NASDAQ: SFBC

•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 uninsured deposits may require us to sell investment securities at a loss;

•our ability to control operating costs and expenses;

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

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

•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, digital banking platforms, and cybersecurity;

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•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-K.

We caution readers not to place undue reliance on any forward-looking statements and that the factors listed above could materially affect our financial performance and could cause our actual results for future periods to differ materially from any such forward-looking statements expressed 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

References in this document to “Sound Financial Bancorp” mean Sound Financial Bancorp, Inc., and references to the "Bank" mean Sound Community Bank, a wholly owned subsidiary of Sound Financial Bancorp. References to the “Company,” “we,” “us,” and “our” mean Sound Financial Bancorp and the Bank, unless the context otherwise requires.

Sound Financial Bancorp, a Maryland corporation, is a bank holding company. Substantially all of Sound Financial Bancorp's business is conducted through the 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 State Department of Financial Institutions (“WDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). As a bank holding company, Sound Financial Bancorp is regulated by the Federal Reserve. We also sell insurance products and services to consumers through Sound Community Insurance Agency, Inc., a wholly owned subsidiary of the Bank.

The Bank's deposits are insured up to applicable limits by the FDIC. At December 31, 2025, the Company had total consolidated assets of $1.1 billion, including $905.5 million of loans held-for-portfolio, deposits of $948.9 million and stockholders' equity of $109.4 million. The common stock of Sound Financial Bancorp is listed on the NASDAQ Capital Market under the symbol "SFBC." Our executive offices are located at 2400 3rd Avenue, Suite 150, Seattle, Washington, 98121 and our telephone number is 206-448-0884.

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

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As part of our business, we focus on residential mortgage loan originations, a significant portion of which we sell to the Federal National Mortgage Association ("Fannie Mae") and other correspondents and the remainder of which we retain for our loan portfolio consistent with our asset/liability objectives. We sell loans that conform to the underwriting standards of Fannie Mae ("conforming") but generally retain the servicing of the loan in order to maintain the direct customer relationship and to generate noninterest income. Residential loans that 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 property, mobile home parks and construction and land development loans.

Market Area

We operate in the Seattle Metropolitan Statistical Area (“MSA”), which includes King County (which includes the city of Seattle), Pierce County and Snohomish County in the Puget Sound region. We also operate in Clallam and Jefferson Counties on the North Olympic Peninsula of Washington. We serve these markets through our headquarters in Seattle and eight branch offices, four located in the Seattle MSA, three in Clallam County and one in Jefferson County. We have provided notice that the Tacoma branch, located in the Seattle MSA (Pierce County), will close in April 2026 as part of ongoing strategic consolidation efforts. We also have a loan production office in the Madison Park neighborhood of Seattle. Based on the most recent branch deposit data provided by the FDIC, our share of deposits was approximately 0.23% in King County, 0.49% in Pierce County and 0.40% in Snohomish County. In Clallam and Jefferson Counties, we have approximately 16.31% and 5.36%, respectively, of the deposits in those markets. See “—Competition.”

Our market area includes a diverse population of management, professional and sales personnel, office employees, health care workers, software and technology workers, manufacturing and transportation workers, service industry workers and government employees, as well as retired and self-employed individuals. The population has a skilled work-force with a wide range of education levels and ethnic backgrounds. Major employment sectors in our market area include information and communications technology, financial services, aerospace, military, manufacturing, maritime, biotechnology, education, health and social services, retail trades, transportation and professional services. Significant employers headquartered in our market area include Microsoft, Amazon, Starbucks, University of Washington, Providence Health, Costco, Boeing, Nordstrom, Alaska Air Group, Weyerhaeuser and the U.S. Joint Base Lewis-McChord.

Economic conditions in our markets reflect the effects of inflationary pressures and higher interest rates. While unemployment rates remain relatively low, recent data indicates a modest increase compared to prior periods. Recent trends in housing prices in our market areas reflect the impact high interest rates and the limited housing supply have had on housing prices. For December 2025, the preliminary Seattle MSA reported an unemployment rate of 5.0%, compared to the national average of 4.4%, according to the latest available information from the Bureau of Labor Statistics. Home prices in the majority of our markets remained relatively flat over the past year. Based on information from Case-Shiller, the average home price in the Seattle MSA decreased 0.4% in 2025.

King County has the largest population of any county in the state of Washington, with approximately 2.4 million residents and a median household income of approximately $122 thousand. Based on information from the Northwest Multiple Listing Service (“MLS”), the median home sales price in King County in December 2025 was $860 thousand, a 1% increase from December 2024's median home sales price of $851 thousand.

Pierce County has approximately 960 thousand residents and a median household income of approximately $100 thousand. Based on information from the MLS, the median home sales price in Pierce County in December 2025 was $562 thousand, a 1% increase from December 2024's median home sales price of $555 thousand.

Snohomish County has approximately 892 thousand residents and a median household income of approximately $108 thousand. Based on information from the MLS, the median home sales price in Snohomish County was $750 thousand at both December 2025 and December 2024.

Clallam County, with a population of approximately 79 thousand, has a median household income of approximately $71 thousand. The economy of Clallam County is primarily medical, retail and construction. Based on information from the MLS, the median home sales price in Clallam County in December 2025 was $496 thousand, a 1% decrease from December 2024's median home sales price of $500 thousand.

Jefferson County, with a population of approximately 34 thousand, has a median household income of approximately $88 thousand. Based on information from the MLS, the median home sales price in Jefferson County in December 2025 was $650 thousand, a 2% increase from December 2024's median home sales price of $640 thousand.

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Lending Activities

The following table presents information concerning the composition of our loan portfolio, excluding loans held-for-sale, by the type of loan as of the dates indicated (dollars in thousands):

December 31,

20252024

AmountPercentAmountPercent

Real estate loans:

One-to-four family$253,841 28.1 %$269,684 29.8 %

Home equity31,468 3.5 26,686 3.0

Commercial and multifamily409,729 45.1 371,516 41.2

Construction and land50,261 5.5 73,077 8.1

Total real estate loans745,299 82.2 740,963 82.1

Consumer loans:

Manufactured homes43,080 4.7 41,128 4.6

Floating homes87,315 9.6 86,411 9.6

Other consumer16,571 1.8 17,720 2.0

Total consumer loans146,966 16.1 145,259 16.2

Commercial business loans15,378 1.7 15,605 1.7

Total loans907,643 100.0 %901,827 100.0 %

Less:

Premiums627 718

Deferred fees and discounts(2,737)(2,374)

Allowance for credit losses on loans
(8,605)(8,499)

Total loans, net$896,928 $891,672

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The following table shows the composition of our loan portfolio in dollar amounts and in percentages by fixed and adjustable-rate loans as of the dates indicated (dollars in thousands):

December 31,

20252024

AmountPercentAmountPercent

Fixed-rate loans:

Real estate loans:

One-to-four family$158,874 17.5 %$170,268 18.9 %

Home equity9,869 1.1 11,040 1.2

Commercial and multifamily147,083 16.2 125,081 13.9

Construction and land21,331 2.4 42,158 4.7

Total real estate loans337,157 37.1 348,547 38.6

Consumer loans:

Manufactured homes43,080 4.7 41,128 4.6

Floating homes51,673 5.7 58,991 6.5

Other consumer16,037 1.8 17,258 1.9

Total consumer loans110,790 12.2 117,377 13.0

Commercial business loans6,898 0.8 6,432 0.7

Total fixed-rate loans454,845 50.1 472,356 52.4

Adjustable-rate loans:

Real estate loans:

One-to-four family94,967 10.5 99,416 11.0

Home equity21,599 2.4 15,646 1.7

Commercial and multifamily262,646 28.9 246,435 27.3

Construction and land28,930 3.2 30,919 3.4

Total real estate loans408,142 45.0 392,416 43.5

Consumer loans:

Floating homes35,642 3.9 27,419 3.0

Other consumer534 0.1 462 0.1

Total consumer loans36,176 4.0 27,881 3.1

Commercial business loans8,480 0.9 9,174 1.0

Total adjustable-rate loans452,798 49.9 429,471 47.6

Total loans907,643 100.0 %901,827 100.0 %

Less:

Premiums627 718

Deferred fees and discounts(2,737)(2,374)

Allowance for credit losses on loans
(8,605)(8,499)

Total loans, net$896,928 $891,672

At December 31, 2025 and 2024, we had floating or variable rate loans totaling $452.8 million and $429.5 million, respectively. At December 31, 2025, a total of $332.3 million of our floating or variable rate loans had interest rate floors below which the loan's contractual interest rate may not adjust, of which $120.5 million were at their floors.

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Loan Maturity and Repricing. The following table sets forth certain information at December 31, 2025, regarding the amount of loans in our portfolio based on their contractual terms to maturity (in thousands). The table does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

One Year or LessAfter One Year Through Five YearsAfter Five Years Through Fifteen YearsAfter Fifteen YearsTotal

Real estate loans:

One-to-four family$13,104 $830 $16,865 $223,042 $253,841

Home equity24 543 1,792 29,109 31,468

Commercial and multifamily21,002 130,510 239,404 18,813 409,729

Construction and land28,843 16,814 4,113 491 50,261

Total real estate loans62,973 148,697 262,174 271,455 745,299

Consumer loans:

Manufactured homes47 528 10,715 31,790 43,080

Floating homes743 5,338 8,498 72,736 87,315

Other consumer3,394 7,386 1,548 4,243 16,571

Total consumer loans4,184 13,252 20,761 108,769 146,966

Commercial business loans3,266 8,956 3,156 — 15,378

Total$70,423 $170,905 $286,091 $380,224 $907,643

The following table sets forth the amount of total loans due after December 31, 2026, with fixed or adjustable interest rates (in thousands).

Fixed-RateAdjustable-RateTotal

Real estate loans:

One-to-four family$145,770 $94,967 $240,737

Home equity9,869 21,575 31,444

Commercial and multifamily130,495 258,232 388,727

Construction and land11,437 9,981 21,418

Total real estate loans297,571 384,755 682,326

Consumer loans:

Manufactured homes43,033 — 43,033

Floating homes50,930 35,642 86,572

Other consumer12,665 512 13,177

Total consumer loans106,628 36,154 142,782

Commercial business loans5,256 6,856 12,112

Total$409,455 $427,765 $837,220

Lending Authority. Our Chief Executive Officer (“CEO”) and our President/Chief Financial Officer (“CFO”) may both approve unsecured loans up to $1.0 million and all types of secured loans up to 30% of our legal lending limit, or approximately $7.5 million at December 31, 2025. Our Senior Vice President and Chief Credit Officer (“CCO”) may approve unsecured loans up to $400,000 and all type of secured loans up to 15% of our legal lending limit, or approximately $3.8 million at December 31, 2025. The Executive Vice President and Chief Banking Officer may approve unsecured loans up to $50,000 and all types of secured loans up to approximately $1.5 million at December 31, 2025. Loans exceeding the CEO or CFO’s lending authority, or loans significantly outside our general underwriting guidelines, must be approved by the Management Loan

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Committee and are subsequently reviewed by the Board of Directors’ Loan Committee, consisting of four independent directors, and the CEO. Lending authority is also granted to certain other lending staff at lower amounts, subject to internal delegation limits and oversight.

