SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

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

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

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


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

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

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

Indicate by checkmark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ Yes ☒ NO No ☐

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

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

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

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

SOUND FINANCIAL BANCORP, INC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets (unaudited)

(In thousands, except share and per share amounts)

See notes to condensed consolidated financial statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
INTEREST INCOME
Loans, including fees	$	10,327	$	8,967	$	27,099	$	25,152
Interest and dividends on investments, cash and cash equivalents	449		135		876		365
Total interest income	10,776		9,102		27,975		25,517
INTEREST EXPENSE
Deposits	730		617		1,571		2,807
Borrowings	281		—		293		—
Subordinated notes	168		168		504		504
Total interest expense	1,179		785		2,368		3,311
Net interest income	9,597		8,317		25,607		22,206
PROVISION FOR LOAN LOSSES	375		175		1,101		425
Net interest income after provision for loan losses	9,222		8,142		24,506		21,781
NONINTEREST INCOME
Service charges and fee income	604		556		1,749		1,615
Earnings on cash surrender value of bank-owned life insurance	59		104		45		281
Mortgage servicing income	306		328		939		961
Fair value adjustment on mortgage servicing rights	9		(125)		334		(694)
Net gain on sale of loans	48		568		497		3,683

Total noninterest income	1,026		1,431		3,564		5,846
NONINTEREST EXPENSE
Salaries and benefits	4,044		3,512		12,181		10,470
Operations	1,581		1,466		4,323		4,033
Regulatory assessments	116		91		316		283
Occupancy	447		441		1,318		1,298
Data processing	848		808		2,518		2,400
Net gain on OREO and repossessed assets	—		—		—		(16)
Total noninterest expense	7,036		6,318		20,656		18,468
Income before provision for income taxes	3,212		3,255		7,414		9,159
Provision for income taxes	666		663		1,533		1,865
Net income	$	2,546	$	2,592	$	5,881	$	7,294

Earnings per common share:
Basic	$	0.99	$	1.00	$	2.26	$	2.81
Diluted	$	0.97	$	0.98	$	2.23	$	2.76
Weighted-average number of common shares outstanding:
Basic	2,562,551		2,586,966		2,582,891		2,581,517
Diluted	2,597,690		2,633,459		2,617,581		2,624,632

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	2,546	$	2,592	$	5,881	$	7,294
Available for sale securities:
Unrealized losses arising during the period	(400)		(34)		(1,777)		(91)
Income tax benefit related to unrealized losses	84		7		373		19
Other comprehensive loss, net of tax	(316)		(27)		(1,404)		(72)
Comprehensive income	$	2,230	$	2,565	$	4,477	$	7,222

See notes to condensed consolidated financial statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of ~~Income~~Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

(In thousands, except share and per share amounts)


	Shares	Common Stock		Additional Paid -in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss), net of tax		Total Stockholders’ Equity
Balance, at June 30, 2022	2,578,595	$	26	$	27,777	$	66,203	$	(949)	$	93,057
Net income	—	—		—		2,546		—		2,546
Other comprehensive loss, net of tax	—	—		—		—		(316)		(316)
Share-based compensation	—	—		90		—		—		90

Cash dividends paid on common stock ($0.17 per share)	—	—		—		(440)		—		(440)

Common stock surrendered	(2,431)	—		(91)		—		—		(91)
Restricted shares forfeited	(95)	—		—		—		—		—
Common stock options exercised	5,880	—		110		—		—		110

Balance, at September 30, 2022	2,581,949	$	26	$	27,886	$	68,309	$	(1,265)	$	94,956

Balance, at December 31, 2021	2,613,768	$	26	$	27,956	$	65,237	$	139	$	93,358
Net income	—	—		—		5,881		—		5,881
Other comprehensive loss, net of tax	—	—		—		—		(1,404)		(1,404)
Share-based compensation	—	—		384		—		—		384
Restricted stock awards issued	9,700	—		—		—		—		—
Cash dividends paid on common stock ($0.61 per share)	—	—		—		(1,591)		—		(1,591)
Common stock repurchased	(46,799)	—		(516)		(1,218)		—		(1,734)
Common stock surrendered	(3,541)	—		(133)		—		—		(133)
Restricted shares forfeited	(930)	—		—		—		—		—
Common stock options exercised	9,751	—		195		—		—		195

Balance, at September 30, 2022	2,581,949	$	26	$	27,886	$	68,309	$	(1,265)	$	94,956

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of ~~Comprehensive Income~~ ~~(unaudited)~~

~~See notes to condensed consolidated financial statements~~

~~For the Nine Months Ended September 30, 2017 and 2016~~ (unaudited)

(In thousands, except share and per share amounts)


	Shares	Common Stock		Additional Paid -in Capital		Unearned ESOP Shares		Retained Earnings		Accumulated Other Comprehensive Income/(Loss), net of tax		Total Stockholders’ Equity
Balance, at June 30, 2021	2,614,329	$	26	$	27,613	$	(57)	$	61,758	$	195	$	89,535
Net income	—	—		—		—		2,592		—		2,592
Other comprehensive gain, net of tax	—	—		—		—		—		(27)		(27)
Share-based compensation	—	—		65		—		—		—		65
Common stock surrendered	(100)	—		—		—		—		—		—
Cash dividends paid on common stock ($0.17 per share)	—	—		—		—		(445)		—		(445)
Restricted shares forfeited	(420)	—		—		—		—		—		—

Common stock options exercised	3,616	—		59		—		—		—		59
Allocation of ESOP shares	—	—		98		29		—		—		127
Balance, at September 30, 2021	2,617,425	$	26	$	27,835	$	(28)	$	63,905	$	168	$	91,906

Balance, at December 31, 2020	2,592,587	$	25	$	27,106	$	(113)	$	58,226	$	240	$	85,484
Net income	—	—		—		—		7,294		—		7,294
Other comprehensive loss, net of tax	—	—		—		—		—		(72)		(72)
Share-based compensation	—	—		295		—		—		—		295
Common stock surrendered	(4,091)	—		(9)		—		(21)		—		(30)
Cash dividends paid on common stock ($0.61 per share)	—	—		—		—		(1,594)		—		(1,594)
Restricted stock forfeited	(1,890)	—		—		—		—		—		—
Restricted stock awards issued	10,168	—		—		—		—		—		—
Common stock options exercised	20,651	1		181		—		—		—		182
Allocation of ESOP shares	—	—		262		85		—		—		347
Balance, at September 30, 2021	2,617,425	$	26	$	27,835	$	(28)	$	63,905	$	168	$	91,906

See notes to condensed consolidated financial statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (unaudited)

(In thousands)


	Nine Months Ended September 30,							Nine Months Ended September 30,
	2017			2016				2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,939		$	3,814		Net income	$	5,881	$	7,294
Adjustments to reconcile net income to net cash from operating activities:							Adjustments to reconcile net income to net cash from operating activities:
Accretion of net discounts on investments		(16	)		32
Amortization of net discounts on investments							Amortization of net discounts on investments	61		108
Provision for loan losses		250			250		Provision for loan losses	1,101		425
Depreciation and amortization		706			593		Depreciation and amortization	539		502
Compensation expense related to stock options and restricted stock		285			354		Compensation expense related to stock options and restricted stock	384		295
Net change in mortgage servicing rights		191			210
Increase in cash surrender value of BOLI		(245	)		(252	)
Fair value adjustment on mortgage servicing rights							Fair value adjustment on mortgage servicing rights	(334)		694
Right of use assets amortization							Right of use assets amortization	492		689
Change in lease liabilities							Change in lease liabilities	(493)		(672)
Change in cash surrender value of BOLI							Change in cash surrender value of BOLI	(45)		(281)
Net change in advances from borrowers for taxes and insurance							Net change in advances from borrowers for taxes and insurance	433		540

Net gain on sale of loans		(720	)		(1,028	)	Net gain on sale of loans	(497)		(3,683)
Proceeds from sale of loans		35,818			58,464
Proceeds from sale of loans held-for-sale							Proceeds from sale of loans held-for-sale	17,750		130,890
Originations of loans held-for-sale		(34,522	)		(57,769	)	Originations of loans held-for-sale	(17,979)		(120,612)
Net loss on sale and write-downs of OREO and repossessed assets		109			3
Net gain on OREO and repossessed assets							Net gain on OREO and repossessed assets	—		(16)
Change in operating assets and liabilities:							Change in operating assets and liabilities:
Accrued interest receivable		(127	)		(22	)	Accrued interest receivable	(592)		23
Other assets		(482	)		(330	)	Other assets	(648)		(4,865)
Accrued interest payable		(5	)		(10	)	Accrued interest payable	(91)		(321)
Other liabilities		367			719		Other liabilities	(500)		1,037
Net cash provided by operating activities		5,548			5,028		Net cash provided by operating activities	5,462		12,047
CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities							Purchase of available-for-sale securities	(4,380)		—
Proceeds from principal payments, maturities and sales of available-for-sale securities		1,032			1,008		Proceeds from principal payments, maturities and sales of available-for-sale securities	596		2,990
Purchases of available-for-sale securities		-			(1,363	)
FHLB stock redeemed		1,015			66
Purchase of held-to-maturity securities							Purchase of held-to-maturity securities	(2,226)		—
Proceeds from principal payments of held-to-maturity securities							Proceeds from principal payments of held-to-maturity securities	19		—
Net increase in loans		(28,505	)		(17,873	)	Net increase in loans	(163,235)		(54,370)
Purchase of BOLI		(275	)		-		Purchase of BOLI	—		(6,057)
Purchases of premises and equipment, net							Purchases of premises and equipment, net	(225)		(173)
Proceeds from sale of OREO and other repossessed assets		248			131		Proceeds from sale of OREO and other repossessed assets	—		35
Purchases of premises and equipment, net		(2,495	)		(532	)
Net cash received from branch acquisition		13,671			-
Net cash used by investing activities		(15,309	)		(18,563	)
Net cash used in investing activities							Net cash used in investing activities	(169,451)		(57,575)
CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		43,415			23,459		Net increase in deposits	17,077		59,672
Proceeds from borrowings		137,000			106,000		Proceeds from borrowings	44,500		—
Repayment of borrowings		(163,792	)		(108,982	)

FHLB stock purchased							FHLB stock purchased	(1,851)		(175)
Common stock repurchases							Common stock repurchases	(1,734)		(30)
Purchase of stock surrendered to pay tax liability							Purchase of stock surrendered to pay tax liability	(133)		—
Allocation of ESOP shares							Allocation of ESOP shares	—		347
Dividends paid on common stock		(1,254	)		(558	)	Dividends paid on common stock	(1,591)		(1,594)
Net change in advances from borrowers for taxes and insurance		428			463
Proceeds from stock option exercises		33			164
Net cash used by financing activities		15,830			20,546
Proceeds from common stock option exercises							Proceeds from common stock option exercises	195		182
Net cash provided by financing activities							Net cash provided by financing activities	56,463		58,402
Net change in cash and cash equivalents		6,069			7,011		Net change in cash and cash equivalents	(107,526)		12,874
Cash and cash equivalents, beginning of period		54,582			48,264		Cash and cash equivalents, beginning of period	183,590		193,828
Cash and cash equivalents, end of period	$	60,651		$	55,275		Cash and cash equivalents, end of period	$	76,064	$	206,702

SUPPLEMENTAL CASH FLOW INFORMATION:							SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes	$	1,910		$	2,290		Cash paid for income taxes	$	1,410	$	2,290
Interest paid on deposits and borrowings		2,442			2,166		Interest paid on deposits and borrowings	2,459��		3,632
Noncash net transfer from loans to OREO and repossessed assets		-			249
Assets acquired in acquisition of branch		14,474			-

See notes to condensed consolidated financial statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements(unaudited)

Note 1 – Basis of Presentation

The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Sound Financial Bancorp, Inc., and its wholly owned ~~subsidiary,~~subsidiaries, Sound Community ~~Bank.~~Bank and Sound Community Insurance Agency, Inc. References in this document to Sound Financial Bancorp refer to Sound Financial Bancorp, Inc. and references to the ~~"Bank"~~“Bank” refer to Sound Community Bank. References to ~~"we," "us,"~~“we,” “us,” and ~~"our"~~“our” or the ~~"Company"~~“Company” refers to Sound Financial Bancorp and its wholly-owned ~~subsidiary,~~subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc., unless the context otherwise requires.

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ~~("GAAP"~~(“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission ~~("SEC"~~(“SEC”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited financial statements should be read in conjunction with the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, as filed with the SEC on March ~~27, 2017 ("2016~~15, 2022 (“2021 Form ~~10-K"~~10-K”). The results for the interim periods are not necessarily indicative of results for a full ~~year. For further information, refer to the consolidated financial statements and footnotes for the~~ year ~~ended December 31, 2016, included in the 2016 Form 10-K.~~ or any other future period.

Certain amounts in the prior ~~quarters'~~period’s consolidated financial statements have been reclassified to conform to the current presentation. These classifications do not have an impact on previously reported consolidated net income, ~~retained earnings, stockholders'~~stockholders’ equity or earnings per share.

Note 2 – Accounting Pronouncements Recently Issued or Adopted

~~In May 2014,~~On March 2020, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) ~~issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which creates Topic 606 and supersedes Topic 605, Revenue Recognition. In August 2015, FASB~~ issued ASU No. ~~2015-14, Revenue from Contracts with Customers (Topic 606)~~2020-04, "Reference Rate Reform" ("Topic 848"). This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update apply to modifications to eligible contracts (e.g., ~~which postponed~~loans, debt securities, derivatives, borrowings) that replace a reference rate affected by reference rate reform (including rates referenced in fallback provisions) and contemporaneous modifications of other contract terms related to the replacement of the reference rate (including contract modifications to add or change fallback provisions). The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective ~~date~~interest rate; 2) Modifications of ~~2014-09. In March 2016,~~contracts within the ~~FASB issued ASU 2016-08, Revenue from Contracts~~scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with ~~Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net, which amended~~no reassessments of the ~~principal versus agent implementation guidance set~~lease classification and the discount rate (for example, the incremental borrowing rate) or remeasurements of lease payments that otherwise would be required under those Topics for ~~in ASU 2014-09. Among other things, ASU 2016-08 clarifies that~~modifications not accounted for as separate contracts; and 3) Modifications of contracts do not require an entity ~~should evaluate~~to reassess its original conclusion about whether itthat contract contains an embedded derivative that is clearly and closely related to the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligationseconomic characteristics and ~~Licensing. The ASU amends certain aspects~~risks of the ~~guidance set forth~~host contract under Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives. In January 2021, ASU 2021-01 updated amendments in the FASB's new revenue standard related to identifying performance obligations and licensing implementation. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new ASU ~~requires companies~~ to ~~use more judgment~~clarify that certain optional expedients and ~~make more estimates than under current guidance,~~exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification. The amendments in this ASU have differing effective dates, beginning with interim period including ~~identifying performance obligations in the contract, estimating the amount of variable consideration~~and subsequent to include in the transaction price and allocating the transaction price to each separate performance obligation. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides clarifying guidance in certain narrow areas and adds some practical expedients, butMarch 12, 2020 through December 31, 2022. The Company does not change the core revenue recognition principle in Topic 606. This ASU is effective for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. For financial reporting purposes, the ASU allows for either full retrospective adoption, meaning this ASU is applied to all of the periods presented, or modified retrospective adoption, meaning the ASU is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the ASU recognized at the date of initial application. As a financial institution, the Company's largest component of revenue, interest income, is excluded from the scope of this ASU. Accordingly,expect the adoption of ASU ~~No. 2014-09 is not expected~~2020-04 to have a material impact on ~~the Company's~~its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. This ASU requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. In addition, the ASU requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This ASU also eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The ASU also requires a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk (also referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for certain provisions. The adoption of ASU No. 2016-01is not expected to have a material impact on the Company's consolidated financial statements. Management is in the planning stages of developing processes and procedures to comply with the disclosure requirements of this ASU, which could impact the disclosures the Company makes related to the fair value of its financial instruments.

