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Filed Pursuant to Rule 424(b)3

Registration No. 333-180385

PROSPECTUS SUPPLEMENT

SOUND FINANCIAL BANCORP, INC.

SOUND COMMUNITY BANK 401(k) PROFIT SHARING PLAN

This Prospectus Supplement relates to the election by participants in the Sound Community Bank 401(k) Profit Sharing Plan to direct the plan trustee to invest all or a portion of their funds in the plan in the common stock of Sound Financial Bancorp, Inc. (referred to herein as the “common stock”). The Sound Community Bank 401(k) Profit Sharing Plan is referred to in this Prospectus Supplement as the “401(k) Plan.”

The interests offered under this Prospectus Supplement are in connection with the conversion of Sound Community MHC from the mutual holding company to the stock holding company form of organization, which is referred to in this Prospectus Supplement as the “Stock Offering.”  Your investment in the common stock in connection with the Stock Offering is also governed by the purchase priorities contained in Sound Financial Bancorp, Inc. plan of conversion and reorganization.  The 401(k) Plan permits you, as a participant, to direct the trustee of the 401(k) Plan to purchase common stock with amounts in the 401(k) Plan attributable to your accounts.  This Prospectus Supplement relates solely to the election of a participant to direct the purchase of common stock in this Stock Offering and not to any future purchases under the 401(k) Plan or otherwise.

The Prospectus of Sound Financial Bancorp, Inc. dated June 29, 2012 which is being delivered with this Prospectus Supplement, includes detailed information with respect to Sound Financial Bancorp, Inc., the Stock Offering, the common stock and the financial condition, results of operations and business of Sound Financial Bancorp, Inc. (which will succeed Sound Financial, Inc. as a result of the conversion and reorganization) and Sound Community Bank.  This Prospectus Supplement, which provides detailed information with respect to the 401(k) Plan, should be read only in conjunction with that Prospectus.

For a discussion of certain factors that you should consider before investing in common stock of Sound Financial Bancorp, Inc., see “Restrictions on Resale” at page 17 in this Prospectus Supplement and “Risk Factors” beginning on page 20 in the Prospectus.

The securities offered hereby are not deposits or accounts and are not federally insured or guaranteed.

The securities offered hereby have not been approved or disapproved by the Securities and Exchange Commission, the Federal Reserve Board, or any state securities commission or agency, nor have these agencies passed upon the accuracy or adequacy of this Prospectus Supplement.  Any representation to the contrary is a criminal offense.

This Prospectus Supplement contains information you should consider when making your investment decision.  You should rely only on the information provided in this Prospectus Supplement.  Sound Financial Bancorp, Inc. has not authorized anyone else to provide you with different information.  Sound Financial Bancorp, Inc. is not making an offer of its common stock in any state where an offer is not permitted.  The information in this Prospectus Supplement is accurate only as of the date of this Prospectus Supplement, regardless of the time of delivery of this Prospectus Supplement or any sale of Sound Financial Bancorp, Inc. common stock.

The date of this Prospectus Supplement is June 29, 2012.

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THE OFFERING

Election to Purchase Sound Financial Bancorp, Inc. Common Stock in the Stock Offering

In connection with the Stock Offering, the 401(k) Plan will permit each participant who is actively employed by Sound Financial, Inc., Sound Community Bank or an affiliate on March 31, 2012, and who has an account balance under the 401(k) Plan of at least $250, to direct that all or part of the funds in his or her fully vested accounts under the 401(k) Plan be used to purchase common stock in the Stock Offering. The trustee of the 401(k) Plan will follow the participants’ directions and exercise subscription rights to purchase the common stock in the Stock Offering to the extent provided in our plan of conversion and reorganization.  Funds in the 401(k) Plan that you do not want to be used to purchase common stock will remain invested in accordance with your investment instructions in effect at the time.

Purchases by the 401(k) Plan in the Stock Offering will be counted as purchases by the individual participants at whose election they are made and will be subject to the purchase limitations applicable to the individual, rather than being counted in determining the maximum amount that Sound Financial, Inc.’s tax-qualified employee plans (as defined in the Prospectus) may purchase in the aggregate.  See “The Stock Offering - Subscription Offering and Subscription Rights” in the Prospectus.

Your order will be filled based on your status as an eligible account holder, supplemental eligible account holder or other member in the Stock Offering.  An eligible account holder is a depositor whose deposit account(s) totaled $50.00 or more on December 31, 2010.  A supplemental eligible account holder is a depositor whose deposit account(s) totaled $50.00 or more on March 31, 2012.  An other member is a depositor whose deposit account(s) totaled $50.00 or more on June 27, 2012.  If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of common stock in the Stock Offering, and you may use funds in the 401(k) Plan account to pay for the shares of common stock that you are eligible to purchase.

Since only fully vested 401(k) Plan accounts may be used to purchase Common Stock, you may use your 401(k) contribution account to subscribe for and purchase Common Stock.  In addition, you may also (or alternatively) use your matching and/or profit sharing contribution accounts to subscribe for and purchase Common Stock, if you have a 100% vested interest therein at the time of the purchase.

If we receive subscriptions for more shares than are to be sold in the Stock Offering, shares will be allocated to subscribers in the order of the priorities established in our plan of conversion and reorganization under a formula outlined within that plan and the Prospectus.  In that case, as a result of the allocation, the trustee for the 401(k) Plan may not be able to purchase all of the common stock you request.  The trustee would purchase in the Stock Offering as many shares as it is able and would allocate those shares to each participant’s account based on the purchase priorities contained in our plan of conversion and reorganization as outlined above.

Securities Offered

The securities offered in connection with this Prospectus Supplement are participation interests in the 401(k) Plan.  A total of up to 1,552,500 shares of common stock are being offered in the Stock Offering, subject to increase of up to 1,785,375 shares.  Sound Financial Bancorp, Inc. is the issuer of the common stock.  Information relating to the 401(k) Plan is contained in this Prospectus Supplement and information relating to Sound Financial Bancorp, Inc., the conversion and reorganization and the financial condition, results of operations and business of Sound Financial, Inc. (which will be succeeded by Sound Financial Bancorp, Inc. as the holding company for Sound Community Bank pursuant to the conversion and reorganization) and Sound Community Bank is contained in the Prospectus delivered with this Prospectus Supplement.  The address of the principal executive office of Sound Community Bank is 2005 Fifth Avenue, Second Floor, Seattle, Washington 98121, and our telephone number is (206) 448-0884.  As of March 31, 2012, the market value of the assets of the 401(k) Plan equaled approximately $3.9 million.  The plan administrator has informed each participant of the value of his or her beneficial interest in the 401(k) Plan by means of a quarterly statement and internet access.  The value of 401(k) Plan assets represents past contributions to the 401(k) Plan on each participant’s behalf, plus or minus earnings or losses on the contributions and less previous withdrawals.

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Method of Directing the Transfer of Funds to Purchase Shares

An Investment Election Form is included with this Prospectus Supplement.  If you wish to direct some or all of your beneficial interest in the assets of the 401(k) Plan to purchase common stock in the Stock Offering, you should indicate that decision by completing the Investment Election Form.  If you do not wish to make an election at this time, you do not need to take any action.

Deadline for Directing Transfer of Funds

The deadline for submitting a direction to transfer amounts to purchase common stock in the Stock Offering is July 21, 2012, unless extended. Your completed Investment Election Form must be returned to Patricia Floyd, Senior Vice President, Human Resources, at our main office to be received by her no later than 12:00 Noon, Pacific time, on that date.

Irrevocability of Transfer Direction

Once received in proper form, your executed Investment Election Form may not be modified, amended or revoked without our consent, unless the Stock Offering has not been completed within 45 days after the end of the subscription offering. See also “Investment of Contributions — Sound Financial Bancorp, Inc. Common Stock Investment Election Procedures” below.

Subsequent Elections

After the Stock Offering, you will continue to be able to direct the investment of past balances and current contributions in the investment options available under the 401(k) Plan, excluding the common stock (the percentage invested in any option must be a whole percent).  The Stock Offering is your only opportunity to allocate funds in your 401(k) Plan account to purchase common stock.  The allocation of your interest in the various investment options offered under the 401(k) Plan may be changed daily.  After the Stock Offering, you may transfer funds you have allocated to purchase common stock to other investment options in the 401(k) Plan, but may not purchase additional shares of common stock.  Special restrictions may apply to transfers directed with respect to the common stock by those participants who are our executive officers and principal shareholders, including those subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended.  In particular, executive officers of Sound Financial Bancorp, Inc. and Sound Community Bank will not be able to transfer their initial investment out of common stock for a period of one year following consummation of the Stock Offering.

Purchase Price of Sound Financial Bancorp, Inc. Common Stock

The funds transferred to purchase common stock in the Stock Offering will be used by the trustee of the 401(k) Plan to purchase shares of the common stock.  The price paid for the shares of common stock will be $10.00 per share, the same price as is paid by all other persons who purchase our common stock in the Stock Offering.

Nature of a Participant’s Interest in Sound Financial Bancorp, Inc. Common Stock

The common stock will be held in the name of the trustee of the 401(k) Plan.  Because the 401(k) Plan actually purchases the shares, you will acquire a “participation interest” in the shares and not own the shares directly.  The trustee will maintain individual accounts reflecting each participant’s individual interest in the common stock.

Voting and Tender Rights of Sound Financial Bancorp, Inc. Common Stock

The trustee or its delegate generally will exercise voting and tender rights attributable to all of the common stock held by the 401(k) Plan.  The trustee or its delegate will provide you with voting instruction rights and, if applicable, tender instructions, reflecting your proportional interest in the common stock. The number of shares of common stock that the trustee votes in the affirmative and negative on each matter will be proportionate to the voting instructions given by the participants.  Where tender offer instructions are given by the participant, the shares shall be tendered in the manner directed by the trustee, in accordance with participant instructions.

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DESCRIPTION OF THE 401(k) PLAN

Introduction

The 401(k) Plan was adopted by Sound Community Bank and contains a cash-or-deferred feature described at Section 401(k) of the Internal Revenue Code of 1986, as amended, to encourage employee savings and to allow eligible employees to supplement their income upon retirement.  The common stock held by the 401(k) Plan is subject to all the provisions of the 401(k) Plan.

Reference to Full Text of 401(k) Plan.  The following statements are summaries of certain provisions of the 401(k) Plan.  They are not meant to be a complete description of these provisions and are qualified in their entirety by the full text of the 401(k) Plan. Copies of the 401(k) Plan, as well as a summary plan description, are available to all employees as permitted by ERISA, the federal law regulating pension plans.  You should submit your request to Sound Community Bank, 2005 Fifth Avenue, Second Floor, Seattle, Washington  98121, Attention: Sound Community Bank 401(k) Profit Sharing Plan Administrator.  We encourage you to read carefully the full text of the 401(k) Plan to understand your rights and obligations under the 401(k) Plan.

Tax and Securities Laws.  Participants should consult with legal counsel regarding the tax and securities laws implications of participation in the 401(k) Plan.  Any officers or beneficial owners of more than 10% of the outstanding shares of common stock should consider the applicability of Sections 16(a) and 16(b) of the Securities Exchange Act of 1934, as amended, to his or her participation in the 401(k) Plan.  See “Securities and Exchange Commission Reporting and Short Swing Profit Liability” on page 18 of this Prospectus Supplement.

Eligibility and Participation

All employees of Sound Community Bank, other than leased employees or persons who are reclassified as employees, who have attained the age of 18, are eligible to make deferrals under the 401(k) Plan effective at employment.  After completing six months of service, they become eligible, as of the first day of the next following payroll period, for profit sharing and matching contributions.  As of March 31, 2012, there were approximately 68 employees eligible to participate in the cash or deferred portion of the 401(k) Plan, and 60 employees had elected to participate in the cash or deferred portion of the 401(k) Plan.