Largest Borrowing Relationships. At December 31, 2025, the maximum amount under federal law that we could lend to any one borrower and the borrower's related entities was approximately $25.0 million. Our five largest lending relationships (including unfunded commitments) totaled $83.8 million in the aggregate, or 9.2% of our $907.6 million total loan portfolio, at December 31, 2025. At December 31, 2025, the largest lending relationship totaled $18.3 million, consisting of a commercial real estate loan. The second largest relationship totaled $17.6 million, consisting of two loans: a construction and land loan totaling $12.7 million (of which $7.1 million was funded and $5.5 million remained unfunded) and a $5.0 million multifamily real estate loan. The third largest relationship totaled $16.6 million, consisting of two commercial real estate loans. The fourth largest relationship totaled $15.7 million, consisting of a multifamily loan of $14.0 million and a construction and land loan of $1.7 million, of which $781 thousand had been funded and $919 thousand remained unfunded at December 31, 2025. The fifth largest relationship totaled $15.5 million, consisting of three loans to two businesses: a $10.4 million loan collateralized by multifamily real estate and a $5.1 million loan collateralized by commercial real estate. The ten next largest lending relationships totaled $122.8 million in funded loans and $4.2 million in unfunded commitments, with an average funded loan balance of $12.3 million and average unfunded commitments of $424 thousand. All of the foregoing loans were performing in accordance with their repayment terms at December 31, 2025.

One-to-Four Family Real Estate Lending. One of our primary lending activities is the origination of loans secured by first mortgages on one-to-four family residences, substantially all of which are secured by properties located in our geographic lending area. We originate both fixed-rate and adjustable-rate one-to-four family loans, including jumbo loans (generally loans above the conforming Fannie Mae limits of $832,750 or $1,066,250, depending on location within our market area). During 2025, our fixed-rate, one-to-four family loan originations decreased $757 thousand, or 3.2%, to $22.7 million compared to $23.5 million in 2024. Additionally, one-to-four family adjustable-rate loan originations decreased $7.1 million, or 43.5% to $9.3 million compared to $16.4 million in 2024. These decreases reflect the high interest rate environment, economic uncertainty, and the limited housing supply coupled with elevated housing prices in our market area. At December 31, 2025, our average adjustable-rate, one-to-four family residential loan was $583 thousand.

Most of our loans are underwritten using generally accepted secondary market underwriting guidelines. A portion of the one-to-four family loans we originate are retained in our portfolio, and the remaining loans are sold into the secondary market to Fannie Mae or other private investors. Loans that are sold into the secondary market to Fannie Mae are generally sold with the servicing retained to maintain the client relationship and generate noninterest income. We also originate a small portion of government guaranteed and jumbo loans for sale, servicing released, to certain correspondent purchasers. The sale of mortgage loans provides a source of non-interest income through the gain on sale, reduces our interest-rate risk, provides a stream of servicing income, enhances liquidity and enables us to originate more loans at our current capital level than if we held the loans in our loan portfolio. At December 31, 2025, one-to-four family residential mortgage loans (excluding loans held-for-sale) totaled $253.8 million, or 28.1%, of our gross loan portfolio, of which $158.9 million were fixed-rate loans and $95.0 million were adjustable-rate loans, compared to $269.7 million (excluding loans held-for-sale), or 29.8% of our gross loan portfolio at December 31, 2024, of which $170.3 million were fixed-rate loans and $99.4 million were adjustable-rate loans.

A significant portion of the one-to-four family residential mortgage loans we retain in our portfolio consist of loans that do not satisfy acreage limits, income, credit, conforming loan limits (i.e., jumbo mortgages) or various other requirements imposed by Fannie Mae or private investors. Some of these loans are also originated to meet the needs of borrowers who cannot otherwise satisfy Fannie Mae credit requirements because of personal and financial reasons (e.g., bankruptcy, length of time employed, etc.), and other aspects that do not conform to Fannie Mae’s guidelines. Such borrowers may have higher debt-to-income ratios, or the loans may be secured by unique properties in rural markets for which there are no sales of comparable properties to support the value according to secondary market requirements. We may require additional collateral or lower loan-to-value ratios to reduce the risk of these loans. We believe that these loans satisfy the needs of borrowers in our market area. As a result, subject to market conditions, we generally continue to originate these types of loans. We also retain jumbo loans, which exceed the conforming loan limits and are therefore ineligible for purchase by Fannie Mae. At December 31, 2025, $135.5 million or 53.4% of our one-to-four family loan portfolio consisted of jumbo loans. Properties securing our one-to-four family loans are typically appraised by independent fee appraisers who are selected in accordance with criteria approved by the Loan Committee. For loans that are less than $250 thousand, we may use an automated valuation model in lieu of an appraisal. We require title insurance policies on all first mortgage real estate loans originated. Homeowners, liability, fire and, if required, flood insurance policies are also required for one-to-four family loans. Our real estate loans generally contain a “due on sale” clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property. The average balance of our one-to-four family residential loans was approximately $457 thousand at December 31, 2025.

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Fixed-rate loans secured by one-to-four family residences have contractual maturities of up to 30 years. All these loans are fully amortizing, with payments due monthly. At December 31, 2025, our portfolio of fixed-rate loans also included $139 thousand of one-to-four family loans with a five-year call option.

Adjustable-rate loans are offered with annual adjustments and lifetime rate caps that vary based on the product, generally with a maximum annual rate change of 2.0% and a maximum overall rate change of 6.0%. We generally use the 30-day secured overnight financing rate (“SOFR”) to re-price our adjustable-rate loans; however, $10.3 million of our adjustable-rate loans are loans to employees and directors that re-price annually based on a margin of 1%-1.50% over our average 12-month cost of funds. Due to the utilization of annual adjustments and lifetime caps, the interest rates on adjustable-rate loans may not be as rate sensitive as our cost of funds. Furthermore, because loan indices may not respond perfectly to changes in market interest rates, upward adjustments on loans may occur more slowly than increases in our cost of interest-bearing liabilities, especially during periods of rapidly increasing interest rates. Because of these characteristics, future yields on adjustable-rate loans may not be sufficient to offset increases in our cost of funds.

We continue to offer our fully amortizing adjustable-rate loans with a fixed interest rate for the first one, three, five or seven years, followed by a periodic adjustable interest rate for the remaining term. Although adjustable-rate mortgage loans can help mitigate interest rate risk because they periodically re-price, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by our maximum periodic and lifetime rate adjustments. Moreover, the interest rates on most of our adjustable-rate loans may not adjust for up to ten years after origination, which may limit the effectiveness of these loans in compensating for changes in general interest rates during periods of rapidly rising rates.

At December 31, 2025, $25.8 million, or 10.2% of our one-to-four family residential portfolio consisted of nonowner-occupied loans, compared to $29.4 million, or 10.9% of our one-to-four family residential portfolio at December 31, 2024. At December 31, 2025, our average nonowner-occupied residential loan had a balance of $117 thousand. Loans secured by rental properties represent potentially higher risk. As a result, we adhere to more stringent underwriting guidelines which may include, but are not limited to, annual financial statements, a budget factoring in a rental income, cash flow analysis of the borrower as well as the net operating income of the property, information concerning the borrower’s expertise, credit history and profitability, and the value of the underlying property. In addition, these loans are generally secured by a first mortgage on the underlying collateral property along with an assignment of rents and leases. Of primary concern in nonowner-occupied real estate lending is the consistency of rental income of the property. Payments on loans secured by rental properties may depend primarily on the tenants’ continuing ability to pay rent to the property owner, the character of the borrower or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of rental income. In addition, successful operation and management of nonowner-occupied properties, including property maintenance standards, may affect repayment. As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the borrower has multiple rental property loans with us, the loans are typically not cross collateralized.

We also have a loan program aimed at assisting individuals in acquiring a new residence before selling their existing one. This program enables borrowers to leverage the equity in their current residence for the purchase of a new one. Typically, the loan or loans for the new residence are originated at amounts exceeding $1.0 million and are secured by the borrower’s existing and/or new residences. The maximum combined loan-to-value ratio allowed is up to 80%. Repayment is structured to occur upon the earlier of the sale of the current residence or the loan maturity date, which is typically up to 12 months. Upon the sale of the borrower's current residence, there is an option for the borrower to refinance the new residence using our traditional jumbo mortgage loan underwriting guidelines. During 2025, we originated $4.1 million of loans under this program, compared to $4.6 million in 2024. At December 31, 2025, $4.1 million of these loans were included in our one-to-four family residential mortgage loan portfolio.

The primary focus of our underwriting guidelines for interest-only residential loans is on the value of the collateral rather than the ability of the borrower to repay the loan. This approach exposes us to an increased risk of loss due to the larger loan balance and the inability to sell these loans to Fannie Mae, similar to the risks associated with jumbo one-to-four family residential loans. In addition, a decline in residential real estate values resulting from a downturn in the Washington housing market may reduce the value of the real estate collateral securing these types of loans and increase our risk of loss if borrowers default on their loans.

Home Equity Lending. We originate home equity loans that consist of fixed-rate, fully-amortizing loans and variable-rate lines of credit. We typically originate home equity loans in amounts of up to 90% of the value of the collateral, minus any senior liens on the property; however, prior to 2010 we originated home equity loans in amounts of up to 100% of the value of the collateral, minus any senior liens on the property. Home equity lines of credit are typically originated for up to $250,000 with an adjustable rate of interest, based on the one-year Treasury Bill rate or the Wall Street Journal Prime rate, plus a margin.

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Home equity lines of credit generally have a three-, five-, ten- or 12-year draw period, during which time the funds may be paid down and redrawn up to the committed amount. Once the draw period has lapsed, the payment is amortized over either a 12-, 15-, 19- or 21-year period based on the loan balance at that time. We charge a $50 annual fee on each home equity line of credit and require monthly interest-only payments on the entire amount drawn during the draw period.

Approximately $9.2 million of our home equity line of credit products at December 31, 2025, allow an amount up to the credit limit to be converted to up to three installment loans at a fixed rate prior to the lapse of the draw period. The option to convert a portion of a home equity line of credit into fixed-rate installment loans prior to the end of the draw period offers borrowers valuable financial flexibility, stability, and tailored financing options, enhancing the overall appeal and usefulness of the home equity product. At December 31, 2025, home equity loans totaled $31.5 million, or 3.5% of our total loan portfolio, compared to $26.7 million, or 3.0% of our total loan portfolio at December 31, 2024. Adjustable-rate home equity lines of credit at December 31, 2025 totaled $21.6 million, or 2.4% of our total loan portfolio, compared to $15.6 million, or 1.7% of our total loan portfolio at December 31, 2024. At December 31, 2025, unfunded commitments on home equity lines of credit totaled $19.9 million.

Our fixed-rate home equity loans generally have terms of up to 20 years and are fully amortizing. At December 31, 2025, fixed-rate home equity loans totaled $9.9 million, or 1.1% of our gross loan portfolio, compared to $11.0 million, or 1.2% of our total loan portfolio at December 31, 2024.

Commercial and Multifamily Real Estate Lending. We offer a variety of commercial and multifamily real estate loans. Most of these loans are secured by owner-occupied and nonowner-occupied commercial income producing properties, multifamily apartment buildings, warehouses, office buildings, gas station/convenience stores and mobile home parks located in our market area. At December 31, 2025, commercial and multifamily real estate loans totaled $409.7 million, or 45.1% of our total loan portfolio, compared to $371.5 million, or 41.2% of our total loan portfolio at December 31, 2024.

Loans secured by commercial and multifamily real estate are generally originated with a variable interest rate, fixed for an initial three- to ten-year term, and have a 20- to 30-year amortization period. At the end of the initial term, the balance is due in full, or the loan re-prices based on an independent index plus a margin over the applicable index of 1% to 4% for another three- to five-year term. Loan-to-value ratios on our commercial and multifamily real estate loans typically do not exceed 80% of the lower of cost or appraised value of the property securing the loan at origination.

