing liabilities excluding subordinated debt. These changes were partially offset by a decrease in the average yield on investments and interest-bearing cash and an increase in the rate paid on our subordinated debt for the reasons noted above in “Interest Expense.” Overall, these changes resulted in a 10 basis point improvement in the net interest rate spread and a 7 basis point increase in the annualized net interest margin, which rose to 3.74% for the three months ended June 30, 2026, compared to 3.67% for the same period in 2025.
YTD 2026 vs. YTD 2025. Net interest income increased $1.3 million, or 7.6%, to $18.6 million for the six months ended June 30, 2026, from $17.3 million for the six months ended June 30, 2025. Net interest margin (annualized) was 3.62% and 3.47% for the six months ended June 30, 2026 and 2025, respectively. The increases in net interest income and net interest margin primarily were due to lower average funding costs, higher average loan balances, and improved loan yields during the current six-month period, primarily reflecting repricing of variable-rate loans and new loan originations at higher rates, partially offset by the decline in loan yields during the second quarter of 2026 as described above.
The increases in net interest income and net interest margin primarily were due to the lower average cost of funding and the increase in average loan balances and yields, as described above in the quarterly comparison.
Through most of 2025, the Federal Open Market Committee of the Federal Reserve (“FOMC”) maintained the target range for the federal funds rate at 4.25% to 4.50%, where it remained until September 2025. The FOMC subsequently lowered the target range 75 basis points to 3.50% to 3.75% between September 2025 and December 2025. The FOMC maintained the target range for the federal funds rate through the first half of 2026. The lower interest rate environment has contributed to decreased funding costs, while loan yields have remained elevated due to repricing of variable-rate loans and higher rates on new loan originations.
Provision for Credit Losses.
The following table reflects the components of the (release of) provision for credit losses during the periods indicated (dollars in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Release of) provision for credit losses on loans | $ | (185) | $ | 164 | $ | (136) | $ | 79 | |||||||||||||||
| (Release of) provision for credit losses on unfunded loan commitments | (38) | 6 | 36 | (112) | |||||||||||||||||||
| (Release of) provision for credit losses | $ | (223) | $ | 170 | $ | (100) | $ | (33) | |||||||||||||||
A release of provision for credit losses of $223 thousand was recorded for the quarter ended June 30, 2026, compared to a provision for credit losses of $170 thousand for the quarter ended June 30, 2025. The release in the current quarter resulted primarily from a decrease in loan balances and annual updates to the model assumptions, including changes in certain economic assumptions, partially offset by additional qualitative adjustments applied to the commercial loan segments, reflecting increased uncertainty in market conditions surrounding geopolitical events, in addition to the uncertainty adjustment tied to the impact of tariffs and other external factors affecting our clients already applied to our consumer portfolio. Expected credit loss estimates consider various factors, including market conditions, borrower-specific information, projected delinquencies, and anticipated effects of economic trends on borrowers' ability to repay. Net charge-offs for the three months ended June 30, 2026 totaled $30 thousand, compared to $21 thousand for the three months ended June 30, 2025.
A release of provision for credit losses of $100 thousand was recorded for the six months ended June 30, 2026, compared to a release of the provision for credit losses of $33 thousand for the six months ended June 30, 2025. The release of provision for credit losses during the current year period was due primarily to the same reasons noted above in the quarterly comparison. During the prior year period, the release of the provision for credit losses on loans primarily related to a reduction in qualitative
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adjustments reflecting improved credit quality and a decrease in unfunded loan commitments, partially offset by growth in the balance of the loan portfolio and a qualitative adjustment applied to certain loan segments related to uncertainty in the market and concentrations. Net charge-offs for the six months ended June 30, 2026 totaled $49 thousand, compared to $42 thousand for the six months ended June 30, 2025.