Contributions Under the 401(k) Plan

401(k) Contributions.  The 401(k) Plan permits each participant to defer receipt of amounts ranging from 1% to 100% of their annual compensation, not to exceed $17,000 (for 2012), and to have that compensation contributed to the 401(k) Plan.  Generally, the 401(k) Plan describes a participant’s annual compensation as total taxable compensation as reported on Form W-2.  However, no more than $250,000 of compensation may be taken into account under the 401(k) plan for purposes of determining 401(k) contributions (and profit sharing and matching contributions) for 2012.

Under the 401(k) Plan’s automatic deferral rules, 3% of a participant’s compensation will automatically be deferred into the plan as a 401(k) contribution, unless the participant makes an affirmative election to defer a different percentage of compensation, or elects not to make any 401(k) contribution into the plan. Participants may modify the rate of their future 401(k) contributions by filing a new deferral agreement with the plan administrator.  Modifications to the rate of 401(k) contributions may take effect at the beginning of each payroll period after the filing is processed.

Catch-Up 401(k) Contributions.  The 401(k) Plan permits each participant who has attained age 50 to defer up to an additional $5,500 (for 2012) into the 401(k) Plan.  Catch-up 401(k) contributions are not subject to any limitations other than the $5,500 dollar limitation.

Matching Contributions.  The 401(k) Plan currently provides for matching contributions equal to 50% of the participant’s 401(k) deferrals for the year (including catch-up contributions) up to 7% of their compensation.  Sound Community Bank may amend the amount of matching contributions it will make at any time.

Profit Sharing Contributions.  The 401(k) Plan currently permits, but does not require, Sound Community Bank to make profit sharing contributions to the Plan.  To be eligible for a profit sharing contribution in any year, you must be a participant in the profit sharing portion of the 401(k) Plan and actively employed with Sound

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Community Bank or Sound Financial, Inc. during the plan year to which the profit sharing contribution relates.. Generally, profit sharing contributions are allocated on a pro rata basis based on the total compensation of all eligible Plan participants.  No profit sharing contributions have been made to the 401(k) Plan with respect to plan years after 2007.

Rollover Contributions.  Prior to or after satisfying the Plan eligibility requirements, you also may rollover or directly transfer accounts from another qualified plan or a traditional IRA, provided the rollover or direct transfer complies with applicable law. If you want to make a rollover contribution or direct transfer, you should contact the plan administrator.

Limitations on Contributions

Limitations on 401(k) Contributions.  Federal law limits the total of your 401(k) contributions under the 401(k) Plan, and any similar plans, to $17,000  for 2012 (or $22,500 for persons over 50 years of age).  For years after 20127, this limit will be adjusted, from time to time, to reflect increases in the cost of living.  Any 401(k) contributions in excess of this limitation are considered excess deferrals and will be included in an affected participant’s gross income for federal income tax purposes in the year the 401(k) contribution is made.  In addition, any excess deferral will again be subject to federal income tax when distributed by the 401(k) Plan to the participant, unless the excess deferral, together with any income earned on the excess deferral, is distributed to the participant not later than the first April 15th following the close of the taxable year in which the excess deferral is made.  Any income on the excess deferral that is distributed not later than such date shall be treated, for federal income tax purposes, as earned and received by the participant in the taxable year in which the distribution is made.

Limitations on Annual Additions and Benefits.  Pursuant to the requirements of the Internal Revenue Code, the 401(k) Plan provides that the total amount of all contributions and forfeitures (annual additions) allocated to participants during any plan year may not exceed the lesser of 100% of the participant’s compensation for the plan year, or $50,000. The $50,000 limit will be increased from time to time to reflect increases in the cost of living.  Annual additions for this purpose generally include 401(k) deferrals and employer contributions (e.g., matching and profit sharing) to this or any other qualified plan sponsored by Sound Financial Bancorp, Inc., Sound Community Bank or an affiliated entity. Annual additions do not include rollover contributions or earnings on any plan contributions.

Limitation on 401(k) and Matching Contributions for Highly Compensated Employees.  Sections 401(k) and 401(m) of the Internal Revenue Code limit the amount of 401(k) contributions and matching contributions that may be made to the 401(k) Plan in any plan year on behalf of highly compensated employees (defined below).  Specifically, the percentage of 401(k) contributions made on behalf of a participant who is a highly compensated employee shall be limited so that the average actual deferral percentage for the group of highly compensated employees for the plan year does not exceed the greater of: (i) the average actual deferral percentage for the group of eligible employees who are non-highly compensated employees for the current plan year multiplied by 1.25; or (ii) the average actual deferral percentage for the group of eligible employees who are non-highly compensated employees for the current plan year, multiplied by two (2); provided that the difference in the average actual deferral percentage for eligible non-highly compensated employees does not exceed 2%.  Similar discrimination rules apply to matching contributions.   The average deferral percentage for each group is determined by adding the contribution percentages (401(k) or matching, as the case may be) for the participants in each group and dividing that sum by the number of participants in that group, including participants who do not make 401(k) contributions or receive matching contributions.

In general, a highly compensated employee includes any employee who was a 5% owner of the employer at any time during the year or preceding year or had compensation for the preceding year in excess of $110,000 (for 2011).  This compensation amount is adjusted from time to time to reflect increases in the cost of living.

Contributions allocated to highly compensated employees that exceed the average deferral limitation in any plan year are referred to as excess contributions.  In order to prevent the disqualification of the 401(k) Plan, any excess contributions, together with any income earned on these excess contributions, must be distributed to affected highly compensated employees before the close of the following plan year.  The employer will be subject to a 10% excise tax on any excess contributions, unless the excess contributions, together with any income earned on these excess contributions, are distributed before the close of the first 2-1/2 months following the plan year to which the excess contributions relate.  Matching contributions that relate to the returned deferral contributions will be forfeited when the excess contributions are returned to affected participants.  Regarding matching contributions that do not

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satisfy the discrimination tests described above, in order to prevent the disqualification of the 401(k) Plan, any excess matching contributions, together with any income earned on these excess contributions, must be removed from the matching contribution accounts of affected highly compensated employees before the close of the following plan year.  Excess matching contributions, plus income allocable thereto, will be forfeited (if not vested) or distributed (if vested).  There are specific rules for determining which highly compensated employees will be affected by the excess contribution return rules, and the amount of excess 401(k) contributions and matching contributions that must be returned to the affected employees.

Deduction Limits.   Matching and profit sharing contributions are subject to and limited by Internal Revenue Code deduction rules.  Contributions will not be made to the extent they would be considered nondeductible.   However, 401(k) contributions are neither subject to nor limited by the Internal Revenue Code deduction rules.

Top-Heavy Plan Requirements.  If for any plan year the 401(k) Plan is a top-heavy plan, then minimum contributions may be required to be made to the 401(k) Plan on behalf of non-key employees.  Contributions otherwise being made under the Plan may apply to satisfy these requirements.

In general, the 401(k) Plan will be regarded as a “top-heavy plan” for any plan year if, as of the last day of the preceding plan year, the aggregate balance of the accounts of participants who are key employees exceeds 60% of the aggregate balance of the accounts of all participants.  Key employees generally include any employee who, at any time during the plan year, is: (i) an officer (with administrative or policy-making authority) of Sound Financial Bancorp, Inc. or its subsidiaries having annual compensation in excess of $165,000 (for 2012); (ii) a 5% owner of Sound Financial Bancorp, Inc., i.e., owns directly or indirectly more than 5% of the stock of Sound Financial Bancorp, Inc., or stock possessing more than 5% of the total combined voting power of all stock of Sound Financial, Inc.; or (iii) a 1% owner of Sound Financial Bancorp, Inc. having annual compensation in excess of $150,000.  The $165,000 dollar amount in the foregoing sentence will be adjusted, from time to time, in the future for cost of living increases.

Investment of Contributions

Investment Options.  All amounts credited to participants’ accounts under the 401(k) Plan are held in trust.  The trust is administered by a trustee appointed by Sound Community Bank’s board of directors.

You must instruct the plan administrator as to how funds held in your account are to be invested. If you do provide any investment instructions, your 401(k) Plan account will be invested in accordance with the 401(k) Plan’s default investment rules.

In addition to the common stock, participants may elect to instruct the trustee to invest such funds in any or all of the following investment options:

500 Index Fund - Investing solely in JHVIT - 500 Index Trust (Class 1)

Seeks to achieve the approximate aggregate total return of a broad U.S. domestic equity market index

Active Bond Fund - Investing solely in John Hancock Funds II - Active Bond Fund (Class 1)

Seeks income and capital appreciation. The portfolio normally invests at least 80% of its assets in a diversified mix of debt securities and instruments.

All Cap Value Fund - Investing solely in John Hancock Funds II - All Cap Value Fund (Class 1)

The portfolio will invest primarily in equity securities of U.S. and multinational companies that Lord Abbett & Co. LLC (Lord Abbett) believes are undervalued in all market capitalization ranges. Under normal circumstances, the portfolio will invest at least 50% of its net assets in equity securities of large, seasoned companies with market capitalizations that fall within the market capitalization range of the Russell 1000 Index at the time of purchase.

American Balanced Fund - Investing solely in American Balanced Fund® (Class R5)

Seeks to achieve conservation of capital, current income and long-term growth of capital and income, by investing in stocks, bonds and other fixed-income securities. The fund takes a balanced approach and is managed as if it constituted the complete investment program of the prudent investor. Invests primarily in common stocks and preferred stocks, bonds, convertibles and cash. The fund may invest up to 12% of its assets

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in securities of issuers domiciled outside the United States. May not invest more than 75% of assets in common stocks. All of the fund’s fixed-income investments must be investment-grade at the time of purchase.

BlackRock Global Allocation Fund - Investing solely in BlackRock Global Allocation Fund (Institutional Class)

The investment objective of the Fund is to provide high total investment return through a fully managed investment policy utilizing United States and foreign equity securities, debt and money market securities, the combination of which will be varied from time to time both with respect to types of securities and markets in response to changing market and economic trends.

Blue Chip Growth Fund - Investing solely in John Hancock Funds II - Blue Chip Growth Fund (Class 1)

Seeks to provide long-term growth of capital by investing at least 80% of the portfolio’s total assets in the common stocks of large- and medium-sized blue chip companies as defined by T. Rowe Price Associates, Inc. Current income is a secondary objective.

Capital Appreciation Fund - Investing solely in John Hancock Funds II - Capital Appreciation Fund (Class 1)

Seeks to achieve long-term growth of capital by investing primarily in equity-related securities of companies that exceed $1 billion in market capitalization and that Jennison Associates LLC (Jennison) believes have above-average growth prospects.

Core Bond Fund - Investing solely in John Hancock Funds II - Core Bond Fund (Class 1)

Seeks total return consisting of income and capital appreciation. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a broad range of investment grade debt securities, including U.S. Government obligations, corporate bonds, mortgage-backed and other asset-backed securities and money market instruments.

DFA US Small Cap Fund - Investing solely in DFA U.S. Small Cap Fund

Seeks to achieve long-term capital appreciation. The fund provides investors with access to securities of small U.S. companies.

Equity Income Fund - Investing solely in John Hancock Funds II - Equity Income Fund (Class 1)

Seeks to achieve substantial dividend income and long-term capital appreciation by investing at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities, with at least 65% in common stocks of well established companies paying above-average dividends.

EuroPacific Growth Fund - Investing solely in EuroPacific Growth Fund® (Class R5)

Seeks to achieve long-term growth of capital by investing in securities of growing companies based primarily in Europe and the Pacific Basin. Holdings may range from small firms to large corporations. Under normal market conditions, the portfolio will invest almost all its assets in securities of issuers based outside the United States. The portfolio may invest in securities of issuers based in developing countries.

Financial Services Fund - Investing solely in JHVIT - Financial Services Trust (Class 1)

Seeks to achieve long-term growth of capital by investing primarily in the common stocks of financial services companies. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in companies that, at the time of investment, are principally engaged in financial services and the fund invests primarily in common stocks of financial services companies.

