SOUND
FINANCIAL, INC.





2008
EQUITY INCENTIVE PLAN















TABLE OF
CONTENTS




Page


ARTICLE
      I PURPOSE
            3Section
      1.1
            General
      Purpose of the Plan.
            3ARTICLE
      II DEFINITIONS
            3ARTICLE
      III AVAILABLE SHARES
            6Section
      3.1
            Shares
      Available Under the Plan.
            6Section
      3.2
            Shares
      Available for Options and Stock Appreciation Rights.
            6Section
      3.3
            Shares
      Available for Restricted Stock Awards.
            6Section
      3.4
            Additional
      OTS Restrictions.
            6Section
      3.5
            Computation
      of Shares Issued.
            7ARTICLE
      IV ADMINISTRATION
            7Section
      4.1
            Committee.
            7Section
      4.2
            Committee
      Powers.
            7ARTICLE
      V STOCK OPTIONS
            8Section
      5.1
            Grant
      of Options.
            8Section
      5.2
            Size
      of Option.
            8Section
      5.3
            Exercise
      Price.
            8Section
      5.4
            Exercise
      Period.
            9Section
      5.5
            Vesting
      Date.
            9Section
      5.6
            Additional
      Restrictions on Incentive Stock Options.
            9Section
      5.7
            Method
      of Exercise.
            10Section
      5.8
            Limitations
      on Options.
            11Section
      5.9
            Prohibition
      Against Option Repricing.
            11ARTICLE
      VI STOCK APPRECIATION RIGHTS
            12Section
      6.1
            Grant
      of Stock Appreciation Rights.
            12Section
      6.2
            Size
      of Stock Appreciation Right.
            12Section
      6.3
            Exercise
      Price.
            12Section
      6.4
            Exercise
      Period.
            12Section
      6.5
            Vesting
      Date.
            13Section
      6.6
            Method
      of Exercise.
            13Section
      6.7
            Limitations
      on Stock Appreciation Rights.
            14Section
      6.8
            Prohibition
      Against Stock Appreciation Right Repricing.
            14ARTICLE
      VII RESTRICTED STOCK AWARDS
            15Section
      7.1
            In
      General.
            15Section
      7.2
            Vesting
      Date.
            16Section
      7.3
            Dividend
      Rights.
            16Section
      7.4
            Voting
      Rights.
            16Section
      7.5
            Designation
      of Beneficiary.
            16Section
      7.6
            Manner
      of Distribution of Awards.
            16ARTICLE
      VIII SPECIAL TAX PROVISION
            17Section
      8.1
            Tax
      Withholding Rights.
            17ARTICLE
      IX AMENDMENT AND TERMINATION
            17Section
      9.1
            Termination
            17Section
      9.2
            Amendment.
            17Section
      9.3
            Adjustments
      in the Event of Business Reorganization.
            17








i







ARTICLE
      X MISCELLANEOUS
            18Section
      10.1
            Status
      as an Employee Benefit Plan.
            18Section
      10.2
            No
      Right to Continued Employment.
            18Section
      10.3
            Construction
      of Language.
            18Section
      10.4
            Governing
      Law.
            18Section
      10.5
            Headings.
            18Section
      10.6
            Non-Alienation
      of Benefits.
            19Section
      10.7
            Notices.
            19Section
      10.8
            Approval
      of Shareholders.
            19

















ii







SOUND
FINANCIAL, INC.


2008
EQUITY INCENTIVE PLAN







ARTICLE
I


PURPOSE




Section
1.1                                General
Purpose of the Plan.




The
purpose of the Plan is to promote the long-term growth and profitability of
Sound Financial, Inc., to provide directors, advisory directors, officers and
employees of Sound Financial, Inc. and its affiliates with an incentive to
achieve corporate objectives, to attract and retain individuals of outstanding
competence and to provide such individuals with an equity interest in Sound
Financial, Inc.







ARTICLE
II


DEFINITIONS




The
following definitions shall apply for the purposes of this Plan, unless a
different meaning is plainly indicated by the context:




Affiliate means any "parent
corporation" or "subsidiary corporation" of the Company, as those terms are
defined in Section 424(e) and (f) respectively, of the Code.




Award means the grant by the
Committee of an Incentive Stock Option, a Non-Qualified Stock Option, a Stock
Appreciation Right, a Restricted Stock Award or any other benefit under this
Plan.




Award Agreement means a
written instrument evidencing an Award under the Plan and establishing the terms
and conditions thereof.




Beneficiary means the Person
designated by a Participant to receive any Shares subject to a Restricted Stock
Award made to such Participant that become distributable, or to have the right
to exercise any Options or Stock Appreciation Rights granted to such Participant
that are exercisable, following the Participant's death.




Board means the Board of
Directors of Sound Financial, Inc. and any successor thereto.




Change in Control means any of
the following events:







(a)
            any
      third person, including a "group" as defined in Section 13(d)(3) of the
      Securities Exchange Act of 1934, becomes the beneficial owner of shares of
      the Company with respect to which 25% or more of the total number of votes
      for the election of the Board may be
cast;




(b)           as
a result of, or in connection with, any cash tender offer, merger or other
business combination, sale of assets or contested election, or combination of
the foregoing, the persons who were directors of the Company shall cease to
constitute a majority of the Board;




(c)           the
stockholders of the Company approve an agreement providing either for a
transaction in which the Company will cease to be an independent publicly owned
corporation or for a sale or other disposition of all or substantially all the
assets of the Company; or




(d)           a
tender offer or exchange offer for 25% or more of the total outstanding Shares
of the Company is commenced (other than such an offer by the
Company).