While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not have a material adverse impact on our financial condition and results of operations. 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. Total noninterest income increased $309 thousand, or 27.6%, to $1.4 million for the three months ended June 30, 2026, as compared to $1.1 million for the three months ended June 30, 2025, as reflected below (dollars in thousands):
| Three Months Ended June 30, | Amount Change | Percent Change | |||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Service charges and fee income | $ | 684 | $ | 664 | $ | 20 | 3.0 | % | |||||||||||||||
| Earnings on BOLI | 277 | 229 | 48 | 21.0 | |||||||||||||||||||
| Mortgage servicing income | 245 | 263 | (18) | (6.8) | |||||||||||||||||||
| Fair value adjustment on mortgage servicing rights | 119 | (80) | 199 | (248.8) | |||||||||||||||||||
| Net gain on sale of loans | 112 | 44 | 68 | 154.5 | |||||||||||||||||||
| Other income (loss) | (8) | — | (8) | — | |||||||||||||||||||
| Total noninterest income | $ | 1,429 | $ | 1,120 | $ | 309 | 27.6 | % | |||||||||||||||
The increase in noninterest income during the current quarter compared to the quarter ended June 30, 2025, was primarily as a result of:
•a $199 thousand improvement in the fair value adjustment on mortgage servicing rights, primarily due to changes in valuation assumptions, including the increase in the cost of servicing assumption recorded in the prior year quarter that did not recur in the current quarter and slower estimated prepayment speeds resulting from higher market interest rates during the current quarter, partially offset by the impact of a smaller servicing portfolio;
•a $8 thousand increase in other income due to costs associated with closing our Tacoma branch in the second quarter of 2026; and
•a $68 thousand increase in net gain on sale of loans due to an increase in the volume of loans sold.
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Total noninterest income increased $121 thousand, or 5.5%, to $2.3 million for the six months ended June 30, 2026, as compared to $2.2 million for the six months ended June 30, 2025, as reflected below (dollars in thousands):
| Six Months Ended June 30, | Amount Change | Percent Change | |||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Service charges and fee income | $ | 1,307 | $ | 1,348 | $ | (41) | (3.0) | % | |||||||||||||||
| Earnings on BOLI | 407 | 423 | (16) | (3.8) | |||||||||||||||||||
| Mortgage servicing income | 493 | 531 | (38) | (7.2) | |||||||||||||||||||
| Fair value adjustment on mortgage servicing rights | (21) | (179) | 158 | (88.3) | |||||||||||||||||||
| Net gain on sale of loans | 212 | 93 | 119 | 128.0 | |||||||||||||||||||
| Other income (loss) | (61) | — | $ | (61) | 100.0 | % | |||||||||||||||||
| Total noninterest income | $ | 2,337 | $ | 2,216 | $ | 121 | 5.5 | % | |||||||||||||||
The increase in noninterest income during the current six-month period compared to the six months ended June 30, 2025, was primarily due to:
•a $158 thousand improvement in the fair value adjustment on mortgage servicing rights, for the same reasons noted above in the quarterly comparison; and
•a $119 thousand increase in net gain on sale of loans due to an increase in the volume of loans sold.
•
These increases were partially offset by:
•a $38 thousand decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than originations replaced repayments;
•a $16 thousand decrease in earnings on BOLI, primarily due to the strategic surrender and exchange of existing policies into higher-yielding policies in 2025, partially offset by changes due to market fluctuations;
•a $41 thousand decrease in service charges and fee income, reflecting lower fees related to past due loans and loan payoff activity and a Mastercard volume incentive received in the first quarter of 2025, partially offset by increased interchange income; and
•a $61 thousand decrease in other income due to costs associated with closing our Tacoma branch in 2026.
Noninterest Expense. Total noninterest expense increased $463 thousand, or 6.0%, to $8.1 million during the three months ended June 30, 2026, compared to $7.7 million for the three months ended June 30, 2025, as reflected below (dollars in thousands):
| Three Months Ended June 30, | Amount Change | Percent Change | |||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Salaries and benefits | $ | 4,645 | $ | 4,321 | $ | 324 | 7.5 | % | |||||||||||||||
| Operations | 1,617 | 1,443 | 174 | 12.1 | % | ||||||||||||||||||
| Regulatory assessments | 129 | 222 | (93) | (41.9) | % | ||||||||||||||||||
| Occupancy | 388 | 416 | (28) | (6.7) | % | ||||||||||||||||||
| Data processing | 1,332 | 1,254 | 78 | 6.2 | % | ||||||||||||||||||
| Net loss and expenses on OREO and repossessed assets | 17 | 9 | 8 | 88.9 | % | ||||||||||||||||||
| Total noninterest expense | $ | 8,128 | $ | 7,665 | $ | 463 | 6.0 | % | |||||||||||||||
The increase in noninterest expense during the current quarter compared to the quarter ended June 30, 2025 was primarily related to:
•a $324 thousand increase in salaries and benefits due to annual wage increases, lower deferred loan origination costs due to reduced loan growth, higher market valuations on our deferred compensation for key executives (partially offset by higher BOLI income recorded in noninterest income), and higher medical expense due to higher insurance premiums paid by the Company, partially offset by lower stock compensation expense and lower incentive compensation expense;
•a $174 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing; and
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•a $78 thousand increase in data processing expense, primarily due to higher processing costs related to annual increases in software vendor contracts, increased application programming interface (“API”) and usage charges, and the addition of new features, such as fraud detection software, intended to lower operational losses.