Fundamental Investors - Investing solely in Fundamental InvestorsSM (Class R5)

This fund seeks to provide income primarily through investments in common stocks of large, established companies that offer growth potential at reasonable prices.

Global Bond Fund - Investing solely in John Hancock Funds II - Global Bond Fund (Class 1)

Seeks to achieve maximum total return, consistent with preservation of capital and prudent investment management. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in fixed-income instruments that are economically tied to at least three countries (one of which may be the United States), which may be represented by futures contracts (including related options) with respect to such securities, and options on such securities. These fixed-income instruments may be denominated in non-U.S. currencies or in U.S. dollars, which may be represented by forwards or derivatives, such as options, futures contracts, or swap agreements.

Guaranteed Interest Accounts

Seeks to achieve investment income consistent with the preservation of principal, primarily through

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investments in federal and other government bonds, corporate bonds and commercial mortgages.

High Yield Fund - Investing solely in John Hancock Funds II - High Yield Fund (Class 1)

Seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk. This portfolio invests, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) at the time of investment in high yield securities, including corporate bonds, preferred stocks, U.S. Government and foreign securities, mortgage-backed securities, loan assignments or participations and convertible securities.

International Equity Index Fund - Investing solely in JHVIT - International Equity Index Trust A (Class 1)

Seeks to track the performance of a broad-based equity index of foreign companies primarily in developed countries and, to a lesser extent, in emerging markets. Under normal market conditions, the fund invests at least 80% of its assets in securities listed in the Morgan Stanley Capital International (MSCI) All Country World Excluding U.S. Index or American Depository Receipts (ADRs) or Global Depository Receipts (GDRs) representing such securities.

International Small Cap Fund - Investing solely in John Hancock Funds II - International Small Cap Fund (Class 1)

Seeks achieve long-term capital appreciation. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in investments of smaller companies outside the U.S., including emerging markets, which have total stock market capitalizations or annual revenues of $4 billion or less.

International Value Fund - Investing solely in John Hancock Funds II - International Value Fund (Class 1)

Seeks to achieve long-term growth of capital by investing primarily in equity securities of companies located outside the United States, including those in emerging markets.

Invesco Small Cap Growth Fund - Investing solely in Invesco Small Cap Growth Fund (Class A)

Seeks to provide long-term growth of capital by investing, normally, at least 80% of its assets in securities of small-capitalization companies.

Investment Quality Bond Fund - Investing solely in John Hancock Funds II - Investment Quality Bond Fund (Class 1)

Seeks to achieve a high level of current income consistent with the maintenance of principal and liquidity. Under normal market conditions, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in bonds rated investment grade at the time of investment. The Fund will tend to focus on corporate bonds and U.S. government bonds with intermediate to longer term maturities.

Lifestyle Fund - Aggressive Portfolio - Investing solely in John Hancock Funds II - Lifestyle Aggressive Portfolio (Class 1)

Seeks to achieve long-term growth of capital by investing 100% of the portfolio’s assets in underlying portfolios that invest primarily in equity securities. Current income is not a consideration.

Lifestyle Fund - Balanced Portfolio - Investing solely in John Hancock Funds II - Lifestyle Balanced Portfolio (Class 1)

Seeks to achieve a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital, by investing approximately 40% of the portfolio’s assets in underlying portfolios that invest primarily in fixed-income securities and approximately 60% of its assets in underlying portfolios that invest primarily in equity securities.

Lifestyle Fund - Conservative Portfolio - Investing solely in John Hancock Funds II - Lifestyle Conservative Portfolio (Class 1)

Seeks to achieve a high level of current income with some consideration given to growth of capital by investing approximately 80% of the portfolio’s assets in underlying portfolios that invest primarily in fixed-income securities and 20% of its assets in underlying portfolios that invest primarily in equity securities.

Lifestyle Fund - Growth Portfolio - Investing solely in John Hancock Funds II - Lifestyle Growth Portfolio (Class 1)

Seeks to achieve long-term growth of capital by investing approximately 80% of the portfolio’s assets in underlying portfolios that invest primarily in equity securities and approximately 20% of its assets in portfolio’s that invest primarily in fixed-income securities. Current income is also a consideration.

Lifestyle Fund - Moderate Portfolio - Investing solely in John Hancock Funds II - Lifestyle Moderate Portfolio (Class 1)

Seeks to achieve a balance between a high level of current income and growth of capital, with a greater emphasis on income by investing approximately 60% of the portfolio’s assets in underlying portfolios that invest primarily in fixed-income securities and 40% of its assets in portfolios that invest primarily in equity securities.

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Mid Cap Index Fund - Investing solely in JHVIT - Mid Cap Index Trust (Class 1)

Seeks to achieve the approximate aggregate total return of a mid-cap U.S. domestic equity market index. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) at the time of investment in (a) the common stocks that are included in the S&P 400 Mid Cap Index and (b) securities (which may or may not be included in the S&P Mid Cap 400 Index) that the subadviser believes as a group will behave in a manner similar to the index.

Mid Value Fund - Investing solely in JHVIT - Mid Value Trust (Class 1)

Seeks long-term capital appreciation. The portfolio invests, under normal market conditions, primarily in a diversified mix of common stocks of midsize U.S. companies that are believed to be undervalued by various measures and offer good prospects for capital appreciation. Under normal market conditions, the fund invests at least 80% of its net assets in companies with market capitalizations that are within the S&P Mid Cap 400 Index ($42 million to $4.6 billion as of February 28, 2009) or the Russell MidCap Value Index ($41 million to $13.8 billion as of February 28, 2009).

Money Market Fund - Investing solely in JHVIT- Money Market Trust (Class 1)

Seeks to achieve maximum current income consistent with preservation of principal and liquidity by investing in high-quality, U.S. dollar denominated money market.

Natural Resources Fund - Investing solely in John Hancock Funds II - Natural Resources Fund (Class 1)

Seeks to achieve long-term total return. The portfolio invests, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) primarily in equity and equity-related securities of natural resource-related companies worldwide.

Real Estate Securities Fund - Investing solely in John Hancock Funds II - Real Estate Securities Fund (Class 1)

Seeks to achieve a combination of long-term capital appreciation and satisfactory current income. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of real estate investment trusts (REITs) and real estate companies. Equity securities include common stock, preferred stock and securities convertible into common stock.

Real Return Bond Fund - Investing solely in John Hancock Funds II - Real Return Bond Fund (Class 1)

Seeks to achieve maximum real return, consistent with preservation of real capital and prudent investment management. The portfolio seeks to achieve its objective by investing under normal circumstances, at least 80% of its net assets in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations.

Retirement Living at 2010 - Investing solely in John Hancock Funds II - Lifecycle 2010 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2010. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2015 - Investing solely in John Hancock Funds II - Lifecycle 2015 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2015. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2020 - Investing solely in John Hancock Funds II - Lifecycle 2020 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2020. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity

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allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2025 - Investing solely in John Hancock Funds II - Lifecycle 2025 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2025. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2030 - Investing solely in John Hancock Funds II - Lifecycle 2030 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2030. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2035 - Investing solely in John Hancock Funds II - Lifecycle 2035 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2035. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2040 - Investing solely in John Hancock Funds II - Lifecycle 2040 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2040. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2045 - Investing solely in John Hancock Funds II - Lifecycle 2045 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2045. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Retirement Living at 2050 - Investing solely in John Hancock Funds II - Lifecycle 2050 Portfolio (Class 1)

Under normal market conditions, the fund primarily invests its assets in underlying funds using an allocation strategy designed for investors expected to retire around the year 2050. The expected year in which participants plan to retire and no longer make contributions is referred to as the target date. The Portfolio is managed to provide potential growth and income opportunity even in the years after retirement. The most conservative mix occurs about 20 years after the target date when the Portfolio has a 75% fixed income and 25% equity allocation. The principal value of an investment in this Portfolio is not guaranteed at any time, including at or after the target retirement date.

Science & Technology Fund - Investing solely in JHVIT - Science & Technology Trust (Class 1)

Seeks long-term growth of capital. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in the common stocks of companies expected to benefit

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from the development, advancement, and/or use of science and technology. For purposes of satisfying this requirement, common stock may include equity linked notes and derivatives relating to common stocks, such as options on equity linked notes. Current income is incidental to the portfolio’s objective.

Short-Term Federal Fund - Investing solely in Vanguard Short-Term Federal Fund (Investor Class)

Seeks to provide current income while maintaining limited price volatility. The Fund invests at least 80% of its assets in short-term bonds issued by the U.S. government and its agencies and instrumentalities, many of which are not backed by the full faith and credit of the U.S. government. The Fund is expected to maintain a dollar weighted average maturity of 1 to 4 years.

Small Cap Growth Fund - Investing solely in JHVIT - Small Cap Growth Trust (Class 1)

Seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in primarily small-cap companies that are believed to offer above-average potential for growth in revenues and earnings.

Small Cap Growth Index Fund - Investing solely in Vanguard Small Cap Growth Index Fund (Investor Class)

The Fund seeks to track the performance of a benchmark index that measures the investment return of small-capitalization growth stocks.

Small Cap Value Fund - Investing solely in JHVIT - Small Cap Value Trust (Class 1)

Seeks long-term capital appreciation by investing at least 80% of its net assets (plus any borrowings for investment purposes) primarily in a diversified mix of common stocks of small U.S. companies that are believed to be undervalued by various measures and offer good prospects for capital appreciation.

Small Company Value Fund - Investing solely in John Hancock Funds II - Small Company Value Fund (Class 1)

Seeks to achieve long-term growth of capital by investing at least 80% of its net assets in companies with market capitalizations that do not exceed the maximum market capitalization of any security in the Russell 2000 Index at the time of purchase. Portfolio securities are also selected by what T. Rowe Price believes to be undervalued companies that have good prospects for capital appreciation.

Strategic Income Opportunities Fund - Investing solely in JHVIT - Strategic Income Opportunities Trust (Class 1)

The Fund seeks to maximize total return consisting of current income and capital appreciation through investing, under normal market conditions, at least 80% of its assets in the following types of securities, which may be denominated in U.S. dollars or non-U.S. currencies: foreign government and corporate debt securities from developed and emerging markets, U.S. government and agency securities, domestic high-yield bonds and investment grade corporate bonds, and currency instruments. The Fund may also invest in preferred stock and other types of debt securities.

T. Rowe Price Health Sciences Fund - Investing solely in T. Rowe Price Health Sciences Fund (Class 1)

Seeks to achieve long-term capital appreciation. To invest at least 80% of net assets in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. While the fund can invest in companies of any size, the majority of fund assets are expected to be invested in large- and mid-capitalization companies.

Templeton World Fund - Investing solely in Templeton World Fund (Class A)

Seeks to achieve long-term capital appreciation by investing, under normal market conditions (plus any borrowings for investment purposes) in the equity securities of companies located anywhere in the world, including emerging markets. At least 65% of its total assets will be invested in issuers located in at least three different countries (including the U.S.).

The Investment Company of America - Investing solely in The Investment Company of America® (Class R5)

Seeks to achieve long-term growth of capital and income, by investing in solid companies with the greatest potential for future dividends, rather than current income. The portfolio principally invests in common stocks, but may also hold securities convertible into common stocks, as well as bonds, U.S. government securities, nonconvertible preferred stocks, and cash and equivalents. The portfolio may also invest in securities of issuers domiciled outside the United States typically not exceeding 15% of assets.

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Total Return Fund - Investing solely in John Hancock Funds II - Total Return Fund (Class 1)

Seeks to achieve maximum total return, consistent with preservation of capital and prudent investment management. Under normal market conditions, the fund invests at least 65% of its total assets in a diversified portfolio of fixed income instruments of varying maturities, which may be represented by forwards or derivatives, such as options, futures contracts, or swap agreements.

