Sound Financial Bancorp, Inc. Q4 2025 Results

Operating Results

Net Interest Income after Provision for Credit Losses

Q4 2025 vs. Q3 2025

Interest income decreased $368 thousand, or 2.5%, to $14.3 million for the quarter ended December 31, 2025, compared to $14.7 million for the quarter ended September 30, 2025. The decrease was primarily due to a lower average balance of loans and investments, a 13 basis point decline in the average yield on loans and a 37 basis point decline in interest-earning cash, offset by a higher average balance of interest-earning cash.

Interest income on loans decreased $357 thousand, or 2.6%, to $13.2 million for the quarter ended December 31, 2025, compared to $13.5 million for the quarter ended September 30, 2025. The average balance of total loans was $905.8 million for the quarter ended December 31, 2025, compared to $910.3 million for the quarter ended September 30, 2025. The decrease in the average balance of total loans was primarily due to declines in one-to-four family loans, construction and land loans, floating home loans and commercial business loans, partially offset by growth in commercial and multifamily loans and home equity loans. The average balances for manufactured home and other consumer loans remained relatively unchanged from the third quarter of 2025. The average yield on total loans was 5.76% for the quarter ended December 31, 2025, down from 5.89% for the quarter ended September 30, 2025. This decrease in yield was primarily due to lower market interest rates during the quarter, which lowered yields on variable rate loans, including home equity lines of credit and business lines of credit, and $147 thousand of interest reversed out of income due to loans moving to nonaccrual status. This impact was partially offset by new loan originations at higher rates during the fourth quarter of 2025.

Interest income on investments was $122 thousand for the quarter ended December 31, 2025, compared to $124 thousand for the quarter ended September 30, 2025. Interest income on interest-earning cash decreased modestly to $1.0 million for the quarter ended December 31, 2025, compared to $1.0 million for quarter ended September 30, 2025, reflecting a lower average yield partially offset by a higher average balance.

Interest expense decreased $90 thousand or 1.6%, to $5.6 million for the quarter ended December 31, 2025, compared to the quarter ended September 30, 2025. This decrease was primarily the result of lower average balances of demand and NOW accounts, subordinated debt and borrowings, as well as lower average rates paid on all categories of interest-bearing deposits, reflecting lower market interest rates. During the fourth quarter of 2025, we paid down our subordinated debt by $4.0 million and repaid $15.0 million of FHLB borrowings that had a maturity date in January 2026. These decreases were partially offset by higher average balances of savings and money market accounts and certificate accounts. The average cost of deposits was 2.26% for the quarter ended December 31, 2025, down from 2.32% for the quarter ended September 30, 2025, as higher costing deposits repriced lower due to market interest rate decreases from September 2025 through December 2025. Interest expense on our subordinated debt increased despite a lower average balance, due to the debt converting to variable-rate debt that reprices on a quarterly basis from the previous fixed-rate period. Interest expense on FHLB advances remained relatively unchanged during the current quarter compared to the prior quarter due to the repayment of the maturing advance late in the quarter.

Net interest margin declined to 3.36% for the quarter ended December 31, 2025, from 3.48% for the quarter ended September 30, 2025, as the decline in earning asset yields outpaced reductions in funding costs.

A provision for credit losses of $104 thousand was recorded for the quarter ended December 31, 2025, consisting of a provision for credit losses on loans of $68 thousand and provision for credit losses on unfunded loan commitments of $36 thousand. This compared to a provision for credit losses of $55 thousand for the quarter ended September 30, 2025, consisting of a provision for credit losses on loans of $65 thousand and a release of provision for credit losses on unfunded loan commitments of $10 thousand. The increase in the provision for credit losses for the quarter ended December 31, 2025 compared to the quarter ended September 30, 2025 primarily reflects updates to assumptions in the model related to our annual review completed in the fourth quarter of 2025 which included changes to benchmark ratios and the annual loss driver analysis. Additionally, qualitative adjustments related to past due loans and an increase to the specific reserve contributed to the increase in the provision from the prior quarter. A smaller loan portfolio and improvement in qualitative adjustments primarily related to the nature and volume of the portfolio, collateral values, and concentrations were applied across multiple segments partially offset the increase to provision. Other qualitative adjustments were largely applied to the same segments at a similar risk adjustment compared to the sequential quarter ended September 30, 2025. Expected credit loss estimates are based on a range of factors, including market conditions, borrower-specific information, projected delinquencies, and the anticipated effects of economic trends on borrowers’ ability to repay.