1









Code means the Internal
Revenue Code of 1986, as amended from time to time.




Committee means the Committee
described in Article IV.




Company means Sound Financial,
Inc., a Federal corporation, and any successor thereto.




Disability means a condition
of incapacity of a Participant which renders that person unable to engage in the
performance of his or her duties by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months.  Notwithstanding the above, the term Disability in
connection with Incentive Stock Options shall have the meaning specified in
Section 22(e)(3) of the Code.




Effective Date means the date
on which the Plan is approved by the stockholders of Sound Financial,
Inc.




Exchange Act means the
Securities Exchange Act of 1934, as amended.




Exercise Period means the
period during which an Option or Stock Appreciation Right may be
exercised.




Exercise Price means the price
per Share at which Shares subject to an Option may be purchased upon exercise of
the Option and on the basis of which the Shares due upon exercise of a Stock
Appreciation Right is computed.




Fair Market Value means, with
respect to a Share on a specified date:





(a)           If
the Shares are listed on any established stock exchange, the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on the
Composite Tape or other comparable reporting system for the exchange on the
applicable date, or if the applicable date is not a trading day, on the trading
day immediately preceding the applicable date;




(b)           If
the Shares are not traded on a national securities exchange but are traded on
the over-the counter market, if sales prices are not regularly reported for the
Shares for the trading day referred to in clause (a), and if bid and asked
prices for the Shares are regularly reported, the mean between the bid and the
asked price for the Shares at the close of trading in the over-the-counter
market on the applicable date, or if the applicable date is not a trading day,
on the trading day immediately preceding the applicable date; and




(c)           In
the absence of such markets for the Shares, the Fair Market Value shall be
determined in good faith by the Committee.




Family Member means with
respect to any Participant:





(a)           the
lineal ascendants and lineal descendants of such Participant or his spouse, or
any one or more of them, or




(b)           an
entity wholly owned by, including, but not limited to, a trust the exclusive
beneficiaries of which are, one or more of the lineal ascendants or lineal
descendants of such Participant or his spouse, or wholly owned jointly by one or
more of them and the Participant.




Incentive Stock Option means a
right to purchase Shares that is granted to an employee of the Company or any
Affiliate that is designated by the Committee to be an Incentive Stock Option
and that is intended to satisfy the requirements of Section 422 of the
Code.







2






Non-Qualified Stock Option
means a right to purchase Shares that is not intended to qualify as an Incentive
Stock Option or does not satisfy the requirements of Section 422 of the
Code.




Option means either an
Incentive Stock Option or a Non-Qualified Stock Option.




Option Holder means, at any
relevant time with respect to an Option, the person having the right to exercise
the Option.




Participant means any
director, advisory director, officer or employee of the Company or any Affiliate
who is selected by the Committee to receive an Award.




Permitted Transferee means,
with respect to any Participant, a Family Member of the Participant to whom an
Award has been transferred as permitted hereunder.




Person means an individual, a
corporation, a partnership, a limited liability company, an association, a
joint-stock company, a trust, an estate, an unincorporated organization and any
other business organization or institution.




Plan means the Sound
Financial, Inc. 2008 Equity Incentive Plan, as amended from time to
time.




Qualified Domestic Relations
Order means a Domestic Relations Order that:







(a)
clearly specifies:




(i)
            The
      name and last known mailing address of the Option Holder and of each
      person given rights under such Domestic Relations
  Order;




(ii)
            the
      amount or percentage of the Option Holder's benefits under this Plan to be
      paid to each person covered by such Domestic Relations
    Order;




(iii)
            the
      number of payments or the period to which such Domestic Relations Order
      applies; and




(iv)
            the
      name of this Plan; and




(b) does not
require the payment of a benefit in a form or amount that is:




(i)           not
otherwise provided for under the Plan; or




(v)
            inconsistent
      with a previous Qualified Domestic Relations
  Order.






For the
purposes of this Plan, a "Domestic Relations Order" means a judgment, decree or
order, including the approval of a property settlement that is made pursuant to
a state domestic relations or community property law and relates to the
provision of child support, alimony payments or marital property rights to a
spouse, child or other dependent of a Participant.




Restricted Stock Award means
an award of Shares or Share Units pursuant to Article VII.




Service means, unless the
Committee provides otherwise in an Award Agreement, service in any capacity as a
director, advisory director, officer or employee of the Company or any
Affiliate.




Share means a share of common
stock, par value $.01 per share, of Sound Financial, Inc.




Share Unit means the right to
receive a Share at a specified future date.






3






Stock Appreciation Right means
the right to receive a payment in Shares measured by the increase in the Fair
Market Value of a Share over the Exercise Price of that Stock Appreciation
Right.




Stock Appreciation Right
Holder means, at any relevant time with respect to a Stock Appreciation
Right, the person having the right to exercise the Stock Appreciation
Right.




Termination for Cause means
termination upon an intentional failure to perform stated duties, a breach of a
fiduciary duty involving personal dishonesty which results in material loss to
the Company or one of its Affiliates or a willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or a final
cease-and-desist order which results in material loss to the Company or one of
its Affiliates.  Notwithstanding the above, if a Participant is
subject to a different definition of termination for cause in an employment or
severance or similar agreement with the Company or any Affiliate, such other
definition shall control.




Vesting Date means the date or
dates on which the grant of an Option or Stock Appreciation Right is eligible to
be exercised or the date or dates on which a Restricted Stock Award ceases to be
forfeitable.







ARTICLE
III


AVAILABLE
SHARES




Section
3.1   Shares Available Under the Plan.




