DEF 14A of Sound Financial Bancorp, Inc., Apr 18, 2024

DEF 14A of Sound Financial Bancorp, Inc.

Filed Apr 18, 2024 · FY20230001541119-24-000016

Open on EDGAR

  1. PROPOSAL 1 - ELECTION OF DIRECTORS

    PROPOSAL 1 - ELECTION OF DIRECTORS Sound Financial Bancorp’s Board of Directors is currently composed of seven members, each of whom is also a director of Sound Community Bank. Pursuant to the Company’s charter, the directors are divided into three classes, as nearly equal in number as reasonably possible, with approximately one-third of the directors elected annually. The following table sets forth certain information regarding the composition of Sound Financial Bancorp’s Board of Directors, including each director’s term of office. The Sound Financial Bancorp Board of Directors, acting on the recommendation of the Nominating Committee, has recommended and approved the nomination of Debra Jones, Rogelio Riojas and Corissa B. Porcelli to serve as directors for a term of three years to expire at the annual meeting of shareholders to be held in 2027. Joseph Stilwell serves as the managing member of Stilwell Value LLC, the general partner of several funds (referred to as the “Stilwell Funds”), which represent the largest shareholder of the Company. Mr. Stilwell and the Stilwell Funds have filed multiple amended Schedule 13Ds with the SEC, expressing their intention to pursue representation on the Company’s Board of Directors. In discussions with Laurie Stewart, President and Chief Executive Officer of the Company, Mr. Stilwell expressed his preference for Corissa Porcelli to be nominated as a director of the Company at the 2024 annual shareholders' meeting. Consequently, the Nominating Committee of the Board of Directors thoroughly assessed Ms. Porcelli’s qualifications to serve as a director, conducting an interview to evaluate her background, expertise, and suitability for the role. Following this assessment, the Committee determined Ms. Porcelli to be suitably qualified for the position and recommended to the Board of Directors her nomination, alongside current directors Debra Jones and Rogelio Riojas, for election at the 2024 annual shareholders' meeting. As a result, the Board of Directors has expanded its size from seven members to eight members to accommodate Ms. Porcelli’s nomination. It is intended that the proxies solicited on behalf of the Sound Financial Bancorp Board of Directors (other than proxies in which the authority to vote for a nominee is withheld) will be voted at the annual meeting “FOR” the election of each of the director nominees. If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute nominee as the Board of Directors, acting on the recommendations of the Nominating Committee, may recommend. At this time, we know of no reason any director nominee might be unable to serve if elected. Except as disclosed in this proxy statement, there are no arrangements or understandings between any director nominee and any other person pursuant to which such director was selected. The Board of Directors unanimously recommends that you vote “FOR” the election of the director nominees whose names appear below.

  2. PROPOSAL 1 - ELECTION OF DIRECTORS

    | Name | Age(1) | Positions With Sound Financial Bancorp | Director Since(2) | Term Expires | | Director Nominees | | | | | | Debra Jones | 66 | Director and Director Nominee | 2005 | 2027(3) | | Corissa B. Porcelli | 37 | Director Nominee | N/A | 2027(3) | | Rogelio Riojas | 73 | Director and Director Nominee | 2005 | 2027(3) | | Continuing Directors | | | | | | Tyler K. Myers | 61 | Chairman of the Board | 1993 | 2025 | | Robert F. Carney | 76 | Director | 1984 | 2025 | | David S. Haddad, Jr. | 75 | Director | 1990 | 2026 | | Laura Lee Stewart | 74 | President, Chief Executive Officer and Director | 1990 | 2026 | | James E. Sweeney | 74 | Director | 1986 | 2025 |

  3. PROPOSAL 1 - ELECTION OF DIRECTORS

    ____________________ (1) At December 31, 2023. (2) Includes years of service on the Board of Sound Community Bank (and its predecessor entity). (3) If elected at the annual meeting.

