PART
I




OVERVIEW


Purpose of the
Code


This Code
of Business Conduct and Ethics (“Code”) is intended to deter wrongdoing and
promote:


·
            Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;


·
            Avoidance
      of conflicts of interest, or the appearance of conflicts, including
      appropriate disclosure to supervisors of any material transaction or
      relationship that reasonably could be expected to give rise to a
      conflict;


·
            Full,
      fair, accurate, timely and understandable disclosure in documents the
      Company files with, or submits to, the SEC and in all public
      communications made by the Company;


·
            Compliance
      with applicable governmental laws, rules and
  regulations;


·
            Prompt
      internal reporting to designated persons of violations of the Code;
      and


·
            Accountability
      for adherence to the Code.




Application of the
Code


The Code
applies to all Sound Financial, Inc. (the “Company”) directors and employees,
including subsidiary and affiliate employees.  The Code applies to all
employee decisions and activities within the scope of employment, or when
representing the Company in any capacity.  A copy of the Code will be
included in the orientation package provided to new
employees.  Following review of the Code, all employees will be asked
to sign a written confirmation that they have reviewed the Code.  All
Company officers and directors should be familiar with the requirements of the
Code, and should encourage employees to apply the Code to their daily activities
and decisions, and to seek guidance from the appropriate individuals when
additional information or explanation is needed.





Copies of
the Code may be obtained from several sources, including the Employee Handbook
and the Company’s Human Resources Department.  The Code also will be
incorporated into the Employee Handbook and can be found on the Company’s
website.




If you
need additional explanation regarding a particular provision of the Code, or if
you need guidance in a specific situation, including whether a conflict or
potential conflict of interest may exist, please contact your immediate
supervisor.  If you are uncomfortable speaking to your immediate
supervisor, or if you require additional guidance after having consulted with
your supervisor, you are encouraged to contact the following
individual:




Senior
Vice President, Human Resources


Patricia
Floyd     (206) 448-0884 ext.
311                                                                                                pat.floyd@soundcb.com





Reporting Violations of the
Code


Any known
or suspected violation of the Code, including actions or failures to act, must
be promptly reported to your supervisor or the person listed
above.  This includes violations or possible violations involving you,
another employee (including officers) or a director.  Any violation of
law, rule or regulation applicable to the Company and/or corporate policy is
also a violation of this Code.  Violations of the Code may result in
disciplinary action including, in severe situations, immediate termination of
employment.


All
concerns or complaints will be promptly investigated and appropriate action
taken.  The Senior Vice President, Human Resources will document the
results of the investigation in a report to the Board of Directors in order to
ensure a fair process is utilized in determining whether a violation of the Code
has occurred.  No person expressing concerns or complaints will be
subject to any disciplinary or other adverse action by the Company absent a
knowingly false report.  All concerns or complaints may be made
anonymously and will remain confidential.  Please provide sufficient
information to allow us to properly investigate your concerns.  The
Company will retain a record of all concerns and complaints, and the results of
its investigations, for five years.




Concerns
regarding questionable accounting, internal accounting controls or auditing
matters may be directed to the Chairman of the Audit Committee by sending
written notice to Audit Committee Chair, c/o Sound Financial, Inc. 2005 Fifth
Avenue, 2nd
Floor, Seattle, WA 98121.















PART
II




PRINCIPLES
AND STANDARDS OF CONDUCT




One of
the most valued assets of the Company is its reputation for integrity as
determined by the personal conduct of its directors, officers and staff, and how
that conduct may be perceived by the public.  The ethical management
of both personal and business affairs is most important to all directors and
employees in order to avoid situations that might lead to a conflict, or even
suspicion of a conflict, between personal interest and responsibility to the
Company.  Your position should never be used directly or indirectly
for private gain, for advancement of personal interests or to obtain favors or
benefits for oneself, customers, or suppliers.




The
following is a statement of policy regarding standards of conduct expected from
directors and employees of the Company and its subsidiaries in their treatment
of confidential information, personal investments, gifts and fees, and outside
activities.