Total Stock Market Index Fund - Investing solely in JHVIT - Total Stock Market Index Trust (Class 1)

Seeks to achieve the approximate aggregate total return of a broad U.S. domestic equity market index. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) at the time of investment in (a) the common stocks that are included in the Wilshire 5000 Total Market Index and (b) securities (which may or may not be included in the Wilshire 5000 Total Market Index) that the subadviser believes as a group will behave in a manner similar to the index.

U.S. High Yield Bond Fund - Investing solely in John Hancock Funds II - U.S. High Yield Bond Fund (Class 1)

Seeks total return with a high level of current income by investing at least 80% of its net assets (plus any borrowings for investment purposes) in U.S. corporate debt securities that are, at the time of investment, below investment grade, including preferred and other convertible securities in below investment grade debt securities (sometimes referred to as “junk bonds” or high yield securities).

Utilities Fund - Investing solely in JHVIT - Utilities Trust (Class 1)

Seeks to achieve capital growth and current income. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowing for investment purposes) in securities of companies in the utilities industry. Securities in the utilities industry may include equity and debt securities of domestic and foreign companies (including emerging markets).

Value Fund - Investing solely in JHVIT - Value Trust (Class 1)

Seeks to achieve an above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities. The portfolio primarily purchases equity securities of companies with capitalizations similar to the market capitalization of companies in the Russell Midcap Value Index.

Washington Mutual Investors Fund - Investing solely in Washington Mutual Investors FundSM (Class R5)

Seeks to produce income and provide the opportunity for capital appreciation by investing primarily in common stocks. The portfolio, under normal circumstances, will invest at least 95% of its assets in equity securities. The Fund invests in stocks that meet strict standards evolving from requirements originally established by the U.S. District Court for the District of Columbia for the investment of trust funds. The portfolio may invest a portion of its assets in securities of issuers domiciled outside the U.S. and not included in the Standard & Poor’s 500 Composite Index.

Please refer to the “Your investment options” booklet of John Hancock Retirement Plan Services for  additional information regarding the above investment options.  Contact Patricia Floyd, Senior Vice President, Human Resources, if you need a new copy of the “Your investment options” booklet.  You may also request a prospectus for each of the investment options from the plan administrator.

Sound Financial Bancorp, Inc. Common Stock - The investment in Sound Financial Bancorp, Inc. common stock involves certain risks.  No assurance can be given that shares of Sound Financial Bancorp, Inc. common stock purchased by the 401(k) Plan will thereafter be able to be sold at a price equal to or in excess of the purchase price.  See also “Risk Factors” in the Prospectus.

Sound Financial Bancorp, Inc. Common Stock Investment Election Procedures.  If you are actively employed by Sound Community Bank or an affiliate on March 31, 2012, have an account balance under the 401(k) Plan of at least $250, and have subscription rights under the Stock Offering as described on page 1, you may instruct the trustee to purchase common stock from your fully vested 401(k) Plan account(s) by filing an Investment Election Form with the plan administrator on or prior to the deadline, redirecting funds from your existing 401(k) Plan accounts.  The total amount of funds redirected to purchase common stock must represent whole share amounts (i.e., must be divisible by the $10.00 per share purchase price) and must be allocated in dollar amounts from investment options containing your 401(k) Plan funds.  When you instruct the trustee to redirect the funds in your existing accounts to purchase common stock, the trustee will liquidate funds from the appropriate investment option(s) and apply such redirected funds as requested, in order to effect the new allocation.

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For example, you may fund an election to purchase 100 shares of common stock by redirecting the aggregate purchase price of $1,000 for the shares from the following investment options (provided the necessary funds are available in such investment options): (i) 10% from the Small Cap Value Fund, (ii) 30% from the International Value Fund, and (iii) 60% from the Investment Quality Bond Fund.  In such case, the trustee would liquidate $100 of the participant’s funds from the Small Cap Value Fund, $300 from funds in the International Value Fund and $600 from funds in the Investment Quality Bond Fund to raise the $1,000 aggregate purchase price.  If your instructions cannot be fulfilled because you do not have the required funds in one or more of the investment options to purchase the shares of common stock subscribed for, you will be required to file a revised Investment Election Form with the plan administrator by the deadline.  Once received in proper form, an executed Investment Election Form may not be modified, amended or rescinded without our consent, unless the Stock Offering has not been completed within 45 days after the end of the subscription and direct community offering.

Adjusting Your Investment Strategy.  Until changed in accordance with the terms of the 401(k) Plan, future allocations of your contributions would remain unaffected by the election to purchase common stock through the 401(k) Plan in the Stock Offering.  You may modify a prior investment allocation election or request the transfer of funds to another investment vehicle by filing a written notice, with such modification or request taking effect after the valuation of accounts, which occurs daily.  After the Stock Offering, modifications and fund transfers relating to the common stock will be permitted on a daily basis.   After the Stock Offering, you will be able to sell the common stock in your 401(k) Plan accounts but will not be able to make an additional or subsequent investment in common stock through the 401(k) Plan.

Valuation of Accounts.  The 401(k) Plan uses a unit system for valuing each investment fund.  Under this system your share in any investment fund is represented by units.  The unit value is determined as of the close of business each regular business day.  The total dollar value of your share in any investment fund as of any valuation date is determined by multiplying the number of units held by you by the unit value of the fund on that date.  The sum of the values of the funds you select represents the total value of your 401(k) Plan account.

Financial Data

Employer Contributions.  For the year ended December 31, 2011, we made matching contributions totaling approximately $68,000 into the 401(k) Plan.  We made no profit sharing contributions to the 401(k) Plan for the fiscal year ended December 31, 2011.

If we adopt or contribute to other stock-based benefit plans, such as an employee stock ownership plan or an equity incentive plan, then we may decide to amend the 401(k) Plan, reduce our matching contribution, and/or reduce or eliminate our profit sharing contribution under the 401(k) Plan in order to reduce overall expenses.  We have previously adopted an employee stock ownership plan, which is expected to purchase additional common stock in the Stock Offering.   We currently have an equity incentive plan in place and may adopt additional equity incentive plans in the future subject to shareholder approval.

Performance of Sound Financial Bancorp, Inc. Common Stock.  The historical performance of the common stock of Sound Financial, Inc. for the last three years is as follows (exclusive of dividends):

HISTORICAL PERFORMANCE

Performance of Investment Options.  The following table provides performance data with respect to the investment options available under the 401(k) Plan, based on information provided to Sound Financial, Inc. by John Hancock Retirement Plan Services.

The information set forth below with respect to the investment options has been reproduced from materials supplied by John Hancock Retirement Plan Services, which is responsible for providing investment alternatives under the 401(k) Plan, other than the common stock.  Sound Community Bank and Sound Financial, Inc. take no responsibility for the accuracy of such information.

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Participants should review this and any other available additional information regarding your current selected investments options before making an investment decision to transfer funds in those investment options to purchase common stock.

NET INVESTMENT PERFORMANCE

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Each participant should note that past performance is not necessarily an indicator of future results.

Administration of the 401(k) Plan

Trustees.  Trustee matters regarding the 401(k) Plan are handled by Patricia Floyd, Senior Vice President, Human Resources, Lauralee Stewart, President and CEO, and Matthew P. Deines, Executive Vice President (referred to collectively as “trustee”).  Currently, John Hancock provides administrative services with respect to all the investment option funds, except the common stock.  Panagiotu Pension Advisors, Inc. is expected to handle administrative services relating to 401(k) investments in the common stock.

The trustee receives and holds the contributions to the 401(k) Plan in trust and distributes them to participants and beneficiaries in accordance with the provisions of the 401(k) Plan.  The plan administrator is responsible for following participant direction, effectuating the investment of the assets of the trust in common stock and the other investment options.

Benefits Under the 401(k) Plan

Plan Benefits.  Your 401(k) Plan benefit is based on the value of the vested portion of your 401(k) Plan accounts as of the valuation date next preceding the date of distribution to you.

Vesting.  You will always have a fully vested (nonforfeitable) interest in your 401(k) contribution account and rollover account.  Your matching contribution account and profit sharing contribution account generally will vest at a rate of 20% per year, beginning with the second year of service and ending with the sixth year of service.  Generally, a year of service is a plan year (January 1 to December 31) during which you perform at least 1,000 hours of service for Sound Community Bank or an affiliated employer.

Withdrawals and Distributions from the 401(k) Plan

Withdrawals Prior to Termination of Employment.  You may receive in-service distributions from all of your 401(k) Plan accounts after you have attained age 60, provided that the amounts you are withdrawing have been allocated to your account for at least two years, and you have been a participant in the 401(k) Plan for at least five years.   In addition, if you are a reservist or National Guardsman, you may also qualify for an in-service distribution.

Hardship Distributions.   Distributions of your 401(k) contributions, but not the earnings thereon, may be made on account of hardship, but the distribution amount is limited to the amount needed to meet the immediate financial hardship, plus applicable income taxes.  A financial hardship must involve one of the following circumstances to qualify for a hardship distribution: payment of certain medical expenses, purchase of a principal residence, payment of tuition and room and board for the next 12 months, prevention of eviction or foreclosure of a principal residence, certain burial and funeral expenses, and certain expenses to repair your principal residence.

Distribution Upon Retirement or Disability.  Upon your retirement or disability, you will receive a distribution from the Plan.

Distribution Upon Death.  If you die prior to your benefits being paid from the 401(k) Plan, your benefits will be paid to your surviving spouse or properly designated beneficiary.

Distribution Upon Termination for any Other Reason.  If you terminate employment for any reason other than retirement, disability or death, the trustee will make your distribution of your vested account balances on your normal retirement date or upon death or disability, unless you elect to receive those vested benefits earlier.

Plan Loans.  You may borrow from your 401(k) Plan accounts, subject to Internal Revenue Code limits and the 401(k) Plan’s loan policy in effect from time to time.

Form of Distribution. Distributions from the 401(k) Plan will generally be in the form of cash.  However, you may right to request that your distribution attributable to the common stock held in your 401(k) Plan accounts be in the form of common stock.  Distributions will be paid in a lump sum.

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Nonalienation of Benefits.  Except with respect to federal income tax withholding and plan loans, and as provided with respect to a qualified domestic relations order, benefits payable under the 401(k) Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan shall be void.

Reports to 401(k) Plan Participants

As soon as practicable after the end of each calendar quarter, the plan administrator will furnish to each participant a statement showing: (i) balances in the participant’s accounts as of the end of that period; (ii) the amount of contributions allocated to his or her accounts for that period; and (iii) the number of units in each of the funds.  Participants also may access information regarding their 401(k) Plan Accounts, except for investments in common stock, by using internet access made available by John Hancock.

Amendment and Termination

We intend to continue to participate in the 401(k) Plan.  Nevertheless, we may amend or terminate the 401(k) Plan at any time.  If the 401(k) Plan is terminated in whole or in part, then, regardless of other provisions in the 401(k) Plan, each participant affected by the termination shall become fully vested in all of his or her accounts.

Federal Income Tax Consequences

The following is a brief summary of the material federal income tax aspects of the 401(k) Plan as in effect on the date of this Prospectus Supplement.  You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the 401(k) Plan.  Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances.  Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws.  Please consult your tax advisor with respect to any distribution from the 401(k) Plan and transactions involving the plan.

As a “tax-qualified retirement plan,” the Internal Revenue Code affords the 401(k) Plan special tax treatment, including:

We will administer the 401(k) Plan to comply with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law.

Taxation of Distributions.  Generally, 401(k) Plan distributions are taxable as ordinary income for federal income tax purposes.