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize, on the balance sheet, the assets and liabilities arising from operating leases. A lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. A lessee should include payments to be made in an optional period only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. For a finance lease, interest payments should be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income. For operating leases, the lease cost should be allocated over the lease term on a generally straight-line basis. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in the ASU is permitted. Although an estimate of the impact of the new leasing standard has not yet been determined, once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on current leases the adoption is not expected to have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial ~~Instruments-~~Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments and subsequent amendments to the initial guidance in November 2018, ASU No. 2018-19, April 2019, ASU 2019-04, May 2019, ASU 2019-05, November 2019, ASU 2019-11, February 2020, ASU 2020-02, and March 2020, ASU 2020-03, all of which clarifies codification and corrects unintended application of the guidance. This ASU replaces the existing incurred loss impairment methodology that recognizes credit losses when a probable loss has been incurred with new methodology where loss estimates are based upon lifetime expected credit losses. The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected. The

income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period. The measurement of expected credit losses will be based on historical information, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. Available-for-sale securities will bifurcate the fair value mark and establish an allowance for credit losses through the income statement for the credit portion of that mark. The interest portion will continue to be recognized through accumulated other comprehensive income or loss. The change in allowance recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is adopted. The ~~amendments~~new guidance may result in ~~this~~an increase in the allowance for loan losses; however, the Company is still in the process of determining the magnitude of the change and its impact on the Company's consolidated financial statements. The FASB issued ASU ~~are~~No. 2019-10, Financial Instruments - Credit Losses (Topic 326), delaying implementation of ASU No. 2016-13 for SEC smaller reporting company filers until fiscal years beginning after December 15, 2022. The Bank meets the requirements of a smaller reporting company and will delay implementation of ASU No. 2016-13.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. This ASU will be effective for fiscal years beginning after December 15, 2019 with early adoption permitted after December 15, 2018. The Company has begun the process to implement this new standard by working with a vendor that specializes in this area. While the Company has not quantified the impact of this ASU, it does expect changing from the current incurred loss model to an expected loss model will result in an earlier recognition of losses. The Company also expects that once adopted the allowance for loan losses will increase, however, until its evaluation is complete the magnitude of the increase will be unknown.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the appropriate classification of eight specific cash flow issues on the cash flow statement. Debt prepayment costs should be classified as an outflow for financing activities. Settlement of zero-coupon debt instruments divides the interest portion as an outflow for operating activities and the principal portion as an outflow for financing activities. Contingent consideration payments made after a business combination should be classified as outflows for financing and operating activities. Proceeds from the settlement of bank-owned life insurance policies should be classified as inflows from investing activities. Other specific areas are identified in the ASU as to the appropriate classification of the cash inflows or outflows. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017,2022, including interim periods within those fiscal ~~years. Early~~years, upon the Company’s adoption is permitted and must be applied using a retrospective transition method to each period presented. The Company does not expect this ASU to have a material impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20). ASU 2017-08 is intended to amend the amortization period for certain purchased callable debt securities held at a premium. Under ASU 2017-08, the FASB is shortening the amortization period for the premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company is reviewing its securities portfolio to assess the impact the adoption of this ASU will have on the Company's consolidated financial statements but does not expect this ASU to have a material impact on the Company's consolidated financial statements.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation--Stock Compensation (Topic 718): Scope of Modification Accounting~~. The ASU was issued to provide clarity as to when to apply modification accounting when there is a change in the terms or conditions of a share-based payment award. According to this ASU, an entity should account for the effects of a modification unless the fair value, vesting conditions, and balance sheet classification of the award is the same after the modification as compared to the original award prior to the modification. The standard is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of ASU No. 2017-09 is not expected to have a material impact on the Company's consolidated financial statements.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~ This ASU amends the hedge accounting recognition and presentation requirements in ASC 815 to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity's risk management activities by better aligning the entity's financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The amendments in ~~this~~ ASU ~~permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition,~~2016-13, which is commonly referred to as the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2017-12 is notcurrent expected ~~to have a material impact on the Company's consolidated financial statements.~~credit loss methodology.

Note 3 – Investments

The Company classifies its debt investment securities in two categories: held-to-maturity (“HTM”) or available-for-sale (“AFS”). Unrealized holding gains or losses, net of the related tax effect, on AFS securities are excluded from income and are reported as a separate component of stockholders’ equity as accumulated other comprehensive income (loss) net of applicable taxes until realized. Recognized gains and losses from the sale of AFS securities are determined on a specific-identification basis. These securities are adjusted for the amortization or accretion of premiums or discounts. Securities classified as HTM are those that the Company has the positive intent and ability to hold until maturity. These securities are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts. The Company does not own any debt securities classified as trading or equity securities.

The amortized cost and fair value of our ~~available-for-sale ("AFS")~~AFS securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

September 30, 2017
Municipal bonds $ 3,245 $ 175 $ (3 ) $ 3,417
Agency mortgage-backed securities 2,221 50 - 2,271
Total $ 5,466 $ 225 $ (3 ) $ 5,688

December 31, 2016
Municipal bonds $ 3,262 $ 127 $ (36 ) $ 3,353
Agency mortgage-backed securities 2,858 49 (3 ) 2,904
Non-agency mortgage-backed securities 362 - (15 ) 347
Total $ 6,482 $ 176 $ (54 ) $ 6,604


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022
Treasury bills	$	1,584	$	—	$	(4)	$	1,580
Municipal bonds	6,705		25		(1,243)		5,487
Agency mortgage-backed securities	3,709		1		(381)		3,329

Total	$	11,998	$	26	$	(1,628)	$	10,396

December 31, 2021

Municipal bonds	$	5,931	$	148	$	(13)	$	6,066
Agency mortgage-backed securities	2,312		53		(12)		2,353

Total	$	8,243	$	201	$	(25)	$	8,419

The amortized cost and fair value of our HTM securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022

Municipal bonds	$	705	$	—	$	(202)	$	503
Agency mortgage-backed securities	1,502		—		(251)		1,251

Total	$	2,207	$	—	$	(453)	$	1,754

December 31, 2021

Municipal bonds	$	—	$	—	$	—	$	—
Agency mortgage-backed securities	—		—		—		—

Total	$	—	$	—	$	—	$	—

The amortized cost and fair value of AFS and HTM securities at September 30, ~~2017,~~2022, by contractual maturity, are shown below (in thousands). Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.

September 30, 2017

Amortized
Cost

Fair
Value

Due after one year through five years $ 1,333 $ 1,329
Due after five years through ten years 413 443
Due after ten years 1,499 1,645
Mortgage-backed securities 2,221 2,271
Total $ 5,466 $ 5,688


	September 30, 2022
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	1,844	$	1,840	$	—	$	—
Due after one year through five years	151		151		—		—
Due after five years through ten years	1,226		1,245		—		—
Due after ten years	5,068		3,831		705		503
Agency mortgage-backed securities	3,709		3,329		1,502		1,251
Total	$	11,998	$	10,396	$	2,207	$	1,754

There were no pledged securities at September 30, ~~2017 and~~2022 or December 31, ~~2016.~~2021.

There were no sales of AFS securities during the three orand nine months ended September 30, ~~2017~~2022 or 2021. There were no sales of HTM securities during the three and ~~2016.~~

nine months ended September 30, 2022.

The following ~~tables summarize~~table summarizes the aggregate fair value and gross unrealized loss by length of time of those investments that have been in a continuous unrealized loss position at the dates indicated (in thousands):


	September 30, 2022
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities
Treasury bills	$	1,580	$	(4)	$	—	$	—	$	1,580	$	(4)
Municipal bonds	3,303		(1,094)		505		(149)		3,808		(1,243)
Agency mortgage-backed securities	2,797		(288)		290		(93)		3,087		(381)

Total available-for-sale securities	$	7,680	$	(1,386)	$	795	$	(242)	$	8,475	$	(1,628)
Held-to-maturity securities

Municipal bonds	$	503	$	(202)	$	—	$	—	$	503	$	(202)
Agency mortgage-backed securities	1,251		(251)		—		—		1,251		(251)

Total held-to-maturity securities	$	1,754	$	(453)	$	—	$	—	$	1,754	$	(453)

September 30, 2017
Less Than 12 Months 12 Months or Longer Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Municipal bonds $ 456 $ (1 ) $ 874 $ (2 ) $ 1,330 $ (3 )
Agency mortgage-backed securities - - - - - -
Total $ 456 $ (1 ) $ 874 $ (2 ) $ 1,330 $ (3 )

December 31, 2016
Less Than 12 Months 12 Months or Longer Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Municipal bonds $ 1,313 $ (36 ) $ - $ - $ 1,313 $ (36 )
Agency mortgage-backed securities - - 1,125 (3 ) 1,125 (3 )
Non-agency mortgage-backed securities - - 347 (15 ) 347 (15 )
Total $ 1,313 $ (36 ) $ 1,472 $ (18 ) $ 2,785 $ (54 )


	December 31, 2021
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities

Municipal bonds	$	1,632	$	(13)	$	—	$	—	$	1,632	$	(13)
Agency mortgage-backed securities	—		—		402		(12)		402		(12)

Total	$	1,632	$	(13)	$	402	$	(12)	$	2,034	$	(25)

There were no credit losses recognized in earnings related to other than temporary impairments during the three and nine months ended September 30, ~~2017~~2022 or ~~2016 relating to the Company's securities.~~2021.

At September 30, ~~2017,~~2022, the total securities portfolio consisted of one treasury bill security, 12 agency mortgage-backed securities and 12 municipal bonds with a total portfolio fair value of $12.2 million. At December 31, 2021, the securities portfolio consisted of 10 agency mortgage-backed securities and 10 municipal bonds with a fair value of $8.4 million. At September 30, 2022, there were 18 securities in an unrealized loss position for less than 12 months, and two ~~municipal~~securities in an unrealized loss position for more than 12 months. Of the 18 securities in an unrealized loss position for less than 12 months, two securities were classified as HTM. At December 31, 2021, there were two securities in an unrealized loss position for less than 12 months, and one ~~municipal~~ security ~~was~~ in an unrealized loss position for ~~over~~more than 12 months. At December 31, 2016, three municipal securities were in an unrealized loss position for less than 12 months and one agency security and one non-agency mortgage-backed security were in a loss position for over 12 months. The agency mortgage-backed security in an unrealized loss position at December 31, 2016 was guaranteed by a U.S. governmental agency. The non-agency mortgage-backed security was fully redeemed during the third quarter of 2017. The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not related to the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. ~~Because~~The unrealized losses on these investments are not considered other-than-temporary impairment ("OTTI") as of September 30, 2022, because the decline in fair value is not attributable to ~~changes in interest rates or widening market spreads and not~~ credit quality and because we do not intend, ~~to sell the securities in this class~~ and it is not likely that we will be required, to sell these securities before recovery of their amortized cost basis which may include holding each security until contractual maturity. The unrealized losses on these investments are not considered an other-than-temporary impairment ("OTTI") during the three and nine months ended September 30, 2017 or the year ended December 31, 2016..

Note 4 – Loans

The composition of the ~~loan~~loans-held-for portfolio at the dates indicated, excluding loans held-for-sale, was as follows (in thousands):


	September 30, 2022		December 31, 2021
Real estate loans:
One-to-four family	$	270,009	$	207,660
Home equity	17,642		13,250
Commercial and multifamily	315,677		278,175
Construction and land	112,980		63,105
Total real estate loans	716,308		562,190
Consumer loans:
Manufactured homes	25,375		21,636
Floating homes	69,968		59,268
Other consumer	17,565		16,748
Total consumer loans	112,908		97,652
Commercial business loans	23,986		28,026
Total loans held-for-portfolio	853,202		687,868
Premiums for purchased loans(1)	984		897
Deferred fees, net	(2,739)		(2,367)
Total loans held-for-portfolio, gross	851,447		686,398
Allowance for loan losses	(7,489)		(6,306)
Total loans held-for-portfolio, net	$	843,958	$	680,092

September 30,
2017

December 31,
2016

Real estate loans:
One- to four- family $ 156,871 $ 152,386
Home equity 29,129 27,771
Commercial and multifamily 201,411 181,004
Construction and land 54,921 70,915
Total real estate loans $ 442,332 $ 432,076
Consumer loans:
Manufactured homes 16,864 15,494
Floating homes 26,699 23,996
Other consumer 5,032 3,932
Total consumer loans 48,595 43,422
Commercial business loans 39,158 26,331
Total loans 530,085 501,829
Deferred fees (1,877 ) (1,828 )
Total loans, gross 528,208 500,001
Allowance for loan losses (4,991 ) (4,822 )
Total loans, net $ 523,217 $ 495,179

(1)Includes premiums resulting from purchased loans of $514 thousand related to one-to-four family loans, $315 thousand related to commercial and multifamily loans, and $155 thousand related to commercial business loans as of September 30, 2022. Includes premiums resulting from purchased loans of $556 thousand related to one-to-four family loans, $181 thousand related to commercial and multifamily loans, and $160 thousand related to commercial business loans as of December 31, 2021.

The Company was automatically authorized to participate in the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), as a qualified lender since the inception of the program. As of September 30, 2022, the Bank had funded PPP loans totaling $119.2 million, $18 thousand of which remained outstanding and are included in commercial business loans above. PPP loans are 100% guaranteed by the SBA.

The following ~~table presents~~tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of ~~September 30, 2017~~the dates indicated (in thousands):

One- to
four-
family

Home
equity

Commercial
and
multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Unallocated Total
Allowance for loan losses:
Individually evaluated for impairment $ 377 $ 168 $ - $ 32 $ 70 $ - $ 57 $ 276 $ - $ 980
Collectively evaluated for impairment 874 183 1,185 327 110 154 41 231 906 4,011
Ending balance $ 1,251 $ 351 $ 1,185 $ 359 $ 180 $ 154 $ 98 $ 507 $ 906 $ 4,991
Loans receivable:
Individually evaluated for impairment $ 6,664 $ 1,007 $ 1,717 $ 99 $ 309 $ - $ 57 $ 357 $ - $ 10,210
Collectively evaluated for impairment 150,207 28,122 199,694 54,822 16,555 26,699 4,975 38,801 - 519,875
Ending balance $ 156,871 $ 29,129 $ 201,411 $ 54,921 $ 16,864 $ 26,699 $ 5,032 $ 39,158 $ - $ 530,085


	September 30, 2022
	Allowance: Individually evaluated for impairment		Allowance: Collectively evaluated for impairment		Allowance: Ending balance		Loans held for portfolio: Individually evaluated for impairment		Loans held for portfolio: Collectively evaluated for impairment		Loans held for portfolio: Ending balance
One-to-four family	$	106	$	1,653	$	1,759	$	3,575	$	266,434	$	270,009
Home equity	5		116		121		203		17,439		17,642
Commercial and multifamily	—		2,349		2,349		—		315,677		315,677
Construction and land	3		1,127		1,130		63		112,917		112,980
Manufactured homes	101		388		489		193		25,182		25,375
Floating homes	—		430		430		—		69,968		69,968
Other consumer	24		301		325		365		17,200		17,565
Commercial business	—		233		233		—		23,986		23,986
Unallocated	—		653		653		—		—		—
Total	$	239	$	7,250	$	7,489	$	4,399	$	848,803	$	853,202


	December 31, 2021
	Allowance: Individually evaluated for impairment		Allowance: Collectively evaluated for impairment		Allowance: Ending balance		Loans held for portfolio: Individually evaluated for impairment		Loans held for portfolio: Collectively evaluated for impairment		Loans held for portfolio: Ending balance
One-to-four family	$	112	$	1,290	$	1,402	$	4,066	$	203,594	$	207,660
Home equity	7		86		93		215		13,035		13,250
Commercial and multifamily	—		2,340		2,340		2,380		275,795		278,175
Construction and land	4		646		650		68		63,037		63,105
Manufactured homes	144		331		475		221		21,415		21,636
Floating homes	—		372		372		493		58,775		59,268
Other consumer	26		284		310		106		16,642		16,748
Commercial business	—		269		269		176		27,850		28,026
Unallocated	—		395		395		—		—		—
Total	$	293	$	6,013	$	6,306	$	7,725	$	680,143	$	687,868

The following ~~table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2016 (in thousands):~~

One- to
four-
family

Home
equity

Commercial
and
multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Unallocated Total
Allowance for loan losses:
Individually evaluated for impairment $ 536 $ 121 $ 24 $ 35 $ 59 $ - $ 65 $ 23 $ - $ 863
Collectively evaluated for impairment 1,006 257 1,120 424 109 132 47 152 712 3,959
Ending balance $ 1,542 $ 378 $ 1,144 $ 459 $ 168 $ 132 $ 112 $ 175 $ 712 $ 4,822
Loans receivable:
Individually evaluated for impairment $ 4,749 $ 832 $ 1,582 $ 83 $ 312 $ - $ 62 $ 616 $ - $ 8,236
Collectively evaluated for impairment 147,637 26,939 179,422 70,832 15,182 23,996 3,870 25,715 - 493,593
Ending balance $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ - $ 501,829

~~The following table summarizes~~tables summarize the activity in the allowance for loan losses for the ~~three months ended September 30, 2017~~periods indicated (in thousands):


	Three Months Ended September 30, 2022
	Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family	$	1,638	$	—	$	—	$	121	$	1,759
Home equity	113		—		—		8		121
Commercial and multifamily	2,312		—		—		37		2,349
Construction and land	1,024		—		—		106		1,130
Manufactured homes	444		—		—		45		489
Floating homes	410		—		—		20		430
Other consumer	331		(6)		3		(3)		325
Commercial business	240		—		—		(7)		233
Unallocated	605		—		—		48		653
Total	$	7,117	$	(6)	$	3	$	375	$	7,489

	Beginning Allowance		Charge-offs			Recoveries		Provision			Ending Allowance
One- to four- family	$	1,302	$	-		$	-	$	(51	)	$	1,251
														Nine Months Ended September 30, 2022
														Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family													One-to-four family	$	1,402	$	—	$	45	$	312	$	1,759
Home equity		431		(89	)		1		8			351	Home equity	93		—		58		(30)		121
Commercial and multifamily		1,153		-			-		32			1,185	Commercial and multifamily	2,340		—		—		9		2,349
Construction and land		352		-			-		7			359	Construction and land	650		—		—		480		1,130
Manufactured homes		178		(7	)		-		9			180	Manufactured homes	475		—		12		2		489
Floating homes		146		-			-		8			154	Floating homes	372		—		—		58		430
Other consumer		98		(1	)		2		(1	)		98	Other consumer	310		(42)		9		48		325
Commercial business		364		-			-		143			507	Commercial business	269		(6)		6		(36)		233
Unallocated		811		-			-		95			906	Unallocated	395		—		—		258		653
Total	$	4,835	$	(97	)	$	3	$	250		$	4,991	Total	$	6,306	$	(48)	$	130	$	1,101	$	7,489