  4. Business Experience and Qualifications of Directors and Director Nominees

    Business Experience and Qualifications of Directors and Director Nominees The business experience, for at least the past five years, of each director, and director nominee of Sound Financial Bancorp and the experience, qualifications, attributes, skills and areas of expertise of each director and director nominee that supports his or her service as a director are set forth below. Debra Jones. Ms. Jones served as the Vice President of Administrative Services at Bellingham Technical College from August 2005 until her retirement in September 2014, where she was responsible for cash management, financial affairs, physical plant administration and strategic planning. Prior to joining the college, she served from September 2004 to May 2005 as Manager of Budget and Cash Management of Brown & Cole Stores, a retail grocer, and from 1998 to 2004 as Vice President of Administrative and Financial Services at Brown & Cole Stores. She is a certified public accountant and has served in chief financial officer positions for over 25 years, with responsibility for financial management, risk management and business administration. Her experience and expertise in the areas of accounting, finance and human resources are all valuable skills which she brings to our Board of Directors and as our “audit committee financial expert.” Corissa B. Porcelli. Ms. Porcelli is the Director of Research for a group of private investment partnerships known as The Stilwell Group. She has extensive experience reviewing financial statements and analyzing and assessing the strengths and weaknesses of community banks. Since 2020, Ms. Porcelli has served and currently serves on the board of directors of Kingsway Financial Services Inc., a publicly traded company in the extended warranty and business services industries. She previously served as a director on the boards of the following community banks and their publicly traded holding companies until they were each acquired: Madison Bank of Maryland/MB Bancorp, Inc. (2018-2020); Sunshine Community Bank/Sunshine Financial, Inc. (2016-2018); Delanco Federal Savings Bank/Delanco Bancorp, Inc. (2017-2018); Fraternity Federal Savings and Loan Association/Fraternity Community Bancorp, Inc. (2014-2016); and Colonial Bank FSB/Colonial Financial Services, Inc. (2014-2015). Ms. Porcelli graduated from the University of Pennsylvania in 2008 with a Bachelor of Arts in Economics and Psychology and is a CFA® charterholder. Ms. Porcelli’s specialized professional experience analyzing community banks, her service as a director of several other community bank boards, and her comprehensive understanding of financial concepts and capital allocation make her well-qualified to serve as a director of Sound Financial Bancorp and Sound Community Bank. Rogelio Riojas. Mr. Riojas is the Chief Executive Officer of Sea Mar Community Health Centers, a health care and social services organization serving low-income and underserved populations in Seattle and several counties in Washington. He has served in this position for over 45 years. Mr. Riojas has extensive management and administrative skills and experience in the heavily regulated healthcare industry, especially in our local community. He also has experience in compensation, personnel management and other human resource matters, which are valuable skills he brings to our Board of Directors. Tyler K. Myers. Mr. Myers is the Chairman of the Boards of Directors of Sound Financial Bancorp and Sound Community Bank, and currently is the President and General Partner of The Myers Group, a conglomerate of retail businesses that are focused primarily on the grocery, hardware and fuel industries. Mr. Myers is responsible for overseeing the success and profitability of all Myers Group business and real estate operations. Mr. Myers has been with The Myers Group since 1978. Mr. Myers’ years of work with and running the Myers Group has provided him with strong leadership, management, financial and administrative skills, which together with his participation in our local business community for over 40 years brings knowledge of the local economy and potential business opportunities for Sound Community Bank. Robert F. Carney. Mr. Carney is retired and previously served as the Director of Meat and Seafood Merchandising for Scolaris Food & Drug Company in Reno, Nevada, a position he held from February 2008 to July 2017. Prior to February 2008, he was Director of Meat and Seafood Merchandising for Brown & Cole Stores in Bellingham, Washington for six years. Mr. Carney has over 20 years of experience in management positions in the food industry, including 12 years of budgeting and profit generating responsibilities. He has an MBA from the University of Southern California and an undergraduate degree in economics and business. Mr. Carney has attended seminars on the credit union and banking business and has 38 years of experience on our Board, beginning when Sound Community Bank was a $25 million-in-assets credit union. Mr. Carney’s years of management experience, together with his educational training, has provided him with expertise in the areas of business operations, budgeting and financial management, which expertise is valuable to our organization. David S. Haddad, Jr. Mr. Haddad is Vice Chairman of the Boards of Directors of Sound Financial Bancorp and Sound Community Bank. Prior to his retirement, Mr. Haddad was an Operations Manager at Cutter and Buck, a golf apparel company, from 1999 until 2003; a Senior Manager of Operations at Progressive International, a housewares wholesaler from 1995 until 1999; and a warehouse manager for Associated Grocers from 1982 until 1995. During Mr. Haddad’s years of service at the senior management level of these companies, his responsibilities included budgeting, personnel management, contract negotiations and control of capital expenditures. During his retirement, Mr. Haddad worked part time from 2004 until 2009 as a Customer Service Supervisor with Alaska Airlines. Mr. Haddad’s 32 years of service as a director of Sound Community Bank (including its predecessor credit union organization) provide him with a strong knowledge and understanding of the institution’s business and history. Mr. Haddad’s positions at the senior management level of various companies and as a Customer Service Supervisor for Alaska Airlines have provided him with strong leadership, interpersonal, management and administrative skills.