These increases were partially offset by:
•a $93 thousand decrease in regulatory assessments, primarily due to reduced quarterly assessments resulting from a lower rate applied to a lower average asset balance and the release of an accrual related to exam costs as actual costs incurred were lower than previously estimated; and
•a $28 thousand decrease in occupancy expense, primarily due to lower building lease charges following the closure of our Tacoma branch during the second quarter of 2026.
The efficiency ratio improved 12 basis points to 73.76% for the quarter ended June 30, 2026 from 73.88% for the same period in 2025, primarily reflecting modest growth in net interest income driven by lower funding costs and growth in average loan balances, partially offset by lower yields on interest-earning assets.
Total noninterest expense increased $424 thousand, or 2.7%, to $16.0 million during the six months ended June 30, 2026, compared to $15.6 million during the six months ended June 30, 2025, as reflected below (dollars in thousands):
| Six Months Ended June 30, | Amount Change | Percent Change | |||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Salaries and benefits | $ | 9,103 | $ | 8,916 | $ | 187 | 2.1 | % | |||||||||||||||
| Operations | 3,118 | 2,808 | 310 | 11.0 | |||||||||||||||||||
| Regulatory assessments | 327 | 442 | (115) | (26.0) | |||||||||||||||||||
| Occupancy | 815 | 853 | (38) | (4.5) | |||||||||||||||||||
| Data processing | 2,619 | 2,547 | 72 | 2.8 | |||||||||||||||||||
| Net loss and expenses on OREO and repossessed assets | 20 | 12 | 8 | 66.7 | |||||||||||||||||||
| Total noninterest expense | $ | 16,002 | $ | 15,578 | $ | 424 | 2.7 | % | |||||||||||||||
The increase in noninterest expense was primarily due to:
•a $187 thousand increase in salaries and benefits related to the same reasons noted above in the quarterly comparison;
•a $310 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing; and
•a $72 thousand increase in data processing expense, due to the reasons stated above in the quarterly comparison.
These increases were partially offset by:
•a $115 thousand decrease in regulatory assessments, due to reduced quarterly assessments resulting from a lower rate applied to a lower average asset balance and the release of an accrual related to exam costs as actual costs incurred were lower than previously estimated; and
•a $38 thousand decrease in occupancy expense due to same reason noted above in the quarterly comparison.
Income Tax Expense. The provision for income taxes was $597 thousand and $1.0 million for the three and six months ended June 30, 2026, compared to $488 thousand and $779 thousand for the three and six months ended June 30, 2025, respectively. The effective tax rates for the three and six months ended June 30, 2026 were 19.17% and 19.34%, compared to 19.21% and 19.48% for the same periods in 2025.
Capital and Liquidity
The Management’s Discussion and Analysis in Item 7 of the Company’s 2025 Form 10-K contains an overview of Sound Financial Bancorp’s and the Bank’s liquidity management, sources of liquidity and cash flows. Although there have been no material changes in our liquidity management, sources of liquidity and cash flows since December 31, 2025, this discussion updates that disclosure for the six months ended June 30, 2026.
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Capital. Stockholders’ equity totaled $112.6 million at June 30, 2026 and $109.4 million at December 31, 2025. The increase primarily reflected net income of $4.1 million, $106 thousand of related to stock-based compensation, and a $47 thousand decrease in accumulated other comprehensive loss, net of tax, primarily resulting from lower unrealized losses on available-for-sale securities, partially offset by $1.1 million of dividends paid on common stock.
We paid cash dividends of $0.42 per common share during the six months ended June 30, 2026, compared to $0.38 per common share during the six months ended June 30, 2025, which equates to a dividend payout ratio of 26.35% and 30.26%, 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 the Board’s continued payment of the regular quarterly cash dividend during the remainder of 2026 at the rate of $0.21 per share, our average total dividend paid each quarter would be approximately $539 thousand based on the number of outstanding shares as of June 30, 2026.
The dividends, if any, we pay may be limited as more fully discussed under “Business—How We Are Regulated—Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2025 Form 10-K.
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. The Company does not currently have a stock repurchase program in place. For additional details on our stock repurchase activity, see “Unregistered Sales of Equity Securities and Use of Proceeds” contained in Part II, Item 2 of this Form 10-Q.