Confidential and Insider
Information


Confidentiality
is a fundamental principle of the financial services business.  In the
course of performing your duties, you may acquire confidential
information.  Confidential information includes all non-public
information that might be of use to competitors or harmful to the Company or its
customers, if disclosed.  Confidential information, in any form,
obtained through business or personal contacts with customers, prospective
customers, suppliers, or other employees shall be used solely for the Company's
purposes.  Information reflecting favorably or adversely upon the
current or future value of any business enterprise should not be used in any
manner for personal gain or for advantage to a third party.  This
information must not be revealed to unauthorized persons or discussed with
others within the Company unless their duties require this
information.  The use of confidential information submitted to us
through any source about one customer to further the private interests of
another customer is unethical and may be illegal.







Some
specific examples of confidential information include:




·
            Personal,
      business and financial information of our customers and potential
      customers;


·
            Non-public
      business and financial information of the Company; personal information
      regarding any employee of the
Company;


·
            Information
      related to, including the identity of, potential candidates for mergers
      and acquisitions;


·
            Information
      regarding the Company’s sales strategies, plans or
    proposals;


·
            Information
      related to computer software programs, whether proprietary or
      standard;


·
            Information
      related to documentation systems, information databases, customized
      hardware or other information systems and technological
      developments;


·
            Manuals,
      processes, policies, procedures, compositions, opinion letters, ideas,
      innovations, inventions, formulas and other proprietary information
      belonging to the Company or related to the Company’s
      activities;


·
            Security
      information, including without limitation, policies and procedures,
      passwords, personal identification numbers (PINs) and electronic access
      keys;


·
            Communications
      by, to and from regulatory agencies;
and


·
            Certain
      communications with or from attorneys for the Company, whether internal or
      external.







This
caution on confidential information does not preclude releasing certain customer
information when authorized by the customer or to the government when
appropriate.  The guidance of the Senior Vice President, Human
Resources should be sought in all such cases.  Disclosure of
confidential information to attorneys, accountants and other professionals
working on behalf of the Company, as well as regulatory examiners, may also be
appropriate.




Personal Investments and
Financial Affairs


Directors
and employees of the Company, like any other individuals, may make personal
investments in corporate stock, real estate, etc.  Such investments,
however, shall not be made as a result of confidential information that is















also
material inside information obtained through your position with the
Company.  Particular care should be taken with original or new stock
issues.  Confidential information about the Company and its customers
and suppliers acquired by directors and employees in the course of their duties
is to be used solely for the Company's purposes, and not as a basis for personal
investment by directors and employees or their immediate families.  In
making personal investments, all directors and employees should be guided by a
keen awareness of potential conflict.  In addition, personal
investments should not influence a director's or employee's judgment or action
in the conduct of the Company’s business.


It is
expected that all directors and employees will conduct their personal financial
affairs in a manner that will not reflect adversely upon the Company or on their
personal standing in the community.





Material Inside
Information


Generally,
material inside information is defined as any information that is confidential
in nature, and that a reasonable investor would likely consider important in
deciding whether to buy, sell, or hold the Company’s stock. The following types
of information, if not generally known or publicly disclosed, should be
considered material inside information and treated according to the provisions
of this Code and the Company’s Insider Trading Policy:





·
            Proposals
      or plans for mergers and
acquisitions;


·
            Earnings
      estimates or results, whether for the month, quarter or
    year;


·
            Changes
      in dividends;


·
            New
      product innovation, development or
  implementation;


·
            Major
      litigation, adverse regulatory proceeding or material threat of either
      event;


·
            Significant
      operational issues, including changes in non-performing
      assets;


·
            Significant
      expansion of operations, whether geographic or otherwise, or the
      curtailment of current or future planned operations;
  and


·
            Any
      other information which, if known, would likely influence the decisions of
      investors.





Gifts and
Fees


It is
illegal for anyone to offer or promise anything of value to an employee,
officer, director or agent of a financial institution with the intent to
influence or reward the person in connection with any business or transaction of
the financial institution.  It is also illegal for an employee,
officer, director or agent of a financial institution to solicit or accept
anything of value from any person intending to be influenced or rewarded in
connection with any business or transaction of the financial
institution.