Loans secured by commercial and multifamily real estate are generally underwritten based on the net operating income of the property, quality and location of the real estate, the credit history and financial strength of the borrower and the quality of management involved with the property. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt plus an additional coverage requirement. We generally impose a minimum debt service coverage ratio of 1.20 for originated loans secured by income producing commercial properties. If the borrower is not an individual, we typically require the personal guaranties of the principal owners of the borrowing entity. We also generally require an assignment of rents to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing commercial and multifamily real estate loans are performed by independent state certified licensed fee appraisers. To monitor the adequacy of cash flows on income-producing properties, the borrower is required to provide annual financial information. We also from time to time acquire participation interests in commercial and multifamily real estate loans originated by other financial institutions secured by properties located in our market area.

Historically, loans secured by commercial and multifamily properties have generally presented different credit risks than one-to-four family properties. These loans typically involve larger balances to single borrowers or groups of related borrowers. Because payments on loans secured by commercial and multifamily properties are often dependent on the successful operation or management of the properties, repayment of these loans may be subject to adverse conditions in the real estate market or the economy. Repayments of loans secured by nonowner-occupied properties depend primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. If the cash flow from the project is reduced, or if leases are not obtained or not renewed, the borrower's ability to repay the loan may be impaired. Commercial and multifamily real estate loans also expose a lender to greater credit risk than loans secured by one-to-four family properties because the collateral securing commercial and multifamily real estate loans typically cannot be sold as easily as one-to-four family collateral. In addition, most of our commercial and multifamily real estate loans are not fully amortizing and include balloon payments upon maturity. Balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. The largest single commercial and multifamily real estate loan at December 31, 2025, totaled $18.3 million and was collateralized by commercial real estate. At December 31, 2025, this loan was performing in accordance with its repayment terms.

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The following table provides information on commercial and multifamily real estate loans by type at December 31, 2025 and 2024 (dollars in thousands):

December 31,

20252024

AmountPercentAmountPercent

Multifamily residential$174,289 42.5 %$164,404 44.3 %

Owner-occupied commercial real estate retail13,973 3.4 9,279 2.5

Owner-occupied commercial real estate office buildings15,483 3.8 15,611 4.2

Owner-occupied commercial real estate other (1)
7,012 1.7 6,331 1.7

Non-owner occupied commercial real estate retail23,282 5.7 26,184 7.0

Non-owner occupied commercial real estate office buildings10,777 2.6 21,919 5.9

Non-owner occupied commercial real estate other (1)
64,997 15.9 50,728 13.7

Warehouses80,422 19.6 55,042 14.8

Gas station/Convenience store9,380 2.3 10,741 2.9

Mobile Home Parks7,816 1.9 8,921 2.4

Government guaranteed2,299 0.6 2,356 0.6

Total$409,729 100.0 %$371,516 100.0 %

(1)Other commercial real estate loans include schools, churches, storage facilities, restaurants, etc.

Construction and Land Lending. We originate construction loans secured by single-family residences and commercial and multifamily real estate. We also originate land acquisition and development loans, which are secured by raw land or developed lots on which the borrower intends to build a residence, or a commercial or multifamily property. At December 31, 2025, our construction and land loans totaled $50.3 million, or 5.5% of our total loan portfolio, compared to $73.1 million, or 8.1% of our total loan portfolio at December 31, 2024. At December 31, 2025, unfunded construction loan commitments totaled $23.7 million.

Construction loans to individuals and contractors for the construction of personal residences, including speculative residential construction, totaled $24.1 million, or 48.0%, of our construction and land portfolio at December 31, 2025. In addition to custom home construction loans to individuals, we originate loans that are termed “speculative,” which are those loans where the builder does not have, at the time of loan origination, a signed contract with a buyer for the home or lot but has a commitment for permanent financing with either us or another lender. At December 31, 2025, construction loans to contractors for homes that were considered speculative totaled $17.8 million, or 35.4%, of our construction and land loan portfolio. The composition of, and location of underlying collateral securing, our construction and land loan portfolio, excluding loan commitments, at December 31, 2025 and 2024 was as follows (in thousands):

December 31,

20252024

Commercial and multifamily construction$10,557 $37,003

Speculative residential construction17,772 13,639

Land acquisition and development and lot loans15,186 15,538

Residential lot loans385 844

Residential construction6,361 6,053

Total$50,261 $73,077

Our residential construction loans generally provide for the payment of interest only during the construction phase, which is typically 12 to 18 months. At the end of the construction phase, the construction loan generally either converts to a longer-term mortgage loan or is paid off with a permanent loan from another lender. Residential construction loans are made up to the lesser of a maximum loan-to-value ratio of 100% of cost or 80% of appraised value at completion; however, we generally do not originate construction loans which exceed these limits without some form of credit enhancement to mitigate the higher loan to value.

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At December 31, 2025, our largest residential construction loan commitment was for $2.3 million, $1.3 million of which had been disbursed. This loan was performing according to its repayment terms at December 31, 2025. The average outstanding residential construction loan balance was approximately $335 thousand at December 31, 2025. Before making a commitment to fund a construction loan, we require an appraisal of the subject property by an independent approved appraiser. During the construction phase, we make periodic inspections of the construction site and loan proceeds are disbursed directly to the contractors or borrowers as construction progresses. Loan proceeds are disbursed after inspection based on the percentage of completion method. We require general liability insurance, builder's risk hazard insurance, title insurance, and flood insurance, for properties located in or to be built in a designated flood hazard area, on all construction loans.

We also originate developed lot and raw land loans to individuals intending to construct a residence in the future on the property. We generally originate these loans in an amount up to 75% of the lower of the purchase price or appraisal. These lot and land loans are secured by a first lien on the property and have a fixed rate of interest with a maximum amortization of 20 years.

We make land acquisition and development loans to experienced builders or residential lot developers in our market area. The maximum loan-to-value limit applicable to these loans is generally 75% of the projected market value upon completion of the project. We may choose not to require cash equity from the borrower if there is sufficient equity in the land being used as collateral. Development plans are required prior to making the loan. Our loan officers visit the proposed site of the development and the sites of competing developments. We require that developers maintain adequate insurance coverage. Land acquisition and development loans generally are originated with a term of up to 24 months, have adjustable rates of interest based on the Wall Street Journal Prime Rate or the three- or five-year rate charged by the Federal Home Loan Bank ("FHLB") of Des Moines and require interest-only payments during the term of the loan. Land acquisition and development loan proceeds are disbursed periodically in increments as construction progresses and as an inspection by our approved inspector warrants. We require these loans to be paid on an accelerated basis as the lots are sold, so that we are repaid before all the lots are sold. At December 31, 2025, land acquisition and development and lot loans totaled $15.2 million, or 30.2% of our construction and land portfolio.

We also offer commercial and multifamily construction loans. These loans are underwritten as interest only with financing typically up to 24 months under terms similar to our residential construction loans. Commercial and multifamily construction loans are made up to the lesser of a maximum loan-to-value ratio of 100% of cost or 80% of appraised value at completion. Most of our commercial and multifamily construction loans provide for disbursement of loan funds during the construction period and conversion to a permanent loan when the construction is complete and either tenant lease-up provisions or prescribed debt service coverage ratios are met. At December 31, 2025, commercial and multifamily construction loans, excluding speculative residential construction and land development and acquisition loans, totaled $10.6 million or 21.0% of our construction and land portfolio, compared to $37.0 million, or 50.6% of our construction and land portfolio at December 31, 2024.

The three largest construction and land loans at December 31, 2025 included a $9.5 million loan secured by a multi-unit townhome development, a $7.1 million loan secured by multifamily property under renovation and a $4.2 million loan secured by commercial land. At December 31, 2025, all these loans were performing in accordance with their repayment terms.

Our construction and land development loans are structured based on estimates of costs relative to the anticipated values of completed projects. Construction and land lending entail higher risks compared to permanent residential lending as funds are disbursed against the project’s collateral based on estimated costs, which are expected to yield future value upon completion. Due to uncertainties inherent in estimating construction costs, market values of completed projects, and the impact of governmental regulations on real property, accurately evaluating the total funds required to complete a project and the completed project loan-to-value ratio can be challenging. Actual results may significantly differ from estimates due to changes in demand, unexpected construction costs, and other factors.

This type of lending often involves higher loan principal amounts and may be concentrated with a small number of builders. A downturn in housing or the real estate market could escalate loan delinquencies, defaults, and foreclosures, adversely affecting the value of our collateral and our ability to sell it upon foreclosure. Some builders have multiple loans outstanding with us, including residential mortgage loans for rental properties exposing us to a greater risk if an adverse development occurs in one credit relationship.

During the term of most construction loans, no borrower payment is required as accumulated interest is added to the loan principal through an interest reserve. Consequently, the success of these loans relies heavily on the project’s ultimate outcome and the borrower’s ability to sell or lease the property or secure permanent take-out financing. If our appraisal of the completed project’s value proves overstated, we may lack sufficient security for the loan’s repayment, leading to potential losses.

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Construction loans necessitate active monitoring of the building process, including cost comparisons and on-site inspections, making them more challenging and costly to oversee. Increases in market interest rates can disproportionately impact construction loans by rapidly escalating end purchasers’ borrowing costs, potentially reducing overall project demand. Selling properties under construction can be challenging, requiring completion for successful sales, complicating the resolution of problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction. In the case of speculative construction loans, having to identify an end purchaser for the finished project is an added risk.

Land loans pose risks due to the lack of income from the property and the potential illiquid nature of the collateral. These risks can be significantly affected by supply and demand conditions. A downturn in housing or the real estate market may elevate loan delinquencies, defaults, and foreclosures, impairing collateral value and our ability to sell the collateral upon foreclosure.

Commercial Business Lending. At December 31, 2025, commercial business loans totaled $15.4 million, or 1.7% of our total loan portfolio, compared to $15.6 million, or 1.7% of our total loan portfolio at December 31, 2024. Substantially all our commercial business loans have been to borrowers in our market area. Our commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance commercial vehicles and equipment and loans secured by accounts receivable and/or inventory. Our commercial business lending policy includes an analysis of the borrower's background, capacity to repay the loan, the adequacy of the borrower's capital and collateral, as well as an evaluation of other conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows is also an important aspect of our credit analysis. We generally require personal guarantees on both our secured and unsecured commercial business loans. Nonetheless, commercial business loans are believed to carry higher credit risk than residential mortgage and commercial real estate loans. At December 31, 2025, approximately $589 thousand of our commercial business loans were unsecured.

Our interest rates on commercial business loans are dependent on the type of loan. Our secured commercial business loans typically have a loan-to-value ratio of up to 80% and are term loans ranging from three to seven years. Secured commercial business term loans generally have a fixed interest rate based on the commensurate FHLB amortizing rate or prime rate as reported in the West Coast edition of the Wall Street Journal plus 1% to 3%. In addition, we typically charge loan fees of 1% to 2% of the principal amount at origination, depending on the credit quality and account relationships of the borrower. Business lines of credit are usually adjustable rate and are based on the prime rate plus 1% to 3%, and are generally originated with both a floor and ceiling to the interest rate. Our business lines of credit generally have terms ranging from 12 months to 24 months and provide for interest-only monthly payments during the term.

Our commercial business loans are primarily based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The borrowers' cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. This collateral may consist of accounts receivable, inventory, equipment or real estate. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Other collateral securing loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the specific type of business and equipment. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself which, in turn, is often dependent in part upon general economic conditions.