~~The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2017 (in thousands):~~

Beginning
Allowance
Charge-offs Recoveries Provision
Ending
Allowance

One- to four- family $ 1,542 $ - $ - $ (291 ) $ 1,251
Home equity 378 (89 ) 30 32 351
Commercial and multifamily 1,144 (24 ) 1 64 1,185
Construction and land 459 - - (100 ) 359
Manufactured homes 168 (13 ) 3 22 180
Floating homes 132 - - 22 154
Other consumer 112 (8 ) 19 (25 ) 98
Commercial business 175 - - 332 507
Unallocated 712 - - 194 906
Total $ 4,822 $ (134 ) $ 53 $ 250 $ 4,991

~~The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2016 (in thousands):~~

Beginning
Allowance
Charge-offs Recoveries Provision
Ending
Allowance

One- to four- family $ 1,713 $ - $ - $ (55 ) $ 1,658
Home equity 501 (14 ) 10 (73 ) 424
Commercial and multifamily 1,377 - - (17 ) 1,360
Construction and land 388 - 18 (33 ) 373
Manufactured homes 189 - 2 (14 ) 177
Floating homes 132 - - - 132
Other consumer 89 (10 ) 15 (28 ) 66
Commercial business 171 - - 10 181
Unallocated 278 - - 210 488
Total $ 4,838 $ (24 ) $ 45 $ - $ 4,859

~~The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2016 (in thousands):~~

Beginning
Allowance
Charge-offs Recoveries Provision
Ending
Allowance

One- to four- family $ 1,839 $ (72 ) $ - $ (109 ) $ 1,658
Home equity 607 (14 ) - (169 ) 424
Commercial and multifamily 921 - - 439 1,360
Construction and land 382 - 18 (27 ) 373
Manufactured homes 301 - 75 (199 ) 177
Floating homes 111 - - 21 132
Other consumer 77 (31 ) 7 13 66
Commercial business 157 (29 ) 19 34 181
Unallocated 241 - - 247 488
Total $ 4,636 $ (146 ) $ 119 $ 250 $ 4,859


	Three Months Ended September 30, 2021
	Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family	$	1,292	$	—	$	—	$	28	$	1,320
Home equity	111		—		2		(19)		94
Commercial and multifamily	1,987		—		—		(130)		1,857
Construction and land	700		—		—		76		776
Manufactured homes	367		—		1		(65)		303
Floating homes	318		—		—		65		383
Other consumer	201		(8)		—		13		206
Commercial business	693		—		—		(267)		426
Unallocated	488		—		—		474		962
Total	$	6,157	$	(8)	$	3	$	175	$	6,327



	Nine Months Ended September 30, 2021
	Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family	$	1,063	$	(76)	$	—	$	333	$	1,320
Home equity	147		(8)		4		(49)		94
Commercial and multifamily	2,370		—		—		(513)		1,857
Construction and land	578		—		—		198		776
Manufactured homes	529		(2)		3		(227)		303
Floating homes	328		—		—		55		383
Other consumer	288		(27)		6		(61)		206
Commercial business	291		—		2		133		426
Unallocated	406		—		—		556		962
Total	$	6,000	$	(113)	$	15	$	425	$	6,327

Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans and other assets (such as ~~substandard, doubtful~~OREO and repossessed assets), debt and equity securities considered as "substandard," "doubtful" or ~~loss.~~"loss." An asset is considered ~~substandard~~"substandard" if it is inadequately protected by the current net worth and ~~payment~~paying capacity of the ~~borrower~~obligor or of ~~any~~the collateral ~~pledged. Substandard~~pledged, if any. "Substandard" assets include those characterized by the ~~distinct possibility~~"distinct possibility" that wethe insured institution will sustain ~~some loss~~"some loss" if the deficiencies are not corrected. Assets classified as ~~doubtful~~"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.~~values, "highly questionable and improbable." Assets classified as ~~loss~~"loss" are those considered ~~uncollectible~~"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 ~~loans~~assets as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address ~~the risk specifically (if the loan is impaired) or we may allow the loss to be addressed in the general allowance (if the loan is not impaired).~~specific impairments. General allowances represent loss ~~reserves~~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 ~~loans.~~assets. When ~~the Company~~an insured institution classifies problem ~~loans~~assets as a loss, ~~we charge-off such~~it is required to charge off those assets in the period in which they are deemed uncollectible. Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss, but possess identified weaknesses, are classified as either watch or special mention assets. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation ~~("FDIC"~~(“FDIC”), the Bank's federal regulator, and, since our conversion to a Washington-chartered commercial bank, the Washington Department of Financial Institutions, ~~("WDFI"),~~ the Bank's state banking regulator, which can order the establishment of additional loss allowances. ~~Pass rated loans~~Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are ~~loans that are not otherwise classified or criticized.~~

required to be designated as special mention.

The following ~~table represents~~tables present the internally assigned grades as of ~~September 30, 2017,~~the dates indicated, by type of loan (in thousands):


																				September 30, 2022
	One- to four- family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total			One-to- four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Grade:																			Grade:
Pass	$	151,786	$	28,321	$	192,817	$	54,872	$	16,711	$	26,699	$	4,975	$	38,396	$	514,577	Pass	$	267,032	$	17,331	$	294,855	$	108,288	$	25,065	$	69,968	$	17,283	$	23,859	$	823,681
Watch		246		-		6,876		-		-		-		-		494		7,616	Watch	285		2		15,559		3,901		143		—		1		127		20,018
Special Mention		138		-		360		-		-		-		-		134		632	Special Mention	—		—		4,099		—		—		—		—		—		4,099
Substandard		4,701		808		1,358		49		153		-		57		134		7,260	Substandard	2,692		309		1,164		791		167		—		281		—		5,404
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-

Total	$	156,871	$	29,129	$	201,411	$	54,921	$	16,864	$	26,699	$	5,032	$	39,158	$	530,085	Total	$	270,009	$	17,642	$	315,677	$	112,980	$	25,375	$	69,968	$	17,565	$	23,986	$	853,202

~~The following table represents the internally assigned grades as of December 31, 2016, by type of loan (in thousands):~~

One- to
four- family

Home
equity

Commercial
and multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Total
Grade:
Pass $ 148,617 $ 26,547 $ 171,678 $ 67,539 $ 15,288 $ 23,996 $ 3,821 $ 25,625 $ 483,111
Watch 998 536 8,105 3,376 78 - 49 326 13,468
Special Mention 139 - - - 30 - - - 169
Substandard 2,632 688 1,221 - 98 - 62 380 5,081
Doubtful - - - - - - - - -
Loss - - - - - - - - -
Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829


	December 31, 2021
	One-to- four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Grade:
Pass	$	203,883	$	12,904	$	233,300	$	56,310	$	21,137	$	58,171	$	16,728	$	23,713	$	626,146
Watch	363		23		32,770		4,347		305		—		—		3,561		41,369
Special Mention	—		—		4,553		830		—		604		—		211		6,198
Substandard	3,414		323		7,552		1,618		194		493		20		541		14,155


Total	$	207,660	$	13,250	$	278,175	$	63,105	$	21,636	$	59,268	$	16,748	$	28,026	$	687,868

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are ~~automatically~~ placed on nonaccrual once the loan is 90 days past due or sooner if, in ~~management's~~management’s opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory ~~authorities.~~

provisions.

The following table presents the recorded investment in nonaccrual loans as of ~~September 30, 2017, and December 31, 2016,~~the dates indicated, by type of loan (in thousands):

September 30,
2017

December 31,
2016

One- to four- family $ 878 $ 2,169
Home equity 700 536
Commercial and multifamily 206 218
Construction and land 49 -
Manufactured homes 133 72
Commercial business 134 149
Total $ 2,100 $ 3,144


	September 30, 2022		December 31, 2021
One-to-four family	$	1,960	$	2,207
Home equity	133		140
Commercial and multifamily	—		2,380
Construction and land	29		33
Manufactured homes	99		122
Floating homes	—		493
Other consumer	265		—
Commercial business	—		176
Total	$	2,486	$	5,552

The following ~~table represents~~tables present the aging of the recorded investment in past due loans as of ~~September 30, 2017,~~the dates indicated, by type of loan (in thousands):

	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		90 Days and Greater Past Due and Still Accruing		Total Past Due		Current		Total Loans
One- to four- family	$	64	$	1,723	$	705	$	-	$	2,492	$	154,379	$	156,871
																September 30, 2022
																30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		> 90 Days and Accruing		Total Past Due		Current		Total Loans
One-to-four family															One-to-four family	$	—	$	94	$	1,846	$	—	$	1,940	$	268,069	$	270,009
Home equity		346		28		607		-		981		28,148		29,129	Home equity	111		—		133		—		244		17,398		17,642
Commercial and multifamily		206		-		-		-		206		201,205		201,411	Commercial and multifamily	—		—		—		—		—		315,677		315,677
Construction and land		43		49		49		-		141		54,780		54,921	Construction and land	—		—		—		—		—		112,980		112,980
Manufactured homes		23		103		107		-		233		16,631		16,864	Manufactured homes	—		—		135		—		135		25,240		25,375
Floating homes		-		-		-		-		-		26,699		26,699	Floating homes	—		—		—		—		—		69,968		69,968
Other consumer		49		6		-		-		55		4,977		5,032	Other consumer	4		2		—		—		6		17,559		17,565
Commercial business		409		47		-		-		456		38,702		39,158	Commercial business	—		—		—		—		—		23,986		23,986
Total	$	1,140	$	1,956	$	1,468	$	-	$	4,564	$	525,521	$	530,085	Total	$	115	$	96	$	2,114	$	—	$	2,325	$	850,877	$	853,202

~~The following table represents the aging of the recorded investment in past due loans as of December 31, 2016, by type of loan (in thousands):~~

30-59 Days
Past Due

60-89 Days
Past Due

90 Days
and Greater
Past Due

90 Days and
Greater Past
Due and Still
Accruing

Total Past
Due
Current Total Loans
One- to four- family $ 2,476 $ 161 $ 1,787 $ - $ 4,424 $ 147,962 $ 152,386
Home equity 460 - 494 - 954 26,817 27,771
Commercial and multifamily - - - - - 181,004 181,004
Construction and land 440 - - - 440 70,475 70,915
Manufactured homes 321 28 62 - 411 15,083 15,494
Floating homes - - - - - 23,996 23,996
Other consumer 26 1 - - 27 3,905 3,932
Commercial business 149 - - - 149 26,182 26,331
Total $ 3,872 $ 190 $ 2,343 $ - $ 6,405 $ 495,424 $ 501,829


	December 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		> 90 Days and Accruing		Total Past Due		Current		Total Loans
One-to-four family	$	1,805	$	58	$	87	$	—	$	1,950	$	205,710	$	207,660
Home equity	—		—		140		—		140		13,110		13,250
Commercial and multifamily	—		—		—		—		—		278,175		278,175
Construction and land	837		—		—		—		837		62,268		63,105
Manufactured homes	123		—		59		—		182		21,454		21,636
Floating homes	—		—		244		—		244		59,024		59,268
Other consumer	2		76		—		—		78		16,670		16,748
Commercial business	6		—		176		—		182		27,844		28,026
Total	$	2,773	$	134	$	706	$	—	$	3,613	$	684,255	$	687,868

Nonperforming Loans. Loans are considered nonperforming when they are placed on nonaccrual and/or when they are considered to be nonperforming troubled debt restructurings ("TDRs") and/or when they are 90 days or greater past due and still accruing interest. A TDR is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company has granted the borrower a concession of some kind. Nonperforming TDRs include TDRs that do not have sufficient payment history (typically greater than six months) to be considered performing or TDRs that have become 30 or more days past due.

nonaccrual.

The following ~~table represents~~tables present the credit risk profile of our loan portfolio based on payment activity as of ~~September 30, 2017,~~the dates indicated, by type of loan (in thousands):


																				September 30, 2022
	One- to four- family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total			One-to-four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Performing	$	154,679	$	28,429	$	201,205	$	54,872	$	16,731	$	26,699	$	5,032	$	38,935	$	526,582	Performing	$	268,049	$	17,509	$	315,677	$	112,951	$	25,276	$	69,968	$	17,300	$	23,986	$	850,716
Nonperforming		2,192		700		206		49		133		-		-		223		3,503	Nonperforming	1,960		133		—		29		99		—		265		—		2,486
Total	$	156,871	$	29,129	$	201,411	$	54,921	$	16,864	$	26,699	$	5,032	$	39,158	$	530,085	Total	$	270,009	$	17,642	$	315,677	$	112,980	$	25,375	$	69,968	$	17,565	$	23,986	$	853,202

~~The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 2016, by type of loan (in thousands):~~


	December 31, 2021
	One-to-four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Performing	$	205,453	$	13,110	$	275,795	$	63,072	$	21,514	$	58,775	$	16,748	$	27,850	$	682,316
Nonperforming	2,207		140		2,380		33		122		493		—		176		5,552
Total	$	207,660	$	13,250	$	278,175	$	63,105	$	21,636	$	59,268	$	16,748	$	28,026	$	687,868

One- to
four-
family

Home
equity

Commercial
and
multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Total
Performing $ 150,170 $ 27,218 $ 180,786 $ 70,915 $ 15,374 $ 23,996 $ 3,932 $ 26,089 $ 498,480
Nonperforming 2,216 553 218 - 120 - - 242 3,349
Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829

Impaired Loans. A loan is considered impaired when we determine that we may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, we take into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered on a case by case basis, after taking into consideration the totality of circumstances surrounding the loan and the borrower, including payment history. Impairment is measured on a loan by loan basis for all loans in the portfolio. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses.

Impaired loans at ~~September 30, 2017 and December 31, 2016,~~the dates indicated, by type of loan were as follows (in thousands):


	September 30, 2022
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Total Recorded Investment		Related Allowance
One-to-four family	$	3,637	$	2,713	$	862	$	3,575	$	106
Home equity	203		133		70		203		5
Commercial and multifamily	—		—		—		—		—
Construction and land	63		29		34		63		3
Manufactured homes	193		68		125		193		101
Floating homes	—		—		—		—		—
Other consumer	364		265		100		365		24
Commercial business	—		—		—		—		—
Total	$	4,460	$	3,208	$	1,191	$	4,399	$	239

September 30, 2017
Recorded Investment

Unpaid Principal
Balance

Without
Allowance

With
Allowance

Total
Recorded
Investment

Related
Allowance

One- to four- family $ 6,971 $ 3,403 $ 3,261 $ 6,664 $ 377
Home equity 1,125 487 520 �� 1,007 168
Commercial and multifamily 1,737 1,717 - 1,717 -
Construction and land 99 58 41 99 32
Manufactured homes 331 133 176 309 70
Other consumer 57 - 57 57 57
Commercial business 371 - 357 357 276
Total $ 10,691 $ 5,798 $ 4,412 $ 10,210 $ 980

December 31, 2016
Recorded Investment

Unpaid Principal
Balance

Without
Allowance

With
Allowance

Total
Recorded
Investment

Related
Allowance

One- to four- family $ 5,010 $ 2,454 $ 2,295 $ 4,749 $ 536
Home equity 913 446 386 832 121
Commercial and multifamily 1,582 1,221 361 1,582 24
Construction and land 83 - 83 83 35
Manufactured homes 326 91 221 312 59
Other consumer 62 - 62 62 65
Commercial business 616 143 473 616 23
Total $ 8,592 $ 4,355 $ 3,881 $ 8,236 $ 863


	December 31, 2021
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Total Recorded Investment		Related Allowance
One-to-four family	$	4,177	$	3,109	$	957	$	4,066	$	112
Home equity	215		140		75		215		7
Commercial and multifamily	2,380		2,380		—		2,380		—
Construction and land	68		33		35		68		4
Manufactured homes	221		44		177		221		144
Floating homes	493		493		—		493		—
Other consumer	106		—		106		106		26
Commercial business	176		176		—		176		—
Total	$	7,836	$	6,375	$	1,350	$	7,725	$	293

~~Income~~The following tables present the average recorded investment and interest income recognized on impaired loans for the ~~three and nine months ended September 30, 2017 and December 31, 2016,~~periods indicated, by ~~type of~~ loan ~~were as follows~~types (in thousands):

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016

Average
Recorded
Investment

Interest Income
Recognized

Average
Recorded
Investment

Interest Income
Recognized

One- to four- family $ 6,603 $ 117 $ 5,445 $ 58
Home equity 1,008 10 968 4
Commercial and multifamily 1,732 24 4,365 19
Construction and land 114 (1 ) 86 1
Manufactured homes 306 9 383 6
Other consumer 58 1 24 -
Commercial business 348 5 640 9
Total $ 10,169 $ 165 $ 11,911 $ 97

	Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Three Months Ended September 30,
										2022				2021
One- to four- family	$	5,718	$	269	$	5,533	$	197
										Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
One-to-four family									One-to-four family	$	3,436	$	32	$	3,069	$	60
Home equity		921		30		944		31	Home equity	213		1		321		3
Commercial and multifamily		1,652		72		3,902		152	Commercial and multifamily	1,154		135		—		—
Construction and land		91		2		88		3	Construction and land	64		1		166		11
Manufactured homes		311		19		377		23	Manufactured homes	193		3		225		3
Floating homes									Floating homes	—		—		507		5
Other consumer		60		3		20		2	Other consumer	349		4		109		1
Commercial business		487		16		474		27	Commercial business	—		—		93		1
Total	$	9,240	$	411	$	11,338	$	435	Total	$	5,409	$	176	$	4,490	$	84



	Nine Months Ended September 30,
	2022				2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
One-to-four family	$	3,599	$	76	$	3,322	$	118
Home equity	217		8		305		11
Commercial and multifamily	1,756		186		176		—
Construction and land	66		3		121		12
Manufactured homes	206		12		244		12
Floating homes	123		—		511		12
Other consumer	288		13		111		4
Commercial business	86		—		353		1
Total	$	6,341	$	298	$	5,143	$	170

Forgone interest on nonaccrual loans was ~~$12,000~~$32 thousand and ~~$95,000~~$89 thousand for the three months ended September 30, 2022 and 2021, respectively. Forgone interest on nonaccrual loans was $110 thousand and $138 thousand for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or impaired at September 30, ~~2017 or December 31, 2016.~~2022.