  5. Business Experience and Qualifications of Directors and Director Nominees

    Laura Lee Stewart. Ms. Stewart is the President and Chief Executive Officer of Sound Community Bank and Sound Financial Bancorp. Prior to joining Sound Community Bank as its President in 1989, when it was a credit union, Ms. Stewart was Senior Vice President/Retail Banking at Great Western Bank. Ms. Stewart was selected as an inaugural member of the FDIC Community Bank Advisory Board and completed her term in 2011. In 2011, Ms. Stewart was appointed to the inaugural Consumer Financial Protection Bureau board and completed her term in 2013. She also served as Chair of the American Bankers Association’s (“ABA”) Government Relations Council and is the past Chair of the Washington Bankers Association. The American Banker magazine honored her as one of the top 25 Women to Watch in banking in 2011, 2015, 2016, 2017, 2018, 2022 and 2023, and as one of the most powerful women in Banking in 2019, 2020 and 2021. In 2016, Ms. Stewart was recognized as a Woman of Influence by the Puget Sound Business Journal. In 2018, she was named Community Banker of the Year by American Banker. Ms. Stewart also served as Chair of the National Arthritis Foundation’s board of directors as well as Chair of the board of directors of Woodland Park Zoo. Ms. Stewart completed her second term as a member of the Seattle Branch Board of Directors of the Federal Reserve Bank of San Francisco. In 2024, she joined the Head Office Board. She is also the only non-native Board member of the Jamestown Sklallan Community Development Financial Institution. In October 2019, Ms. Stewart was elected Chair of the ABA. In 2021, she was named as one of The Power 100 by the Puget Sound Business Journal. Her many years of service in all areas of financial institution operations and duties as President and Chief Executive Officer of Sound Financial Bancorp and Sound Community Bank bring a specialized knowledge of the financial, economic and regulatory challenges we face, and she is well-suited to keeping the Board informed on these matters. James E. Sweeney. Mr. Sweeney is retired and previously served as a vice president of Vitamin Shoppe, Inc., a national health and wellness retailer based in North Bergan, New Jersey. Mr. Sweeney previously served as President and Chief Executive Officer of Super Supplements, Inc., a Pacific Northwest retail chain specializing in vitamins, health supplements and nutrition with stores in Washington, Oregon and Idaho, from June 2006 until its acquisition by Vitamin Shoppe in February 2013. Prior to his employment with Super Supplements, Mr. Sweeney was Managing Partner of Corporate Strategies and Development, LLC, a management consulting firm serving businesses in the Puget Sound area. He brings general business, financial and risk management skills to Sound Community Bank and has experience guiding business entities during difficult business and economic cycles. His participation in our local business community for over 40 years brings knowledge of the local economy and potential business opportunities for Sound Community Bank.