Subject
to adjustment under Article IX, the maximum aggregate number of Shares
representing Awards shall not exceed 202,237 Shares.  Shares
representing tandem Stock Appreciation Rights shall for such purpose only be
counted as either Shares representing Options outstanding or Stock Appreciation
Rights outstanding, but not as both.




Section
3.2   Shares Available for Options and Stock Appreciation
Rights.




Subject
to adjustment under Article IX and the limitations under Section 3.4 below, the
maximum aggregate number of Shares which may be issued upon exercise of Options
and Stock Appreciation Rights shall be 144,455 Shares, and the maximum aggregate
number of Shares which may be issued upon exercise of Options and Stock
Appreciation Rights to any one individual in any calendar year shall be 36,113
Shares.




Section
3.3   Shares Available for Restricted Stock Awards.




Subject
to adjustment under Article IX and the limitations under Section 3.4 below, the
maximum number of Shares which may be issued upon award or vesting of Restricted
Stock Awards under the Plan shall be 57,782 Shares and the maximum aggregate
number of Shares which may be issued upon award or vesting of Restricted Stock
Awards to any one individual in any calendar year shall be
14,445.




Section
3.4   Additional OTS Restrictions.




As long
as the Plan is subject to OTS regulations as applicable on the Effective Date,
subject to adjustment under Article IX, the following additional restrictions
shall apply:





(a)           No
Participant shall receive Options and Stock Appreciation Rights with respect to
more than 36,113 Shares.




(b)           No
Participant shall receive Restricted Stock Awards with respect to more than
14,445 Shares.






4








(c)           No director
or advisory director who is not also an employee of the Company or its
Affiliates shall receive Options and Stock Appreciation Rights with respect to
more than 7,222 Shares, and all such directors and advisory directors as a group
shall not receive Options and Stock Appreciation Rights with respect to more
than 43,336 Shares.




(d)           No
director or advisory director who is not also an employee of the Company or its
Affiliates shall receive Restricted Stock Awards with respect to more than 2,889
Shares, and all such directors and advisory directors as a group shall not
receive Restricted Stock Awards with respect to more than 17,334
Shares.




(e)           No
Award may vest beginning earlier than one year from the Effective Date of the
Plan and all Awards shall vest in annual installments of not more than 20% of
the total Award.




(f)           The
Vesting Date of an Award may only be accelerated in the event of death,
disability or a Change in Control.




(g)           Directors
and executive officers of the Company must exercise or forfeit their Options and
SAR Awards in the event Sound Community Bank, the Company’s wholly-owned
operating subsidiary, becomes critically undercapitalized (as defined in 12
C.F.R. Part  565.4), is subject to OTS enforcement action, or receives
a capital directive under 12 C.F.R. Part 565.7.




Section
3.5   Computation of Shares Issued.




For
purposes of this Article III, Shares shall be considered issued pursuant to the
Plan only if actually issued upon the exercise of an Option or Stock
Appreciation Right or in connection with a Restricted Stock
Award.  Any Award subsequently forfeited, in whole or in part, shall
not be considered issued.







ARTICLE
IV


ADMINISTRATION




Section
4.1   Committee.




(a)           The
Plan shall be administered by a Committee appointed by the Board for that
purpose and consisting of not less than two (2) members of the
Board.  Each member of the Committee shall be an "Outside Director"
within the meaning of Section 162(m) of the Code or a successor rule or
regulation, a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i)
under the Exchange Act or a successor rule or regulation and an "Independent
Director" under the corporate governance rules and regulations imposing
independence standards on committees performing similar functions promulgated by
any national securities exchange or quotation system on which Shares are
listed.




(b)           The
act of a majority of the members present at a meeting duly called and held shall
be the act of the Committee.  Any decision or determination reduced to
writing and signed by all members shall be as fully effective as if made by
unanimous vote at a meeting duly called and held.




(c)           The
Committee's decisions and determinations under the Plan need not be uniform and
may be made selectively among Participants, whether or not such Participants are
similarly situated.




Section
4.2   Committee Powers.






Subject
to the terms and conditions of the Plan and such limitations as may be imposed
by the Board, the Committee shall be responsible for the overall management and
administration of the Plan and shall have such authority as shall be necessary
or appropriate in order to carry out its responsibilities, including, without
limitation, the authority:






5








to
interpret and construe the Plan, and to determine all questions that may arise
under the Plan as to eligibility for participation in the Plan, the number of
Shares subject to Awards to be issued or granted, and the terms and conditions
thereof;




(a)
            with
      the consent of the Participant, to the extent deemed necessary by the
      Committee, amend or modify the terms of any outstanding Award or
      accelerate or defer the Vesting Date
thereof;




(b)           to
adopt rules and regulations and to prescribe forms for the operation and
administration of the Plan; and




(c)           to
take any other action not inconsistent with the provisions of the Plan that it
may deem necessary or appropriate.




All
decisions, determinations and other actions of the Committee made or taken in
accordance with the terms of the Plan shall be final and conclusive and binding
upon all parties having an interest therein.







ARTICLE
V


STOCK
OPTIONS




Section
5.1                                Grant
of Options.




(a)           The
Committee may, in its discretion, grant to a Participant an Option to purchase
Shares, subject to the limitations of the Plan, including Section 3.4
above.  An Option must be designated as either an Incentive Stock
Option or a Non-Qualified Stock Option and, if not designated as either, shall
be a Non-Qualified Stock Option.  Only employees of the Company or its
Affiliates may receive Incentive Stock Options.