Q4 2025 vs. Q4 2024

Interest income on loans increased $85 thousand, or 0.7%, to $13.2 million for the quarter ended December 31, 2025, compared to $13.1 million for the quarter ended December 31, 2024. The average balance of total loans was $905.8 million for the quarter ended December 31, 2025, up from $900.8 million for the quarter ended December 31, 2024. The average yield on total loans was 5.76% for the quarter ended December 31, 2025, down from 5.77% for the quarter ended December 31, 2024.

Interest income on investments was $122 thousand for the quarter ended December 31, 2025, compared to $132 thousand for the quarter ended December 31, 2024. Interest income on interest-earning cash decreased $527 thousand to $1.0 million for the quarter ended December 31, 2025, compared to $1.5 million for the quarter ended December 31, 2024. The latter decrease was a result of lower average yield, resulting from reductions in the rates paid on interest-earning cash, and a lower average balance of interest-earning cash during the period.

Interest expense decreased $894 thousand, or 13.7%, to $5.6 million for the quarter ended December 31, 2025, compared to $6.5 million for the quarter ended December 31, 2024. The decrease was primarily the result of a $17.5 million decrease in the average balance of interest-bearing demand and NOW accounts, a $8.6 million decrease in the average balance of certificate accounts, a $4.0 million decrease in the average balance of subordinated debt, and a $10.4 million decrease in the average balance of FHLB advances, as well as lower average rates paid on all categories of interest-bearing deposits, reflecting lower market interest rates. These average-balance decreases were partially offset by a $14.1 million increase in the average balance of savings and money market accounts. The average cost of deposits was 2.26% for the quarter ended December 31, 2025, down from 2.58% for the quarter ended December 31, 2024. The average cost of subordinated debt was 10.02% for the quarter ended December 31, 2025, up from 5.69% for the quarter ended December 31, 2024, for the reason noted above. The average cost of FHLB advances was 4.40% for the quarter ended December 31, 2025, up from 4.31% for the quarter ended December 31, 2024, due to a higher rate on the remaining debt after the repayment of $15.0 million in advances during the fourth quarter of 2024, partially offset by the repayment of $15.0 million of advances during the fourth quarter of 2025.

Net interest margin increased to 3.36% for the quarter ended December 31, 2025, from 3.13% for the quarter ended December 31, 2024, reflecting lower funding costs that more than offset the decline in the earning asset yields.

A provision for credit losses of $104 thousand was recorded for the quarter ended December 31, 2025, consisting of a provision for credit losses on loans of $68 thousand and a provision for credit losses on unfunded loan commitments of $36 thousand. This compared to a provision for credit losses of $14 thousand for the quarter ended December 31, 2024, consisting of a release of provision for credit losses on loans of $73 thousand and a provision for credit losses on unfunded loan commitments of $87 thousand. The larger provision in the current quarter compared to the same quarter last year resulted primarily from the updates to the model assumptions noted above and a larger loan portfolio, as well as an additional qualitative adjustments applied to certain loan segments, specifically consumer and construction loans, reflecting increased uncertainty in market conditions tied to the impact of tariffs and other external factors affecting our clients. Expected credit loss estimates consider various factors, including market conditions, borrower-specific information, projected delinquencies, and anticipated effects of economic trends on borrowers’ ability to repay.

Noninterest Income

Q4 2025 vs. Q3 2025

Noninterest income during the current quarter compared to the quarter ended September 30, 2025 decreased slightly by $14 thousand, or 1.6%, and was largely unchanged overall. There were fluctuations within certain income categories, however, as noted below:

• a $137 thousand decrease in other income due to losses recognized on the disposal of Integrated Teller Machines (ITMs) decommissioned or replaced during the current quarter;

• a $23 thousand decrease in service charges and fee income, primarily due to seasonally lower interchange income during the first half of the fourth quarter, consistent with patterns observed in prior years, before reverting to seasonally higher monthly averages during the holiday period;

• a $36 thousand decrease in earnings on BOLI primarily influenced, by fluctuating market interest rates; and

• a $21 thousand decrease in net gain on sale of loans, primarily related to a lower volume of loans sold, offset by

• a $212 thousand increase in the fair value adjustment on mortgage servicing rights, primarily reflecting a larger negative adjustment in the prior quarter related to interest rate declines and valuation assumptions that were not repeated during the current quarter.