Consumer Lending. We offer a variety of secured and unsecured consumer loans, including new and used manufactured homes, floating homes, automobiles, boats and recreational vehicle loans, and loans secured by deposit accounts. We also offer unsecured consumer loans. We originate our consumer loans primarily in our market area. All our consumer loans are originated on a direct basis. At December 31, 2025, our consumer loans totaled $147.0 million, or 16.1% of our total loan portfolio, compared to $145.3 million, or 16.2% of our total loan portfolio at December 31, 2024.

We typically originate new and used manufactured home loans to borrowers who intend to use the home as a primary residence. The yields on these loans are higher than on our other residential lending products, and the portfolio has performed reasonably well with an acceptable level of risk and loss in exchange for the higher yield. Our weighted-average yield on manufactured home loans at December 31, 2025 was 8.72%, compared to 4.79% for one-to-four family mortgages, excluding loans held-for-sale. At December 31, 2025, manufactured home loans totaled $43.1 million, or 29.3% of our consumer loans and 4.7% of our total loan portfolio. For both new and used manufactured homes, loans are generally made up to 90% of the lesser of the appraised value or purchase price up to $150 thousand, with terms typically up to 20 years. We generally charge a 1% fee at origination. We underwrite these loans based on our review of creditworthiness of the borrower, including credit scores, and the value of the collateral, in which we hold a security interest.

Manufactured home loans are generally considered higher risk than loans secured by residential real property, though this risk may be reduced if the borrower also owns the land on which the manufactured home is located. A small portion of our manufactured home loans involve properties on which we have also financed the land for the owner. The primary risk in

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manufactured home loans is the difficulty in obtaining adequate value for the collateral due to the cost and limited ability to relocate the collateral. These loans tend to be made to retired individuals and first-time homebuyers. First-time homebuyers of manufactured homes tend to be a higher credit risk than first-time homebuyers of single-family residences, due to more limited financial resources. As a result, these loans may have a higher probability of default and higher delinquency rates than single-family residential loans and other types of consumer loans. We consider this additional risk as a component of our ACL. We attempt to work out delinquent loans with the borrower and, if that is not successful, any past due manufactured homes are repossessed and sold. At December 31, 2025, we had twelve nonperforming manufactured home loans, totaling $461 thousand.

We originate floating home, houseboat and house barge loans, typically located on cooperative or condominium moorages. Terms vary from five to 30 years and generally have a fixed rate of interest. We lend up to 90% of the lesser of the appraised value or purchase price. The primary risk in floating home loans is the unique nature of the collateral and the challenges of relocating such collateral to a location other than where such housing is permitted. The process for securing the deed and/or the condominium or cooperative dock is also unique compared to other types of lending. As a result, these loans may have higher collateral recovery costs than one-to-four family mortgage loans and other types of consumer loans. We consider these additional risks as a component of our ACL. At December 31, 2025, floating home loans totaled $87.3 million, or 59.4% of our consumer loan portfolio and 9.6% of our total loan portfolio. At December 31, 2025, the average principal balance of our floating home loans was $753 thousand. At December 31, 2025, house barge loans totaled $7.5 million, or 5.1% of our consumer loan portfolio and 0.8% of our total loan portfolio.

The balance of our consumer loans includes loans secured by new and used automobiles, boats, motorcycles and recreational vehicles, loans secured by deposits and unsecured consumer loans, all of which, at December 31, 2025, totaled $9.0 million, or 6.2% of our consumer loan portfolio and 1.0% of our total loan portfolio.

Consumer loans (other than our manufactured and floating homes) generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing client base by increasing the number of client relationships and providing additional marketing opportunities.

Consumer loans generally entail greater risk than those of one-to-four family residential mortgage loans, particularly in the case of consumer loans that are secured by rapidly depreciable assets, such as manufactured homes, automobiles, boats and recreational vehicles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower's continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Loan Originations, Purchases, Sales, Repayments and Servicing

We originate both fixed-rate and adjustable-rate loans. Our ability to originate loans, however, is dependent upon client demand for loans in our market area. Over the past several years, we have continued to originate residential and consumer loans and increased our emphasis on commercial and multifamily real estate, construction and land, and commercial business lending. Demand is affected by competition and the interest-rate environment. During 2025, we experienced significant prepayments on commercial and multifamily loans due primarily to interest rates being lower than those in effect during the high interest-rate environment when these loans were originated over the past few years. In periods of economic uncertainty, the ability of financial institutions, including us, to originate large dollar volumes of real estate loans may be substantially reduced or restricted, with a resultant decrease in interest income. If a proposed loan exceeds our internal lending limits, we may originate the loan on a participation basis with another financial institution. We also, from time to time, purchase loans from or participate with other financial institutions on loans they originate. We underwrite loan purchases and participations to the same standards as internally originated loans. We did not sell any commercial loan participations in 2025 or 2024. We had no purchases of commercial business loan participations from other financial institutions in 2025 and $2.0 million of such purchases in 2024.

We originate loans that may meet one or more of the credit characteristics commonly associated with subprime lending. The term “subprime” refers to the credit characteristics of individual borrowers which may include payment delinquencies, judgments, foreclosures, bankruptcies, low credit scores and/or high debt-to-income ratios. In exchange for the additional risk we take with such borrowers, we may require them to pay higher interest rates, require a lower debt-to-income ratio or require other enhancements to manage the additional risk. While no single credit characteristic defines a subprime loan, one commonly used indicator is a loan originated to a borrower with a credit score of 660 or lower. Of the $32.0 million in one-to-four-family loans originated in 2025, no loans were to borrowers with a credit score under 660. Additionally, of the $8.2 million in manufactured home loans originated in 2025, $623 thousand or 7.6% were to borrowers with a credit score of 660 or lower. At December 31, 2025, the total amount of residential and consumer loans held in our loan portfolio to borrowers with a credit

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score of 660 or lower was $13.1 million, of which $611 thousand were nonaccrual. We generally do not originate or purchase negative amortization or option adjustable-rate loans.

In addition to interest earned on loans and loan origination fees, we receive fees for loan commitments, late payments and other miscellaneous services.

We also sell whole one-to-four family loans without recourse to Fannie Mae and other investors, subject to a provision for repurchase upon breach of representation, warranty or covenant. These loans are fixed-rate mortgages, which primarily are sold to reduce our interest-rate risk and generate noninterest income. They are generally sold for cash in amounts equal to the unpaid principal amount of the loans determined using present value yields to the buyer. These sales allow for a servicing fee on loans when the servicing is retained by us. Most one-to-four family loans are sold by us with servicing retained. At December 31, 2025, we were servicing a $396.3 million portfolio of residential mortgage loans for Fannie Mae and $2.0 million for other investors. These mortgage servicing rights are carried at fair value and had a value at December 31, 2025 of $4.2 million. We earned mortgage servicing income of $1.0 million and $1.1 million for the years ended December 31, 2025 and 2024, respectively. See “Note 6 — Mortgage Servicing Rights” in the Notes to Consolidated Financial Statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” of this report on Form 10-K. We repurchased no loans in 2025 and 2024.

Sales of whole real estate loans may generate income at the time of sale, produce future servicing income on loans where servicing is retained, provide funds for additional lending, and increase liquidity. We sold $14.0 million and $14.2 million of conforming one-to-four family loans during the years ended December 31, 2025 and 2024, respectively. Gains, losses and transfer fees on sales of one-to-four family loans and participations are recognized at the time of the sale. Our net gains on sales of residential loans for the years ended December 31, 2025 and 2024 were $260 thousand and $258 thousand, respectively. In addition to loans sold to Fannie Mae and others on a servicing retained basis, we sell nonconforming residential loans to correspondent banks on a servicing released basis. We sold $938 thousand of loans with servicing released during 2025, compared to none in 2024.

Asset Quality

When a borrower fails to make a required payment on a one-to-four family loan, we attempt to cure the delinquency by contacting the borrower. In the case of loans secured by a one-to-four family property, a late notice typically is sent 15 days after the due date. Generally, a pre-foreclosure loss mitigation letter is also mailed to the borrower 30 days after the due date. All delinquent accounts are reviewed by a loan officer or branch manager who attempts to cure the delinquency by contacting the borrower. If the account becomes 120 days delinquent and an acceptable foreclosure alternative has not been agreed upon, we generally refer the account to legal counsel with instructions to prepare a notice of default. The notice of default begins the foreclosure process. If foreclosure is completed, typically we take title to the property and sell it directly through a real estate broker.

Delinquent consumer loans are handled in a manner similar to one-to-four family loans. Our procedures for repossession and sale of consumer collateral are subject to various requirements under the applicable consumer protection laws as well as other applicable laws and the determination by us that it would be beneficial from a cost basis.

Once a loan is 90 days past due, it is classified as nonaccrual. Generally, delinquent consumer loans are charged-off at 120 days past due, unless we have a reasonable basis to justify additional collection and recovery efforts.

Delinquent Loans. The following table sets forth our loan delinquencies by type, by amount and by percentage of type at December 31, 2025 (dollars in thousands):

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Loans Delinquent For:

30-89 Days90 Days and OverTotal Delinquent Loans

NumberAmountPercent of

Loan CategoryNumberAmountPercent of

Loan CategoryNumberAmountPercent of

Loan Category

One-to-four family5 $1,020 0.4 %6 $1,358 0.5 %11 $2,378 0.9 %

Home equity7 798 2.5 — — — 7 798 2.5

Commercial and Multifamily3 2,228 0.5 2 2,993 0.7 5 5,221 1.3

Construction and land— — — 1 82 0.2 1 82 0.2

Manufactured homes21 1,343 3.1 9 336 0.8 30 1,679 3.9

Floating homes1 849 1.0 — — — 1 849 1.0

Other consumer17 11 0.1 2 262 1.6 19 273 1.6

Commercial Business1 32 0.2 1 30 0.2 2 62 0.4

Total55 $6,281 0.7 %21 $5,061 0.6 %76 $11,342 1.2 %

Nonperforming Assets. The table below sets forth the amounts and categories of nonperforming assets in our loan portfolio (in thousands). Loans are placed on nonaccrual status when the collection of principal and/or interest becomes doubtful or when the loan is 90 days or more past due. Other real estate owned ("OREO") and repossessed assets include assets acquired in settlement of loans.

December 31,

20252024

Nonaccrual loans (1):

One-to-four family$1,597 $537

Home equity187 298

Commercial and multifamily3,163 3,734

Construction and land82 24

Manufactured homes461 521

Floating homes— 2,363

Other consumer262 3

Commercial business30 11

Total nonaccrual loans5,782 7,491

OREO and repossessed assets:

One-to-four family259 —

Manufactured homes85 —

Total OREO and repossessed assets344 —

Total nonperforming assets$6,126 $7,491

Nonperforming assets as a percentage of total assets0.56 %0.75 %

Performing modified loans:

One-to-four family$948 $1,119

Home equity49 56

Manufactured homes19 20

Other consumer65 70

Total performing modified loans
$1,081 $1,265

(1)Nonaccrual loans included $49 thousand and $66 thousand in modified loans to borrowers experiencing financial difficulty at December 31, 2025 and 2024, respectively. We had no accruing loan 90 days or more past due at December 31, 2025 and 2024.