(b)           Any
Option granted shall be evidenced by an Award Agreement which
shall:







(i)
            specify
      the number of Shares covered by the
Option;




(ii)
            specify
      the Exercise Price;




(iii)
            specify
      the Exercise Period;


(iv)
              specify
      the Vesting Date; and
 (v)
                contain
      such other terms and conditions not inconsistent with the Plan as the
      Committee may, in its discretion,
prescribe.




Section
5.2   Size of Option.




Subject
to the restrictions of the Plan, the number of Shares as to which a Participant
may be granted Options shall be determined by the Committee, in its
discretion.





Section
5.3   Exercise Price.




The price
per Share at which an Option may be exercised shall be determined by the
Committee, in its discretion, provided, however, that the
Exercise Price shall not be less than the Fair Market Value of a Share on the
date on which the Option is granted.







6




Section
5.4   Exercise Period.






The
Exercise Period during which an Option may be exercised shall commence on the
Vesting Date.  It shall expire on the earliest of:







(a)           the
date specified by the Committee in the Award Agreement;




(b)          the last
day of the three-month period commencing on the date of the Participant's
termination of Service, other than on account of death, Disability or a
Termination for Cause;


(c)           the
last day of the one-year period commencing on the date of the Participant's
termination of Service due to death or Disability;




(d)           as
of the time and on the date of the Participant's termination of Service due to a
Termination for Cause; or




(e)           the
last day of the ten-year period commencing on the date on which the Option was
granted.




An Option
that remains unexercised at the close of business on the last day of the
Exercise Period shall be canceled without consideration at the close of business
on that date.







Section
5.5   Vesting Date.




(a)           The
Vesting Date for each Option Award shall be determined by the Committee and
specified in the Award Agreement.




(b)           Unless
otherwise determined by the Committee and specified in the Award
Agreement:







(i) if the
Participant of an Option Award terminates Service prior to the Vesting Date for
any reason other than death or Disability, any unvested Option shall be
forfeited without consideration;




(ii)if the
Participant of an Option Award terminates Service prior to the Vesting Date on
account of death or Disability, the Vesting Date shall be accelerated to the
date of the Participant's termination of Service; and


(iii)    
if a Change in Control occurs prior to the Vesting Date of an Option Award that
is outstanding on the date of the Change in Control, the Vesting Date shall be
accelerated to the earliest date of the Change in Control.


Section
5.6   Additional Restrictions on Incentive Stock
Options.




An Option
designated by the Committee to be an Incentive Stock Option shall be subject to
the following provisions:





(a)           Notwithstanding
any other provision of this Plan to the contrary, no Participant may receive an
Incentive Stock Option under the Plan if such Participant, at the time the award
is granted, owns (after application of the rules contained in Section 424(d) of
the Code) stock possessing more than ten (10) percent of the total combined
voting power of all classes of stock of the Company or its Affiliates, unless






7








(i) the
option price for such Incentive Stock Option is at least 110 percent of the Fair
Market Value of the Shares subject to such Incentive Stock Option on the date of
grant and (ii) such Option is not exercisable after the date five (5) years from
the date such Incentive Stock Option is granted.




(b) Each
Participant who receives Shares upon exercise of an Option that is an Incentive
Stock Option shall give the Company prompt notice of any sale of Shares prior to
a date which is two years from the date the Option was granted or one year from
the date the Option was exercised.  Such sale shall disqualify the
Option as an Incentive Stock Option.




(c) The
aggregate Fair Market Value (determined with respect to each Incentive Stock
Option at the time such Incentive Stock Option is granted) of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under this Plan or any other plan of the
Company or an Affiliate) shall not exceed $100,000.




(d) Any Option
under this Plan which is designated by the Committee as an Incentive Stock
Option but fails, for any reason, to meet the foregoing requirements shall be
treated as a Non-Qualified Stock Option.




Section
5.7   Method of Exercise.




(a)           Subject
to the limitations of the Plan and the Award Agreement, an Option Holder may, at
any time on or after the Vesting Date and during the Exercise Period, exercise
his or her right to purchase all or any part of the Shares to which the Option
relates; provided,
however, that the minimum number of Shares which may be purchased at any
time shall be 100, or, if less, the total number of Shares relating to the
Option which remain un-purchased.  An Option Holder shall exercise an
Option to purchase Shares by:





(i)
              giving
      written notice to the Committee, in such form and manner as the Committee
      may prescribe, of his or her intent to exercise the
  Option;


(ii)
            delivering
      to the Committee full payment for the Shares as to which the Option is to
      be exercised; and


(iii)
              satisfying
      such other conditions as may be prescribed in the Award
      Agreement.




(b)           The
Exercise Price of Shares to be purchased upon exercise of any Option shall be
paid in full:





(i)
              in
      cash (by certified or bank check or such other instrument as the Company
      may accept); or


(ii)
            if
      and to the extent permitted by the Committee, in the form of Shares
      already owned by the Option Holder having an aggregate Fair Market Value
      on the date the Option is exercised equal to the aggregate Exercise Price
      to be paid; or




(iii)
            by
      a combination thereof.






Payment
for any Shares to be purchased upon exercise of an Option may also be made by
delivering a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the purchase price and applicable tax
withholding amounts (if any), in which event the Shares acquired shall be
delivered to the broker promptly following receipt of payment.






8








(c)           When
the requirements of this Section have been satisfied, the Committee shall take
such action as is necessary to cause the issuance of a stock certificate
evidencing the Option Holder's ownership of such Shares. The Person exercising
the Option shall have no right to vote or to receive dividends, nor have any
other rights with respect to the Shares, prior to the date the Shares are
transferred to such Person on the stock transfer records of the Company, and no
adjustments shall be made for any dividends or other rights for which the record
date is prior to the date as of which the transfer is effected.