Loans sold during the quarter ended December 31, 2025, totaled $4.1 million, compared to $5.3 million during the quarter ended September 30, 2025. The change primarily relates to the timing of loan sales and loan activity, which typically slows down in the fourth quarter.

Q4 2025 vs. Q4 2024

Noninterest income decreased $293 thousand, or 25.3%, primarily due to a decline in the fair value adjustment on mortgage servicing rights and losses recognized on the disposal of ITMs during the current quarter. More specifically, the decrease in noninterest income was primarily due to:

• a $237 thousand decline in the fair value adjustment on mortgage servicing rights due to an overall smaller servicing portfolio and changes in valuation assumption associated with interest rate movements compared to the prior year;

• a $24 thousand decrease in mortgage servicing income as a result of a smaller servicing portfolio; and

• a $144 thousand decrease in other income due to losses recognized on the disposal of ITMs decommissioned or replaced during the current quarter.

These decreases were partially offset by:

• a $30 thousand increase in service charges and fee income, primarily due to higher interchange income in the current quarter related to overall consistently higher debit card usage in the current year as compared to the prior year;

• a $62 thousand increase in earnings from BOLI, primarily due to the strategic decision to surrender and exchange existing policies into higher yielding policies in the first quarter of 2025, with the benefit of improved yields continuing into the fourth quarter of 2025; and

• a $20 thousand increase in net gain on sale of loans due to an increase in the volume of loans sold.

Noninterest Expense

Q4 2025 vs. Q3 2025

The decrease in noninterest expense during the current quarter compared to the quarter ended September 30, 2025 was primarily related to:

• a $726 thousand decrease in salaries and benefits due to a reduction in incentive compensation;

• a $274 thousand decrease in regulatory assessments, reflecting lower than expected exam costs, as well as reduced quarterly assessments resulting from a lower rate applied to a lower average asset balance.

• a $74 thousand decrease in data processing, primarily due to a vendor reimbursement during the fourth quarter of 2025.

These decreases were partially offset by:

• a $200 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing and

• a $29 thousand increase in occupancy due to higher property charges and maintenance fees recognized in the current quarter due primarily to repair work performed on the decommission of ITMs.

Q4 2025 vs. Q4 2024

The decrease in noninterest expense during the current quarter compared to the quarter ended December 31, 2024 was primarily related to:

• a $387 thousand decrease in salaries and benefits due to a reduction in incentive compensation, partially offset by higher expense related to our employee stock ownership plan resulting from the Company’s higher stock price;

• a $242 thousand decrease in regulatory assessments, due to the same reason noted above; and

• a $32 thousand decrease in data processing expense related to a vendor reimbursement in the fourth quarter.

These decreases were partially offset by:

• a $354 thousand increase in operations expense, primarily due to higher costs associated with our debit card processing;

• a $51 thousand increase in occupancy expense, due to higher building lease charges in 2025 resulting from lease renewals and maintenance charges, as well as the repair cost noted above related to the work regarding decommissioned ITMs; and

• a $38 thousand increase in net loss (gain) on OREO and repossessed assets, as the current quarter reflected a net loss on new property additions in 2025 compared to a net gain in the same quarter of the prior year.

Balance Sheet Review, Capital Management and Credit Quality

Assets totaled $1.09 billion at December 31, 2025, up from $1.06 billion at September 30, 2025 and $993.6 million at December 31, 2024. The increase in total assets from September 30, 2025 and December 31, 2024 was primarily a result of higher balances of cash and cash equivalents.

Cash and cash equivalents increased $37.3 million, or 36.9%, to $138.5 million at December 31, 2025, compared to $101.2 million at September 30, 2025, and increased $94.8 million, or 217.3%, from $43.6 million at December 31, 2024. The increase from September 30, 2025 primarily relates to higher deposit balances and a decrease in loans held-for-portfolio, partially offset by the repayment of borrowings and subordinated debt during the fourth quarter of 2025. The increase from December 31, 2024 was primarily due to higher deposit balances, including the effects of a strategic decision to utilize cash balances to sell reciprocal deposits at the end of 2024, partially offset by an increase in loans held-for-portfolio and the repayment of borrowings and subordinated debt during the fourth quarter of 2025.