Liquidity. Liquidity measures our ability to meet current and future cash flow needs. The liquidity of a financial institution reflects its ability to meet loan demand, accommodate deposit withdrawals and take advantage of opportunities presented by changes in market interest rates. Our ability to meet financial obligations depends on the composition of our balance sheet, the liquidity of our assets and access to alternative funding sources. 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, pledgeable or expected to mature in the near term. Liquid asset sources generally include cash, interest-bearing deposits in banks, available-for-sale securities, principal and interest payments from securities, sales of fixed-rate residential mortgage loans in the secondary market and federal funds sold. Liability liquidity generally is provided by core deposits, advances from the FHLB and other borrowing arrangements 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 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 June 30, 2026, we had $127.6 million of cash and cash equivalents and available-for-sale investment securities, as well as $1.6 million in loans held-for-sale. At June 30, 2026, we had the ability to borrow up to $201.7 million in FHLB advances and access to additional borrowings of $21.1 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements. We had no outstanding advances from either the FHLB or the Federal Reserve at June 30, 2026. We also maintained a $20.0 million credit facility with Pacific Coast Bankers’ Bank available, with no balance outstanding, at June 30, 2026. Subject to market conditions, we expect to utilize these borrowing facilities from time to time to fund loan originations and deposit withdrawals, to satisfy other financial commitments, to repay maturing obligations and to take advantage of investment opportunities to the extent feasible. As of June 30, 2026, management was not aware of any events or regulatory recommendations reasonably likely to have a material adverse effect on our liquidity, capital resources or result of operations. 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 June 30, 2026. These include payments related to (i) long-term borrowings (Note 8—Borrowings, FHLB Stock and Subordinated Notes) and (ii) operating leases (Note 10—Leases). See the discussion below for information regarding commitments to extend credit and standby letters of credit.
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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 June 30, 2026 and December 31, 2025, financial instrument contractual amounts representing credit risk were as follows (in thousands):
| June 30, 2026 | December 31, 2025 | ||||||||||
| Residential mortgage commitments | $ | 4,535 | $ | 1,008 | |||||||
| Unfunded construction commitments | 28,068 | 23,718 | |||||||||
| Unused lines of credit | 29,694 | 27,457 | |||||||||
| Irrevocable letters of credit | 183 | 183 | |||||||||
| Total loan commitments | $ | 62,480 | $ | 52,366 | |||||||
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 funding 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 received from Sound Community Bank, interest on investment securities, if any, and borrowings from outside sources. Banking regulations limit the dividends that may be paid to Sound Financial Bancorp by Sound Community Bank. See “Business — How We Are Regulated — Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2025 Form 10-K. At June 30, 2026, Sound Financial Bancorp, on an unconsolidated basis, had $3.7 million in cash, noninterest-bearing deposits and liquid investments available for its liquidity needs and other corporate obligations.
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 (“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 June 30, 2026, the Bank’s CBLR was 10.93%, which exceeded the then-minimum requirement of 9%.
During the second quarter of 2026, the federal banking agencies finalized a rule lowering the minimum CBLR requirement from 9% to 8%, effective July 1, 2026.
See "Part I, Item 1. Business – Regulation of Sound Community Bank – Capital Rules " in the Company's 2025 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 2025 Form 10-K. There have been no material changes in our market risk since December 31, 2025.
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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 June 30, 2026, 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 June 30, 2026, 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 acts of individuals, 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 June 30, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 2025 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 June 30, 2026:
| 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 | ||||||||||||||||||||
| April 1, 2026 - April 30, 2026 | — | $ | — | — | $ | — | |||||||||||||||||
| May 1, 2026 - May 31, 2026 | — | $ | — | — | — | ||||||||||||||||||
| June 1, 2026 - June 30, 2026 | — | $ | — | — | — | ||||||||||||||||||
| Total | — | $ | — | — | $ | — | |||||||||||||||||
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 June 30, 2026, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted terminated
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Item 6. Exhibits
Exhibits: | |||||
| 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)) | |||||
| 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)) | |||||
| 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)) | |||||
| 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)) | ||||
| 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)) | |||||
| 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)) | |||||
| 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)) | |||||
| 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)) | |||||
| 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)). | |||||
| 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)). | |||||
| 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)) | |||||
| 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)). | |||||
| Rule 13(a)-14(a) Certification (Chief Executive Officer) | |||||
| Rule 13(a)-14(a) Certification (Chief Financial Officer) | |||||
| 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 June 30, 2026, 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.
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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: August 10, 2026 | By: | /s/ Laura Lee Stewart | ||||||
| Laura Lee Stewart | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer and Duly Authorized Officer) | ||||||||
| By: | /s/ Wes Ochs | |||||||
| Wes Ochs | ||||||||
| President/Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
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