Section
5.8   Limitations on Options.




(a)           An
Option by its terms shall not be transferable by the Option Holder other than by
will or the laws of descent and distribution, or pursuant to the terms of a
Qualified Domestic Relations Order, and shall be exercisable, during the life of
the Option Holder, only by the Option Holder or an alternate payee designated
pursuant to such a Qualified Domestic Relations Order; provided, however, that a
Participant may, at any time at or after the grant of a Non-Qualified Stock
Option under the Plan, apply to the Committee for approval to transfer all or
any portion of such Non-Qualified Stock Option which is then unexercised to such
Participant's Family Member. The Committee may approve or withhold approval of
such transfer in its sole and absolute discretion. If such transfer is approved,
it shall be effected by written notice to the Company given in such form and
manner as the Committee may prescribe and actually received by the Company prior
to the death of the person giving it. Thereafter, the transferee shall have,
with respect to such Non-Qualified Stock Option, all of the rights, privileges
and obligations which would attach thereunder to the Participant. If a privilege
of the Option depends on the life, Service or other status of the Participant,
such privilege of the Option for the transferee shall continue to depend upon
the life, Service or other status of the Participant. The Committee shall have
full and exclusive authority to interpret and apply the provisions of the Plan
to transferees to the extent not specifically addressed herein.




(b)           The
Company's obligation to deliver Shares with respect to an Option shall, if the
Committee so requests, be conditioned upon the receipt of a representation as to
the investment intention of the Option Holder to whom such Shares are to be
delivered, in such form as the Committee shall determine to be necessary or
advisable to comply with the provisions of applicable federal, state or local
law. It may be provided that any such representation shall become inoperative
upon a registration of the Shares or upon the occurrence of any other event
eliminating the necessity of such representation. The Company shall not be
required to deliver any Shares under the Plan prior to:




(i)           the
admission of such Shares to listing on any stock exchange or trading on any
automated quotation system on which Shares may then be listed or traded;
or




(ii)
            the
      completion of such registration or other qualification under any state or
      federal law, rule or regulation as the Committee shall determine to be
      necessary or advisable.






(c)           An
Option Holder may designate a Beneficiary to receive any Options that may be
exercised after his death. Such designation and any change or revocation of such
designation shall be made in writing in the form and manner prescribed by the
Committee. In the event that the designated Beneficiary dies prior to the Option
Holder, or in the event that no Beneficiary has been designated, any Options
that may be exercised following the Option Holder's death shall be transferred
to the Option Holder's estate. If the Option Holder and his or her Beneficiary
shall die in circumstances that cause the Committee, in its discretion, to be
uncertain which shall have been the first to die, the Option Holder shall be
deemed to have survived the Beneficiary.





Section
5.9   Prohibition Against Option Repricing.




Except as
provided in Section 9.3, neither the Committee nor the Board shall have the
right or authority following the grant of an Option pursuant to the Plan to
amend or modify the Exercise Price of any such Option, or to cancel the Option
at a time when the Exercise Price is less than the Fair Market Value of the
Shares, in exchange for another Option or Award.






9











ARTICLE
VI


STOCK
APPRECIATION RIGHTS




Section
6.1   Grant of Stock Appreciation Rights.




(a)           The
Committee may, in its discretion, grant to a Participant a Stock Appreciation
Right, subject to the limitations of the Plan, including Section 3.4
above.  A Stock Appreciation Right must be designated as either a
tandem Stock Appreciation Right or a stand-alone Stock Appreciation Right and,
if not so designated, shall be deemed to be a stand-alone Stock Appreciation
Right.  A tandem Stock Appreciation Right may only be granted at the
same time as the Option to which it relates.  The exercise of a tandem
Stock Appreciation Right shall cancel the related Option for a like number of
Shares and the exercise of a related Option shall cancel a tandem Stock
Appreciation Right for a like number of Shares.




(b)           Any
Stock Appreciation Right granted shall be evidenced by an Award Agreement which
shall:







(i)           specify
the number of Shares covered by the Stock Appreciation Right;




(ii)           specify
the Exercise Price;




(iii)           specify
the Exercise Period;




(iv)           specify
the Vesting Date;




(v)           specify
that the Stock Appreciation Right shall be settled in Shares; and




(vi)           contain
such other terms and conditions not inconsistent with the Plan as the Committee
may, in its discretion, prescribe.




Section
6.2   Size of Stock Appreciation Right.




Subject
to the restrictions of the Plan, the number of Shares as to which a Participant
may be granted Stock Appreciation Rights shall be determined by the Committee,
in its discretion.




Section
6.3   Exercise Price.




The price
per Share at which a Stock Appreciation Right may be exercised shall be
determined by the Committee, in its discretion, provided, however, that the
Exercise Price shall not be less than the Fair Market Value of a Share on the
date on which the Stock Appreciation Right is granted.





Section
6.4   Exercise Period.




The
Exercise Period during which a Stock Appreciation Right may be exercised shall
commence on the Vesting Date.  It shall expire on the earliest
of:





(a)           the
date specified by the Committee in the Award Agreement;




(b)
            the
      last day of the three-month period commencing on the date of the
      Participant's termination of Service, other than on account of death,
      Disability or a Termination for
Cause;






10








(c)           the
last day of the one-year period commencing on the date of the Participant's
termination of Service due to death or Disability;




(d)           as
of the time and on the date of the Participant's termination of Service due to a
Termination for Cause; or




(e)           the
last day of the ten-year period commencing on the date on which the Stock
Appreciation Right was granted.