Nonaccrual loans, including nonaccrual modified loans to borrowers experiencing financial difficulty, decreased $1.7 million to $5.8 million at December 31, 2025, compared to $7.5 million at December 31, 2024. The decrease was primarily due to loan

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payoffs totaling $7.9 million, the return of $335 thousand of loans to accrual status, $281 thousand of loans charged-off, and regular loan payments. Included within the $7.9 million of payoffs was one floating home loan totaling $2.4 million that was paid off during the second quarter of 2025. These factors were partially offset by the placement of an additional $7.1 million of loans on nonaccrual status, including a $1.0 million matured commercial real estate loan where the borrower is in the process of securing alternative financing, and a $2.0 million multi-family loan, both of which are well secured.

Our largest nonperforming loan relationship at December 31, 2025 was the $2.0 million multifamily loan noted above. Including the $2.0 million multifamily loan, nonperforming loans totaled $5.8 million at December 31, 2025, with commercial and multifamily loans representing $3.2 million, or 51.6% of total nonperforming loans, reflecting the concentration in larger relationships. At December 31, 2025 one-to-four family nonperforming loans totaled $1.6 million, or 26.1% of total nonperforming loans, and the remaining balance of nonperforming loans was primarily comprised of manufactured home, home equity, and other consumer loans. OREO and other repossessed assets totaled $344 thousand at December 31, 2025, representing 5.6% of total NPAs as of that date.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition at December 31, 2025 Compared to December 31, 2024—Delinquencies and Nonperforming Assets" contained in Item 7 of this report on Form 10-K for more information on troubled assets.

Modified Loans to Borrowers Experiencing Financial Difficulty. We occasionally modify loans to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize our potential losses. We refer to these modifications as modified loans to troubled borrowers. Modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and, in very limited cases, reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been past due for a period of 90 days or more. Such loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt.

We typically measure the ACL on modified loans to troubled borrowers on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach for loans measured individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated fair value of the underlying collateral, less estimated costs to sell. Accounting principles generally accepted in the United States (“GAAP”) requires us to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications. Modified loans to borrowers experiencing financial difficulty totaled $1.1 million and $1.3 million at December 31, 2025 and 2024, respectively .

OREO and Repossessed Assets. OREO and repossessed assets include assets acquired in settlement of loans. At December 31, 2025 and 2024 ,we had $344 thousand and zero of OREO and repossessed assets, respectively.

Classified Assets. Federal regulations provide for the classification of lower quality loans and other assets (such as OREO and repossessed assets), debt and equity securities considered as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When we classify problem assets as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address impairments. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets. When an insured institution classifies problem assets as a loss, it is required to charge off those assets in the period in which they are deemed uncollectible. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the FDIC and, since our conversion to a Washington-chartered commercial bank, the WDFI, which can order the establishment of additional loss allowances. Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention. At December 31, 2025, we had no special mention assets.

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We regularly review the problem assets in our portfolio to determine whether any require classification in accordance with applicable regulations. Based on management’s review of our assets at December 31, 2025, we had classified $12.4 million of our assets, all which were loans, as substandard. At that date, we had no assets classified as doubtful or loss. Classified assets represented 11.7% of our equity capital and 1.2% of our assets at December 31, 2025. Classified assets totaled $27.4 million, or 26.4% of our equity capital and 2.8% of our assets at December 31, 2024.

Allowance for Credit Losses on Loans. We maintain an ACL in accordance with Accounting Standards Codification (“ASC”) 326. The level of the ACL is established using the CECL approach for financial instruments measured at amortized cost and 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. The ACL consists of two elements: (1) identification of loans that do not share risk characteristics with collectively evaluated loan pools, which are individually analyzed for expected credit loss and (2) establishment of an ACL for collectively evaluated loan pools based upon loans that share similar risk characteristics.

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.

While our policies and procedures used to estimate the ACL, as well as the resulting provision for credit losses reported on the Consolidated Statements of Income, are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond our control, such as changes in projected economic conditions, real estate markets or particular industry conditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.

At December 31, 2025, our ACL for loans was $8.6 million, or 0.95% of our total loan portfolio, compared to $8.5 million, or 0.94% of our total loan portfolio, at December 31, 2024.

See “Note 1—Organization and Significant Accounting Policies” and “Note 5—Loans” in the Notes to Consolidated Financial Statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” of this report on Form 10-K.

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The following table shows certain credit ratios at and for the periods indicated and each component of the ratio's calculations (dollars in thousands).

At and For December 31,

20252024

ACL - loans as a percentage of total loans outstanding0.95 %0.94 %

ACL — loans$8,605 $8,499

Total loans outstanding$907,643 $901,827

Nonaccrual loans as a percentage of total loans outstanding
0.64 %0.83 %

Total nonaccrual loans$5,782 $7,491

Total loans outstanding$907,643 $901,827

ACL - loans as a percentage of nonaccrual loans
148.82 %113.46 %

ACL — loans$8,605 $8,499

Total nonaccrual loans$5,782 $7,491

Net recoveries (charge-offs) during period to average loans outstanding:

One-to-four family:
— %— %

Net (charge-offs)/recoveries
— —

Average loans outstanding
$260,849 $274,424

Home equity:
— %— %

Net (charge-offs)/recoveries
— —

Average loans outstanding
$29,007 $25,094

Commercial and multifamily real estate:
— %— %

Net (charge-offs)/recoveries
— —

Average loans outstanding
$396,737 $338,123

Construction and land:
(0.04)%— %

Net (charge-offs)/recoveries
$(20)—

Average loans outstanding
$53,638 $101,191

Manufactured homes:
(0.16)%(0.06)%

Net (charge-offs)/recoveries
$(66)$(23)

Average loans outstanding
$42,474 $38,932

Floating homes:
— %— %

Net (charge-offs)/recoveries
— —

Average loans outstanding
$88,183 $83,176

​

Other consumer:
(0.12)%(0.42)%

Net (charge-offs)
$(20)$(77)

Average loans outstanding
$17,268 18,436

Commercial business:
— %— %

Net (charge-offs)/recoveries
— —

Average loans outstanding
$14,855 $18,463

Total loans:(0.01)%(0.01)%

Net (charge-offs)
$(106)$(100)

Average loans outstanding
$903,011 $897,839

Economic conditions in our local markets and the broader U.S. have been affected by inflation, elevated interest rates, and a limited housing supply. While inflation and interest rates have begun to decline modestly, these changes have been partially offset by a small increase in unemployment. Recent housing price trends in our market areas have been relatively flat or slightly

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declining, reflecting the impact of higher interest rates, yet demand for loans has remained strong. In response to these economic conditions, we continuously monitor our loan portfolio for potential deterioration resulting from inflation and other macroeconomic factors.

The ACL as a percentage of nonperforming loans was 148.82% and 113.46% at December 31, 2025 and 2024, respectively. We recorded a release of provision for credit losses on loans of $212 thousand for the year ended December 31, 2025, compared to a provision for credit losses on loans of $161 thousand for the year ended December 31, 2024. Net charge-offs were $106 thousand for the year ended December 31, 2025, compared to $100 thousand for the year ended December 31, 2024.

The distribution of our allowance for credit losses on loans at the dates indicated is summarized as follows (dollars in thousands):

December 31,

20252024

AmountPercent of Loans

in Each Category

to Total LoansPercent of ACL in Each Category to Total ACLAmountPercent of Loans

in Each Category

to Total LoansPercent of ACL in Each Category to Total ACL

Allocated at end of period to:

One-to-four family$3,340 28.1 %38.8 %$3,025 29.8 %35.6 %

Home equity343 3.5 4.0 307 3.0 3.6

Commercial and multifamily1,484 45.1 17.2 1,218 41.2 14.3

Construction and land519 5.5 6.0 992 8.1 11.7

Manufactured homes1,174 4.7 13.6 1,172 4.6 13.8

Floating homes1,259 9.6 14.6 1,282 9.6 15.1

Other consumer370 1.8 4.3 401 2.0 4.7

Commercial business116 1.7 1.3 102 1.7 1.2

Total$8,605 100.0 %$8,499 100.0 %

Investment Activities

State chartered commercial banks have the authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, including callable agency securities, certain certificates of deposit of insured commercial banks and savings banks, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, state commercial banks may also invest their assets in investment grade commercial paper and corporate debt securities and mutual funds whose assets conform to the investments that the institution is otherwise authorized to make directly. See “—How We Are Regulated—Sound Community Bank” for a discussion of additional restrictions on our investment activities.

Our CEO and President/CFO have the responsibility for the management of our investment portfolio, subject to the direction and guidance of the Board of Directors. These officers consider various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest-rate risk. Our investment strategy emphasizes safer investments with the yield on those investments secondary to not taking unnecessary risk with the available funds. See “Quantitative and Qualitative Disclosures About Market Risk” contained in Item 7A. of this report on Form 10-K for additional information about our interest-rate risk management.

At December 31, 2025, we owned $1.1 million of stock issued by the FHLB of Des Moines. As a condition of membership in the FHLB of Des Moines, we are required to purchase and hold a certain amount of FHLB stock.

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The ACL on investment securities is determined for both the HTM and AFS securities in accordance with ASC 326 - Financial Instruments - Credit Losses. For AFS securities, we perform a quarterly qualitative evaluation for securities in an unrealized loss position to determine if, for those investments in an unrealized loss position, the decline in fair value is credit related or non-credit related. In determining whether a security’s decline in fair value is credit related, we consider a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments and (vi) general market conditions, which reflect prospects for the economy as a whole, including interest rates and sector credit spreads. If it is determined that the unrealized loss can be attributed to credit loss, we record the amount of credit loss through a charge to provision for credit losses in current period earnings. However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If we intend, or it is likely we will be required, to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings. For unrealized losses deemed non-credit related, we record the loss, net of tax, through accumulated other comprehensive income. For HTM securities, we evaluate at the end of each quarter whether any expected credit losses exist.

We determine expected credit losses on investment securities through a discounted cash flow approach, using the security’s effective interest rate. However, the measurement of credit losses on AFS securities only occurs when, through our qualitative assessment, all or a portion of the unrealized loss is determined to be credit related. Our discounted cash flow approach incorporates assumptions about the collectability of future cash flows. The amount of credit loss is measured as the amount by which the security’s amortized cost exceeds the present value of expected future cash flows. Credit losses on AFS securities are measured on an individual basis, while credit losses on HTM securities are measured on a collective basis according to shared risk characteristics. Credit losses on HTM securities are only recognized at the individual security level when we determine a security no longer possesses risk characteristics similar to others in the portfolio. We do not measure credit losses on an investment’s accrued interest receivable, but rather promptly reverse from current period earnings the amount of accrued interest that is no longer deemed collectable.

During the year ended December 31, 2025, we did not recognize any credit losses on investment securities. At December 31, 2025, there were 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, although management determined the decline in value was not related to specific credit deterioration. We do not intend to sell these securities and it is more likely than not that we will not be required to sell any securities before anticipated recovery of the remaining amortized cost basis. We closely monitor our investment securities for changes in credit risk. The current market environment significantly limits our ability to mitigate our exposure to valuation changes in these securities by selling them. If market conditions deteriorate and we determine our holdings of these or other investment securities have credit losses, our future earnings, stockholders' equity, regulatory capital and continuing operations could be materially adversely affected.

See "Note 4—Investments" in the Notes to Consolidated Financial Statements contained in "Part II. Item 8. Financial Statements and Supplementary Data” of this report on Form 10-K for additional information on our investments.

Sources of Funds

General. Our sources of funds are primarily deposits (including deposits from public entities), borrowings, payments of principal and interest on loans and investments and funds provided from operations.