  6. Business Experience of Executive Officers Who are Not Directors

    Business Experience of Executive Officers Who are Not Directors The business experience, for at least the past five years, of each named executive officer who is not also a director of Sound Financial Bancorp is set forth below. Wesley "Wes" Ochs. Mr. Ochs, age 45, currently serves as Executive Vice President and Chief Strategy/Financial Officer at Sound Community Bank and Sound Financial Bancorp. Mr. Ochs is responsible for developing, communicating, executing, and sustaining corporate strategic initiatives, and in November 2020, became responsible for the Bank’s economic forecasting, strategic planning and asset liability management functions. Mr. Ochs began his career at Sound Community Bank in April 2009 as a Commercial Loan Officer and was promoted to Senior Vice President Credit Administration Manager in 2015, and to Executive Vice President and Chief Strategy Officer in January 2020. In August 2021, Mr. Ochs was promoted to Chief Financial Officer, in addition to his role of Chief Strategy Officer. Mr. Ochs received his Bachelor of Arts degree in Economics, Finance and Education from Eastern Washington University, his Master of Business Administration degree in Accounting from the University of Phoenix and is a graduate of the Washington Bankers Association’s Executive Development Program and the Pacific Coast Banking School. Heidi Sexton. Ms. Sexton, age 48, was appointed Executive Vice President and Chief Operating Officer of Sound Community Bank during 2018 and corporate secretary of Sound Financial Bancorp. Ms. Sexton is responsible for identification and mitigation of risk through oversight of the Enterprise Risk Management and Compliance Management functions. In addition, Ms. Sexton is responsible for Information Technology, Systems Support and Operations, Project Management and Policies and Procedures. Ms. Sexton joined Sound Community Bank in 2007 and previously served as Vice President of Operations, managing deposit, electronic, and lending operations. Ms. Sexton received a Bachelor's of Arts in Accounting from the University of Wisconsin-Eau Claire. She currently holds a number of professional certifications including Certified Internal Auditor, Certified Regulatory Compliance Manager and is a graduate of the Washington Bankers Association’s Executive Development Program and the Pacific Coast Banking School. Ms. Sexton is also a member of the CFPB Community Bank Advisory Council and ABA Compliance Administrative Committee. She serves on the Board of Financial Beginnings, a non-profit that provides youth to adult financial education programs at no cost.

  7. Director Compensation

    Director Compensation Directors of Sound Community Bank (excluding Laura Lee Stewart, the President and Chief Executive Officer of Sound Community Bank, who receives no separate compensation for her service as a director) receive compensation for their service on the Board of Directors of Sound Community Bank. They receive no separate compensation for their service on the Board of Directors of Sound Financial Bancorp. During 2023, our directors received an annual retainer fee of $33,960, plus $1,500 for each monthly board meeting attended. The directors are not paid additional fees for service on various board committees or special board meetings. The following table provides compensation paid to, or earned by, each non-employee member of the Board of Directors during the year ended December 31, 2023.

  8. Director Compensation

    | Name | Fees Earned or Paid in Cash | | Stock Awards (1) | | Option Awards (2) | | All Other Compensation (3) | | Total | | | Tyler K. Myers | | 48,960 | | 8,026 | | 3,626 | | 212 | | 60,824 | | David S. Haddad, Jr. | 48,960 | | 8,026 | | 3,626 | | 212 | | 60,824 | | | Robert F. Carney | 48,960 | | 8,026 | | 3,626 | | 212 | | 60,824 | | | Debra Jones | 48,960 | | 8,026 | | 3,626 | | 212 | | 60,824 | | | Rogelio Riojas | 48,960 | | 8,026 | | 3,626 | | 212 | | 60,824 | | | James E. Sweeney | 48,960 | | 8,026 | | 3,626 | | 212 | | 60,824 | |