A Stock
Appreciation Right that remains unexercised at the close of business on the last
day of the Exercise Period shall be canceled without consideration at the close
of business on that date.




Section
6.5   Vesting Date.




(a)           The
Vesting Date for each Stock Appreciation Right Award shall be determined by the
Committee and specified in the Award Agreement.




(b)           Unless
otherwise determined by the Committee and specified in the Award
Agreement:







(i)           if
the Participant of a Stock Appreciation Right Award terminates Service prior to
the Vesting Date for any reason other than death or Disability, any unvested
Award shall be forfeited without consideration;




(ii)           if
the Participant of a Stock Appreciation Right Award terminates Service prior to
the Vesting Date on account of death or Disability, the Vesting Date shall be
accelerated to the date of the Participant's termination of Service;
and




(iii)           if
a Change in Control occurs prior to the Vesting Date of a Stock Appreciation
Right Award that is outstanding on the date of the Change in Control, the
Vesting Date shall be accelerated to the earliest date of the Change in
Control.




Section
6.6   Method of Exercise.




(a)           Subject
to the limitations of the Plan and the Award Agreement, a Participant may, at
any time on or after the Vesting Date and during the Exercise Period, exercise
his or her Stock Appreciation Right as to all or any part of the Shares to which
the Stock Appreciation Right relates; provided, however, that the minimum number
of Shares as to which a Stock Appreciation Right may be exercised shall be 100,
or, if less, the total number of Shares relating to the Stock Appreciation Right
which remain unexercised. A Stock Appreciation Right Holder shall exercise a
Stock Appreciation Right by:


(i)           giving
written notice to the Committee, in such form and manner as the Committee may
prescribe, of his or her intent to exercise the Stock Appreciation Right;
and




(ii)
            satisfying
      such other conditions as may be prescribed in the Award
      Agreement.




(b)           When
the requirements of this Section have been satisfied, the Committee shall take
such action as is necessary to cause the remittance to the Stock Appreciation
Right Holder (or, in the event of his or her death, his or her Beneficiary) of a
number of Shares with an aggregate Fair Market Value equal to the excess (if
any) of (i) the Fair Market Value of a Share on the date of exercise over (ii)
the Exercise Price per Share, times the number of Stock Appreciation Rights
exercised.  The Person exercising the Stock Appreciation Right shall
have no right to vote or to receive dividends, nor have any other rights with
respect to the Shares, prior to the date the Shares are transferred to such
Person on the stock transfer records of the Company, and no adjustments shall be
made for any dividends or other rights for which the record date is prior to the
date as of which the transfer is effected.







11






Section
6.7   Limitations on Stock Appreciation Rights.






(a)           A
Stock Appreciation Right by its terms shall not be transferable by the Stock
Appreciation Right Holder other than by will or the laws of descent and
distribution, or pursuant to the terms of a Qualified Domestic Relations Order,
and shall be exercisable, during the life of the Stock Appreciation Right
Holder, only by the Stock Appreciation Right Holder or an alternate payee
designated pursuant to such a Qualified Domestic Relations Order; provided, however, that a
Participant may, at any time at or after the grant of a Stock Appreciation Right
under the Plan, apply to the Committee for approval to transfer all or any
portion of such Stock Appreciation Right which is then unexercised to such
Participant's Family Member. The Committee may approve or withhold approval of
such transfer in its sole and absolute discretion. If such transfer is approved,
it shall be effected by written notice to the Company given in such form and
manner as the Committee may prescribe and actually received by the Company prior
to the death of the person giving it. Thereafter, the transferee shall have,
with respect to such Stock Appreciation Right, all of the rights, privileges and
obligations which would attach thereunder to the Participant. If a privilege of
the Stock Appreciation Right depends on the life, Service or other status of the
Participant, such privilege of the Stock Appreciation Right for the transferee
shall continue to depend upon the life, Service or other status of the
Participant. The Committee shall have full and exclusive authority to interpret
and apply the provisions of the Plan to transferees to the extent not
specifically addressed herein.




(b)           The
Company's obligation to deliver Shares with respect to a Stock Appreciation
Right shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Stock Appreciation Right
Holder to whom such Shares are to be delivered, in such form as the Committee
shall determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the Shares or
upon the occurrence of any other event eliminating the necessity of such
representation. The Company shall not be required to deliver any Shares under
the Plan prior to:







(i)           the
admission of such Shares to listing on any stock exchange or trading on any
automated quotation system on which Shares may then be listed or traded;
or




(ii)
            the
      completion of such registration or other qualification under any state or
      federal law, rule or regulation as the Committee shall determine to be
      necessary or advisable.






(c)           A
Stock Appreciation Right Holder may designate a Beneficiary to receive any Stock
Appreciation Right that may be exercised after his death. Such designation and
any change or revocation of such designation shall be made in writing in the
form and manner prescribed by the Committee. In the event that the designated
Beneficiary dies prior to the Stock Appreciation Right Holder, or in the event
that no Beneficiary has been designated, any Stock Appreciation Rights that may
be exercised following the Stock Appreciation Right Holder's death shall be
transferred to the Stock Appreciation Right Holder's estate. If the Stock
Appreciation Right Holder and his or her Beneficiary shall die in circumstances
that cause the Committee, in its discretion, to be uncertain
which shall have been the first to die, the Stock Appreciation Right Holder
shall be deemed to have survived the Beneficiary.




Section
6.8   Prohibition Against Stock Appreciation Right
Repricing.