Common Stock Included in a Lump Sum Distribution.  If a lump sum distribution includes common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount will be reduced by the amount of any net unrealized appreciation with respect to the common stock.   Net unrealized appreciation is the excess of the value of the common stock at the time of the distribution over its cost or other basis to the 401(k) Plan trust.  The tax basis of the common stock for purposes of computing gain or loss on its subsequent sale equals the value of the common stock at the time of distribution less the amount of net unrealized appreciation.  Any gain on a subsequent sale or other taxable disposition of the common stock up to the amount of net unrealized appreciation at the time of distribution will be considered long-term capital gain regardless of the holding period of

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the common stock. Any gain on a subsequent sale or other taxable disposition of the common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered either short-term or long-term capital gain depending upon the length of the holding period of the common stock.  The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution to the extent allowed by the regulations issued by the Internal Revenue Service.

Rollovers and Direct Transfers to Another Qualified Plan or to an Individual Retirement Account; Mandatory Tax Withholding.  Except as discussed below, you may roll over virtually all “eligible rollover distributions” from the 401(k) Plan to another tax-favored plan or to a individual retirement account (IRA).  You also may elect to have the trustee directly transfer all or any portion of an “eligible rollover distribution” directly to another qualified retirement plan (subject to the provisions of the recipient qualified plan) or to an IRA (either traditional or Roth).  Generally, a rollover or direct transfer of an eligible rollover distribution to a traditional IRA will not be currently taxed, but will be taxed later when distributed from the IRA.  A conversion to a Roth IRA will be currently taxed, but that amount will not be subject to income taxes when distribution from the Roth IRA, and the distribution of earnings on such amounts will not be taxed if certain holding conditions are met.   If you do not elect to have an “eligible rollover distribution” transferred directly to another qualified plan or to an IRA, the distribution will be subject to a mandatory federal withholding tax, generally equal to 20% of the taxable distribution.  Your state may also impose tax withholding on your taxable distribution.  An “eligible rollover distribution” means any amount distributed from the plan except: (i) a distribution that is (a) one of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives of you and your designated beneficiary, or (b) for a specified period of ten years or more; (ii) any amount required to be distributed under the minimum distribution rules; and (iii) any other distributions excepted under applicable federal law.  If you elect to rollover or directly transfer common stock, you may not take advantage of the favorable net unrealized appreciation that applies to common stock, discussed above.

Ten-Year Averaging Rules.   Under a special grandfather rule, if you have completed at least five years of participation in the 401(k) Plan before the taxable year in which the distribution is made, and you turned age 50 by 1986, you may elect to have your lump sum distribution taxed using a “ten-year averaging” rule.  The election of the special averaging rule applies only to one lump sum distribution you or your beneficiary receive, provided such amount is received on or after you attain age 59-1/2 and you elect to have any other lump sum distribution from a qualified plan received in the same taxable year taxed under the ten-year averaging rule or receive a lump sum distribution on account of your death.

Additional Tax on Early Distributions.  A participant who receives a distribution from the 401(k) Plan prior to attaining age 59½ will be subject to an additional income tax equal to 10% of the amount of the distribution.  The 10% additional income tax will not apply, however, in certain cases, including (but not limited) to distributions rolled over or directly transferred into an IRA or another qualified plan, or the distribution is: (i) made to a beneficiary (or to the estate of a participant) on or after the death of the participant; (ii) attributable to the participant’s being disabled within the meaning of Section 72(m)(7) of the Internal Revenue Code; (iii) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the participant or the joint lives (or joint life expectancies) of the participant and his beneficiary; (iv) made to the participant after separation from service under the 401(k) Plan after attainment of age 55; (v) made to pay medical expenses to the extent deductible for federal income tax purposes; (vi) pursuant to a qualified domestic relations order; or (vii) made to effect the distribution of excess contributions or excess deferrals.  In addition, the additional tax on early distributions will not apply if the distribution is made to a Roth IRA (unless a distribution is made from the Roth IRA before certain holding conditions are met).

This is a brief description of federal income tax aspects of the 401(k) Plan, which are of general application under the Internal Revenue Code.  It is not intended to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan.  Accordingly, you are urged to consult a tax advisor concerning the federal, state and local tax consequences that may be particular to you of participating in and receiving distributions from the 401(k) Plan.

ERISA and Other Qualification

As noted above, the 401(k) Plan is subject to certain provisions of ERISA, the primary federal law governing retirement plans, and is intended to be a qualified retirement plan under the Internal Revenue Code.

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Restrictions on Resale

Any person receiving shares of common stock under the 401(k) Plan who is an “affiliate” of Sound Financial Bancorp, Inc. or Sound Community Bank as the term “affiliate” is used in Rules 144 and 405 under the Securities Act of 1933 (e.g., directors, officers and substantial shareholders of Sound Financial Bancorp, Inc. and Sound Community Bank) may re-offer or resell such shares only pursuant to a registration statement or, assuming the availability thereof, pursuant to Rule 144 or some other exemption from the registration requirements of the Securities Act of 1933.  Any person who may be an “affiliate” of Sound Financial Bancorp, Inc. should consult with counsel before transferring any common stock owned by him or her.  In addition, participants are advised to consult with counsel as to the applicability of Section 16 of the Securities Exchange Act of 1934 which may restrict the sale of common stock acquired under the 401(k) Plan, or other sales of common stock.

Securities and Exchange Commission Reporting and Short-Swing Profit Liability

Section 16 of the Exchange Act imposes reports and liability requirements on officers, directors and persons beneficially owning more than 10% of public companies such as Sound Financial Bancorp, Inc.  Section 16(a) of the Exchange Act requires the filing of reports of beneficial ownership.  Within ten days of becoming a person subject to the reporting requirements of Section 16(a), a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission.  Certain changes in beneficial ownership, such as purchases, sales, gifts and participation in savings and retirement plans must be reported periodically, either on a Form 4 within ten days after the end of the month in which a change occurs, or annually on a Form 5 within 45 days after the close of our fiscal year.  Ownership of common stock in the 401(k) Plan by our officers, directors and persons beneficially owning more than 10% of the outstanding common stock must be reported to the Securities and Exchange Commission at least annually on a Form 4 or Form 5 by such individuals.

Section 16(b) of the Exchange Act provides for the recovery by us of any profits realized by an officer, director or any person beneficially owning more than 10% of the common stock (“Section 16(b) Persons”) resulting from the purchase and sale or sale and purchase of common stock within any six-month period.  The Securities and Exchange Commission rules provide an exemption from the profit recovery provisions of Section 16(b) for certain transactions within an employee benefit plan, such as the 401(k) Plan, provided certain requirements are met.  If you are subject to Section 16, you should consult with counsel regarding the applicability of Section 16 to specific transactions involving the 401(k) Plan.

LEGAL OPINIONS

The validity of the issuance of the common stock will be passed upon by Silver, Freedman & Taff, L.L.P., 3299 K Street, N.W., Suite 100, Washington, D.C. 20007, which firm acted as special counsel for Sound Financial Bancorp, Inc. and Sound Community Bank in connection with the Stock Offering.

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INVESTMENT ELECTION FORM

SOUND COMMUNITY BANK

401(k) PROFIT SHARING PLAN

PARTICIPANT ELECTION TO INVEST IN

SOUND FINANCIAL BANCORP, INC. COMMON STOCK

If you would like to participate in the Stock Offering using amounts currently in your account in Sound Community Bank’s 401(k) Profit Sharing Plan, please complete this form and return it to Patricia Floyd, Senior Vice President, at our main office, to be received by her no later than 12:00 Noon, Pacific time, on July 21, 2012, which is 10 days before the end of the subscription offering.

1.                                      Background Information

Sound Financial Bancorp, Inc. will be issuing shares of common stock, par value $0.01 per share (the “Common Stock”), to certain depositors and the public in the Stock Offering.  Participants in the Sound Community Bank 401(k) Profit Sharing Plan (the “401(k) Plan”) who are actively employed as of March 31, 2012, who have an account balance in the 401(k) Plan of at least $250, and who have subscription rights under the Stock Offering as described in 3., below, are being given an opportunity to direct the trustee of the 401(k) Plan to purchase Common Stock in the Stock Offering with amounts currently in their fully vested accounts under the 401(k) Plan.  (Eligible employees who would like to directly purchase shares of Common Stock in the offering with funds other than amounts currently in their 401(k) Plan accounts may do so by completing the order form that accompanies the Prospectus.)  Because it is actually the 401(k) Plan that purchases the Common Stock, participants would acquire a “participation interest” in the shares and would not own the shares directly.

Prior to making a decision to direct the trustee to purchase Common Stock, we strongly urge you to carefully review the Prospectus and the Prospectus Supplement that accompany this Investment Election Form.  Your decision to direct the transfer of amounts credited to your account balances to purchase shares of Common Stock in connection with the Stock Offering is irrevocable.  After the completion of the offering, participants may transfer some or all of their shares of Common Stock in the 401(k) Plan into one or more of the 401(k) Plan’s other investment funds at such times as are provided for under the 401(k) Plan’s rules for such transfers.  Note:  Once you sell your Common Stock in the 401(k) Plan and reinvest the proceeds in other 401(k) Plan investment alternatives, you may not again purchase Common Stock in the Plan.  Nor may you invest future 401(k) Plan contributions in Common Stock.

Investing in any stock entails some risks.  We encourage you to discuss your investment decision with your investment advisor before completing this form.  Neither the trustee, the plan administrator, nor any employee of the employer sponsor is authorized to make any representations about this investment.  You should not rely on any information other than information contained in the Prospectus and the Prospectus Supplement in making your investment decision.  Any shares purchased by the 401(k) Plan based on your election will be subject to the conditions and restrictions otherwise applicable to Common Stock purchased directly by you in the Stock Offering.  These restrictions are described in the Prospectus and the Prospectus Supplement.

2.                                      Investment Elections

If you would like to participate in the Stock Offering with amounts currently in your 401(k) Plan, please complete the box below, indicating the dollar amount to be transferred from each of your current funds to be used to purchase Common Stock (so that an whole number of shares of Common Stock will be purchased at $10.00 per share).  In calculating the number of shares of Common Stock that the trustee will purchase in the Stock Offering based on your election, the trustee will use your most recent available 401(k) Plan account balances.

In the event that the trustee is unable to use the total amount that you elect in the box below to purchase Common Stock due to an oversubscription in the Stock Offering, the amount that is not invested in Common Stock will be invested in the Money Market Fund account, which you can then direct to have reinvested among other available Plan investment alternatives.

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Indicate the exact dollar amount to be transferred from one or more of the following funds to purchase a whole number of shares of Common Stock at $10.00 per share:

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The total amount transferred from funds indicated above will be used to purchase Common Stock.

Note: If you do not indicate any dollar amounts above, you will not participate in the Stock Offering by using your 401(k) Plan funds.

3.                                      Purchaser Information.

The ability of participants in the 401(k) Plan to purchase common stock in the Stock Offering and to direct their current account balances into Common Stock is based upon the participant’s status as an eligible account holder, supplemental eligible account holder or other member.  Please indicate your status.

4.                                      Participant Signature and Acknowledgment - Required

By signing this investment election form, I authorize and direct the plan administrator and trustee to carry out my instructions. I acknowledge that I have been provided with and have received a copy of the Prospectus and Prospectus Supplement relating to the issuance of Common Stock that accompany this Investment Election Form.  I am aware of the risks involved in investing in Common Stock and understand that neither the trustee, the plan administrator nor any employee of the employer sponsor are responsible for my choice of investment.  I understand that my failure to sign this acknowledgment will make this investment election form null and void.

I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE, OF SOUND FINANCIAL BANCORP, INC. ARE NOT DEPOSITS OR AN ACCOUNT AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY SOUND FINANCIAL BANCORP, INC. OR BY THE FEDERAL GOVERNMENT.

If anyone asserts that the shares of Common Stock are federally insured or guaranteed or are as safe as an insured deposit, I should call the Sound Financial Bancorp, Inc. information hotline at (877) 860-2091.

This form must be completed and returned to Patricia Floyd, Senior Vice President, at our main office, to be received by her no later than 12:00 noon, Pacific time, on July 21, 2012.