Troubled debt restructurings. Loans classified as TDRs totaled ~~$4.0~~$2.0 million and ~~$3.4~~$2.6 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, and are included in impaired loans. The Company has granted, in its TDRs, a variety of concessions to borrowers in the form of loan modifications. The modifications granted can generally be described in the following categories:

Rate Modification: A modification in which the interest rate is changed.

Term Modification: A modification in which the maturity date, timing of payments or frequency of payments is changed.

Payment Modification: A modification in which the dollar amount of the payment is changed. Interest only modifications in which a loan is converted to interest only payments for a period of time are included in this category.

Combination Modification: Any other type of modification, including the use of multiple categories above.

There was one ~~$1.3 million one- to four- family residential combination~~manufactured home loan totaling $44 thousand modified as a TDR during the ~~nine~~three months ended September 30, ~~2017. The following TDR~~2022 and two loans ~~paid off during the first nine months~~consisting of ~~2017: a $125,000 one- to four- family residential loan, a $14,000~~one manufactured home loan and one ~~$86,000 home equity~~one-to-four family loan, ~~a $27,000 land loan, and a $359,000 commercial/multifamily loan. There were no new~~totaling $153 thousand modified as TDRs during the nine months ended September 30, ~~2016.~~

2022. There were no loans modified as a TDR during the three and nine months ended September 30, 2021. There were four TDRs totaling $788 thousand and two TDRs totaling $484 thousand that were paid off during the nine months ended September 30, 2022 and September 30, 2021, respectively.

There were no post-modification changes for the unpaid principal balance in loans, net of partial charge-offs, that were recorded as a result of the TDRs for the three and nine months ended September 30, ~~2017~~2022 and ~~2016.~~September 30, 2021. There were no ~~TDRs~~loans modified as a TDR for which there was a payment default within the first 12 months of modification during the nine months ended September 30, ~~2017 or 2016.~~

2022 and September 30, 2021.

The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified into TDRs at September 30, 2022.

As of September 30, 2022, there were three one-to-four family loans totaling $1.5 million that was in ~~TDRs. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation~~process of ~~the allowance for loan losses.~~foreclosure.

Note 5 – Fair Value Measurements

The Company determines the fair values of its financial instruments based on the requirements established in ASC 820, Fair Value Measurements (“ASC 820”), which provides a framework for measuring fair value in accordance with U.S. GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The Company’s fair values for financial instruments at September 30, 2022 and December 31, 2021 were determined based on these requirements.

The following methods and assumptions were used to estimate the fair value of other financial instruments:

Cash and cash equivalents - The estimated fair value is equal to the carrying amount.

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

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

Loans held-for-sale - One-to-four family mortgage loans held-for-sale are recorded at the lower of cost or fair value. The fair value of fixed-rate one-to-four family loans is based on whole loan forward prices obtained from government sponsored enterprises. At September 30, 2022 and December 31, 2021, loans held-for-sale were carried at cost, as no impairment was required.

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

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

FHLB stock - The estimated fair value is equal to the par value of the stock.

Non-maturity deposits - The estimated fair value is equal to the carrying amount.

Time deposits - The estimated fair value of time deposits is based on the difference between interest costs paid on the Company’s time deposits and current market rates for time deposits with comparable characteristics.

Borrowings - The fair value of borrowings are estimated using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated notes - The fair value of subordinated notes is estimated using discounted cash flows based on current lending rates for similar long-term debt instruments with similar terms and remaining time to maturity.

A description of the valuation methodologies used for impaired loans and OREO is as follows:

Impaired loans - The fair value of collateral dependent loans is based on the current appraised value of the collateral less estimated costs to sell, or internally developed models utilizing a calculation of expected discounted cash flows which contain management’s assumptions.

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

Off-balance sheet financial instruments - The fair value for the Company’s off-balance sheet loan commitments is estimated based on fees charged to others to enter into similar agreements taking into account the remaining terms of the agreements and credit standing of the Company’s clients. The estimated fair value of these commitments is not significant.

In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. There were no transfers between levels during the three and nine months ended September 30, 2022 and 2021.

The following tables present information about the level in the fair value hierarchy for the ~~Company's~~Company’s financial assets and liabilities, whether or not recognized or recorded at fair value as of ~~September 30, 2017 and December 31, 2016~~the dates indicated (in thousands):


	September 30, 2022				Fair Value Measurements Using:
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
FINANCIAL ASSETS:
Cash and cash equivalents	$	76,064	$	76,064	$	76,064	$	—	$	—
Available-for-sale securities	10,396		10,396		—		10,396		—
Held-to-maturity securities	2,207		1,754		—		1,754		—
Loans held-for-sale	1,908		1,908		—		1,908		—
Loans held-for-portfolio, net	843,958		785,465		—		—		785,465
Mortgage servicing rights	4,787		4,787		—		—		4,787
FHLB stock	2,897		2,897		—		2,897		—
FINANCIAL LIABILITIES:
Non-maturity deposits	660,836		660,836		—		660,836		—
Time deposits	154,561		154,522		—		154,522		—

Borrowings	44,500		44,500		—		44,500		—
Subordinated notes	11,665		11,665		—		11,665		—


	September 30, 2017				Fair Value Measurements Using:							December 31, 2021				Fair Value Measurements Using:
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3			Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
FINANCIAL ASSETS:											FINANCIAL ASSETS:
Cash and cash equivalents	$	60,651	$	60,651	$	60,651	$	-	$	-	Cash and cash equivalents	$	183,590	$	183,590	$	183,590	$	—	$	—
Available-for-sale securities		5,688		5,688		-		5,688		-	Available-for-sale securities	8,419		8,419		—		8,419		—

Loans held-for-sale		296		296		-		296		-	Loans held-for-sale	3,094		3,094		—		3,094		—
Loans receivable, net		523,217		522,167		-		-		522,167
Accrued interest receivable		1,943		1,943		1,943		-		-
Loans held-for-portfolio, net											Loans held-for-portfolio, net	680,092		675,154		—		—		675,154
Mortgage servicing rights		3,370		3,370		-		-		3,370	Mortgage servicing rights	4,273		4,273		—		—		4,273
FHLB stock		1,825		1,825		-		-		1,825	FHLB stock	1,046		1,046		—		1,046		—
FINANCIAL LIABILITIES:											FINANCIAL LIABILITIES:
Non-maturity deposits		361,201		361,201		-		361,201		-	Non-maturity deposits	692,598		692,598		—		692,598		—
Time deposits		163,616		161,434		-		161,434		-	Time deposits	105,722		106,834		—		106,834		—
Borrowings		28,000		28,000		-		28,000		-
Accrued interest payable		68		68		-		68		-

Subordinated notes											Subordinated notes	11,634		11,634		—		11,634		—

December 31, 2016 Fair Value Measurements Using:

Carrying
Value

Estimated
Fair Value
Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Cash and cash equivalents $ 54,582 $ 54,582 $ 54,582 $ - $ -
Available-for-sale securities 6,604 6,604 - 6,257 347
Loans held for sale 871 871 - 871 -
Loans receivable, net 495,179 494,289 - - 494,289
Accrued interest receivable 1,816 1,816 1,816 - -
Mortgage servicing rights 3,561 3,561 - - 3,561
FHLB Stock 2,840 2,840 - - 2,840
FINANCIAL LIABILITIES:
Non-maturity deposits 307,989 307,989 - 307,989 -
Time deposits 159,742 159,333 - 159,333 -
Borrowings 54,792 54,805 - 54,805 -
Accrued interest payable 73 73 - 73 -

The following tables present the balance of assets measured at fair value on a recurring basis as of ~~September 30, 2017 and December 31, 2016~~the dates indicated (in thousands):

Fair Value at September 30, 2017
Description
Total Level 1 Level 2 Level 3
Municipal bonds $ 3,417 $ - $ 3,417 $ -
Agency mortgage-backed securities 2,271 - 2,271 -
Mortgage servicing rights 3,370 - - 3,370

Fair Value at December 31, 2016
Description
Total Level 1 Level 2 Level 3
Municipal bonds $ 3,353 $ - $ 3,353 $ -
Agency mortgage-backed securities 2,904 - 2,904 -
Non-agency mortgage-backed securities 347 - - 347
Mortgage servicing rights 3,561 - - 3,561


	Fair Value at September 30, 2022
Description	Total		Level 1		Level 2		Level 3
Treasury bills	$	1,580	$	—	$	1,580	$	—
Municipal bonds	5,487		—		5,487		—
Agency mortgage-backed securities	3,329		—		3,329		—

Mortgage servicing rights	4,787		—		—		4,787

~~For the three and nine months ended September 30, 2017 and 2016 there were no transfers between Level 1 and Level 2 nor between Level 2 and Level 3.~~


	Fair Value at December 31, 2021
Description	Total		Level 1		Level 2		Level 3
Municipal bonds	$	6,066	$	—	$	6,066	$	—
Agency mortgage-backed securities	2,353		—		2,353		—

Mortgage servicing rights	4,273		—		—		4,273

The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the ~~Company's~~Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis ~~at September 30, 2017 and December 31, 2016:~~as of the dates indicated:

September 30, ~~2017~~2022

Financial Instrument

Valuation Technique

Unobservable Input(s)

Range

(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

~~109-412% (164%~~117%-483% (130%)

Discount rate

~~13-15% (13%~~10.5%-14.5% (12.5%)

December 31, ~~2016~~2021

Financial Instrument

Valuation Technique

Unobservable Input(s)

Range

(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

~~104-396% (152%~~204%-344% (205%)

Discount rate

~~13%-15% (13%)~~

~~Non-agency mortgage-backed securities~~

~~Discounted cash flow~~

~~Discount rate~~

~~7%-9% (8%~~10.5%-14.5% (12.5%)

Generally, any significant increases in the constant prepayment rate and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustment (and decrease in the fair value measurement). Conversely, a decrease in the constant prepayment rate and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement). An increase in the ~~weighted average~~weighted-average life ~~assumptions~~ will result in a decrease in the constant prepayment rate and conversely, a decrease in the weighted-average life will result in an increase of the constant prepayment rate.

~~The following table provides a reconciliation of~~There were no assets ~~and~~or liabilities (excluding mortgage servicing rights) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, ~~2017~~2022 and ~~2016 (in thousands):~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Beginning balance, at fair value $ 318 $ 379 $ 347 $ 428
OTTI impairment losses - - - -
Sales, redemptions and principal payments (318 ) (29 ) (347 ) (90 )
Change in unrealized loss - 5 - 17
Ending balance, at fair value $ - $ 355 $ - $ 355

2021.

Mortgage servicing rights are measured at fair value using a significant unobservable input (Level 3) on a recurring basis - additional information is included in ~~Note 6 –~~ “Note 6—Mortgage Servicing Rights.

”

The following tables present the balance of assets measured at fair value on a nonrecurring basis at the dates indicated (in thousands):


	Fair Value at September 30, 2022
	Total		Level 1		Level 2		Level 3
OREO and repossessed assets	$	659	$	—	$	—	$	659
Impaired loans	4,399		—		—		4,399

Fair Value at September 30, 2017
Total Level 1 Level 2 Level 3
OREO and repossessed assets $ 1,032 $ - $ - $ 1,032
Impaired loans 10,210 - - 10,210

Fair Value at December 31, 2016
Total Level 1 Level 2 Level 3
OREO and repossessed assets $ 1,172 $ - $ - $ 1,172
Impaired loans 8,236 - - 8,236


	Fair Value at December 31, 2021
	Total		Level 1		Level 2		Level 3
OREO and repossessed assets	$	659	$	—	$	—	$	659
Impaired loans	7,725		—		—		7,725

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both September 30, ~~2017 or~~2022 and December 31, ~~2016.~~2021.

The following tables provide a description of the valuation technique, observable input, and qualitative information about the unobservable inputs for the ~~Company's~~Company’s assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at ~~September 30, 2017 and December 31, 2016:~~

the dates indicated:

September 30, ~~2017~~2022

Financial
Instrument

Valuation Technique(s)

Unobservable Input(s)

Range (Weighted Average)

OREO

Third Party Appraisals

No discounts

N/A

~~Financial~~

~~Instrument~~Impaired loans(1)

~~Valuation Technique(s)~~Discounted Cash Flow

~~Unobservable Input(s)~~Discount Rate

~~Range (Weighted Average)~~

~~OREO~~

~~Market approach~~

~~Adjustment for differences~~

~~between comparable sales~~

~~0-0% (0%~~0-12.75% (5%)

Impaired loans

~~Market approach~~

~~Adjustment for differences~~

~~between comparable sales~~(2)

Third Party Appraisals

~~0-100% (10%)~~

No discounts

N/A

Note 6 – Mortgage Servicing Rights

Due to changes in model inputs or assumptions and other(1)

(1) Represents changes due to collection/realization of expected cash flows and curtailments.

The key economic assumptions used in determining the fair value of mortgage servicing rights at the dates indicated are as follows:


	September 30, 2022		December 31, 2021
Prepayment speed (Public Securities Association “PSA” model)	130	%	205	%
Weighted-average life	7.6 years		5.8 years
Discount rate	12.5	%	12.5	%

mortgage servicing income on the Condensed Consolidated Statements of Income ~~which were $18,000~~ and ~~$399,000~~totaled $306 thousand and $939 thousand for the three and nine months ended September 30, ~~2017, respectively,~~2022 and ~~$239,000~~$328 thousand and ~~$462,000~~$961 thousand for the three and nine months ended September 30, ~~2016,~~2021, respectively.

The gross amount of contractually specified servicing, late and ancillary fees earned and recorded in mortgage servicing income were $230,000 and $868,000 for the three and nine months ended September 30, 2017, respectively, and $223,000 and $636,000 for the three and nine months ended September 30, 2016, respectively.

In the normal course of operations, the Company engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage ~~customers'~~clients’ requests for funding and take the form of loan commitments and lines of credit.

Note 8 – Borrowings, ~~and~~ FHLB Stock

and Subordinated Notes

The Company ~~utilizes~~has a loan agreement with the FHLB of Des Moines. The terms of the agreement call for a blanket pledge of a portion of the ~~Company's~~Company’s mortgage and commercial and multifamily loan portfolio based on the outstanding balance. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the amount available to borrow under this credit facility was ~~$205.6~~$421.8 million and ~~$197.9~~$417.7 million, ~~respectively.~~respectively, subject to eligible pledged collateral. At September 30, ~~2017,~~2022, the credit facility was collateralized as follows: ~~one- to four-~~one-to-four family mortgage loans with an advance equivalent of ~~$104.3~~$190.8 million, commercial and multifamily mortgage loans with an advance equivalent of ~~$108.8~~$47.1 million and home equity loans with an advance equivalent of ~~$15.7 million.~~$516 thousand. At December 31, ~~2016,~~2021, the credit facility was collateralized as follows: ~~one- to four-~~one-to-four family mortgage loans with an advance equivalent of ~~$107.2~~$59.7 million, commercial and multifamily mortgage loans with an advance equivalent of ~~$94.4~~$52.9 million and home equity loans with an advance equivalent of ~~$15.9 million.~~$482 thousand. The Company had $44.5 million outstanding borrowings under this arrangement ~~of $28.0 million and $54.8 million~~ at September 30, ~~2017~~2022 and no borrowings as of December 31, ~~2016, respectively.~~ 2021.

Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of ~~$16.0~~$13.0 million and ~~$21.0~~$11.5 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, to secure public deposits. The remaining amount available to borrow as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, was ~~$161.6~~$180.9 million and ~~$122.2~~$101.5 million, respectively.

As a member of the FHLB, ~~system,~~ the ~~Bank~~Company is required to maintain a minimum level of investment in FHLB of Des Moines stock based on specific percentages of its outstanding FHLB advances. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the Company had an investment of ~~$1.8~~$2.9 million and ~~$2.8~~$1.0 million, respectively in FHLB of Des Moines stock.