Investment securities increased $55 thousand, or 0.6%, to $9.6 million at December 31, 2025, compared to $9.5 million at September 30, 2025, and decreased $329 thousand, or 3.3%, from $9.9 million at December 31, 2024. Held-to-maturity securities totaled $1.9 million at both December 31, 2025 and September 30, 2025, compared to $2.1 million at December 31, 2024. Available-for-sale securities totaled $7.7 million at December 31, 2025, compared to $7.6 million at September 30, 2025 and $7.8 million at December 31, 2024. The increase in our available-for-sale portfolio from September 30, 2025 to December 31, 2025 was due to an increase in the fair value of the portfolio, which reduced unrealized losses. The decreases in our available-for-sale and held-to-maturity portfolios from December 31, 2024 related to principal paydowns or payoffs, partially offset by increases in the fair value of available-for-sale securities.

Loans held-for-portfolio totaled $905.5 million at December 31, 2025, compared to $909.7 million at September 30, 2025 and $900.2 million at December 31, 2024. The decrease from September 30, 2025, was primarily due to a decline in one-to-four family loans. The increase from December 31, 2024, reflected growth in home equity, commercial and multifamily, manufactured home, and floating home loans. These increases were partially offset by a decline in one-to-four family loans, driven by fewer new home loans and normal amortization, as well as a decrease in construction and land loans due to the completion of projects that converted to permanent financing.

Nonperforming assets (“NPAs”), which are comprised of nonaccrual loans (including nonperforming modified loans), other real estate owned (“OREO”) and other repossessed assets, increased $3.1 million, or 100.1%, to $6.1 million at December 31, 2025, from $3.1 million at September 30, 2025, and decreased $1.4 million, or 18.2%, from $7.5 million at December 31, 2024. The increase in NPAs from September 30, 2025 was primarily due to the placement of an additional $3.3 million of loans on nonaccrual status, including one multifamily loan of $2.0 million and one single-family loan relationship of $1.1 million, each supported by substantial collateral. These factors were partially offset by the payoff of two loans totaling $127 thousand and regular loan payments, as well as a $20 thousand land loan that was charged-off. The decrease in NPAs from one year ago was primarily due to loan 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. These factors were partially offset by the placement of an additional $7.1 million of loans on nonaccrual status and $344 thousand of new other real estate owned properties.

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. One-to-four family nonperforming loans totaled $1.6 million, or 26.1%, and the remaining balance of nonperforming loans was primarily comprised of manufactured home, home equity, and other consumer loans. OREO and other repossessed assets total $344 thousand, representing 5.6% of total NPAs.

NPAs to total assets were 0.56%, 0.29% and 0.75% at December 31, 2025, September 30, 2025 and December 31, 2024, respectively. The allowance for credit losses on loans to total loans outstanding was 0.95% at December 31, 2025, compared to 0.94% at both September 30, 2025 and December 31, 2024. Net loan charge-offs were $27 thousand for the fourth quarter of 2025, compared to $37 thousand for the third quarter of 2025 and $13 thousand for the fourth quarter of 2024.

The following table summarizes our NPAs at the dates indicated (dollars in thousands):

The following table summarizes the allowance for credit losses at the dates and for the periods indicated (dollars in thousands, unaudited):

Total deposits increased $50 million, or 5.6%, to $948.9 million at December 31, 2025, from $898.9 million at September 30, 2025 and increased $111.1 million, or 13.3%, from $837.8 million at December 31, 2024. The increase in total deposits from September 30, 2025 was primarily due to normal daily fluctuations in customer account balances and higher balances from large depositors. The increase from the prior year end was partially due to the strategic decision to sell reciprocal deposits at the end of 2024, which decreased our deposit balances by $63.0 million at December 31, 2024, a reduction that was reversed in the first quarter of 2025. Additionally, the increase from December 31, 2024 was due to large depositors increasing their balances held at the Bank during the year, as well as higher balances held by large depositors. Noninterest-bearing deposits increased $1.2 million, or 0.9%, to $132.6 million at December 31, 2025, compared to $131.4 million at September 30, 2025, and remained relatively flat compared with December 31, 2024. Noninterest-bearing deposits represented 14.0%, 14.6% and 15.8% of total deposits at December 31, 2025, September 30, 2025 and December 31, 2024, respectively.

FHLB advances totaled $10.0 million at December 31, 2025, compared to $25.0 million at both September 30, 2025 and December 31, 2024. The decrease from both prior dates was due to the early repayment of a $15.0 million FHLB advance during the fourth quarter of 2025. FHLB advances are primarily used to support organic loan growth and maintain liquidity ratios in line with our asset/liability objectives. FHLB advances outstanding at December 31, 2025 have a maturity of early 2028. Subordinated notes, net totaled $7.8 million at December 31, 2025 and $11.8 million at both September 30, 2025 and December 31, 2024. The decrease in the subordinated notes balance reflects a $4.0 million paydown completed on the first scheduled repricing date of October 1, 2025, as part of a strategic decision to reduce higher cost debt that would reprice quarterly, and to repurpose cash for other uses.