Keep a copy of this election form for your files.

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SUBSCRIPTION AND COMMUNITY

OFFERING PROSPECTUS

SOUND FINANCIAL BANCORP, INC.

(Proposed Holding Company for Sound Community Bank)

Up to 1,552,500 Shares of Common Stock

(Subject to Increase to up to 1,785,375 Shares)

$10.00 per Share

Sound Financial Bancorp, Inc., a Maryland corporation referred to throughout this document as Sound Financial Bancorp, is offering up to 1,552,500 shares of common stock for sale at $10.00 per share in connection with the conversion of Sound Community MHC from the mutual holding company to the stock holding company form of organization.  The shares being offered represent the 54.8% ownership interest in Sound Financial, Inc. currently owned by Sound Community MHC.  Sound Financial, Inc.’s common stock is currently traded on the OTC Bulletin Board under the trading symbol “SNFL.”  We expect that Sound Financial Bancorp’s shares of common stock will trade on the Nasdaq Capital Market under the trading symbol “SFBC.”  For additional information regarding our current and proposed organizational structure, see page 2. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.  See “Emerging Growth Company Status.”

We are offering the common stock for sale on a best efforts basis.  The shares are first being offered in a subscription offering to current and former depositors of Sound Community Bank as of specified eligibility dates, with aggregate account balances of at least $50, and tax-qualified employee benefit plans of Sound Community Bank as described in this prospectus.  Shares not purchased in the subscription offering may simultaneously be offered to the general public in a community offering, with a preference given to residents of the communities served by Sound Community Bank and existing shareholders of Sound Financial, Inc.  Existing shareholders of Sound Financial, Inc. do not have priority rights in the subscription offering, absent any status they may have as depositors.  We may also offer shares of common stock not subscribed for in the subscription and community offerings in a syndicated community offering through a syndicate of selected dealers.

We must sell a minimum of 1,147,500 shares of common stock in the offering in order to complete the offering.  We may sell up to 1,785,375 shares because of demand for the shares, as a result of regulatory considerations or changes in market conditions, without resoliciting purchasers.  Keefe, Bruyette & Woods, Inc. will assist us in selling the shares on a best efforts basis in the subscription and community offerings and will serve as sole book-running manager for any syndicated community offering.  Neither Keefe, Bruyette & Woods, Inc. nor any member of the syndicate group is required to purchase any shares of common stock in the offering.

In addition to the shares we are selling in the offering, the remaining 45.2% interest in Sound Financial, Inc. common stock currently held by the public will be exchanged for shares of common stock of Sound Financial Bancorp using an exchange ratio that will result in the existing public shareholders owning approximately the same percentage of Sound Financial Bancorp common stock as they owned of Sound Financial, Inc. common stock immediately prior to the completion of the conversion.  We will issue up to 1,281,699 shares of common stock in the exchange, which may be increased to up to 1,473,954 shares of common stock if we sell 1,785,375 shares of common stock in the offering.

The minimum order is 25 shares.  The subscription offering will expire at noon, Pacific time, on July 31, 2012.  We expect that the community offering will terminate at the same time, although it may be extended without notice to you until September 14, 2012, unless the Federal Reserve Board approves a later date.  No single extension may exceed 90 days and the offering must be completed by August 15, 2014.  Once submitted, orders are irrevocable unless the offering is terminated or is extended beyond September 14, 2012, or the number of shares of common stock to be sold is increased to more than 1,785,375 shares or decreased to less than 1,147,500 shares.  Funds received prior to the completion of the subscription and community offering will be held in a segregated account at Sound Community Bank and will earn interest at Sound Community Bank’s regular savings rate, which is currently 0.05%.  If all of the shares offered are purchased in the subscription offering, purchasers in the community offering will have their funds returned promptly, with interest.  If the subscription and community offerings are terminated, purchasers will have their funds returned promptly, with interest.  If the offering is extended beyond September 14, 2012, we will resolicit purchasers, and you will

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have the opportunity to maintain, change or cancel your order.  In such event, if you do not provide us with a written indication of your intent, your order will be canceled and your funds will be returned to you, with interest.  If there is a change in the offering range, we will promptly return all funds with interest, and all subscribers will be provided with updated information and given the opportunity to place a new order.

Completion of the conversion and offering is subject to several conditions, including the approval of the plan of conversion and reorganization by a vote of at least a majority of the outstanding shares of Sound Financial, Inc., excluding shares held by Sound Community MHC.  See “Summary — Conditions to Completion of the Conversion.”

OFFERING SUMMARY

Price:  $10.00 per share

(1)    Includes (i) fees payable by us to Keefe, Bruyette & Woods, Inc. in connection with the subscription and community offerings equal to 1.00% and 2.00% of the aggregate amount of common stock sold in the subscription and community offerings, respectively (less shares purchased by our directors, officers and employees and their immediate families and by our tax-qualified compensation plans), assuming that 40% of the shares are sold in the subscription offering and 25% of the shares are sold in the community offering, (ii) fees and selling commissions payable by us to Keefe, Bruyette & Woods, Inc. and any other broker-dealers participating in the syndicated community offering equal to 6.00% of the aggregate amount of common stock sold in the syndicated community offering, assuming that 35% of the shares are sold in the syndicated community offering, and (iii)  other expenses of the stock offering payable to Keefe, Bruyette & Woods, Inc. estimated to be $120,000.  If all shares were sold in the syndicated community offering (excluding shares purchased by the employee stock ownership plan, directors and executive officers), the maximum commission payable to participating members would be $618,720, $730,500, $842,280 and $970,827 at the minimum, midpoint, maximum and adjusted maximum of the offering range.  For further information regarding selling agent fees and commissions, including certain additional compensation not included in the table above, see “The Conversion and Offering — Marketing Arrangements.”

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page 20.

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.  Neither the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete.  Any representation to the contrary is a criminal offense.

KEEFE, BRUYETTE & WOODS

For assistance, please contact the Stock Information Center toll-free at (877) 860-2091.

The date of this prospectus is June 29, 2012.

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SUMMARY

The following summary explains the material aspects of the conversion, the offering and the exchange of existing shares of Sound Financial, Inc. common stock for shares of Sound Financial Bancorp, Inc. common stock.  It may not contain all of the information that is important to you.  Before making an investment decision you should read the remainder of this prospectus carefully, including the consolidated financial statements, the notes to the consolidated financial statements and the section entitled “Risk Factors.”

The Companies

Sound Financial Bancorp, Inc.  Sound Financial Bancorp, Inc., referred to in this prospectus as Sound Financial Bancorp, is a newly formed Maryland corporation that was incorporated in March 2012 to be the successor corporation to Sound Financial, Inc. upon completion of the conversion.  While federal regulations contemplate the use of federally chartered entities in the mutual holding company structure, fully converted public stock holding companies must be state-chartered entities.  Sound Financial Bancorp will own all of the outstanding shares of common stock of Sound Community Bank upon completion of the conversion.  Sound Financial Bancorp will be subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “Federal Reserve”). Sound Financial Bancorp’s executive offices are located at 2005 5th Avenue, Suite 200, Seattle, Washington 98121.  Our telephone number at this address is (206) 448-0884.

Sound Community MHC.  Sound Community MHC is the federally chartered mutual holding company of Sound Financial, Inc. Sound Community MHC’s principal business activity is the ownership of 1,621,435 shares of common stock of Sound Financial, Inc., or 54.8% of the issued and outstanding shares as of the date of this prospectus.  After the completion of the conversion, Sound Community MHC will cease to exist.

Sound Financial, Inc.  Sound Financial, Inc. is a federally chartered stock holding company that owns all of the outstanding common stock of Sound Community Bank.  Sound Financial, Inc. was incorporated in 2008 for the purpose of becoming the holding company of Sound Community Bank in connection with the mutual-to-stock conversion of Sound Community Bank. Sound Community Bank reorganized into the mutual holding company form of ownership and completed a public stock offering on January 8, 2008.  In conjunction with the public stock offering, Sound Financial, Inc. raised approximately $13.0 million of proceeds.  Sound Financial, Inc. has no significant assets other than its ownership of all of the outstanding shares of common stock of Sound Community Bank, its loan to the employee stock ownership plan, and certain liquid assets.  Sound Financial, Inc.’s stock is traded on the OTC Bulletin Board under the symbol “SNFL”.

At March 31, 2012, Sound Financial, Inc. had consolidated assets of $348.7 million, deposits of $307.8 million and stockholders’ equity of $29.5 million.  After the completion of the conversion, Sound Financial, Inc. will cease to exist, and will be succeeded by Sound Financial Bancorp.  As of the date of this prospectus, Sound Financial, Inc. had 2,960,045 shares of common stock issued and outstanding, of which 1,621,435 shares were owned by Sound Community MHC.  The remaining 1,338,610 shares of Sound Financial, Inc. common stock outstanding as of the date of this prospectus were held by the public.

Sound Community Bank.  Sound Community Bank is a federally chartered stock savings bank headquartered in Seattle, Washington and the wholly-owned subsidiary of Sound Financial, Inc. Sound Community Bank was originally founded as a credit union and converted to a federal mutual (meaning no shareholders) savings bank in 2003.  In 2008, Sound Community Bank converted to stock form and became the wholly-owned subsidiary of Sound Financial, Inc. as part of a mutual holding company reorganization and stock issuance.

Executive Overview

                We serve the Puget Sound region in western Washington, including the Seattle-Tacoma-Bellevue metropolitan area (“Seattle MSA”), and Clallam County, Washington through our main office in Seattle and four branch offices, two of which are located in the Seattle MSA and two that are located in Clallam County, west of Puget Sound.  Our main office is located in Seattle in King County, while the Tacoma branch is located in Pierce County, the Mountlake Terrace branch is located in Snohomish County and the Sequim and Port Angeles branches are located in Clallam County.  In 2009, we acquired branches located in Port Angeles and Tacoma, Washington from another local institution.  We are a member of the Federal Home Loan Bank (“FHLB”) system, and our

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customers’ deposits are insured up to the regulatory maximums by the Federal Deposit Insurance Corporation (“FDIC”).

                Although our total assets, loans and deposits have remained relatively stable over the last three years, we have continued to diversify our loan portfolio over this period.  At March 31, 2012, residential mortgage loans (including home equity loans) and consumer loans comprised 45.4% and 9.3%, respectively, of our total loan portfolio, compared to 58.9% and 21.0%, respectively, at December 31, 2007.  We have also in recent years focused on expanding our commercial loan portfolio, including both real estate secured loans and loans secured by business assets.  In this regard, commercial real estate (including multifamily loans) and commercial business loans have more than doubled as a percentage of our total loans, from 16.2% to 39.2% from December 31, 2007 to March 31, 2012, while construction and loans have increased slightly from 3.9% to 6.0% during this same period.  As of March 31, 2012, 86.3% of our total loans were real estate secured mortgage loans, substantially all of which secured by properties located in the state of Washington.