The Company ~~participates in~~has a borrowing agreement with the Federal Reserve Bank ~~Borrower-in-Custody program, which gives the Company access to the discount window.~~of San Francisco. The terms of the ~~program~~agreement call for a blanket pledge of ~~specific assets. The Company pledges~~a portion of the Company’s consumer and commercial business loans based on the outstanding balance. At September 30, 2022 and ~~consumer loans as collateral for~~December 31, 2021, the amount available to borrow under this ~~line of credit.~~credit facility was $21.2 million and $22.4 million, respectively, subject to eligible pledged collateral. The Company had ~~unused borrowing capacity of $34.8 million and $42.0 million and~~ no outstanding borrowings under this ~~program~~arrangement at September 30, ~~2017~~2022 and December 31, ~~2016, respectively.~~2021.

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards. Unvested share-based awards ~~contain~~containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and ~~shall be~~are included in the computation of earnings per ~~share pursuant to the two-class method described in ASC 260-10-45-60B.~~share. Diluted earnings per common share ~~reflects~~reflect the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock or resulted in the issuance of common stock that then shared in the ~~Company's~~Company’s earnings. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested restricted stock awards. The dilutive effect of the unexercised stock options and unvested restricted stock awards is calculated under the treasury stock method utilizing the average market value of the Company's stock for the period.

Effect of potentially dilutive common shares(1)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	2,546	$	2,592	$	5,881	$	7,294
Weighted-average number of shares outstanding, basic	2,563		2,587		2,583		2,582
Effect of potentially dilutive common shares	35		46		35		43
Weighted-average number of shares outstanding, diluted	2,598		2,633		2,618		2,625
Earnings per share, basic(1)(2)	$	0.99	$	1.00	$	2.26	$	2.81
Earnings per share, diluted(1)(2)	$	0.97	$	0.98	$	2.23	$	2.76

(1) ~~Represents~~The basic and diluted earnings per share amounts include the ~~effect~~impact of income allocated to participating securities of $17 thousand and $41 thousand for the ~~assumed exercise of stock options~~three and ~~vesting of non-participating restricted shares, based on~~nine months ended September 30, 2022, and $17 thousand and $50 thousand for the ~~treasury stock method.~~ three and nine months ended September 30, 2021, respectively.

(2)The difference between the basic and diluted earnings per share amounts for the three and nine months ended September 30, 2022 and 2021 under the Treasury Stock Method and the Two-Class Method, as prescribed in FASB ASC 260-10, Earnings Per Share, is immaterial.

There were no2,612 anti-dilutive securities at ~~either~~ September 30, ~~2017 or~~2022 and zero anti-dilutive securities at September 30, ~~2016.~~2021.

Note 10 – Stock-based Compensation

The following is a summary of the ~~Company's~~Company’s stock option award activity during the three months ended September 30, 2022 (dollars in thousands, except per share amounts):


	Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at July 1, 2022	99,219	$	26.94	5.21	$	1,186
Granted	—	—
Exercised	(5,880)	18.72
Forfeited	(20)	33.50
Expired	(124)	36.82

Outstanding at September 30, 2022	93,195	27.45		4.84	1,248
Exercisable	71,749	24.32		3.77	1,169
Expected to vest, assuming a 0% forfeiture rate over the vesting term	93,195	$	27.45	4.84	$	1,248

The following is a summary of the Company’s stock option award activity during the nine months ended September 30, ~~2017:~~

2022 (dollars in thousands, except per share amounts):


	Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at January 1, 2022	91,316	$	24.59	4.77	$	1,773
Granted	12,800	42.85
Exercised	(9,751)	19.99
Forfeited	(918)	34.92
Expired	(252)	35.13
Outstanding at September 30, 2022	93,195	27.45		4.84	1,248
Exercisable	71,749	24.32		3.77	1,169
Expected to vest, assuming a 0% forfeiture rate over the vesting term	93,195	$	27.45	4.84	$	1,248

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. The fair value of options granted for the nine months ended September 30, ~~2017 was~~2022 and 2021 were determined using the following weighted-average assumptions as of the grant date.


	Nine Months Ended September 30,
		2022			2021
Annual dividend yield		1.59		%	1.60		%
Expected volatility		26.48		%	21.67		%
Risk-free interest rate		1.64		%	0.60		%
Expected term		6.00 years			6.50 years
Weighted-average grant date fair value per option granted		$	9.95		$	5.64

~~The fair value of~~There were zero and 12,800 options granted ~~for~~during the three and nine months ended September 30, ~~2016 was determined using~~2022, and zero and 12,250 options granted during the ~~following weighted-average assumptions as of the grant date.~~

The following is a summary of the ~~Company's~~Company’s non-vested restricted stock award activity during the three months ended September 30, 2022:


	Shares	Weighted-Average Grant-Date Fair Value Per Share		Aggregate Intrinsic Value Per Share
Non-Vested at July 1, 2022	17,944	$	37.62
Granted	—	—
Vested	—	—
Forfeited	(20)	33.50
Non-Vested at September 30, 2022	17,924	37.62		40.52
Expected to vest assuming a 0% forfeiture rate over the vesting term	17,924	$	37.62	$	40.52

The following is a summary of the Company’s non-vested restricted stock award activity during the nine months ended September 30, ~~2017:~~2022:


	Shares	Weighted-Average Grant-Date Fair Value Per Share		Aggregate Intrinsic Value Per Share
Non-Vested at January 1, 2022	17,586	$	34.02
Granted	9,700	42.85
Vested	(8,432)	36.34
Forfeited	(930)	35.58
Non-Vested at September 30, 2022	17,924	37.62		40.52
Expected to vest assuming a 0% forfeiture rate over the vesting term	17,924	$	37.62	$	40.52

As of September 30, ~~2017,~~2022, there was ~~$107,000~~$477 thousand of unrecognized compensation cost related to non-vested restricted stock granted under the Plans. The cost is expected to be recognized over the weighted-average vesting period of ~~0.53~~2.5 years. The total fair value of shares vested for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 was ~~$430,000~~$306 thousand and ~~$272,000,~~$264 thousand, respectively.

In January 2008, the ESOP borrowed $1.2 million from the Company to purchase common stock of the ~~Company.~~Company which was paid in full in 2017. In August 2012, in conjunction with the ~~Company's~~Company’s conversion to a full stock company from the mutual holding company structure, the ESOP borrowed an additional $1.1 million from the Company to purchase common stock of the Company. ~~Both loans are~~The loan was being repaid principally by the Bank through contributions to the ESOP over a period of ten years. The interest rate on the ~~loans is~~loan was fixed at ~~4.00% and~~ 2.25%, per ~~annum, respectively.~~annum. As of September 30, ~~2017, the remaining balances of~~2022, the ESOP ~~loans were $136,000 and $590,000, respectively.~~

loan was repaid in full.

Neither the loan ~~balances~~balance nor the related interest expense ~~are~~was reflected on the condensed consolidated financial statements.

We have operating leases for branch locations, a loan production office, our corporate office and in the past, for certain equipment. The lease term for our leases begins on the date we become legally obligated for the rent payments or we take possession of the building, whichever is earlier. Generally, our real estate leases have initial terms of three to ten years and typically include one renewal option. Our leases have remaining lease terms of under one year to seven years. The operating leases generally contain renewal options and require us to pay property taxes and operating expenses for the properties.

The following table presents the lease right-of-use assets and lease liabilities recorded on the condensed consolidated balance sheet at the dates indicated (in thousands):


	September 30, 2022		December 31, 2021
Operating lease right-of-use assets	$	5,319	$	5,811
Operating lease liabilities	$	5,749	$	6,242

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

The following table presents the maturity of lease liabilities at the date indicated (in thousands):


	September 30, 2022
Remainder of 2022	$	265
2023	1,054
2024	1,035
2025	896
2026	862
Thereafter	2,150
Total lease payments	6,262
Less: Present value discount	513
Present value of lease liabilities	$	5,749

Certain matters discussed in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words ~~"believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook"~~“believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as ~~"may," "will," "should," "would"~~“may,” “will,” “should,” “would” and ~~"could."~~“could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to:



~~our ability to implement our business strategies;~~



~~increased competitive pressures among financial services companies;~~

We wish to advise 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.

Sound Financial Bancorp, a Maryland corporation, is a bank holding company for its wholly owned subsidiary, Sound Community Bank. Substantially all of Sound Financial ~~Bancorp's~~Bancorp’s business is conducted through Sound Community Bank, a Washington state-chartered commercial bank. As a Washington commercial bank, the ~~Bank's~~Bank’s regulators are the ~~WDFI~~Washington Department of Financial Institutions and the ~~FDIC.~~Federal Deposit Insurance Corporation (the “FDIC”). The Federal Reserve is the primary federal regulator for Sound Financial Bancorp.

We also sell insurance products and services for clients through Sound Community Insurance Agency, Inc., a wholly owned subsidiary of the Bank.

Sound Community ~~Bank's~~Bank’s deposits are insured up to applicable limits by the FDIC. At September 30, ~~2017,~~2022, Sound Financial Bancorp, on a consolidated basis, had ~~total consolidated~~ assets of ~~$622.5~~$982.2 million, net loans held-for-portfolio of ~~$523.2~~$844.0 million, deposits of ~~$524.8~~$815.4 million and ~~stockholders'~~stockholders’ equity of ~~$63.3~~$95.0 million. The shares of Sound Financial Bancorp are traded on ~~The~~ NASDAQ Capital Market under the symbol ~~"SFBC."~~“SFBC.” Our executive offices are located at 2400 3rd3rd Avenue, Suite 150, Seattle, Washington, 98121.

Our principal business consists of attracting retail and commercial deposits from the general public and investing those funds ~~along with borrowed funds,~~ in loans secured by first and second mortgages on ~~one- to four-~~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. As part of our business, we focus on residential mortgage loan originations, ~~the majority~~a significant portion of which we sell to Fannie Mae and ~~a portion~~other correspondents and the remainder of which we retain for our loan portfolio consistent with our asset/liability objectives. We sell loans which conform to the underwriting standards of Fannie Mae ~~("conforming"~~(“conforming”) in which we retain the servicing of the loan in order to maintain the direct customer relationship and to generate noninterest income. Residential loans which do not conform to the underwriting standards of Fannie Mae ~~("non-conforming"~~(“non-conforming”), are ~~either~~ held in our loan ~~portfolio or sold with servicing released.~~portfolio. 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.

Certain of our accounting policies ~~are important to an understanding of our financial condition, since they~~ require management to make difficult, complex or subjective judgments, which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses, accounting for other-than-temporary impairment of securities, accounting for mortgage servicing rights, accounting for other

real estate owned and accounting for deferred income taxes. Our methodologies for analyzing the allowance for loan losses, other-than-temporary impairment, mortgage servicing rights, other real estate owned and deferred tax asset accounts are described in our 2016 Form 10-K. There have been no ~~significant~~material changes in the ~~Company's application of~~Company’s critical accounting policies ~~since December 31, 2016.~~and estimates as previously disclosed in the Company’s 2021 Form 10-K

Cash and Securities. Cash and cash equivalents ~~was due to a $57.1~~decreased $107.5 million, or ~~12.2%~~58.6%, ~~increase in deposits, which also funded the loan growth and a $26.8 million, or 48.9%, decrease in borrowings~~ to ~~$28.0~~$76.1 million at September 30, ~~2017~~2022 from ~~$54.8~~$183.6 million at December 31, ~~2016.~~

2021, driven by increases across all loan classes, excluding commercial business loans. The increases primarily resulted from focused marketing campaigns, increased utilization of digital marketing tools and the addition of experienced lending staff during 2021. These increases were partially offset by the decrease in commercial business loans resulting from forgiveness by the U.S. Small Business Administration (“SBA”) of loans originated under the Paycheck Protection Program (“PPP”).

The following table reflects the changes in the loan mix of our loan portfolio at September 30, ~~2017,~~2022, as compared to December 31, ~~2016~~2021 (dollars in thousands):

The increase in one-to-four family loans was driven primarily by the origination of $57.8 million in jumbo loans during 2022 and the origination of $33.4 million of conforming and non-conforming conventional loans in our ~~loan portfolio was primarily a result of positive economic conditions which contributed to strong demand for credit.~~portfolio. The ~~largest dollar increases~~increase in ~~the loan portfolio were in the~~ commercial and multifamily loans ~~which increased $20.4~~during the period was primarily due to the origination of $45.7 million ~~or 11.3%, to $201.4~~of multifamily loans and $30.2 million ~~and~~of commercial ~~business loans which increased $12.8 million, or 48.7%, to $39.2 million. Partially offsetting these increases was a decrease~~non-owner occupied loans. The increase in construction and land loans ~~which decreased $16.0 million, or 22.6%,~~during the period was primarily due to ~~$54.9 million.~~the origination and advances of new commercial construction loans. These increases were partially offset by payoffs and paydowns during the period. The decrease in our commercial business loan portfolio was primarily due to SBA forgiveness of PPP loans. At September 30, ~~2017,~~2022, our loan portfolio, net of deferred loan fees, remained well-diversified. Commercial and multifamily real estate loans accounted for ~~38.1%~~37.0% of ~~the portfolio, one- to four-~~total loans, one-to-four family loans, including home equity loans accounted for ~~35.1%~~33.7% of ~~the portfolio~~total loans, commercial business loans accounted for 2.8% of total loans, and ~~home equity,~~consumer loans, consisting of manufactured ~~and~~homes, floating homes, and other consumer loans accounted for ~~9.1%~~13.4% of ~~the portfolio~~total loans at September 30, ~~2017.~~2022. Construction and land loans accounted for ~~10.3% of the portfolio and commercial business loans accounted for the remaining 7.4%~~13.2% of total loans at September 30, ~~2017.~~2022.

Loans held-for-sale ~~decreased $575,000, or 66.0%, to $296,000~~totaled $1.9 million at September 30, ~~2017 from $871,000~~2022, compared to $3.1 million at December 31, ~~2016.~~2021. The decrease was primarily due to a decline in ~~loans held-for-sale~~mortgage originations reflecting reduced refinance activity.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Balance at beginning of period	$	7,117	$	6,157	$	6,306	$	6,000
Charge-offs	(6)		(8)		(48)		(113)
Recoveries	3		3		130		15
Net (charge-offs) recoveries	(3)		(5)		82		(98)
Provision for loan losses during the period	375		175		1,101		425
Balance at end of period	$	7,489	$	6,327	$	7,489	$	6,327

Our allowance for loan losses increased $1.2 million, or 18.8%, to $7.5 million at September 30, 2022, from $6.3 million at December 31, 2021.

Specific loan loss reserves decreased to $239 thousand at September 30, 2022, compared to $293 thousand at December 31, 2021, while general loan loss reserves increased to $6.6 million at September 30, 2022, compared to $5.6 million at December 31, 2021, and the unallocated reserve increased to $653 thousand at September 30, 2022, compared to $395 thousand at December 31, 2021. The increase in general loss reserves and the unallocated reserve was primarily a result of the ~~robust local economy putting pressure on housing prices~~increase in the loan portfolio at September 30, 2022. Net charge-offs for the three months ended September 30, 2022 totaled $3 thousand and ~~home loans available for sale, which when combined with increasing interest rates, reduced refinancing activity. Originations of loans held-for-sale decreased to $34.5 million~~net recoveries totaled $82 thousand for the nine months ended September 30, ~~2017 from $57.8 million during~~2022, compared to net charge-offs of $5 thousand and $98 thousand for the ~~same period last year.~~

The following tables show certain credit ratios at and for the periods indicated and each component of the ratio's calculations.


	September 30, 2022		December 31, 2021
Allowance for loan losses as a percentage of total loans outstanding at period end	0.88	%	0.92	%
Allowance for loan losses	7,489		6,306
Total loans outstanding	853,202		687,868

Non-accrual loans as a percentage of total loans outstanding at period end	0.29	%	0.81	%
Total nonaccrual loans	2,486		5,552
Total loans outstanding	853,202		687,868

Allowance for loan losses as a percentage of non-accrual loans at period end	301.24	%	113.58	%
Allowance for loan losses	7,489		6,306
Total nonaccrual loans	2,486		5,552


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	($ in thousands)
Net recoveries (charge-offs) during period to average loans outstanding:
One-to-four family:	—	%	—	%	0.03	%	(0.07)	%
Net recoveries (charge-offs)	—		—		45		(76)
Average loans outstanding	260,712		178,802		234,914		149,004

Home equity:	—	%	0.05	%	0.51	%	(0.04)	%
Net recoveries (charge-offs)	—		2		58		(4)
Average loans outstanding	17,013		14,604		15,223		14,508

Commercial and multifamily real estate:	—	%	—	%	—	%	—	%
Net (charge-offs) recoveries	—		—		—		—
Average loans outstanding	313,616		247,460		294,055		250,648

Construction and land:	—	%	—	%	—	%	—	%
Net (charge-offs) recoveries	—		—		—		—
Average loans outstanding	107,824		79,753		84,163		69,782

Manufactured homes:	—	%	0.02	%	0.07	%	0.01	%
Net recoveries	—		1		12		1
Average loans outstanding	24,299		21,145		22,919		20,928

Floating homes:	—	%	—	%	—	%	—	%
Net (charge-offs) recoveries	—		—		—		—
Average loans outstanding	68,610		48,257		63,636		42,869

Other consumer:	(0.07)	%	(0.20)	%	(0.25)	%	(0.19)	%
Net (charge-offs)	(3)		(8)		(33)		(21)
Average loans outstanding	17,930		15,548		17,756		15,158

Commercial business:	—	%	—	%	—	%	—	%
Net recoveries	—		—		—		2
Average loans outstanding	24,537		43,039		24,717		66,903

Total loans:	—	%	—	%	0.01	%	(0.02)	%
Net (charge-offs) recoveries	(3)		(5)		82		(98)
Average loans outstanding	834,539		648,609		757,383		629,800

Nonperforming Assets.At September 30, 2022, nonperforming assets, which are comprised of nonaccrual loans including nonperforming troubled debt restructurings (“TDRs”), and other real estate owned (“OREO”), totaled $3.1 million, or 0.32% of total assets, compared to $6.2 million, or 0.68% of total assets at December 31, 2021.