No
employee or director of the Company shall accept anything of value from a
customer of the Company or a vendor to the Company other than the
following:




1.
            Gifts
      based on a family relationship or gifts of a reasonable value based on a
      personal relationship where that relationship is the obvious motivating
      factor for the gift;




2.
            Advertising
      or promotional material with a value of less than
  $100;




3.
            Gifts
      with a value of less than $200 related to commonly recognized events such
      as a promotion, religious holiday, wedding or
  retirement;




4.
            Acceptance
      of customary hospitality (business luncheons, dinners, golf outings, ball
      games, etc.) where it is directly related to Company activities and
      provided that the expense would be paid for by the Company if not paid for
      by another party.  Any entertainment beyond that scope or of a
      frequent nature must be pre-authorized by the Senior Vice President, Human
      Resources;




5.
            Discounts
      or rebates on merchandise or services that do not exceed those available
      to other customers of the merchant;
or




6.
            Awards
      for recognition of service or accomplishment from civic, charitable,
      educational or religious
organizations.















If an
employee or director receives or anticipates receiving a benefit from a Company
customer or vendor and is unsure whether acceptance of the gift is in compliance
with this policy, a written disclosure should be made to theSenior Vice President,
Human Resources,who may
approve the acceptance of the benefit if the acceptance is otherwise consistent
with this policy.




Directors,
employees and their immediate families should never borrow personally from
customers or suppliers unless these entities are engaged directly in the lending
business, and then only under normal conditions with respect to interest rates,
terms, security, and repayment programs that are available to any
borrower.




Outside
Activities


Outside
activities that might constitute a conflict of interest or interfere with
performance, or compromise a director's or employee’s position, are to be
avoided.  Employee activities such as full-time outside employment;
the rendering of investment, legal or accounting services; membership on
corporate boards of directors; seeking of an elective political position; or
appointment to government bodies should be reviewed and approved by Senior Vice
President, Human Resources prior to such undertakings.  As in the
past, we continue to encourage active participation on the part of directors,
officers and employees in service clubs and organizations fostering the
betterment of the community, and the active use of various social memberships in
maintaining a proper image of our organization within the
community.





Compliance with Laws, Rules
and Regulations


All
directors and employees of the Company are required to comply with the
requirements of this Code, all policies of the Company and applicable laws,
rules and regulations.  Directors and employees must also comply with
the procedures implementing and effectuating the Company’s
policies.  Failure to comply with the Company’s policies and
procedures may result in disciplinary action including, in severe situations,
immediate termination of employment.





Accounting
Practices


All
employees are expected to observe and comply with generally accepted accounting
principles, the system of internal controls and disclosure controls and
procedures established by the Company requiring that corporate books and records
accurately and fairly reflect in reasonable detail the financial condition and
results of operations of the Company.  Company policies are intended
to promote full, fair, accurate, timely and understandable disclosure in reports
and documents filed with or submitted to the SEC and in the Company’s public
statements.  In furtherance of these requirements, employees must
practice the following:





1.
            No
      false, misleading or artificial entries shall be made on corporate books,
      records and reports for any reason.




2.
            No
      undisclosed or unrecorded corporate funds or assets shall be established
      for any purpose.




3.
            No
      payments from corporate funds or other assets shall be approved or be made
      with the intention or understanding that any part of such payment will be
      used for any purpose other than that described by the documents supporting
      the payment.  All payments must be supported with appropriately
      approved purchase orders, invoices or receipts, expense reports or other
      customary documents, all in accordance with established
      policy.







PART
III




ADMINISTRATION
AND WAIVERS




Administration


This Code
will be administered and monitored by the Company’s Human Resources
Department.  General questions and requests for additional information
on this Code should be directed to this department at the telephone number and
e-mail address in Part I.





Waivers


Any
requests for waivers of the Code for employees who are not executive officers
should be directed through your supervisor to the Human Resources
Department.  Requests for waivers for directors and executive officers
should be directed to the Board of Directors through the Corporate
Secretary.  Only a majority of the Board of Directors may waive the
applicability of the Code for a director or executive officer.  Any
waiver granted to directors or executive officers, including the principal
accounting officer, and the reasons for granting the waiver, and any change in
the Code applicable to directors and executive officers, including the principal
accounting officer, must be promptly disclosed to the public as required by law
or the Nasdaq Stock Market, if applicable.