Except as
provided in Section 9.3, neither the Committee nor the Board shall have the
right or authority following the grant of a Stock Appreciation Right pursuant to
the Plan to amend or modify the Exercise Price of any such Stock Appreciation
Right or to cancel the Stock Appreciation Right at a time when the Exercise
Price is less than the Fair Market Value of the Shares, in exchange for another
Stock Appreciation Right or Award.









12








ARTICLE
VII




RESTRICTED
STOCK AWARDS




Section
7.1                                In
General.






(a)           Each
Restricted Stock Award shall be evidenced by an Award Agreement which shall
specify, subject to the limitations of the Plan, including Section 3.4
above:







(i)           the
number of Shares or Share Units covered by the Restricted Stock
Award;




(ii)           the
amount, if any, which the Participant shall be required to pay to the Company in
consideration for the issuance of such Shares or Share Units;




(iii)           the
date of grant of the Restricted Stock Award;




(iv)           the
Vesting Date for the Restricted Stock Award;




(v)           as
to Restricted Stock Awards awarding Shares, the rights of the Participant with
respect to dividends, voting rights and other rights and preferences associated
with such Shares; and




(vi)           as
to Restricted Stock Awards awarding Share Units, the rights of the Participant
with respect to attributes of the Share Units which are the equivalent of
dividends and other rights and preferences associated with Shares and the
circumstances, if any, prior to the Vesting Date pursuant to which Share Units
shall be converted to Shares;






and
contain such other terms and conditions not inconsistent with the Plan as the
Committee may, in its discretion, prescribe.




(b)           All
Restricted Stock Awards consisting of Shares shall be in the form of issued and
outstanding Shares that shall be registered in the name of the Participant and
held by the Committee, together with an irrevocable stock power executed by the
Participant in favor of the Committee or its designee, pending the vesting or
forfeiture of the Restricted Stock Award.  The certificates evidencing
the Shares shall at all times prior to the applicable Vesting Date bear the
following legend:







The
common stock evidenced hereby is subject to the terms of an Award Agreement
between Sound Financial, Inc. and [Name of Participant] dated [Award Date] made
pursuant to the terms of the Sound Financial, Inc. 2008 Equity Incentive Plan,
copies of which are on file at the executive offices of Sound Financial, Inc.
and may not be sold, encumbered, hypothecated or otherwise
transferred, except in accordance with the terms of such Plan and Award
Agreement.




or such
other restrictive legend as the Committee, in its discretion, may
specify.




(c)           Unless
otherwise set forth in the Award Agreement, a Restricted Stock Award by its
terms shall not be transferable by the Participant other than by will or by the
laws of descent and distribution, and the Shares distributed pursuant to such
Award shall be distributable, during the lifetime of the Participant, only to
the Participant.






13







Section
7.2   Vesting Date.




(a)           The
Vesting Date for each Restricted Stock Award shall be determined by the
Committee and specified in the Award Agreement.




(b)           Unless
otherwise determined by the Committee and specified in the Award
Agreement:




(i)           if
the Participant of a Restricted Stock Award terminates Service prior to the
Vesting Date for any reason other than death or Disability, any unvested Shares
or Share Units shall be forfeited without consideration;




(ii)
            if
      the Participant of a Restricted Stock Award terminates Service prior to
      the Vesting Date on account of death or Disability, the Vesting Date shall
      be accelerated to the date of termination of the Participant's Service
      with the Company; and




(iii)           if
a Change in Control occurs prior to the Vesting Date of a Restricted Stock Award
that is outstanding on the date of the Change in Control, the Vesting Date shall
be accelerated to the earliest date of the Change in Control.




Section
7.3   Dividend Rights.




Unless
otherwise set forth in the Award Agreement, any dividends or distributions
declared and paid with respect to Shares subject to a Restricted Stock Award,
whether or not in cash, or an equivalent amount in the case of a Restricted
Stock Award awarding Share Units, shall be paid to the Participant at the same
time they are paid to all other shareholders of the Company.




Section
7.4   Voting Rights.




Unless
otherwise set forth in the Award Agreement, voting rights appurtenant to the
Shares subject to the Restricted Stock Award shall be exercised by the
Participant.




Section
7.5   Designation of Beneficiary.




A
Participant who has received a Restricted Stock Award may designate a
Beneficiary to receive any unvested Shares or Shares distributed in satisfaction
of any unvested Share Units that become vested on the date of the Participant's
death.  Such designation (and any change or revocation of such
designation) shall be made in writing in the form and manner prescribed by the
Committee.  In the event that the Beneficiary designated by a
Participant dies prior to the Participant, or in the event that no Beneficiary
has been designated, any vested Shares that become available for distribution on
the Participant's death shall be paid to the executor or administrator of the
Participant's estate.





Section
7.6   Manner of Distribution of Awards.




The
Company's obligation to deliver Shares with respect to a Restricted Stock Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant or Beneficiary
to whom such Shares are to be delivered, in such form as the Committee shall
determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the Shares or
upon the occurrence of any other event eliminating the necessity of such
representation. The Company shall not be required






14








to
deliver any Shares under the Plan prior to (i) the admission of such Shares to
listing on any stock exchange or trading on any automated quotation system on
which Shares may then be listed or traded, or (ii) the completion of such
registration or other qualification under any state or federal law, rule or
regulation as the Committee shall determine to be necessary or
advisable.







ARTICLE
VIII


SPECIAL
TAX PROVISION




Section
8.1   Tax Withholding Rights.