	Nonperforming Assets
	September 30, 2022		December 31, 2021		Amount Change		Percent Change
Nonaccrual loans	$	2,378	$	5,130	$	(2,752)	(53.6)	%
Nonperforming TDRs	108		422		(314)		(74.4)
Total nonperforming loans	2,486		5,552		(3,066)		(55.2)
OREO and repossessed assets	659		659		—		—
Total nonperforming assets	$	3,145	$	6,211	$	(3,066)	(49.4)	%

Nonperforming loans, which are comprised of nonaccrual loans and nonperforming TDRs, decreased $3.1 million, or 55.2%, to $2.5 million at September 30, 2022 from $5.6 million at December 31, 2021. The decrease in nonperforming loans primarily was due to the payoff of a $2.3 million nonperforming multifamily loan during the three months ended September 30, 2022.The percentage of nonperforming loans to total loans was 0.29% at September 30, 2022, compared to 0.81% of total loans at December 31, 2021. Loans classified as TDRs totaled $2.0 million and $2.6 million at September 30, 2022 and December 31, ~~2016, we had $3.4 million~~2021, of which $108 thousand and ~~$3.6 million, respectively, in~~$422 thousand were nonperforming pursuant to their contractual repayment terms at those dates, respectively.

Mortgage Servicing Rights. The fair value of mortgage servicing rights ~~recorded~~was $4.8 million at ~~fair value.~~September 30, 2022, an increase of $514 thousand, or 12.0%, from $4.3 million at December 31, 2021. We record mortgage servicing rights on loans sold ~~to Fannie Mae and other financial institutions~~ with servicing retained and upon acquisition of a servicing portfolio. ~~We stratify our capitalized mortgage servicing rights based on the type, term and interest rates of the underlying loans.~~ Mortgage servicing rights are carried at fair value. If the fair value of our mortgage servicing rights fluctuates significantly, our financial results could be materially impacted.

Noninterest-bearing demand(1)


	September 30, 2022				December 31, 2021
	Amount		Wtd. Avg. Rate		Amount		Wtd. Avg. Rate
Noninterest-bearing demand	$	187,787	—	%	$	187,684	—	%
Interest-bearing demand	284,267		0.16		307,061		0.19
Savings	99,602		0.05		103,401		0.08
Money market	84,692		0.22		91,670		0.21
Time deposits	154,561		0.90		105,722		1.57
Escrow (1)	4,488		—		2,782		—
Total deposits	$	815,397	0.26	%	$	798,320	0.41	%

The aggregate amount of time deposits in denominations of more than $250,000 at September 30, 2022 and December 31, 2021, totaled $37.3 million and $19.1 million, respectively. Deposit amounts in excess of $250,000 are not federally insured.

Borrowings. comprised of FHLB advances ~~decreased $26.8 million, or 48.9%, to $28.0~~increased $44.5 million at September 30, ~~2017, with a weighted-average cost of 1.08%~~2022 from zero at December 31, 2021, primarily to support loan growth.

Subordinated notes, net totaled $11.7 million and $11.6 million at September 30, 2022 and December 31, 2021.

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


	Three Months Ended September 30,
	2022							2021
	Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized		Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized
Interest-earning assets:
Loans receivable	$	833,195	$	10,327		4.92	%	$	652,251	$	8,967		5.45	%
Investments, cash and cash equivalents	88,812		449			2.01		230,905		135			0.23
Total interest-earning assets (1)	922,007		10,776			4.64		883,156		9,102			4.09
Interest-bearing liabilities:
Savings and money market accounts	188,276		63			0.13		179,164		42			0.09
Demand and NOW accounts	290,106		164			0.22		311,273		141			0.18
Certificate accounts	130,541		503			1.53		135,757		434			1.27
Subordinated notes	11,658		168			5.72		11,616		168			5.74
Borrowings	46,462		281			2.40		2		—			—
Total interest-bearing liabilities	667,043		1,179			0.70	%	637,812		785			0.49	%
Net interest income			$	9,597						$	8,317
Net interest rate spread						3.94	%						3.60	%
Net earning assets	$	254,964						$	245,344
Net interest margin						4.13	%						3.74	%
Average interest-earning assets to average interest-bearing liabilities			138.22		%					138.47		%
Noninterest-bearing deposits	$	189,379						$	182,503
Total deposits	798,302		730			0.36	%	808,697		617			0.30	%
Total funding(2)	856,422		1,179			0.55	%	820,315		785			0.38	%

(1)Calculated net of deferred loan fees, loan discounts and loans in process.

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



	Nine Months Ended September 30,
	2022							2021
	Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized		Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized
Interest-earning assets:
Loans receivable	$	757,086	$	27,099		4.79	%	$	636,352	$	25,152		5.28	%
Investments, cash and cash equivalents	136,899		876			0.86		236,495		365			0.21
Total interest-earning assets (1)	893,985		27,975			4.18	%	872,847		25,517			3.91
Interest-bearing liabilities:
Savings and money market accounts	193,219		122			0.08		167,253		144			0.12
Demand and NOW accounts	305,651		412			0.18		281,933		485			0.23
Certificate accounts	109,713		1,037			1.26		174,712		2,178			1.67
Subordinated notes	11,648		504			5.79		11,606		504			5.81
Borrowings	16,463		293			2.38		1		—			—
Total interest-bearing liabilities	636,694		2,368			0.50	%	635,505		3,311			0.70	%
Net interest income			$	25,607						$	22,206
Net interest rate spread						3.69	%						3.21	%
Net earning assets	$	257,291						$	237,342
Net interest margin						3.83	%						3.40	%
Average interest-earning assets to average interest-bearing liabilities			140.41		%					137.35		%
Noninterest-bearing deposits	$	192,240						$	174,486
Total deposits	800,823		1,571			0.26	%	798,384		2,807			0.47	%
Total funding(2)	828,934		2,368			0.38	%	809,991		3,311			0.55	%

(1)Calculated net of deferred loan fees, loan discounts and loans in process.

Rate/Volume Analysis

The following table presents, for the periods indicated, the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between changes related to outstanding balances and changes due to interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate (dollars in thousands).


	Three Months Ended September 30, 2022 vs. 2021						Nine Months Ended September 30, 2022 vs. 2021
	Increase (Decrease) due to				Total Increase (Decrease)		Increase (Decrease) due to				Total Increase (Decrease)
	Volume		Rate				Volume		Rate
Interest-earning assets:
Loans receivable	$	2,243	$	(883)	$	1,360	$	4,322	$	(2,375)	$	1,947
Investments, cash and cash equivalents	(718)		1,032		314		(637)		1,148		511
Total interest-earning assets	1,525		149		1,674		3,685		(1,227)		2,458
Interest-bearing liabilities:
Savings and Money Market accounts	3		18		21		16		(38)		(22)
Demand and NOW accounts	(12)		35		23		32		(105)		(73)
Certificate accounts	(20)		89		69		(614)		(527)		(1,141)
Subordinated notes	1		(1)		—		2		(2)		—
Borrowings	281		—		281		293		—		293
Total interest-bearing liabilities	$	253	$	141	$	394	$	(271)	$	(672)	$	(943)
Change in net interest income					$	1,280					$	3,401

Comparison of Results of Operation for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021

Q3 2022 vs Q3 2021. Net income decreased ~~$232,000~~$46 thousand, or 1.8%, to ~~$1.2~~$2.5 million, or ~~$0.48~~$0.97 per diluted common share, for the three months ended September 30, ~~2017,~~2022, compared to ~~$1.5~~$2.6 million, or ~~$0.57~~$0.98 per diluted common share, for the three months ended September 30, ~~2016.~~2021. The ~~primary reason for~~decrease was primarily the ~~decrease in net income for the three months ended September 30, 2017, was~~result of a ~~decline~~$405 thousand decrease in noninterest income, ~~and increases~~a $718 thousand increase in noninterest expense, and a $200 thousand increase in the provision for loan losses, ~~which was~~ partially offset by ana $1.3 million increase in net interest income.

YTD 2022 vs. YTD 2021. Net income ~~increased $125,000 to $3.9~~decreased $1.4 million, or ~~$1.54~~19.4%, to $5.9 million, or $2.23 per diluted common share, for the nine months ended September 30, ~~2017,~~2022, compared to ~~$3.8~~$7.3 million, or ~~$1.48~~$2.76 per diluted common share, ~~for the same period in 2016. The primary reason for the increase in net income~~ for the nine months ended September 30, ~~2017~~2021. The decrease was anprimarily a result of a $2.3 million decrease in noninterest income, a $2.2 million increase in noninterest expense and a $676 thousand increase in the provision for loan losses, partially offset by a $3.4 million increase in net interest ~~income, which was partially offset by a decrease in noninterest income and an increase in noninterest expense.~~income.

~~Interest Income~~Q3 2022 vs Q3 2021. Interest income increased ~~$918,000,~~$1.7 million, or ~~14.9%~~18.4%, to ~~$7.1~~$10.8 million for the three months ended September 30, ~~2017,~~2022, from ~~$6.1~~$9.1 million for the three months ended September 30, ~~2016.~~2021, primarily due to higher average loan balances and a 177 basis point increase in average yield on investments and interest-bearing cash, partially offset by a 54 basis point decline in the average loan yield and a lower average balance of investments and interest-bearing cash.

Interest income on loans increased $1.4 million, or 15.2%, to $10.3 million for the three months ended September 30, 2022, compared to $9.0 million for the three months ended September 30, 2021. The average balance of total loans was $833.2 million for the three months ended September 30, 2022, compared to $652.3 million for the three months ended September 30, 2021 resulting from increased balances in all loan categories, except for commercial business loans which declined as a result of the SBA’s repayment of PPP loans. The average yield on total loans was 4.92% for three months ended September 30, 2022, compared to 5.45% for the three months ended September 30, 2021. The average yield on total loans decreased primarily due to the decrease in the recognition of net deferred fees due to loan repayments from SBA loan forgiveness of PPP loans during the quarter. Interest income included $24 thousand in fees earned related to PPP loans in the three months ended September 30, 2022, compared to $1.1 million in the same quarter a year ago. For the three months ended September 30, 2022, the average balance of PPP loans was $157 thousand and the average yield on PPP loans was 60.68%, including the recognition of the net deferred fees, with a positive impact on loan yield of one basis point. For the three months ended September 30, 2021, the average balance of PPP loans was $19.0 million and the average yield on PPP loans was 22.37%, including the recognition of

deferred fees, with a positive impact on loan yield of 51 basis points. At September 30, 2022, no PPP deferred loan origination fees remain to be accreted into interest income.

Interest income on the investment portfolio and cash and cash equivalents increased $314 thousand, or 232.6%, to $449 thousand for the three months ended September 30, 2022, compared to $135 thousand for the three months ended September 30, 2021. The increase in the interest income on investment securities and cash and cash equivalents was due to higher average yields, partially offset by lower average balances. The average balance on investments and cash and cash equivalents was $88.8 million for the three months ended September 30, 2022, compared to $230.9 million for the three months ended September 30, 2021. The decrease in average balances was due to lower average cash balances as we redeployed funds into higher interest-earning assets, specifically loans and, to a lesser extent, investment securities. The average yield on investments and cash and cash equivalents increased to 2.01% for the three months ended September 30, 2022, compared to 0.23% for the three months ended September 30, 2021, as a result of the rising interest rate environment and the increase in the average balance of our investment securities portfolio.

YTD 2022 vs. YTD 2021. Interest income increased ~~$1.8~~$2.5 million, or ~~10.0%~~9.6%, to ~~$20.2~~$28.0 million for the nine months ended September 30, ~~2017,~~2022, from ~~$18.3~~$25.5 million for the nine months ended September 30, ~~2016.~~2021. The ~~increases~~increase primarily was due to higher average loan balances and a 65 basis point increase in ~~interest~~the average yield earned on investments and cash balances, partially offset by a 49 basis point decline in the average loan yield and lower average investment and cash balances.

Interest income on loans increased $1.9 million, or 7.7%, to $27.1 million for the ~~three and~~ nine months ended September 30, 2017, primarily reflect the increase in the average balance of interest-earning assets, in particular loans receivable, and a higher weighted-average yield on interest-earning assets in the current three and nine month periods. The average balance of gross loans receivable increased $28.62022, compared to $25.2 million ~~or 5.8%, and $32.7 million, or 7.0%,~~ for the ~~three and~~ nine months ended September 30, ~~2017, as compared to~~2021, driven by higher average total loans, partially offset a 49 basis points decline in the ~~same periods in 2016.~~

Interest income on the investment portfolio and cash and cash equivalents increased $511 thousand, or 140.0%, to $876 thousand for ~~all of~~ the ~~interest-earning assets~~nine months ended September 30, 2022, compared to $365 thousand for the nine months ended September 30, 2021. The increase in the interest income on investment securities and cash and cash equivalents was due to higher average yields, partially offset by lower average balances. The average yield on investments and cash and cash equivalents was 0.86% for the ~~increase in market interest rates over~~nine months ended September 30, 2022, compared to 0.21% for the ~~past year and~~nine months ended September 30, 2021, primarily due to the ~~increase in the average balance~~deployment of ~~loans receivable as a percentage of total average interest-earning assets.~~cash balances into higher-yielding investment balances.

Q3 2022 vs Q3 2021. Interest expense increased ~~$150,000,~~$394 thousand, or ~~20.5%~~50.2%, to ~~$880,000~~$1.2 million for the three months ended September 30, ~~2017,~~2022, from ~~$730,000~~$785 thousand for the three months ended September 30, ~~2016.~~2021. Interest expense on deposits increased ~~$130,000~~$113 thousand, or 18.3%, to $730 thousand for the three months ended September 30, 2022, compared to $617 thousand for the same period a year ago. The increase was primarily the result of a $46.5 million increase in the average balance of borrowings and higher rates paid on all interest-bearing deposits, partially offset by a $17.3 million decrease in the average balance of interest-bearing deposits.Compared to the same period last year, total deposit costs were negatively impacted by the higher rates paid on deposits and favorably impacted by the $6.9 million increase in the average balance of noninterest bearing deposits from $182.5 million at September 30, 2021. The increase in the rate paid on certificate accounts contributed to a six basis point increase in the average cost of total deposits to 0.36% for the quarter ended September 30, ~~2017, compared to~~2022, from 0.30% for the ~~same period in 2016, primarily due to the increase in the average balance~~quarter ended September 30, 2021.

Interest expense on borrowings, comprised solely of ~~deposits during~~FHLB advances, was $281 thousand for the three months ended September 30, ~~2017 to $510.7 million as~~2022, compared to ~~$452.3 million~~none for the ~~same quarter in 2016. Our weighted-average cost of deposits was 0.63% and 0.60% for the~~ three ~~and nine~~ months ended September 30, ~~2017, compared~~2021, reflecting the increased use of lower cost FHLB advances during the third quarter of 2022 to ~~0.59% and 0.60%~~supplement our liquidity needs. Interest expense on subordinated notes was $168 thousand for both the three ~~and nine~~ months ended September 30, 2016, respectively. The total cost of borrowings increased $20,000, or 38.5%, to $72,000, during the quarter ended September 30, 2017 from $52,000 for the quarter ended September 30, 2016 despite a $17.2 million decline in average outstanding borrowings during the period. The increase in interest expense on borrowings was the result of an increase in the overnight borrowing rates reflecting recent increases in the federal funds rate. Average borrowings, consisting of FHLB advances, decreased to $21.6 million for the quarter ended September 30, 2017, compared to $36.8 million during the quarter ended September 30, 2016 due to the repayment of FHLB advances, discussed above.2022 and 2021.

YTD 2022 vs. YTD 2021. Interest expense ~~increased $281,000,~~decreased $943 thousand, or ~~13.0%~~28.5%, to $2.4 million for the nine months ended September 30, ~~2017,~~2022, from ~~$2.2~~$3.3 million for the nine months ended September 30, ~~2016. The increase in interest expense for the first nine months of 2017 compared to the same period in 2016, was~~2021, primarily as a result of a decline in the average balance of certificate accounts and rates paid on all deposits, partially offset by a lower percentage of noninterest bearing deposits to total deposits and an increase in the ~~cost~~average balance of ~~borrowings during the period. Average borrowings outstanding during~~borrowings.