  9. Director Compensation

    _________________________________

  10. Director Compensation

    | (1) On January 27, 2023, each director named in the above table was awarded 200 shares of Company common stock, 25 percent of which vested immediately, with the remaining shares scheduled to vest in three equal annual installments commencing on January 27, 2024. Amounts reported in this column represent the aggregate grant date fair value of the January 27, 2023 restricted stock awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation- Stock Compensation (“FASB ASC Topic 718”). The grant date fair value amount is based on the per share closing price of the Company’s common stock on the date the award was made of $40.13. As of December 31, 2023, each of the directors named in the table held 287 unvested shares of restricted common stock. | | (2) On January 27, 2023, each director named in the above table was awarded an option to purchase 320 shares of Company common stock at an exercise price equal to the fair market value of the Company’s common stock on the grant date, with 25 percent of the options shares vesting immediately and the remaining option shares scheduled to vest in three equal annual installments commencing on January 27, 2024. The amounts reported in this column reflect the aggregate grant date fair value of the January 27, 2023 stock option awards computed in accordance with FASB ASC Topic 718. The assumptions used in calculating these amounts are included in Note 14 to the Consolidated Financial Statements contained in the Company’s 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024. As of December 31, 2023, total shares underlying stock options held by the directors named in the table were as follows: Myers - 1,310; Haddad - 2,172; Carney - 3,097; Jones - 990; Riojas - 1,310; and Sweeney - 1,310. | | (3) Represents dividends paid to the directors during 2023 on their unvested shares of restricted common stock. |

  11. Director Compensation

    With respect to the restricted stock and stock options discussed in the footnotes above, vesting accelerates in the event of the director’s death or disability or in connection with a change in control of Sound Financial Bancorp or the Bank. In the event of a termination of service for any reason other than death or disability or in connection with a change in control of Sound Financial Bancorp or the Bank, all non-vested awards would be canceled and the exercise period on the remaining unexercised, vested option awards would be reduced to three months. Directors are provided or reimbursed for travel and lodging and other customary out-of-pocket expenses incurred in attending out-of-town board and committee meetings, industry conferences and continuing education seminars. Any incremental spousal costs in connection with those meetings, conferences and seminars are paid for by the directors personally. Sound Community Bank also pays the premiums on directors’ and officers’ liability insurance.

  12. Summary Compensation Table

    Summary Compensation Table

  13. Summary Compensation Table

    | Name and Principal Position | Fiscal Year | Salary | | Bonus(1) | | Stock Awards(2) | | Option Awards(3) | Non-Equity Incentive Plan Compensation(4) | All Other Compensation(5) | Total | | | Laura Lee Stewart President and CEO | 2023 | | 515,000 | | 16,052 | | 32,104 | $20,394 | $211,051 | $222,357 | | 1,016,958 | | | 2022 | 509,868 | | 10,713 | | 10,712 | | — | 234,975 | 172,928 | 939,196 | | | Heidi Sexton EVP/COO | 2023 | 301,917 | | 6,421 | | 25,683 | | 18,128 | 93,436 | 77,256 | 522,841 | | | | 2022 | 277,500 | | 8,570 | | 34,280 | | 19,904 | 95,473 | 78,141 | 513,868 | | | Wes Ochs EVP/CFO and CSO | 2023 | 301,917 | | 6,421 | | 25,683 | | 18,128 | 93,436 | 85,288 | 530,873 | | | | 2022 | 275,333 | | 8,570 | | 34,280 | | 19,904 | 95,473 | 93,870 | 527,430 | |