Where any
Person is entitled to receive Shares, the Company shall have the right to
require such Person to pay to the Company the amount of any tax which the
Company is required to withhold with respect to such Shares, or, in lieu
thereof, to retain, or to sell without notice, a sufficient number of Shares to
cover the minimum amount required to be withheld.







ARTICLE
IX


AMENDMENT
AND TERMINATION




Section
9.1   Termination




The Board
may suspend or terminate the Plan in whole or in part at any time prior to the
tenth anniversary of the Effective Date by giving written notice of such
suspension or termination to the Committee.  Unless sooner terminated,
the Plan shall terminate automatically on the tenth anniversary of the Effective
Date.  In the event of any suspension or termination of the Plan, all
Awards previously granted under the Plan that are outstanding on the date of
such suspension or termination of the Plan shall remain outstanding and
exercisable for the period and on the terms and conditions set forth in the
Award Agreements evidencing such Awards.




Section
9.2   Amendment.




The Board
may amend or revise the Plan in whole or in part at any time; provided, however,
that, to the extent required to comply with Section 162(m) of the Code or the
corporate governance standards imposed under the listing or trading requirements
imposed by any national securities exchange or automated quotation system on
which the Company lists or seeks to list or trade Shares, no such amendment or
revision shall be effective if it amends a material term of the Plan unless
approved by the holders of a majority of the votes cast on a proposal to approve
such amendment or revision.  To the extent OTS regulations are changed
subsequent to the Effective Date, the Board shall have the right but not the
obligation, to amend or revise the Plan without shareholder approval to conform
to the revised regulations.




Section
9.3   Adjustments in the Event of Business
Reorganization.




In the
event any recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, exchange of Shares or other securities,
stock dividend or other special and nonrecurring dividend or distribution
(whether in the form of cash, securities or other property), liquidation,
dissolution, or other similar corporate transaction or event, affects the Shares
such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Participants under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all
of:




(i)           the
number and kind of securities deemed to be available thereafter for grants of
Awards in the aggregate to all Participants;






15








(ii)
            the
      number and kind of securities that may be delivered or deliverable in
      respect of outstanding Awards; and




(iii)           the
Exercise Price of Options and Stock Appreciation Rights.






In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including, without
limitation, cancellation of Awards in exchange for the in-the-money value, if
any, of the vested portion thereof, or substitution of Awards using stock of a
successor or other entity) in recognition of unusual or nonrecurring events
(including, without limitation, events described in the preceding sentence)
affecting the Company or any Affiliate or the financial statements of the
Company or any Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles.







ARTICLE
X


MISCELLANEOUS




Section
10.1    Status as an Employee Benefit Plan.




This Plan
is not intended to satisfy the requirements for qualification under Section
401(a) of the Code or to satisfy the definitional requirements for an "employee
benefit plan" under Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended. It is intended to be a non-qualified incentive compensation
program that is exempt from the regulatory requirements of the Employee
Retirement Income Security Act of 1974, as amended. The Plan shall be construed
and administered so as to effectuate this intent.




Section
10.2   No Right to Continued Employment.




Neither
the establishment of the Plan nor any provisions of the Plan nor any action of
the Board or Committee with respect to the Plan shall be held or construed to
confer upon any Participant any right to a continuation of his or her position
as a director, advisory director or employee of the Company.  The
Company reserves the right to remove any participating member of the Board or
dismiss any Participant or otherwise deal with any Participant to the same
extent as though the Plan had not been adopted.




Section
10.3   Construction of Language.




Whenever
appropriate in the Plan, words used in the singular may be read in the plural,
words used in the plural may be read in the singular, and words importing the
masculine gender may be read as referring equally to the feminine or the neuter.
Any reference to an Article or Section number shall refer to an Article or
Section of this Plan unless otherwise indicated.




Section
10.4   Governing Law.




The Plan
shall be construed, administered and enforced according to the laws of the State
of Washington without giving effect to the conflict of laws principles thereof,
except to the extent that such laws are preempted by federal law. The federal
and state courts located in the County or contiguous counties in which the
Company's headquarters are located shall have exclusive jurisdiction over any
claim, action, complaint or lawsuit brought under the terms of the Plan. By
accepting any Award granted under this Plan, the Participant, and any other
person claiming any rights under the Plan, agrees to submit himself, and any
such legal action as he shall bring under the Plan, to the sole jurisdiction of
such courts for the adjudication and resolution of any such
disputes.




Section
10.5   Headings.




The
headings of Articles and Sections are included solely for convenience of
reference.  If there is any conflict between such headings and the
text of the Plan, the text shall control.






16









Section
10.6   Non-Alienation of Benefits.




The right
to receive a benefit under the Plan shall not be subject in any manner to
anticipation, alienation or assignment, nor shall such right be liable for or
subject to debts, contracts, liabilities, engagements or torts.




Section
10.7   Notices.




Any
communication required or permitted to be given under the Plan, including any
notice, direction, designation, comment, instruction, objection or waiver, shall
be in writing and shall be deemed to have been given at such time as it is
delivered personally or three (3) days after mailing if mailed, postage prepaid,
by registered or certified mail, return receipt requested, addressed to such
party at the address listed below, or at such other address as one such party
may by written notice specify to the other party:




(a)      If
to the Committee:




Sound
Financial, Inc.


2005
5th
Avenue, Suite 200


Seattle,
Washington 98121


Attention:  Corporate
Secretary




(b)           If
to a Participant, to such person's address as shown in the Company's
records.







Section
10.8   Approval of Shareholders.




The Plan
shall be subject to approval by the Company's shareholders within twelve (12)
months before or after the date the Board adopts the Plan.







17