Stockholders’ equity totaled $109.4 million at December 31, 2025, an increase of $1.9 million, or 1.8%, from $107.5 million at September 30, 2025, and an increase of $5.7 million, or 5.5%, from $103.7 million at December 31, 2024. The increase in stockholders’ equity from September 30, 2025 was primarily the result of $2.2 million of net income earned during the current quarter, a $118 thousand increase in accumulated other comprehensive loss, net of tax, and $72 thousand in share-based compensation, partially offset by the payment of $487 thousand in cash dividends to the Company’s stockholders. The increase in stockholders’ equity from December 31, 2024 was primarily the result of $7.2 million of net income earned during the year, a $198 thousand increase in accumulated other comprehensive loss, net of tax, and $303 thousand in share-based compensation, partially offset by the payment of $1.9 million in cash dividends to the Company’s stockholders.

Sound Financial Bancorp, Inc., a bank holding company, is the parent company of Sound Community Bank, which is headquartered in Seattle, Washington and has full-service branches in Seattle, Tacoma, Mountlake Terrace, Sequim, Port Angeles, Port Ludlow and University Place. Sound Community Bank is a Fannie Mae Approved Lender and Seller/Servicer with one loan production office located in the Madison Park neighborhood of Seattle. For more information, please visit www.soundcb.com.

Forward-Looking Statements Disclaimer

When used in this press release and in documents filed or furnished by Sound Financial Bancorp, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”), as well as in the Company’s other press releases, other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of the Company’s future financial performance based on its growth strategies and anticipated trends in its business. These statements are only predictions based on the Company’s current expectations and projections about future events and may turn out to be wrong because of inaccurate assumptions, the factors listed below or other factors that the Company cannot foresee that could cause the Company’s actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made.

Factors that could cause the Company’s actual results to differ materially from those express or implied by these forward-looking statements and from historical performance include, but are not limited to: adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of persistent inflation, recessionary pressures or slowing 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, which could adversely affect the Company’s revenues and expenses, the values of the Company’s assets and obligations and the availability and cost of capital and liquidity; the impact of inflation and related monetary and fiscal policy responses, including their effects on consumer and business behavior; the effects of a federal government shutdown, debt ceiling standoff, or other fiscal uncertainty; the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry on investor and depositor sentiment; changes in consumer spending, borrowing and savings habits; fluctuations in interest rates; the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; the Company’s ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in the Company’s market area; secondary market conditions for loans; the Company’s ability to implement key growth initiatives and strategic priorities; environmental, social and governance matters; results of examinations of the Company or the Bank by their regulators; increased competition; changes in management’s business strategies; the ability to adapt to rapid technological changes, including advancements related to artificial intelligence, digital banking platforms, and cybersecurity; legislation or regulatory changes, including but not limited to changes in capital requirements, banking regulations, tax laws, or consumer protection laws; vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks; geopolitical developments and international conflicts, as well as 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 political unrest and other external events on our business; and other factors described in the Company’s latest Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and other documents filed with or furnished to the SEC, which are available at www.soundcb.com and on the SEC’s website at www.sec.gov.

The Company does not undertake—and specifically disclaims any obligation—to revise any forward-looking statement to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statement.

CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, unaudited)

CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, unaudited)

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, unaudited)

KEY FINANCIAL RATIOS
(unaudited)

^{(1)   Net interest income divided by average interest earning assets.
(2)   Noninterest expense divided by total revenue (net interest income and noninterest income).}

PER COMMON SHARE DATA
(unaudited)

AVERAGE BALANCE, AVERAGE YIELD EARNED, AND AVERAGE RATE PAID
(Dollars in thousands, unaudited)

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield for the period they have been on nonaccrual (dollars in thousands).

^{(1)   Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as total interest expense divided by average total funding.}

^{(1)   Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.}

LOANS
(Dollars in thousands, unaudited)

DEPOSITS
(Dollars in thousands, unaudited)

CREDIT QUALITY DATA
(Dollars in thousands, unaudited)

OTHER STATISTICS
(Dollars in thousands, unaudited)

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