Interest expense on deposits decreased $1.2 million, or 44.0%, to $1.6 million for the nine months ended September 30, ~~2017 were $29.5 million~~2022, compared to ~~$32.8~~$2.8 million ~~outstanding during~~for the same period a year ago. The decrease was primarily the result of a decline in the average cost of deposits reflecting reduced market rates paid on deposits for the majority of 2022. The average cost of total deposits decreased 21 basis points to 0.26% for the nine months ended September 30, ~~2016. The cost of those borrowings was 1.08% during the nine months of 2017 compared to 0.55%~~2022, from 0.47% for the ~~first nine months of 2016. Our overall weighted-average cost of interest-bearing liabilities was 0.77% and 0.73% for the three and~~ nine months ended September 30, ~~2017, respectively, compared to 0.69% and 0.68% for the three and nine months ended September 30, 2016, respectively.~~2021.

Net Interest Income.

Q3 2022 vs Q3 2021. Net interest income increased ~~$768,000,~~$1.3 million, or ~~14.2%~~15.4%, to ~~$6.2~~$9.6 million for the three months ended September 30, ~~2017,~~2022, from ~~$5.4~~$8.3 million for the three months ended September 30, ~~2016.~~2021. Our net interest margin was 4.13% and 3.74% for the three months ended September 30, 2022 and 2021, respectively. The increase in net interest income primarily was the result of higher interest income earned on loans, investments and interest-bearing cash, partially offset by higher interest expense paid on deposits and borrowings. The increase in net interest margin primarily was due to the higher interest income earned on interest-earning assets, driven by the higher average balance of loans and the higher average yield earned on investments and interest-bearing cash, partially offset by lower recognition of net deferred fees related to PPP loan repayments from SBA loan forgiveness, the increase in rates paid on interest-bearing liabilities and the higher average balance of borrowings. During the third quarter of 2022, the average yield earned on PPP loans, including the recognition of the net deferred fees for PPP loans repaid and forgiven by the SBA, resulted in a positive impact to the net interest margin of one basis point, compared to a positive impact of 41 basis points during the quarter ended September 30, 2021.

YTD 2022 vs. YTD 2021. Net interest income increased ~~$1.6~~$3.4 million, or ~~9.7%~~15.3%, to ~~$17.7~~$25.6 million for the nine months ended September 30, ~~2017,~~2022, from ~~$16.2~~$22.2 million for the nine months ended September 30, ~~2016. The increase~~2021. Our net interest margin was 3.83% and 3.40% for ~~both~~ the ~~three and~~ nine months ended September 30, ~~2017~~2022 and 2021, respectively. The increase in net interest income primarily resulted from ~~increased~~the decline in the average rate paid on deposits, higher average interest-earning assets balances, partially offset by a decline in the average loan yield. The increase in net interest ~~income~~margin primarily was due to ~~higher~~ average ~~loan balances and higher~~ yields earned on ~~our loan portfolio. Our~~interest-earning assets increasing coupled with the declines in average ~~yield~~interest rates paid on ~~loans receivable increased during~~interest-bearing liabilities, partially offset by an increase in average borrowings. During the ~~three and~~ nine months ended September 30, ~~2017, as compared~~2022, the average yield earned on PPP loans, including the recognition of the net deferred fees for PPP loans repaid and forgiven by the SBA, resulted in a positive impact to the ~~same periods last year as rates have increased~~net interest margin of one basis points, compared to a ~~year ago. Our net interest margin was 4.40% and 4.34%~~positive impact of 27 basis points for the ~~three and~~ nine months ended September 30, ~~2017, respectively, compared~~2021.

While we believe the estimates and assumptions used in our determination of the adequacy of the allowance for loan losses are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowed economic growth, and any governmental or societal responses to the COVID- 19 pandemic or, among other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations. In addition,

the determination of the amount of our allowance for loan losses is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination.

The decrease in noninterest income during the three months ended September 30, ~~2017~~2022 compared to the same ~~period last year was a result of a $304,000 decline~~quarter in service charges and fee income, a $221,000 decline in mortgage servicing income and a $190,000 decline in the gain on sale of loans. The decrease in service charges and fee income included a decrease in overdraft fees, as well as loan fees. The decrease in loan fees2021 primarily was due to a ~~decline in the amount of loan originations and lower volume as well as the deferral of additional loan fees compared to the same period in 2016. The~~$520 thousand decrease in the mortgage servicing income was due to the larger decline in the mortgage servicing loan balances relative to the improvement in the market value of the servicing rights over the last year. The decline in thenet gain on sale of loans ~~was due to~~as a ~~lower volume~~result of a decline in both the amount of loans originated for sale and gross margins earned on loans sold and a $45 thousand decrease in earnings on cash surrender value of BOLI reflecting recent declines in the ~~secondary market. During~~securities markets, partially offset by a $134 thousand increase in the ~~third~~fair value adjustment on mortgage servicing rights due primarily from recent higher market interest rates causing a reduction in prepayment speeds and a $48 thousand increase in service fees and income primarily resulting from higher commercial loan fees and consumer deposit activity fees . Loans sold during the quarter ~~of 2017, we originated and sold $13.8~~ended September 30, 2022, totaled $2.3 million, ~~of loans~~ compared ~~with $22.4~~to $20.3 million during the ~~third~~ quarter ~~of 2016.~~

Noninterest ~~Expense~~.Expense. Noninterest expense increased ~~$186,000,~~$718 thousand, or ~~3.9%~~11.4%, to ~~$4.9~~$7.0 million during the three months ended September 30, ~~2017 as~~2022, compared to ~~$4.8~~$6.3 million during the three months ended September 30, ~~2016,~~2021, as reflected below (dollars in thousands):


	Three Months Ended September 30,				Amount Change		Percent Change
	2022		2021
Salaries and benefits	$	4,044	$	3,512	$	532	15.1	%
Operations	1,581		1,466		115		7.8
Regulatory assessments	116		91		25		27.5
Occupancy	447		441		6		1.4
Data processing	848		808		40		5.0
Total noninterest expense	$	7,036	$	6,318	$	718	11.4	%

The increase in noninterest expense during the three months ended September 30, ~~2017~~2022 compared to the same ~~period last year~~quarter in 2021 primarily was ~~primarily~~ due to an increase in salaries and benefits occupancy, and OREO related expenses, partially offset by decreases in operations expense and regulatory assessments. Salaries and benefits expense increased $145,000, principally due to higher health insurance-related expenses. Occupancy expense rose in 2017 due to the relocation of the company headquarters to a new location and the costs associated with the acquisition of the University Place branch in July, 2017. Occupancy expenses are anticipated to be higher compared to 2016 due to the lease of the University Place branch and the purchase of the new loan production office in Sequim, WA,$532 thousand as well as amortization expenses resulting from purchases of fixed assets and tenant improvements for these three locations. During the third quarter of 2017, we entered into an agreement to sell one of our OREO properties located in East Islip, NY for $117,000 less than our book value. As a result ~~we recorded a loss~~of upward market pressure on ~~OREO of $117,000 during the third quarter of 2017. Operations expense decreased $179,000~~wages and increased medical expenses and lower deferred compensation as a result of a ~~$65,000 reduction~~decline in mortgage originations, partially offset by a decrease in incentive compensation as a result of ~~expenses~~a lower percentage allocated and changes to the incentive compensation programs and lower commission expense related to ~~losses on serviced loans,~~ a ~~$55,000 reduction~~decline in ~~professional~~mortgage originations. Operations expense increased $115 thousand compared to the quarter ended September 30, 2021 due to increases in various accounts including marketing and travel expenses, legal fees associated with higher commercial loan volume, and ~~a $41,000 decrease in~~ debit card processing, ~~fees.~~partially offset by lower loan origination costs due to lower mortgage origination volume.

The efficiency ratio for the quarter ended September 30, 2022 was 66.23%, compared to 64.81% for the quarter ended September 30, 2021. The weakening in the efficiency ratio for the current quarter compared to the same period in the prior year is primarily due to higher noninterest expense related to increased salaries and benefits and lower noninterest income primarily due to lower gain on sale of loans from mortgage banking, partially offset by higher net interest income primarily as a result of a higher average balance of loans held-for-portfolio at higher yields than prior investments.

The increase in noninterest expense during the nine months ended September 30, ~~2017~~2022 compared to the same period ~~last year~~in 2021 was primarily due to ~~an increase~~increases of $1.7 million in salaries and benefits, ~~occupancy, and OREO related expenses, partially offset by decreases~~$290 thousand in operations expense and ~~regulatory assessments. The increases for salaries~~$118 thousand in data processing expense. Salaries and benefits ~~occupancy,~~increased primarily due to higher wages and ~~OREO~~incentive compensation, hiring for strategic initiatives, higher medical expenses and ~~the related~~lower deferred compensation, partially offset by a decrease in ~~occupancy~~commission expense ~~were due~~related to a decline in mortgage activity in 2022 as compared to the same ~~reasons discussed above for the quarter.~~

period in 2021. Operations expense increased primarily due to increases in various accounts including marketing expenses, travel related expenses, and professional fees. Data processing expense increased due to technology investments and contract rate increases.

The efficiency ratio ~~for the quarter ended September 30, 2017~~ was ~~70.39%, compared to 68.19% for the quarter ended September 30, 2016 and was 69.87%~~70.81% for the nine months ended September 30, ~~2017,~~2022, compared to ~~69.67%~~65.83% for the nine months ended September 30, ~~2016.~~2021. The ~~increase~~weakening in the efficiency ratio ~~on a quarterly and on a year-to-date comparison was primarily due to higher noninterest expense and lower noninterest income.~~

The Management Discussion and Analysis in Item 7 of the ~~Company's 2016~~Company’s 2021 Form 10-K contains an overview of Sound Financial ~~Bancorp's~~Bancorp’s and the ~~Bank's~~Bank’s liquidity management, sources of liquidity and cash flows. ~~This~~Although, there have been no material changes in our liquidity management, sources of liquidity and cash flows since our 2021 Form 10-K, this discussion updates that disclosure for the nine months ended September 30, ~~2017.~~2022.

We paid regular quarterly dividends of $0.17 per common share and a ~~result~~special dividend of $0.10 per common share during the nine months ended September 30, 2022 and 2021, which equates to a dividend payout ratio of 27.05% in 2022 and 21.85% in 2021. The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Assuming continued payment of the regular quarterly cash dividend during the remainder of 2022 at this rate of $0.17 per share, our average total dividend paid each quarter would be approximately $439 thousand based on the number of our current outstanding shares (which assumes no increases or decreases in the number of shares, except in connection with the anticipated vesting of currently outstanding equity awards).

The dividends, if any, we may pay may be limited as more fully discussed under “Business—How We Are Regulated—Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2021 Form 10-K.

Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. As of September 30, 2022, the Company’s existing stock repurchase program authorized it to repurchase, during the period ending October 29, 2022, up to $2.0 million of the Company’s outstanding shares in the open market, based on prevailing market prices, or in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. On July 26, 2022 the Company announced that its Board of Directors amended its existing stock repurchase program to increase the authorized repurchase amount to $4.0 million effective immediately and to extend the program maturity to January 31, 2023. The actual timing, number and value of shares repurchased under the stock repurchase program will depend on a number of factors, including constraints specified pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission, price, general business and market conditions, and alternative investment opportunities. As of November 9, 2022, approximately $2.1 million of our common stock remains available for repurchase under this program. See “Unregistered Sales of Equity Securities and Use of Proceeds” contained in Item 2, Part II of this Form 10-Q for additional information relating to stock repurchases.

Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a ~~net increase~~financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of ~~$43.4~~interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.

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

Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We

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

As of September 30, 2022, we had $86.5 million ~~partially offset by a $26.8~~in cash and available-for-sale investment securities and $1.9 million ~~decrease~~in loans held-for-sale. At September 30, 2022, we had the ability to borrow $180.9 million in FHLB ~~advances.~~advances and access to additional borrowings of $21.2 million through the Federal Reserve's discount window, in each case subject to certain collateral requirements. We had $44.5 million in outstanding advances with the FHLB and none with the Federal Reserve at September 30, 2022. We also had a $20.0 million credit facility with PCBB available, with no balance outstanding at September 30, 2022. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible. As of September 30, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us. For additional details, see “Note 8—Borrowings, FHLB Stock and Subordinated Notes” in the Notes to Condensed Consolidated Financial Statements contained in "Item 1. Financial Statements" of this Form 10-Q.

In the ordinary course of business, we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of September 30, 2022. These include payments related to (i) long-term borrowings (Note 8—Borrowings, FHLB Stock and Subordinated Notes) and (ii) operating leases (Note 11—Leases). See the discussion below for commitments to extend credit and standby letters of credit.

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

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

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

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

Sound Financial Bancorp is a holding company and does not conduct operations; its sources of liquidity are generally dividends up-streamed from Sound Community Bank, interest on investment securities, if any, and borrowings from outside sources. Banking regulations may limit the dividends that may be paid to us by Sound Community Bank. See, “Business — How We Are Regulated — Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2021 Form 10-K. At September 30, ~~2017, the Company,~~2022 Sound Financial Bancorp, on an unconsolidated basis, had ~~$506,000~~$2.6 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs. ~~The Company's principal source~~

See also the "Consolidated Statements of ~~liquidity is dividends~~Cash Flows" included in “Item 1. Financial Statements and ~~ESOP loan repayments from the Bank.~~Supplementary Data” of this Form 10-Q, for further information.

Except as set forth above, management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on liquidity, capital resources or operations.

The Company provided information about market risk in Item 7A of its ~~2016~~2021 Form 10-K. There have been no material changes in our market risk since our ~~2016~~2021 Form 10-K.

~~Item 4.~~

Item 4. Controls and Procedures

~~(a)~~

~~Evaluation of Disclosure Controls and Procedures.~~

(a)Evaluation of Disclosure Controls and Procedures.

An evaluation of the ~~Company's~~Company’s disclosure controls and procedures (as defined in Rule 13a -15(e) under the Securities Exchange Act of 1934 (the ~~"Act")~~“Act”), as of September 30, ~~2017,~~2022, was carried out under the supervision and with the participation of the ~~Company's Chief Executive Officer, Chief Financial Officer~~Company’s principal executive officer and principal financial officer, and several other members of the ~~Company's~~Company’s senior management. The ~~Chief Executive Officer~~Company’s principal executive officer and ~~Chief Financial Officer~~principal financial officer concluded that, as of September 30, ~~2017,~~2022, the ~~Company's~~Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the ~~Company's~~Company’s management (including the ~~Chief Executive Officer~~Company’s principal executive officer and ~~the Chief Financial Officer)~~principal financial officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the ~~SEC's~~SEC’s rules and forms.

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

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

~~(b)~~

~~Changes in Internal Control over Financial Reporting.~~

(b)Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting (as defined in Rule ~~13a - 15(f)~~13a-15(f) under the Act) that occurred during the three months ended September 30, ~~2017,~~2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Item 1~~

Item 1 Legal Proceedings

In the normal course of business, the Company occasionally becomes involved in various legal proceedings. In the opinion of management, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.

There have been no material changes in the Risk Factors previously disclosed in Item 1A of our 2021 Form 10-K.

~~Not required; the Company is a smaller reporting company.~~

~~Item 2~~

~~Unregistered Sales of Equity Securities and use of Proceeds~~

Item 2 Unregistered Sales of Equity Securities and use of Proceeds

(a) Not applicable.

(b)Not applicable.

(c)On April 25, 2022, the Company’s Board of Directors approved an extension of its previously announced stock repurchase program, which was set to expire on April 29, 2022, until October 29, 2022. Under this program the Company is authorized to repurchase up to $2.0 million of its outstanding shares of common stock during the period ending October 29, 2022, from time to time in the open market, based on prevailing market prices, or in privately negotiated transactions. On July 26, 2022 the Company announced that its Board of Directors amended its existing stock repurchase program to increase the authorized repurchase amount to $4.0 million effective immediately and to extend the program maturity to January 31, 2023. The actual timing, number and value of shares repurchased under the stock repurchase program will depend on a number of factors, including constraints specified pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission, price, general business and market conditions, and alternative investment opportunities.

The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended September 30, 2022:

a)	~~Not applicable~~


	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximated Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
July 1, 2022 - July 31, 2022	—	$	—	—	$	2,140,223
August 1, 2022 - August 31, 2022	2,431	$	37.77	—	2,140,223
September 1, 2022 - September 30, 2022	—	$	—	—	2,140,223
Total	2,431	$	37.77	—	$	2,140,223

________________________

~~(b)~~

~~Not applicable~~

(1) Includes the surrender of shares of Company common stock that the participants already own as payment of the exercise price for stock options. Shares surrendered by participants in the equity incentive plans are repurchased pursuant to the terms of the plan and applicable award agreement and not pursuant to publicly announced share repurchase programs.

~~(c)~~

~~There were no repurchases of the Company's common stock during the three months ended September 30, 2017.~~

~~Item 3~~

Item 3 Defaults Upon Senior Securities

Nothing to report.

~~Item 4~~

Item 4. Mine Safety Disclosures

Not ~~Applicable~~Applicable.