Deposits. We offer a variety of deposit accounts to both consumers and businesses with a wide range of interest rates and terms. Our deposits consist of savings accounts, money market deposit accounts, NOW accounts, demand accounts, reciprocal deposit network accounts and certificates of deposit. We solicit deposits primarily in our market area; however, at December 31, 2025, approximately 6.1% of our deposits were from persons outside the state of Washington. At December 31, 2025, core deposits, which we define as our non-time deposit accounts and time deposit accounts less than $250 thousand (excluding brokered deposits and public funds), represented approximately 85.3% of total deposits, compared to 87.3% at December 31, 2024. We had no brokered deposits at December 31, 2025 and December 31, 2024. We had $133.9 million and $14.4 million of reciprocal deposits at December 31, 2025 and December 31, 2024, respectively. We primarily rely on competitive pricing policies, marketing and client service to attract and retain deposits, and we expect to continue these practices in the future.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. We manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe

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that our deposits are relatively stable sources of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paid on them is and will continue to be significantly affected by market conditions.

The following table sets forth the dollar amount of deposits in the various types of deposit programs offered by us at the dates indicated (dollars in thousands):

December 31,

20252024

AmountPercent of totalAmountPercent of total

Noninterest-bearing demand$129,828 13.7 %$130,095 15.5 %

Interest-bearing demand125,634 13.2 142,126 17.0

Savings59,478 6.3 61,252 7.3

Money market331,604 34.9 206,067 24.6

Escrow(1)
2,738 0.3 2,437 0.3

Total non-maturity deposits649,282 68.4 541,977 64.7

Certificates of deposit:

1.99% or below977 0.1 3,350 0.4

2.00 — 3.99%219,977 23.2 68,573 8.2

4.00 — 5.99%78,639 8.3 223,899 26.7

Total certificates of deposit299,593 31.6 295,822 35.3

Total deposits$948,875 100.0 %$837,799 100.0 %

(1)Noninterest-bearing

The following table sets forth, for the periods indicated, the average amount of and the average rate paid on deposit categories.

Year Ended December 31,

20252024

Average Balance OutstandingWeighted Average RateAverage Balance OutstandingWeighted Average Rate

(Dollars in thousands)

Demand deposits:

Non-interest bearing$126,276 — %$131,141 — %

Interest bearing134,543 0.30 151,528 0.37

Savings61,303 0.10 63,737 0.10

Money market
286,110 3.13 252,267 3.60

Certificate accounts292,514 3.93 312,751 4.59

Total deposits$900,746 2.32 %$911,424 2.64 %

Total deposits increased $111.1 million to $948.9 million at December 31, 2025, compared to the prior year-end. The increase in total deposits primarily was the result of a $125.5 million, or 60.9% increase in money market accounts. Management attributes this increase primarily to the strategic decision to sell reciprocal money market deposits at the end of 2024 and bring them back onto the balance sheet in early 2025, as well as interest rate sensitive clients moving a portion of their non-operating deposit balances from lower interest-bearing demand and savings accounts into higher interest-bearing money market accounts. Certificate accounts increased $3.8 million, or 1.3% to $299.6 million at December 31, 2025, compared to the 2024 year-end. Interest-bearing demand and saving accounts decreased $16.5 million, or 11.6%, and $1.8 million, or 2.9%, respectively, from December 31, 2024 to December 31, 2025. Noninterest-bearing demand accounts (excluding escrow accounts) decreased $267 thousand, or 0.2%, in 2025, compared to 2024.

We are a public funds depository and at December 31, 2025, we had $27.0 million in public fund deposits compared to $15.9 million at December 31, 2024. These deposits consisted of $23.1 million in certificates of deposit, $3.9 million in money market accounts and $17 thousand in checking accounts at December 31, 2025. These accounts must be 50% collateralized if

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the amount on deposit exceeds FDIC insurance of $250 thousand. We use letters of credit from the FHLB of Des Moines as collateral for these deposits. The Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $14.0 million and $8.0 million at December 31, 2025 and 2024, respectively, to secure public fund deposits.

The following table shows rate and maturity information for our certificates of deposit at December 31, 2025 (dollars in thousands):

0.00-1.99%2.00-3.99%4.00-5.99%TotalPercent of Total

Certificate accounts maturing in quarter ending:

March 31, 2026$468 $23,016 $18,747 $42,231 14.1 %

June 30, 2026265 76,623 22,236 99,124 33.1

September 30, 202688 79,281 23,903 103,272 34.5

December 31, 20263 25,924 84 26,011 8.7

March 31, 2027105 8,605 113 8,823 2.9

June 30, 202718 1,618 1,081 2,717 0.9

September 30, 20277 1,727 — 1,734 0.6

December 31, 2027— 1,313 — 1,313 0.4

March 31, 2028— 267 10,925 11,192 3.7

June 30, 2028— 29 29 —

September 30, 2028— 148 761 909 0.3

December 31, 2028— — — — —

Thereafter23 1,426 789 2,238 0.7

Total$977 $219,977 $78,639 $299,593 100.0 %

Percent of total0.3 %73.4 %26.2 %100.0 %

As of December 31, 2025 and 2024, approximately $184.7 million and $167.3 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The following table sets forth the portion of our certificate accounts that were in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2025 (dollars in thousands).

3 months or less$12,979

Over 3 through 6 months14,006

Over 6 months through 12 months18,731

Over 12 months12,451

$58,167

For additional information regarding our deposits, see “Note 9 - Deposits” in the Notes to Consolidated Financial Statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” of this report on Form 10-K.

Borrowings. Although deposits are our primary source of funds, we may utilize borrowings as a cost-effective source of funds when they can be invested at a positive interest-rate spread, for additional capacity to fund loan demand, or to meet our asset/liability management goals.

We are a member of and obtain advances from the FHLB of Des Moines, which is part of the Federal Home Loan Bank System. The eleven regional FHLBs provide a central credit facility for their member institutions. These advances are provided upon the security of certain of our mortgage loans and mortgage-backed securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features, and all long-term advances are required to provide funds for residential home financing. We have entered into a loan agreement with the FHLB of Des Moines pursuant to which the Bank may borrow up to approximately 45% of total assets, secured by a blanket pledge on a portion of our residential mortgage loan portfolio, including one-to-four family loans, commercial and multifamily real estate loans and home equity loans. Based on eligible collateral, the total amount available under this agreement at December 31,

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2025 was $187.7 million. At the same date, we had $10.0 million of outstanding FHLB fixed-rate advances, with a maturity of January 2028. Additionally, we had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $14.0 million at December 31, 2025, which was used to secure public fund deposits. We rely in part on FHLB advances to fund asset and loan growth. We also use short-term FHLB advances to meet short-term liquidity needs. We are required to own stock in the FHLB of Des Moines, the amount of which varies based on the level of our advance activity.

From time to time, we also may borrow from the Federal Reserve Bank of San Francisco's "discount window" for overnight liquidity needs. The Company participates in the Federal Reserve's Borrower-in-Custody program, which gives the Company access to the discount window. The Company pledges commercial and consumer loans as collateral for its Borrower-in-Custody line of credit. At December 31, 2025 and 2024, the Company had no outstanding borrowings and unused borrowing capacity of $18.5 million and $20.8 million, respectively, under the Borrower-in-Custody program.

The Company completed a private placement of $12.0 million in aggregate principal of 5.25% Fixed-to-Floating Rate Subordinated Notes (the "subordinated notes") due 2030 resulting in net proceeds, after placement fees and offering expenses, of approximately $11.6 million during the year ended December 31, 2020. The subordinated notes have a stated maturity of October 1, 2030 and bore interest at a fixed rate of 5.25% per year until October 1, 2025. From October 1, 2025 to the maturity date or early redemption date, the interest rate resets quarterly at a variable rate equal to the then current three-month term SOFR, plus 513 basis points. As provided in the subordinated notes, the interest rate on the subordinated notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR. Prior to October 1, 2025, the Company could redeem the subordinated notes, in whole but not in part, only under certain limited circumstances set forth in the subordinated notes. On October 1, 2025, the subordinated notes became redeemable at the Company’s option, in whole or in part, on any interest payment date. The redemption price is equal to 100% of the principal amount of the subordinated notes being redeemed, together with any accrued and unpaid interest on the subordinated notes being redeemed to but excluding the date of redemption. The Company chose to complete a partial redemption of $4.0 million in principal amount of the subordinated notes on October 1, 2025, the first date on which partial redemptions were allowed, with the remaining $8.0 million continuing to accrue interest according to the floating rate provisions described above.

For additional information regarding our borrowings, see "Note 10—Borrowings, FHLB Stock and Subordinated Notes" in the Notes to Consolidated Financial Statements contained in "Part II. Item 8. Financial Statements and Supplementary Data" of this report on Form 10-K.

Subsidiary and Other Activities

Sound Financial Bancorp has one subsidiary, Sound Community Bank. In 2018, Sound Community Bank formed Sound Community Insurance Agency, Inc. as a wholly owned subsidiary for purposes of selling a full range of insurance products.

Competition

We face competition in attracting deposits and originating loans. Competition in originating real estate loans comes primarily from commercial banks, credit unions, life insurance companies, mortgage brokers and financial technology (or “FinTech”) companies. Commercial banks, credit unions and finance companies, including FinTech companies, provide vigorous competition in consumer lending. Competition in originating commercial business loans comes primarily from local commercial banks, as well as credit unions. We compete by consistently delivering high-quality, personal service to our clients, which results in a high level of client satisfaction.

Our market area has a high concentration of financial institutions, many of which are branches of large money center and regional banks that have resulted from the consolidation of the banking industry in Washington and other western states. These include such large national lenders as US Bank, JP Morgan Chase, Wells Fargo, Bank of America, Key Bank and others in our market area that have greater resources than we do.

We attract our deposits through our branch offices and web site. Competition for those deposits is principally from commercial banks and credit unions, as well as mutual funds, FinTech companies and other alternative investments. We compete for these deposits by offering superior service, online and mobile access and a variety of deposit accounts at competitive rates. Based on the most recent data provided by the FDIC, there are approximately 45 other commercial banks operating in the Seattle MSA, which includes King, Snohomish and Pierce Counties. Based on the most recent branch deposit data provided by the FDIC, our share of deposits in the Seattle MSA is approximately 0.28%. The five largest financial institutions in that area have 70.9% of those deposits. In Clallam County, there are nine other commercial banks. Our share of deposits in Clallam County was the second highest in the county at approximately 16.31%, with the five largest institutions in that county having 81.5% of the deposits. In Jefferson County there are six other commercial banks. Our share of deposits in Jefferson County is approximately 5.36%, while the five largest institutions in that county have 86.6% of those deposits.

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How We Are Regulated

The following is a brief description of certain laws and regulations which are applicable to the Company and Sound Community Bank. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

Legislation is introduced from time to time in the United States Congress (“Congress”) or the Washington State Legislature that may affect the Company and Sound Community Bank’s operations. In addition, the regulations governing the Company and Sound Community Bank may be amended from time to time by the WDFI , the FDIC, the Federal Reserve or the SEC, as appropriate. Any such legislation or regulatory changes in the future could have an adverse effect on our operations and financial condition. We cannot predict whether any such changes may occur.

The WDFI and, as the Bank's primary federal regulator, the FDIC have extensive enforcement authority over Sound Community Bank. The Federal Reserve and the WDFI have the same type of authority over Sound Financial Bancorp. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease-and-desist orders and removal orders and initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the regulators.