                We focus on residential mortgage loan originations, most of which are written using generally accepted underwriting guidelines, and are sold in the secondary market to Fannie Mae, with servicing retained for continued customer contact, relationship building and to increase non-interest income.  Primarily as a result of these sales, substantially all of the one- to four-family residential mortgage loans we retain in this portfolio consist of loans that are “non-conforming” because they do not satisfy acreage limits, income, credit or various other requirements imposed by Fannie Mae or other secondary market purchasers.  We believe that these loans satisfy a need in our market area and. subject to market conditions, intend to continue to originate these types of loans.  See “Business of Sound Financial Inc. and Sound Community Bank — Lending Activities — One- to Four-Family Real Estate Lending.”  We do not actively engage in originating “alt A” loans, interest-only, option adjustable rate or subprime loans and have no established program to originate or purchase these loans. Through our normal lending practices, we held in our loan portfolio at March 31 2012, $988,000 of interest only loans, representing less than one-half percent of our total loan portfolio, and $22.7 million in loans identified as subprime at the time of loan origination, representing 7.5% of our total loan portfolio, and no alt A or option adjustable rate loans.  Subprime loans are defined by bank regulators as loans that at the time of loan origination had a Fair Isaac and Company, Incorporated, or FICO, credit score of less than 660.  At the time of loan origination or modification, our subprime borrowers had an average FICO score of 631.  We obtain updated FICO scores on all our borrowers semi-annually and based on this updated score, at March 31 2012, $16.6 million or 5.5% of our total loan portfolio would be deemed subprime. As of March 31, 2012, our subprime portfolio, based on the FICO score at the time of loan origination or modification, included approximately $14.3 million in one- to four-family mortgage loans (of which $3.0 million were adjustable rate), $5.2 million in home equity loans (all of which are adjustable rate), $2.4 million in manufactured home loans (none of which were adjustable rate) and $942,000 in other types of consumer loans (of which $203,000 were adjustable rate).  Approximately 91% of these subprime loans were originated prior to 2010, and these loans are managed in the ordinary course of business. We do not believe subprime lending to be a material part of our business. See also “Risk Factors — Our loan portfolio possesses increased risk as the result of subprime loans.”

                The composition of our deposit mix has also changed over the last three years due to our emphasis on increasing core deposits, which we define as our non-certificate or non-time deposit accounts.  Core deposits comprised 55.8% of total deposits at March 31, 2012, versus 53.3% of total deposits at year end 2009.  We also use borrowings to fund growth and to manage funding costs and interest rate risk.  Borrowings totaled $8.3 million at March 31, 2012, a decrease of $16.5 million from December 31, 2010, as we reduced reliance on these borrowings as the result of deposit growth exceeding loan growth.

                Our market area for business operations is the Puget Sound region in western Washington and Clallam County, Washington.  In recent years, like much of the country, the economy in our market area has experienced a downturn, reflecting the impact of the nationwide recession.  Unemployment rates increased, and real estate prices diminished from peak levels.  As a result, like most financial institutions, our future operating results and financial performance will be significantly affected by the course of recovery in our market area from the recent recessionary downturn.  Economic conditions in general appear to be stabilizing, as the unemployment rates in two of our four county market areas and the state of Washington have decreased since December 31, 2010, which is consistent with the nation as a whole.  King County reported an unemployment rate of 7.1% for March 2012, which is lower than the state and national unemployment rates of 8.3% and 8.2%, respectively, as of March 2012.  The unemployment rates for Clallam, Pierce and Snohomish Counties all are above the state and national rates as of March 2012.  The

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unemployment rate in Clallam County increased from 10.1% at December 31, 2010 to 11.2% for March 2012, while the unemployment rate in Pierce County also increased from 9.2% for December 2010 to 9.8% as of March 2012.  Snohomish County reported an unemployment rate of 8.4% as of March 2012 as compared to 9.8% at December 31, 2010.

For most of the past three years, housing markets remained weak in our market area, resulting in elevated levels of delinquencies and nonperforming assets, deterioration in property values, and the need to provide for provision for loan losses in amounts that have materially adversely affected our earnings. For the three months ended March 31, 2012 and the years ended December 31, 2011 and 2010, we recorded net income of $546,000, $1.6 million and $1.3 million, respectively, as compared to a net loss of $614,000 for the year ended December 31, 2009.  Our provision for loan loss for the three months ended March 31, 2012 and year ended December 31, 2011 was $1.5 million and $4.6 million, respectively, as compared to $4.7 million and $4.3 million in the years ended December 31, 2010 and 2009, respectively.  At March 31, 2012, we had $9.8 million of nonperforming assets (representing 2.81% of total assets), compared to $9.5 million and (representing 2.78% of total assets), and $5.9 million (representing 1.75% of total assets) at December 31, 2011 and 2010, respectively.  Nonperforming assets increased since 2010 primarily due to a $2.0 million increase in nonperforming commercial and multifamily loans and a $1.4 million increase in nonperforming one-to four-family loans. At March 31, 2012, our allowance for loan losses was $4.4 million, equal to 1.45% of total loans and 56.28% of non-performing loans.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition at March 31, 2012 Compared to March 31, 2011 — Delinquencies and Nonperforming Assets” for more information on nonperforming assets.

In this prospectus, the terms “we, “our,” and “us” refer to Sound Financial, Inc. and Sound Community Bank unless the context indicates another meaning.

Our Business Strategy

Our principal objective is to remain an independent, community-oriented financial institution serving customers in our primary market area.  Our Board of Directors has sought to accomplish this objective through the adoption of a strategy designed to maintain profitability, a strong capital position and high asset quality.  This strategy primarily involves:

·                  Focusing on asset quality;

·                  Improving earnings by expanding product offerings, including increasing the percentage of our assets consisting of higher-yielding commercial real estate and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations than one-to four- family mortgage loans while maintaining our focus on residential lending by offering additional loan products;

·                  Emphasizing lower cost core deposits to manage the funding costs of our loan growth;

·                  Improving profitability through continued expense control;

·                  Maintaining our customer service focus; and

·                  Expanding our presence within our existing and nearby market areas by capturing business opportunities resulting from changes in the competitive environments.

These strategies are intended to guide our investment of the net proceeds of the offering.  We intend to continue to pursue our business strategy after the conversion and the offering, subject to changes necessitated by future market conditions and other factors.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Strategy” for a further discussion of our business strategy.  A full description of our products and services begins on page 72 of this prospectus under the heading “Business of Sound Financial Inc. and Sound Community Bank.”

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Our Current Organizational Structure

In 2008, Sound Financial, Inc. became the mid-tier stock holding company of Sound Community Bank, owning 100% of its stock, and conducted an initial public offering by selling a minority of its common stock to the public.  The majority of the outstanding shares of common stock of Sound Financial, Inc. are owned by Sound Community MHC, which is a federally chartered mutual holding company with no shareholders.

Pursuant to the terms of the Plan of Conversion and Reorganization of Sound Community MHC, which is referred to throughout this prospectus as the plan of conversion, Sound Community Bank will convert from the mutual holding company to the stock holding company corporate structure.  As part of the conversion, we are offering for sale in a subscription offering, a community offering and possibly a syndicated community offering, the majority ownership interest of Sound Financial, Inc. that is currently owned by Sound Community MHC.  Upon completion of the conversion, Sound Community MHC will cease to exist, and we will complete the transition from partial to full public stock ownership.  In addition, as part of the conversion, existing public shareholders of Sound Financial, Inc. will receive shares of common stock of Sound Financial Bancorp in exchange for their shares of Sound Financial, Inc. common stock pursuant to an exchange ratio that maintains the same percentage ownership in Sound Financial Bancorp (excluding any new shares purchased by them in the offering and their receipt of cash in lieu of fractional exchange shares) that existing shareholders had in Sound Financial, Inc. immediately prior to the completion of the conversion and offering.

The following diagram shows our current organizational structure:

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Our Organizational Structure Following the Conversion

After the conversion and offering are completed, we will be organized as a fully public stock holding company, as follows:

Reasons for the Conversion and the Offering

Our primary reasons for converting and raising additional capital through the offering include:

·                  to support organic growth by increasing our lending in the communities we serve;

·                  to improve our capital position during a period of significant economic uncertainty, especially for the financial services industry (although, as of March 31, 2012, Sound Community Bank was considered “well capitalized” for regulatory purposes and is not subject to any directive or recommendation from the Office of the Comptroller of the Currency (“OCC”) or the FDIC to raise capital);

·                  to finance the possible acquisition of branches from other financial institutions or build or lease new branch facilities in, or adjacent to, our market areas, although we do not currently have any agreements or understandings regarding any specific acquisition transaction;

·                  to enhance existing products and services, and support the development of new products and services, by investing, for example, in technology to support growth and enhanced customer service;

·                  the stock holding company structure is a more familiar form of organization, which we believe will make our common stock more appealing to investors, and will give us greater flexibility to access the capital markets through possible future equity and debt offerings, although we have no current plans, agreements or understandings regarding any additional capital raising efforts; and

·                  to seek to improve the liquidity of our shares of common stock and shareholder returns through higher earnings and more flexible capital management strategies.

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Terms of the Offering

We are offering between 1,147,500 and 1,552,500 shares of common stock to eligible depositors of Sound Community Bank, to our tax-qualified employee benefit plans, including our employee stock ownership plan and, to the extent shares remain available, to natural persons and trusts of natural persons residing in the Washington counties of Clallam, King, Pierce and Snohomish, to our existing public shareholders and to the general public.  The number of shares of common stock to be sold may be increased to up to 1,785,375 as a result of regulatory considerations, demand for our shares, or changes in the market for financial institution stocks.  Unless the number of shares of common stock to be offered is increased to more than 1,785,375 shares or decreased to fewer than 1,147,500 shares, or the offering is extended beyond September 14, 2012, purchasers will not have the opportunity to modify or cancel their stock orders once submitted.  If the number of shares of common stock to be sold is increased to more than 1,785,375 shares or decreased to fewer than 1,147,500 shares, or if the offering is extended beyond September 14, 2012, purchasers will have the opportunity to maintain, cancel or change their orders for shares of common stock during a designated resolicitation period or have their funds returned promptly with interest.  If, in that event, you do not provide us with written indication of your intent, your stock order will be canceled, your funds will be returned to you with interest calculated at Sound Community Bank’s regular savings rate and any deposit account withdrawal authorizations will be canceled.

The purchase price of each share of common stock to be offered for sale in the offering is $10.00.  All investors will pay the same purchase price per share.  Investors will not be charged a commission to purchase shares of common stock in the offering.  Keefe, Bruyette & Woods, Inc., our marketing agent in the offering, will use its best efforts to assist us in selling shares of our common stock.  Keefe, Bruyette & Woods, Inc. is not obligated to purchase any shares of common stock in the offering.

We may also offer for sale to the general public in a syndicated offering through a syndicate of selected dealers shares of our common stock not purchased in the subscription offering or the community offering.  We may begin the syndicated community offering at any time following the commencement of the subscription offering.  Keefe, Bruyette & Woods, Inc. will manage the syndicated community offering, if any, which will also be conducted on a best efforts basis.  Neither Keefe, Bruyette & Woods, Inc., nor any other member of the syndicate, is required to purchase any shares in the syndicated community offering.

How We Determined the Offering Range, the Exchange Ratio and the $10.00 Per Share Stock Price

The offering range and exchange ratio are based on an independent appraisal of the estimated market value of Sound Financial Bancorp assuming the conversion, the exchange and the offering are completed.  RP Financial, LC., an appraisal firm experienced in appraisals of financial institutions, has estimated that, as of May 25, 2012, this estimated pro forma market value ranged from $20.9 million to a maximum of $28.3 million, with a midpoint of $24.6 million.  Based on this valuation, the 54.8% ownership interest of Sound Community MHC being sold in the offering and the $10.00 per share price, the number of shares of common stock being offered for sale by Sound Financial Bancorp will range from 1,147,500 shares to 1,552,500 shares.  The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions.  The exchange ratio will range from 0.70771 shares at the minimum of the offering range to 0.95749 shares at the maximum of the offering range in order to approximately preserve the existing percentage ownership of public shareholders of Sound Financial Bancorp (excluding any new shares purchased by them in the offering and their receipt of cash in lieu of fractional exchange shares).  If the demand for shares or market conditions warrant, the appraisal can be increased by 15%.  At this adjusted maximum of the offering range, the estimated pro forma market value is $32.6 million, the number of shares of common stock offered for sale will be 1,785,375 and the exchange ratio will be 1.10111 shares.