Item 5. Other Information

~~Item 6.~~

~~Exhibits~~

Articles of Incorporation of Sound Financial Bancorp, Inc.~~(incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))~~

~~Bylaws of Sound Financial Bancorp, Inc.~~ (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))

Amended and Restated ~~Long Term Compensation~~Confidentiality, Non-Competition and Non-Solicitation Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on ~~November 27, 2015~~January 30, 2019 (File No. 001-35633))

~~Amended and Restated Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Sound Community Bank and Laura Lee Stewart~~ ~~(incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 27, 2015 (File No. 001-35633))~~

2008 Equity Incentive Plan (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 31, 2009 (File No. 000-52889))

Forms of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreements under the 2008 Equity Incentive Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 29, 2009 (File No. 000-52889))

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

2400 3rd3rd Avenue, Suite 150, Seattle, Washington		98121
(Address of principal executive offices)		(Zip Code)


Large accelerated filer☐	☐	Accelerated filer	☐

Non-accelerated filer☐	☒	Smaller reporting company	☒
~~(Do not check if a smaller reporting company)~~
		Emerging growth company☒	☐

	~~Page Number~~
		Page Number
PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2022 and December 31, ~~2016~~2021 (unaudited)		3

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)		4

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)		5

Condensed Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)		6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)		7 8

~~Selected~~ Notes to Condensed Consolidated Financial Statements (unaudited)		8 9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		25 32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		33 48

Item 4. Controls and Procedures		33 48

PART II OTHER INFORMATION

Item 1. Legal Proceedings		34 49

Item 1A. Risk Factors		34 49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34 49

Item 3. Defaults Upon Senior Securities		34 49

Item 4. Mine Safety Disclosures		35 49

Item 5. Other Information		34 49

Item 6. Exhibits		34 50

SIGNATURES		36

~~EXHIBITS~~	38 51


Sound Financial Bancorp, Inc.
(Exact Name of Registrant as Specified in its Charter)


	September 30, 2017			December 31, 2016				September 30, 2022		December 31, 2021
ASSETS							ASSETS
Cash and cash equivalents	$	60,651		$	54,582		Cash and cash equivalents	$	76,064	$	183,590
Available-for-sale securities, at fair value		5,688			6,604		Available-for-sale securities, at fair value	10,396		8,419
Loans held for sale		296			871
Loans		528,208			500,001
Held-to-maturity securities, at amortized cost							Held-to-maturity securities, at amortized cost	2,207		—
Loans held-for-sale							Loans held-for-sale	1,908		3,094
Loans held-for-portfolio							Loans held-for-portfolio	851,447		686,398
Allowance for loan losses		(4,991	)		(4,822	)	Allowance for loan losses	(7,489)		(6,306)
Total loans, net		523,217			495,179
Total loans held-for-portfolio, net							Total loans held-for-portfolio, net	843,958		680,092
Accrued interest receivable		1,943			1,816		Accrued interest receivable	2,809		2,217
Bank-owned life insurance ("BOLI"), net		12,602			12,082
Other real estate owned ("OREO") and repossessed assets, net		1,032			1,172
Bank-owned life insurance (“BOLI”), net							Bank-owned life insurance (“BOLI”), net	21,140		21,095
Other real estate owned (“OREO”) and repossessed assets, net							Other real estate owned (“OREO”) and repossessed assets, net	659		659
Mortgage servicing rights, at fair value		3,370			3,561		Mortgage servicing rights, at fair value	4,787		4,273
Federal Home Loan Bank ("FHLB") stock, at cost		1,825			2,840
Federal Home Loan Bank (“FHLB”) stock, at cost							Federal Home Loan Bank (“FHLB”) stock, at cost	2,897		1,046
Premises and equipment, net		7,338			5,549		Premises and equipment, net	5,505		5,819
Right of use assets							Right of use assets	5,319		5,811
Other assets		4,574			4,127		Other assets	4,597		3,576
Total assets	$	622,536		$	588,383		Total assets	$	982,246	$	919,691
LIABILITIES							LIABILITIES
Deposits							Deposits
Interest-bearing	$	448,291		$	403,990		Interest-bearing	$	623,122	$	607,854
Noninterest-bearing demand		76,526			63,741		Noninterest-bearing demand	192,275		190,466
Total deposits		524,817			467,731		Total deposits	815,397		798,320
Borrowings		28,000			54,792		Borrowings	44,500		—
Accrued interest payable		68			73		Accrued interest payable	109		200
Lease liabilities							Lease liabilities	5,749		6,242
Other liabilities		5,241			4,874		Other liabilities	8,071		8,571
Advance payments from borrowers for taxes and insurance		1,066			638		Advance payments from borrowers for taxes and insurance	1,799		1,366
Subordinated notes, net							Subordinated notes, net	11,665		11,634
Total liabilities		559,192			528,108		Total liabilities	887,290		826,333
COMMITMENTS AND CONTINGENCIES (NOTE 7)							COMMITMENTS AND CONTINGENCIES (NOTE 7)	—		—
STOCKHOLDERS' EQUITY
STOCKHOLDERS’ EQUITY							STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding		-			-		Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding	—		—
Common stock, $0.01 par value, 40,000,000 shares authorized, 2,510,045 and 2,498,804 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		25			25
Common stock, $0.01 par value, 40,000,000 shares authorized, 2,581,949 and 2,613,768 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively							Common stock, $0.01 par value, 40,000,000 shares authorized, 2,581,949 and 2,613,768 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	26		26
Additional paid-in capital		24,297			23,979		Additional paid-in capital	27,886		27,956
Unearned shares - Employee Stock Ownership Plan ("ESOP")		(683	)		(683	)

Retained earnings		39,558			36,873		Retained earnings	68,309		65,237
Accumulated other comprehensive income, net of tax		147			81
Total stockholders' equity		63,344			60,275
Total liabilities and stockholders' equity	$	622,536		$	588,383
Accumulated other comprehensive (loss) income, net of tax							Accumulated other comprehensive (loss) income, net of tax	(1,265)		139
Total stockholders’ equity							Total stockholders’ equity	94,956		93,358
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	982,246	$	919,691

	Shares			Common Stock		Additional Paid- in Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income, net of tax		Total Stockholders' Equity
Balances at December 31, 2016		2,498,804		$	25	$	23,979	$	(683	)	$	36,873		$	81	$	60,275
Net income												3,939					3,939
Other comprehensive income, net of tax															66		66
Share-based compensation							285										285
Cash dividends paid on common stock ($0.50 per share)												(1,254	)				(1,254	)
Common stock surrendered		(3,353	)														-
Restricted stock awards issued		576															-
Exercise of options		14,018					33										33
Balances at September 30, 2017		2,510,045		$	25	$	24,297	$	(683	)	$	39,558		$	147	$	63,344

	December 31, 2016
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Municipal bonds	$	1,313	$	(36	)	$	-	$	-		$	1,313	$	(36	)
Agency mortgage-backed securities		-		-			1,125		(3	)		1,125		(3	)
Non-agency mortgage-backed securities		-		-			347		(15	)		347		(15	)
Total	$	1,313	$	(36	)	$	1,472	$	(18	)	$	2,785	$	(54	)

	Three Months Ended September 30, 2017					Three Months Ended September 30, 2016
	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized

One- to four- family	$	6,603	$	117		$	5,445	$	58
Home equity		1,008		10			968		4
Commercial and multifamily		1,732		24			4,365		19
Construction and land		114		(1	)		86		1
Manufactured homes		306		9			383		6
Other consumer		58		1			24		-
Commercial business		348		5			640		9
Total	$	10,169	$	165		$	11,911	$	97

	Fair Value at September 30, 2017
Description	Total		Level 1		Level 2		Level 3
Municipal bonds	$	3,417	$	-	$	3,417	$	-
Agency mortgage-backed securities		2,271		-		2,271		-
Mortgage servicing rights		3,370		-		-		3,370

	Fair Value at December 31, 2016
Description	Total		Level 1		Level 2		Level 3
Municipal bonds	$	3,353	$	-	$	3,353	$	-
Agency mortgage-backed securities		2,904		-		2,904		-
Non-agency mortgage-backed securities		347		-		-		347
Mortgage servicing rights		3,561		-		-		3,561

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Beginning balance, at fair value	$	318		$	379		$	347		$	428
OTTI impairment losses		-			-			-			-
Sales, redemptions and principal payments		(318	)		(29	)		(347	)		(90	)
Change in unrealized loss		-			5			-			17
Ending balance, at fair value	$	-		$	355		$	-		$	355

Annual dividend yield		1.28	%
Expected volatility		22.99	%
Risk-free interest rate		2.20	%
Expected term	6.50 years
Weighted-average grant date fair value per option granted	$	6.62

Annual dividend yield		1.03	%
Expected volatility		25.48	%
Risk-free interest rate		1.64	%
Expected term	6.92 years
Weighted-average grant date fair value per option granted	$	5.78

	Shares			Weighted-Average Grant-Date Fair Value Per Share
Non-vested at January 1, 2017		26,138		$	18.08
Granted		576			28.34
Vested		(14,929	)		17.61
Forfeited		-			-
Expired		-			-
Non-vested at September 30, 2017		11,785			19.05
Expected to vest assuming a 0% forfeiture rate over the vesting term		11,785		$	19.05

	September 30, 2017		December 31, 2016
Allowance as a percentage of nonperforming loans (end of period)		142.48%		143.98%
Allowance as a percentage of total loans (end of period)		0.94%		0.96%


Year Ending December 31,	Amount
2022	$	19,569
2023	113,945
2024	13,453
2025	4,982
2026	2,142
Thereafter	470
	$	154,561


	Three Months Ended September 30,				Amount			Percent				Three Months Ended September 30,				Amount Change				Percent Change
	2017		2016		Change			Change				2022		2021
Service charges and fee income	$	439	$	743	$	(304	)		(40.9	)%	Service charges and fee income	$	604	$	556			$	48			8.6	%
Earnings on cash surrender value of BOLI		82		84		(2	)		(2.4	)	Earnings on cash surrender value of BOLI	59		104		(45)				(43.3)
Mortgage servicing income		18		239		(221	)		(92.5	)	Mortgage servicing income	306		328		(22)				(6.7)
Fair value adjustment on mortgage servicing rights											Fair value adjustment on mortgage servicing rights	9		(125)		134				(107.2)
Net gain on sale of loans		287		477		(190	)		(39.8	)	Net gain on sale of loans	48		568		(520)				(91.5)
Total noninterest income	$	826	$	1,543	$	(717	)		(46.5	)%	Total noninterest income	$	1,026	$	1,431	$	(405)			(28.3)	%


	September 30, 2022		December 31, 2021
Residential mortgage commitments	$	11,261	$	6,663
Unfunded construction commitments	74,755		89,797
Unused lines of credit	37,249		35,036
Irrevocable letters of credit	275		151
Total loan commitments	$	123,539	$	131,647

	September 30, 2017
Residential mortgage commitments	$	4,404
Undisbursed portion of loans originated		38,850
Unused lines of credit		29,412
Irrevocable letters of credit		1,360
Total loan commitments	$	74,026

	Actual					Minimum For Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio	Amount		Ratio
Tier 1 Capital to average assets	$	60,949		10.15	%	$	24,015	> 4.0%	$	30,018	> 5.0%
Common Equity Tier 1 ("CET1") risk-based capital ratio		60,949		11.94	%		22,976	> 4.5%		33,188	> 6.5%
Tier 1 Capital to risk-weighted assets		60,949		11.94	%		30,635	> 6.0%		40,846	> 8.0%
Total Capital to risk-weighted assets		66,135		12.95	%		40,846	> 8.0%		51,058	> 10.0%

Exhibits:
3.1		Articles of Incorporation of Sound Financial Bancorp, Inc.~~(incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))~~
~~3.2~~	~~Bylaws of Sound Financial Bancorp, Inc.~~ (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
~~4.0~~ 3.2		Amended and Restated Bylaws of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on October 26, 2021 (File No. 001-35633))
4.1		Form of Common Stock Certificate of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
~~10.1~~ 4.3		~~Form~~Forms of ~~Amended and Restated Employment~~5.25% Fixed-to-Floating Rate Subordinated Note due October 1, 2030 (included as Exhibit A to the Subordinate Note Purchase Agreement ~~dated August 30, 2016, among Sound Financial Bancorp, Inc., Sound Community Bank and Laura Lee Stewart~~included in Exhibit 10.16) (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September ~~1, 2016~~21, 2020 (File No. 001-35633)) .
~~10.2~~ 10.1+		Amended and Restated ~~Supplemental Executive Retirement~~Employment Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 30, 2019 (File No. 001-35633))
10.2+		Amended and Restated Supplemental Executive Retirement Agreement dated July 11, 2022, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on July 14, 2022 (File No. 001-35633))
10.3+		Amended and Restated Long Term Compensation Agreement dated November 23, 2015, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 27, 2015 (File No. 001-35633))
~~10.3~~ 10.4+		Amended and Restated ~~Long Term Compensation~~Confidentiality, Non-Competition and Non-Solicitation Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on ~~November 27, 2015~~January 30, 2019 (File No. 001-35633))
~~10.4~~ 10.5+		~~Amended and Restated Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Sound Community Bank and Laura Lee Stewart~~ ~~(incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 27, 2015 (File No. 001-35633))~~
~~10.5~~	2008 Equity Incentive Plan (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 31, 2009 (File No. 000-52889))
~~10.6~~10.6+		Forms of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreements under the 2008 Equity Incentive Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 29, 2009 (File No. 000-52889))
10.7+		Summary of Annual Bonus Plan (incorporated herein by reference to the ~~Registration Statement~~Current Report on Form ~~SB-2~~8-K filed with the SEC on ~~September 20, 2007~~February 3, 2020 (File No. ~~333-146196)~~000-35633))
10.8+		2013 Equity Incentive Plan (included as Exhibit 10.13 to the Registrant's Quarterly Report on Form ~~10-Q~~ 10-Q/A for the quarter ended September 30, 2013 and incorporated herein by reference (File No. 001-35633))
10.9+		Form of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreement under the 2013 Equity Incentive Plan (included as Exhibit 10.14 to the Registrant's Quarterly Report on Form ~~10-Q~~10-Q/A for the quarter ended September 30, 2013 and incorporated herein by reference (File No. 001-35633))
10.10+		~~Amended and Restated Change~~Form of ~~Control Agreement dated June 21, 2016, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Matthew P. Deines~~ ~~(incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on June 24, 2016 (File No. 001-35633))~~
~~10.11~~	~~Change of Control Agreement dated June 21, 2016, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Elliott Pierce~~ ~~(included as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and incorporated herein by reference (File No. 0001140361-17-020150))~~
~~10.12~~	Adoption Agreement for the Sound Community Bank Nonqualified Deferred Compensation Plan (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 30, 2021 (File No. (001-35633))
10.11+		The Sound Community Bank Nonqualified Deferred Compensation Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on March 24, 2017 (File No. ~~(0001140361-17-013082)~~001-35633))
~~10.13~~ 10.12+		~~The~~Change of Control Agreement dated October 25, 2018, by and among Sound Financial Bancorp, Inc., Sound Community Bank ~~Nonqualified Deferred Compensation Plan~~and Heidi Sexton (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on ~~March 24, 2017~~October 26, 2018 (File No. ~~(0001140361-17-013082)~~(001-35633))
10.13+		Credit Union of the Pacific Incentive Compensation Achievement Plan, dated January 1, 1994 (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 14, 2019 (File No. (001-35633))
10.14+		Form of Subordinated Note Purchase Agreement, dated September 18, 2020, by and among Sound Financial Bancorp, Inc. and the Purchasers (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September 21, 2020 (File No. 001-35633)).
10.15+		Change ofin Control Agreement dated ~~June 22, 2016,~~August 25, 2021 by and among Sound Financial Bancorp, Inc., Sound Community Bank and ~~Christina Gehrke~~
11	~~Statement re computation of per share earnings (See Note 9 of~~Wes Ochs (incorporated herein by reference to the ~~Notes to Condensed Consolidated Financial Statements contained in Item 1, Part I of this~~ Current Report on Form ~~10-Q.~~8-K filed with the SEC on August 31, 2021 (File No. 001-35633)).
31.1		Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2		Rule 13(a)-14(a) Certification (Chief Financial Officer)
32		Section 1350 Certification
101		The following financial statements from the Sound Financial Bancorp, Inc. Quarterly Report on Form 10-Q for the three months ended September 30, 2022, formatted in Extensive Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income, (iii) condensed consolidated statements of comprehensive income, (iv) condensed consolidated statements of equity (v) condensed consolidated statements of cash flows and (vi) the notes to condensed consolidated financial statements
104		Cover Page Interactive Data ~~Files~~File (embedded within the Inline XBRL document)


Sound Financial Bancorp, Inc.

Date: November ~~13, 2017~~10, 2022	By:	/s/ Laura Lee Stewart
		Laura Lee Stewart
		~~President and~~ President/Chief Executive Officer
		(Principal Executive Officer)
~~Date: November 13, 2017~~	~~By:~~	~~/s/ Matthew P. Deines~~
	By:	~~Matthew P. Deines~~/s/ Wes Ochs
		Wes Ochs
		Executive Vice ~~President~~President/Chief Strategy Officer and Chief Financial Officer
		(Principal Financial Officer)