Regulation of Sound Community Bank

General. Sound Community Bank, as a state-chartered commercial bank, is subject to applicable provisions of Washington law and to regulations and examinations of the WDFI. It also is subject to examination and regulation by the FDIC, which insures the deposits of Sound Community Bank to the maximum amount permitted by law. During state or federal regulatory examinations, the examiners may require Sound Community Bank to provide for higher general or specific loan loss reserves, which can impact our capital and earnings. This regulation of Sound Community Bank is intended for the protection of depositors and the Deposit Insurance Fund (“DIF”) of the FDIC and not for the purpose of protecting stockholders of Sound Community Bank or Sound Financial Bancorp. Sound Community Bank is required to maintain minimum levels of regulatory capital and is subject to certain limitations on the payment of dividends to Sound Financial Bancorp. See “—Capital Rules” and “—Limitations on Dividends and Stock Repurchases.”

Regulation by the WDFI and the FDIC. State laws and regulations govern Sound Community Bank’s ability to take deposits and pay interest, to make loans on or invest in residential and other real estate, to make other loans, to offer various other banking services, to invest in securities, and to establish branch offices. As a state-chartered commercial bank, Sound Community Bank must pay semi-annual assessments, examination costs and certain other charges to the WDFI.

Washington law generally provides the same powers for Washington commercial banks as federally and other-state chartered savings banks with branches in Washington. Washington law allows Washington commercial banks to charge the maximum interest rates on loans and other extensions of credit to Washington residents which are allowable for a national bank in another state if higher than Washington limits. In addition, the WDFI may approve an application by a Washington commercial bank to engage in an otherwise unauthorized activity if the WDFI determines that the activity is closely related to banking and the bank is otherwise qualified under the statute. Federal laws and regulations generally limit the activities and equity investments of Sound Community Bank to those that are permissible for national banks, unless approved by the FDIC, and govern our relationship with our depositors and borrowers to a great extent, especially with respect to disclosure requirements.

The FDIC has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and information systems, audit systems, interest-rate risk exposure and compensation and other benefits. If the FDIC determines that Sound Community Bank fails to meet any standard prescribed by these guidelines, it may require Sound Community Bank to submit an acceptable plan to achieve compliance with the standard. Among these safety and soundness standards are FDIC regulations that require Sound Community Bank to adopt and maintain written policies that establish appropriate limits and standards for real estate loans. These standards, which must be consistent with safe and sound banking practices, establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value ratio limits) that are clear and measurable, loan administration procedures, and documentation, approval and reporting requirements. Sound Community Bank is obligated to monitor conditions in its real estate markets to ensure that its standards remain appropriate for current market conditions. Sound Community Bank’s Board of

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Directors is required to review and approve Sound Community Bank’s standards at least annually. The FDIC has published guidelines for compliance with these regulations, including supervisory limitations on loan-to-value ratios for different categories of real estate loans. Under the guidelines, the aggregate level of all loans in excess of the supervisory loan-to-value ratios should not exceed an aggregate limit of 100% of total capital, and within the aggregate limit, the total of all loans for commercial, agricultural, multifamily or other non-one-to-four family residential properties should not exceed 30% of total capital.

Loans in excess of the supervisory loan-to-value ratio limitations must be identified in Sound Community Bank’s records and reported at least quarterly to Sound Community Bank’s Board of Directors. Sound Community Bank is in compliance with the records and reporting requirements. At December 31, 2025, Sound Community Bank’s aggregate loans in excess of the supervisory loan-to-value ratios were $509 thousand and were within the aggregate limits set forth in the preceding paragraph.

The FDIC and the WDFI must approve any merger transaction involving Sound Community Bank as the acquirer, including an assumption of deposits from another depository institution. The FDIC generally is authorized to approve interstate merger transactions without regard to whether the transaction is prohibited by the law of any state. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described below. The Dodd-Frank Act permits de novo interstate branching for banks.

Insurance of Accounts. Sound Community Bank’s deposits are insured up to $250 thousand per separately insured deposit ownership right or category by the DIF of the FDIC. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions.

The FDIC assesses deposit insurance premiums quarterly on each FDIC-insured institution applied to its deposit base, which is its average consolidated total assets minus its Tier 1 capital. No institution may pay a dividend if it is in default on its federal deposit insurance assessment. Total base assessment rates currently range from 2.5 to 32 basis points subject to certain adjustments. The FDIC has authority to increase insurance assessments. Any significant increases in insurance assessments in the future may have an adverse effect on the operating expenses and results of operations of the Company.

The FDIC also conducts examinations of and requires reporting by state non-member banks, such as Sound Community Bank. In addition, the FDIC may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious risk to the DIF. No institution may pay a dividend if it is in default on its federal deposit insurance assessment. Management is not aware of any existing circumstances which would result in termination of the Bank's deposit insurance.

Commercial Real Estate Lending Concentrations. The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending. The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank’s commercial real estate lending but to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance directs the FDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk. A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:

•Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory capital (or in the case of a bank that has elected to follow the Community Bank Leverage Ratio (“CBLR”) framework, Tier 1 capital plus the entire allowance for loan and lease losses (“CBLR Capital”)); or

•Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital or CBLR Capital, as appropriate, and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.

The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. At December 31, 2025, Sound Community Bank’s aggregate recorded loan balances for construction, land development and land loans were 42.4% of CBLR Capital. In addition, at December 31, 2025, Sound Community Bank’s loans on all commercial real estate, including construction, owner and non-owner occupied commercial real estate, and multi-family lending, as defined by the FDIC, were 355.2% of CBLR Capital.

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Transactions with Related Parties. Sound Financial Bancorp and Sound Community Bank are separate and distinct legal entities. Sound Community Bank is an affiliate of Sound Financial Bancorp and any non-bank subsidiary of the latter. Federal laws restrict the ability of banks to engage in certain transactions with their affiliates. Under Section 23A of the Federal Reserve Act, “covered transactions” between a bank and an affiliate are limited to 10% of the bank's capital and surplus, with an aggregate cap of 20% for all affiliates. Further, loans and extensions of credit considered covered transactions typically require collateral in specified amounts. Section 23B of the Federal Reserve Act further mandates that such transactions be conducted on terms as favorable to the bank as those with non-affiliates.

Capital Rules. Sound Community Bank and Sound Financial Bancorp are required to maintain specified levels of regulatory capital under regulations of the FDIC and FRB, respectively. In September 2019, the regulatory agencies, including the FDIC and FRB, adopted a final rule, effective January 1, 2020, creating a CBLR for institutions with total consolidated assets of less than $10 billion, and that meet other qualifying criteria related to off-balance sheet exposures and trading assets and liabilities. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. Management has elected to use the CBLR framework for the Bank and Company.

The CBLR is calculated as Tier 1 Capital to average consolidated assets as reported on an institution's regulatory reports. Tier 1 Capital, for the Company and the Bank, generally consists of common stock plus related surplus and retained earnings, adjusted for goodwill and other intangible assets and accumulated other comprehensive amounts (“AOCI”). Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% 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 "well-capitalized" ratio requirements. A qualifying institution utilizing the CBLR framework whose leverage ratio does not fall more than one percent below the required percentage is allowed a two-quarter grace period in which to increase its leverage ratio back above the required percentage. During the grace period, a qualifying institution will still be considered well capitalized so long as its leverage ratio does not fall more than one percent below the required percentage. If an institution either fails to meet all the qualifying criteria within the grace period or has a leverage ratio that falls more than one percent below the required percentage, it becomes ineligible to use the CBLR framework and must instead comply with generally applicable capital rules, sometimes referred to as Basel III rules. On November 25, 2025, the federal banking agencies, including the FDIC, proposed to lower the CBLR requirement to 8%. Institutions that fail to meet the qualifying criteria after opting into the CBLR framework would have four reporting periods to meet the qualifying criteria again, provided they maintain a leverage ratio above 7% and have not used the grace period for more than eight of the prior 20 quarters. The federal banking agencies also proposed removing the provisions under the CBLR framework that provided temporary relief for qualifying community banks during the COVID-19 outbreak.

At December 31, 2025, the Bank’s CBLR was 10.91%. Management monitors the Bank's capital levels to provide for current and future business opportunities and to maintain Sound Community Bank’s “well-capitalized” status. At December 31, 2025, Sound Community Bank was considered “well-capitalized” under applicable banking regulations.

See "Note 16—Capital" in Notes to Consolidated Financial Statements in "Part II. Item 8. Financial Statements and Supplementary Data" and "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional regulatory capital information.

The FASB has adopted a new accounting standard for GAAP that became effective for the Company and Bank on January 1, 2023. This standard, referred to as Current Expected Credit Loss or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets. CECL covers a broader range of assets than the previous method of recognizing credit losses and generally results in earlier recognition of credit losses. Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL. For a banking organization, implementation of CECL is generally likely to reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital.

The federal banking regulators (the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

Community Reinvestment Act and Consumer Protection Laws. In connection with its lending and other activities, Sound Community Bank is subject to a number of federal and state laws designed to protect clients and promote lending to various sectors of the economy and population. These include, among others, the Equal Credit Opportunity Act, the Truth-in-Lending

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Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Community Reinvestment Act (“CRA”). Among other things, these laws:

•require lenders to disclose credit terms in meaningful and consistent ways;

•prohibit discrimination against an applicant in a credit transaction;

•prohibit discrimination in housing-related lending activities;

•require certain lenders to collect and report applicant and borrower data regarding home loans;

•require lenders to provide borrowers with information regarding the nature and cost of real estate settlements;

•prohibit certain lending practices and limit escrow account amounts with respect to real estate loan transactions;

•require financial institutions to implement identity theft prevention programs and measures to protect the confidentiality of consumer financial information; and

•prescribe possible penalties for violations of the requirements of consumer protection statutes and regulations.

The Consumer Financial Protection Bureau (“CFPB”), an independent agency within the Federal Reserve, has the authority to amend existing federal consumer protection regulations and implement new regulations, and is charged with examining the compliance of financial institutions with assets in excess of $10 billion with these rules. Sound Community Bank’s compliance with consumer protection rules is examined by the WDFI and the FDIC. In early 2025, CFPB leadership significantly scaled back the agency’s rulemaking, enforcement and supervisory activities, including pausing major enforcement actions, rescinding guidance, and narrowing priorities, which has significantly reduced active oversight of financial institutions. Although statutory consumer protection requirements remain in force, the agency’s diminished operations have created regulatory uncertainty with respect to the supervision and enforcement of the existing consumer financial protection laws.

In addition, federal and state regulations limit the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.

The CRA requires the appropriate federal banking agency to assess a bank’s record in meeting the credit needs of the communities served by the bank, including low- and moderate-income neighborhoods. The FDIC examines Sound Community Bank for compliance with its CRA obligations. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance” and the appropriate federal banking agency is to take this rating into account in the evaluation of certain applications of the institution, such as an application relating to a merger or the establishment of a branch. An unsatisfactory rating may be the basis for the denial of such an application. The CRA also requires that all institutions make public disclosures of their CRA ratings. Sound Community Bank received a “satisfactory” rating in its most recent CRA evaluation.

On October 24, 2023, the federal banking agencies, including the FDIC, issued a final rule designed to strengthen and modernize regulations implementing the CRA. The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type. The final rule was published with an April 1, 2024, effective date and staggered compliance dates; however, implementation of the 2023 final rule was stayed by a preliminary injunction. In 2025, the federal banking agencies issued a Joint Notice of Proposed Rulemaking to rescind the 2023 final rule and reinstate the prior CRA regulations. As a result, the Bank will continue to be evaluated under the pre-2023 CRA regulatory framework.