The independent appraisal is based primarily on Sound Financial, Inc.’s financial condition and results of operations, the pro forma impact of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly traded savings bank and thrift holding companies that RP Financial considered comparable to Sound Financial Bancorp. The appraisal peer group was initially selected from the universe of all publicly-traded savings institutions with resources, strategies, financial and other operating characteristics relatively comparable to Sound Financial Bancorp.  Additional criteria applied in the selection of the appraisal peer group included that the stock institution was fully-converted for at least one year and not subject to an actual or rumored acquisition, headquartered in the state of Washington with assets less than $1.5 billion, and

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trailing twelve month earnings greater than negative 0.25% of average assets, and to those companies on a national basis (excluding those companies located in the Northeastern and Mid-Atlantic regions of the United States) with assets between $275 million and $425 million and positive earnings.  The appraisal peer group consists of the following companies.  Total assets are as of March 31, 2012.

The independent appraisal does not indicate actual market value.  Do not assume or expect that the estimated pro forma market value as indicated above means that, after the offering, the shares of our common stock will trade at or above the $10.00 purchase price.

The following table presents a summary of selected pricing ratios for the peer group companies and Sound Financial Bancorp (on a pro forma basis).  The pricing ratios are based on earnings and other information as of and for the twelve months ended March 31, 2012, stock price information as of May 25, 2012, as reflected in RP Financial’s appraisal report, dated May 25, 2012, and the number of shares outstanding as described in “Pro Forma Data.”  Compared to the average pricing of the peer group, our pro forma pricing ratios at the maximum of the offering range indicated a discount of 6.9% on a price-to-book value basis, a discount of 6.7% on a price-to-tangible book value basis, a discount of 17.0% on a price-to-earnings basis and a discount of 31.2% on a price-to-core earnings basis.

(1)          Information is derived from the RP Financial appraisal report and is based upon estimated core earnings for the twelve months ended March 31, 2012.  These ratios are different from the ratios in “Pro Forma Data.”

Our Board of Directors, in reviewing and approving the independent appraisal, considered the range of price-to-earnings and price-to-core earnings multiples, the range of price-to-book value and price-to-tangible book value ratios at the different ranges of shares of common stock to be sold in the offering, and did not consider one valuation approach to be more important than the other.  Instead, in approving the independent appraisal, the Board of Directors concluded that these ranges represented the appropriate balance of the three approaches to establishing our estimated valuation range, and the number of shares of common stock to be sold, in comparison to the peer group institutions.  The estimated appraised value and the resulting discounts and premiums took into consideration the potential financial impact of the offering as well as the trading price of Sound Financial, Inc. common stock,

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which increased from $7.10 per share on January 27, 2012, the closing price on the last trading day immediately preceding the announcement of the conversion, to $7.85 per share, the closing price on May 25, 2012, the effective date of the independent appraisal.

RP Financial, will update the independent appraisal prior to the completion of the conversion.  If the estimated appraised value changes to either below $20.9 million or above $32.6 million, then, after consulting with the Federal Reserve, we may: set a new offering range and resolicit persons who submitted stock orders; terminate the offering and promptly return all funds; or take such other actions as may be permitted by the Federal Reserve Board and the Securities and Exchange Commission (“SEC”).  See “The Conversion and Offering — Stock Pricing and Number of Shares to be Issued.”

After-Market Performance of Second-Step Conversion Offerings

The following table provides information regarding the after-market performance of the “second-step” conversion offerings completed between January 1, 2011 and May 25, 2012.  A “second-step” conversion is a stock offering by a stock-form savings institution or its holding company that is majority-owned by a mutual holding company where the mutual holding company structure will terminate in connection with the offering. As part of its appraisal of our pro forma market value, RP Financial considered the after-market performance of these second-step conversion offerings.  None of these companies were included in the peer group of 10 publicly traded companies utilized by RP Financial in performing its valuation analysis. Because the market for stocks of financial institutions was very volatile over the past two years, a relatively small number of second-step conversion offerings were completed during this period as compared to prior periods.

The table above presents only short-term historical information on stock price performance, which may not be indicative of the longer-term performance of such stock prices. The historical stock price information is not intended to predict how our shares of common stock may perform following the offering. The historical information in the table may not be meaningful to you because the data were calculated using a small sample. Stock price performance is affected by many factors, including, but not limited to: general market and economic conditions; the interest rate environment; the amount of proceeds a company raises in its offering; and numerous factors relating to the specific company, including the experience and ability of management, historical and anticipated operating results, the nature and quality of the company’s assets, and the company’s market area. The companies listed in the table above may not be similar to Sound Financial Bancorp, the pricing ratios for their stock offerings may be different from the pricing ratios for Sound Financial Bancorp and the market conditions in which these offerings were completed may be different from current market conditions. Any or all of these differences may cause our stock to perform differently from these other offerings.

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The Exchange of Existing Shares of Sound Financial, Inc. Common Stock

At the conclusion of the conversion, shares held by existing shareholders of Sound Financial, Inc. will be canceled and exchanged for shares of common stock of Sound Financial Bancorp.  The number of shares of common stock received will be based on an exchange ratio determined as of the conclusion of the conversion and offering, which will depend upon the number of shares sold in the offering.  The number of shares received will not be based on the market price of our currently outstanding shares.  Instead, the exchange ratio will ensure that existing public shareholders of Sound Financial, Inc. will retain the same percentage ownership of our organization after the offering, exclusive of their purchase of any additional shares of common stock in the offering and their receipt of cash in lieu of fractional exchange shares.  In addition, if options to purchase shares of Sound Financial, Inc. common stock are exercised before consummation of the conversion, there will be an increase in the percentage of shares of Sound Financial, Inc. held by public shareholders, an increase in the number of shares of common stock issued to public shareholders in the share exchange and a decrease in the exchange ratio.

The following table shows how the exchange ratio will adjust, based on the number of shares of common stock issued in the offering and the shares of common stock issued and outstanding on the date of this prospectus.  The table also shows the number of whole shares of Sound Financial Bancorp common stock a hypothetical owner of Sound Financial, Inc. common stock would receive in exchange for 100 shares of Sound Financial, Inc. common stock owned at the completion of the conversion, depending on the number of shares of common stock sold in the offering.

No fractional shares of Sound Financial Bancorp common stock will be issued to any public shareholder of Sound Financial, Inc.  For each fractional share that would otherwise be issued, Sound Financial Bancorp will pay in cash an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 per share purchase price of the common stock in the offering.

Outstanding options to purchase shares of Sound Financial, Inc. common stock also will convert into and become options to purchase shares of Sound Financial Bancorp common stock.  The number of shares of common stock to be received upon exercise of these options will be determined pursuant to the exchange ratio.  The aggregate exercise price, duration and vesting schedule of these options will not be affected by the conversion.  At March 31, 2012, there were 142,455 outstanding options to purchase shares of Sound Financial, Inc. common stock, 71,262 of which have vested.  These outstanding options will be converted into options to purchase 101,241 shares of common stock at the minimum of the offering range and 157,519 shares of common stock at the adjusted maximum of the offering range.  Because Federal Reserve Board regulations prohibit us from repurchasing our common stock during the first year following the conversion unless compelling business reasons exist, we may use authorized but unissued shares to fund option exercises that occur during the first year following the conversion.  If all existing options were exercised from authorized but unissued shares of common stock following the conversion, shareholders would experience dilution of approximately 4.6% at the minimum and adjusted maximum of the offering range.

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How We Intend to Use the Proceeds From the Offering

Assuming we sell 1,350,000 shares of common stock in the stock offering, and we have net proceeds of $11.9 million, we intend to distribute the net proceeds as follows:

·                  $7.9 million (66.2% of the net proceeds) will be invested in Sound Community Bank;

·                  $1.1 million (9.1% of the net proceeds) will be loaned by Sound Financial Bancorp to the employee stock ownership plan to fund its purchase of our shares of common stock; and

·                  $2.9 million (24.7% of the net proceeds) will be retained by Sound Financial Bancorp.

We may use the funds that we retain for investments, to pay cash dividends, to repurchase shares of common stock and for other general corporate purposes.  Sound Community Bank may use the proceeds it receives to support its lending activities, to develop other products and services and for other general corporate purposes.  The net proceeds retained also may be used for future business expansion through opening or acquiring branch offices.  We have no current arrangements or agreements with respect to any such acquisitions.  Initially, a substantial portion of the net proceeds will be invested in short-term investments and mortgage-backed securities consistent with our investment policy.

Please see “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the proceeds from the offering.

Our Dividend Policy

Sound Financial, Inc. does not currently pay a cash dividend on its common stock.  After the conversion, we intend to pay cash dividends on a quarterly basis, the amount of which will be determined following completion of the conversion, taking into account the total number of shares issued in the conversion and the exchange ratio received by existing public shareholders.  The dividend rate and the continued payment of dividends also will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.  No assurance can be given that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future.

See “Selected Consolidated Financial and Other Data of Sound Financial, Inc. and Subsidiary” and “Market for the Common Stock” for information regarding our historical dividend payments.

Purchases and Ownership by our Executive Officers and Directors

We expect our directors, executive officers and their associates to purchase 24,500 shares of common stock in the offering.  The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the offering.  After the conversion, as a result of purchases in the offering and the shares they will receive in exchange for shares of Sound Financial, Inc. common stock that they currently own, our directors and executive officers, together with their associates, are expected to beneficially own approximately 215,519 shares of common stock, or 8.6% of our total outstanding shares of common stock, at the midpoint of the offering range.

Benefits to Management and Potential Dilution to Shareholders Resulting from the Conversion

Employee Stock Ownership Plan.  Our tax-qualified employee stock ownership plan expects to purchase up to 8% of the shares of common stock we sell in the offering, or 124,200 shares of common stock assuming we sell the maximum number of shares proposed to be sold which, when combined with the existing employee stock ownership plan, will be approximately 8% of the shares outstanding following the conversion.  If we receive orders for more shares of common stock than the maximum of the offering range, the employee stock ownership plan will have first priority to purchase shares over this maximum, up to a total of 10% of the shares of common stock sold in the offering.  We reserve the right to purchase shares of common stock in the open market following the offering in order to fund all or a portion of the employee stock ownership plan.  Assuming the employee stock ownership plan

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purchases 124,200 shares in the offering, at the maximum of the offering range, we will recognize additional compensation expense, after tax, of approximately $78,000 annually over a 10-year period, assuming the loan to the employee stock ownership plan has a 10-year term and the shares of common stock have a fair market value of $10.00 per share for the full 10-year period.  If, in the future, the shares of common stock have a fair market value greater or less than $10.00, the compensation expense will increase or decrease accordingly.

Stock-Based Incentive Plan.  We also intend to implement a new stock-based incentive plan no earlier than 12 months after completion of the conversion.  Shareholder approval of this plan will be required.  If implemented 12 months or more following the completion of the conversion, the stock-based incentive plan is intended to reserve a number of shares equal to 4% of the shares of common stock sold in the offering, or 71,415 shares of common stock at the adjusted maximum of the offering range for awards of restricted stock to key employees and directors, at no cost to the recipients.  If the shares of common stock awarded under the stock-based incentive plan come from authorized but unissued shares of common stock, shareholders would experience dilution of up to approximately 2.1% in their ownership interest in Sound Financial Bancorp.  If implemented within 12 months or more following the completion of the conversion, the stock-based incentive plan is also intended to reserve a number of shares equal to 10% of the shares of common stock sold in the offering, or 178,537 shares of common stock at the adjusted maximum of the offering range, for issuance pursuant to grants of stock options to key employees and directors.  If the shares of common stock issued upon the exercise of options come from authorized but unissued shares of common stock, shareholders would experience dilution of up to 5.2% in their ownership interest in Sound Financial Bancorp.  For a description of our current stock-based incentive plans, see “Management — Executive Compensation” and Note 13 of the Notes to Consolidated Financial Statements.

The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are expected under the new stock-based incentive plan as a result of the conversion.  The table also shows the dilution to shareholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market.  A portion of the stock grants shown in the table below may be made to non-management employees.