Under the laws of the state of Washington, Sound Community Bank has a similar obligation to meet the credit needs of the communities it serves, and is subject to examination by the WDFI for this purpose, including assignment of a rating. An unsatisfactory rating may be the basis for denial of certain applications by the WDFI. Sound Community Bank received a “satisfactory” rating from the WDFI in its most recent WDFI CRA evaluation.

Privacy Standards and Cybersecurity. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. Federal banking agencies, including the FDIC, have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services. These regulations require Sound Community Bank to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.

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In addition, Washington and other federal and state cybersecurity and data privacy laws and regulations may expose Sound Community Bank to risk and result in certain risk management costs.

On November 18, 2021, the federal banking agencies announced the adoption of a final rule providing for new notification requirements for banking organizations and their service providers for significant cybersecurity incidents. Specifically, the rule requires a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred. Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector. Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours. Compliance with the rule was required starting May 1, 2022. Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory fines and penalties, damages from private causes of action and/or reputational harm.

In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. The rules require registrants to disclose on Form 8-K any cybersecurity incident they determine to be material and to describe the material aspects of the incident's nature, scope, and timing, as well as the material impact or reasonably likely material impact on the registrant. For information regarding the Company’s cybersecurity risk management, strategy, and governance, see “Item 1C.” in this Form 10-K.

Anti-Money Laundering and Customer Identification. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) was signed into law on October 26, 2001. The USA PATRIOT Act and the Bank Secrecy Act requires financial institutions to develop programs to prevent themselves from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts, and, effective in 2018, the beneficial owners of accounts. Bank regulators are directed to consider a holding company’s effectiveness in combating money laundering when ruling on Bank Holding Company Act and Bank Merger Act applications.

Standards for Safety and Soundness. Each federal banking agency, including the FDIC, has adopted guidelines establishing general standards relating to internal controls, information and internal audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder. If the FDIC determines that an institution fails to meet any of these guidelines, it may require an institution to submit to the FDIC an acceptable plan to achieve compliance.

Federal Reserve System. The Federal Reserve historically required all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking accounts. The FRB reduced reserve requirement ratios to zero percent effective on March 26, 2020, thereby effectively eliminating the requirements. The Federal Reserve took that action due to a change in its approach to monetary policy; it has indicated that it has no plans to re-impose reserve requirements but could in the future if conditions warrant.

The Bank is authorized to borrow from the Federal Reserve Bank "discount window." An eligible institution need not exhaust other sources of funds before going to the discount window, nor are there restrictions on the purposes for which the institution can use primary credit. At December 31, 2025, the Bank had no outstanding borrowings from the discount window.

Federal Home Loan Bank System. Sound Community Bank is a member of one of the 11 regional FHLBs, each of which serves as a reserve, or central bank, for its members within its assigned region and is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. The FHLBs make loans to members in accordance with policies and procedures, established by the Boards of Directors of the FHLBs, which are subject to the oversight of the Federal Housing Finance Agency. All borrowings from the FHLBs are required to be fully secured by sufficient collateral as determined by the FHLBs. In addition, all long-term borrowings are required to provide funds for residential home financing. Sound Community Bank had $10.0 million of outstanding borrowings with the FHLB of Des

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Moines and an available line of credit of $187.7 million at December 31, 2025. We rely in part on FHLB advances to fund asset and loan growth. We also use short-term funding available on our line of credit with the FHLB of Des Moines.

As a member, the Bank is required to purchase and maintain stock in the FHLB of Des Moines based on the Bank's asset size and level of borrowings from the FHLB of Des Moines. At December 31, 2025, the Bank owned $1.1 million in FHLB of Des Moines stock, which was in compliance with this requirement. The FHLB of Des Moines has historically paid quarterly dividends, and the Bank received $153 thousand in dividends from the FHLB of Des Moines during the year ended December 31, 2025.

The FHLBs continue to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on borrowings targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of dividends paid by the FHLB of Des Moines and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank’s FHLB of Des Moines stock may result in a decrease in net income and possibly capital.

Regulation of Sound Financial Bancorp

General. Sound Financial Bancorp, as the sole stockholder of Sound Community Bank, is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations promulgated thereunder. This regulation and oversight is generally intended to ensure that Sound Financial Bancorp limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of Sound Community Bank. A bank holding company must serve as a source of financial and managerial strength to its subsidiary banks, with the ability to provide financial assistance to a subsidiary bank in financial distress.

As a bank holding company, Sound Financial Bancorp is required to file quarterly and annual reports with the Federal Reserve and any additional information required by the Federal Reserve and is subject to regular examinations by the Federal Reserve and to examination by the WDFI.

A merger or acquisition of Sound Financial Bancorp, or an acquisition of control of Sound Financial Bancorp, is generally subject to approval by the Federal Reserve and WDFI. In general, control for this purpose means 25% of voting stock, but such approval can be required in other circumstances, including but not limited to an acquisition of as low as 5% of voting stock.

Permissible Activities. Under the Bank Holding Company Act, the Federal Reserve may approve the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve has determined to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. The Bank Holding Company Act prohibits a bank holding company, with certain exceptions, from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. A bank holding company that meets certain supervisory and financial standards and elects to be designated as a financial holding company may also engage in certain securities, insurance and merchant banking activities and other activities determined to be financial in nature or incidental to financial activities. Sound Community Bank has not elected to be designated as a financial holding company.

The Federal Reserve must approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank, and may approve an acquisition located in a state other than the holding company's home state, without regard to whether the transaction is prohibited by the laws of any state, but may not approve the acquisition of a bank that has not been in existence for the minimum time period, not exceeding five years, specified by the law of the host state, or an application where the applicant controls or would control more than 10% of the insured deposits in the U.S. or 30% or more of the deposits in the target bank’s home state or in any state in which the target bank maintains a branch. Federal law does not affect the authority of states to limit the percentage of total insured deposits in the state that may be held or controlled by a bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the federal law. The Federal Reserve takes into consideration the CRA performance of a bank when evaluating acquisition proposals involving the bank’s holding company.

Capital. Consolidated regulatory capital requirements identical to those applicable to subsidiary banks generally apply to bank holding companies. However, the Federal Reserve Board has provided a “Small Bank Holding Company” exception to its consolidated capital requirements, and bank holding companies, such as Sound Financial Bancorp, with less than $3.0 billion of consolidated assets are not subject to the consolidated holding company capital requirements unless otherwise directed by the Federal Reserve.

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Federal Securities Law. The common stock of Sound Financial Bancorp is registered with the SEC under the Securities Exchange Act of 1934, as amended. Sound Financial Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”).

Limitations on Dividends and Stock Repurchases

Sound Financial Bancorp. Sound Financial Bancorp’s ability to declare and pay dividends is subject to the Federal Reserve’s limits and Maryland law and may depend on its ability to receive dividends from Sound Community Bank.

A policy of the Federal Reserve limits the payment of a cash dividend by a bank holding company if the holding company's net income for the past year is not sufficient to cover both the cash dividend and a rate of earnings retention that is consistent with capital needs, asset quality and overall financial condition. A bank holding company that does not meet any applicable capital standard would not be able to pay any cash dividends under this policy. A bank holding company subject to the Small Bank Holding Company Policy Statement, such as Sound Financial Bancorp, is expected not to pay dividends unless its debt-to-equity ratio is less than 1:1 and it meets certain additional criteria. The Federal Reserve also has indicated that it is inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.

Except for a company that meets the well-capitalized standard for bank holding companies, is well managed, and is not subject to any unresolved supervisory issues, a bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company's consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation or regulatory order, condition, or written agreement with the Federal Reserve. Regardless of its asset size, a bank holding company is considered well-capitalized if on a consolidated basis it has a total risk-based capital ratio of at least 10.0% and a Tier 1 risk-based capital ratio of 6.0% or more, and is not subject to an agreement, order, or directive to maintain a specific level for any capital measure.

Under Maryland corporate law, Sound Financial Bancorp generally may not pay dividends if after that payment it would not be able to pay its indebtedness as the indebtedness becomes due in the usual course of business, or its total assets would be less than the sum of its total liabilities.

Sound Community Bank. The amount of dividends payable by Sound Community Bank to Sound Financial Bancorp depends upon Sound Community Bank’s earnings and capital position, and is limited by federal and state laws, regulations and policies. Sound Community Bank may not declare or pay a cash dividend on its capital stock if the payment would cause its net worth to be reduced below the amount required for its liquidation account. Dividends on Sound Community Bank’s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of Sound Community Bank without the approval of the WDFI.

The amount of dividends actually paid during any one period will be significantly affected by Sound Community Bank’s policy of maintaining a strong capital position. Federal law further provides that without prior approval, no insured depository institution may pay a cash dividend if it would cause the institution to be less than adequately capitalized as defined in the prompt corrective action regulations. Moreover, the FDIC has the general authority to limit the dividends paid by insured banks if such payments are deemed to constitute an unsafe and unsound practice. In addition, dividends may not be declared or paid if Sound Community Bank is in default in payment of any assessment due the FDIC.

Federal Taxation

General. We are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Sound Financial Bancorp or Sound Community Bank. Our federal income tax returns have never been audited by the Internal Revenue Service.

Method of Accounting. For federal income tax purposes, we currently report our income and expenses on the accrual method of accounting and use a fiscal year ending on December 31 for filing our federal income tax return.

Intercompany Dividends-Received Deduction. Sound Financial Bancorp has elected to file a consolidated return with Sound Community Bank. Therefore, any dividends Sound Financial Bancorp receives from Sound Community Bank will not be included as income to Sound Financial Bancorp.

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State Taxation

We are subject to a business and occupation tax imposed under Washington state law at the rate of 1.5% of gross receipts, as well as personal property and sales tax. Interest received and servicing income both on loans secured by mortgages or deeds of trust on residential properties and certain investment securities are exempt from business and occupation tax.

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Employees and Human Capital

At December 31, 2025, we had a total of 92 full-time employees and 30 part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

To facilitate talent attraction and retention, we strive to make Sound Community Bank an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by market-based compensation, benefits, health and welfare programs. At December 31, 2025, approximately 61% of our workforce was female and approximately 39% was male, and women held 69% of the Bank's management roles. The average employee tenure was 6.38 years.

As part of our compensation philosophy, we offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent. In addition to strong base wages, additional programs include quarterly or annual bonus opportunities, a Company-augmented Employee Stock Ownership Plan (“ESOP”), a Company-matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, and employee assistance programs including help with student loans and educational opportunities.

The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety, and wellness of our employees. In support of our commitment, our gym reimbursement includes all physical and mental wellness activities. We provide our employees and their families with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families. The employment practices we implemented to support flexible work arrangements and employee well-being continue to apply to remote workers and allow us to recruit and retain skilled workers from areas outside our geographic footprint.

A core value of our talent management approach is to both develop talent from within and supplement with external hires. This approach has yielded loyalty and commitment in our employee base which in turn grows our business, our products, and our customers, while adding new employees and external ideas supports a continuous improvement mindset. We believe that our average employee tenure of over six years reflects the engagement of our employees in this talent management philosophy.

Website

We maintain a website; www.soundcb.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own internet access charges, we make available free of charge through its website the Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the SEC. Information pertaining to us, including SEC filings, can be found by clicking the link on our site called “Investor Relations.” For more information regarding access to these filings on our website, please contact our Corporate Secretary, Sound Financial Bancorp, Inc., 2400 3rd Avenue, Suite 150, Seattle, Washington, 98121 or by calling (206) 448-0884.

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