  14. Summary Compensation Table

    ____________________________________ (1)Includes for 2023: (a) the grant date fair value, under FASB ASC Topic 718, of 400 shares, 160 shares and 160 shares of Company common stock granted to Ms. Stewart, Ms. Sexton and Mr. Ochs, respectively on January 27, 2023. Includes for 2022: (a) the grant date fair value, under FASB ASC Topic 718, of 250 shares, 200 shares and 200 shares of Company common stock granted to Ms. Stewart, Ms. Sexton, and Mr. Ochs, respectively, on January 28, 2022. (2)Represents the grant date fair value, under FASB ASC Topic 718, (i) for 2023, of 800 shares of Company common stock granted to Ms. Stewart (which vest annually over two years beginning January 27, 2024) and 640 shares of Company common stock granted to each of Ms. Sexton and Mr. Ochs on January 27, 2023 (which vest annually over four years beginning January 27, 2024) and (ii) for 2022, of 250 shares of Company common stock granted to Ms. Stewart (which vested on January 28, 2023) and 800 shares of Company common stock granted to each of Ms. Sexton and Mr. Ochs on January 28, 2022 (which vest annually over four years beginning January 28, 2023). For additional information, see “- Outstanding Equity Awards at December 31, 2023” below. (3)Reflects the value of stock options to purchase: (i) for 2023, 1,800 shares of Company common stock granted to Ms. Stewart and 1,600 shares of Company common stock granted to each of Ms. Sexton and Mr. Ochs on January 27, 2023 and (ii) for 2022, 2,000 shares of Company common stock granted to each of Ms. Sexton and Mr. Ochs, respectively, on January 28, 2022. The amounts in this column are calculated using the grant date fair values of the awards under FASB ASC Topic 718, based on the fair value of the stock option awards, as estimated using the Black-Scholes option-pricing model. The assumptions used in the calculation of these amounts are included in Note 14 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC. For additional information, see “- Outstanding Equity Awards at December 31, 2023” below. (4)For additional information, see “- Annual Bonus Plan” below. (5)The amounts reported for the year ended December 31, 2023, consist of the following (no named executive officer received personal benefits or perquisites exceeding $10,000 in the aggregate):

  15. Summary Compensation Table

    | Description | Stewart | | Sexton | | Ochs | | | 401(k) matching contribution | | 5,823 | | 8,208 | | 8,078 | | Non-qualified deferred compensation plan contribution(a) | 139,585 | | 25,000 | | 30,000 | | | Payment for executive medical benefits | 2,951 | | 9,624 | | 12,816 | | | Payment for unused vacation not eligible for rollover | 34,663 | | 5,846 | | 5,846 | | | Employee stock ownership plan allocation | 27,105 | | 27,105 | | 27,105 | | | Parking allowance | 1,770 | | — | | — | | | Dividends on restricted stock | 592 | | 1,473 | | 1,443 | | | Matching charitable contribution(b) | 9,868 | | — | | — | | | Total | | 222,357 | | 77,256 | | 85,288 |

  16. Summary Compensation Table

    ____________________________________ (a)Non-qualified supplemental retirement contributions made by the Bank on behalf of the executive under the Bank’s non-qualified deferred compensation plan. The Bank's 2023 contribution for Ms. Stewart vests equally over three years commencing on February 1, 2023. The Bank's 2023 contributions for Ms. Sexton and Mr. Ochs vest equally over five years commencing on February 1, 2024. The contributions for 2023 represent decisions utilizing the prior year results. For additional information, see “- Non-qualified Deferred Compensation Plan” below. (b)We annually match up to $10,000 in charitable contributions made by Ms. Stewart to charities of her choice that are tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “IRC”).

  17. Outstanding Equity Awards at December 31, 2023

    Outstanding Equity Awards at December 31, 2023 The following table sets forth information for each named executive officer concerning stock options and restricted stock held at December 31, 2023.

  18. Outstanding Equity Awards at December 31, 2023

    | | Options Awards | | | | | Stock Awards | | | Name | Number of Securities Underlying Unexercised Options | | Option Exercise Price | | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested(5) | | | Exercisable | Unexercisable | | | | | | | Laura Lee Stewart | 3,502 | — | | 18.36 | 1/28/2025 | | | | | 8,362 | — | 18.36 | | 1/28/2025 | | | | | 250 | — | 33.50 | | 1/25/2029 | | | | | 120 | — | 36.26 | | 1/31/2030 | | | | | 300 | — | 32.46 | | 1/27/2031 | | | | | 600 | 1,200(1) | 40.13 | | 1/27/2033 | 800(1) | $31,200 | | Heidi Sexton | 2,500 | — | 28.34 | | 1/27/2027 | | | | | 1,400 | — | 35.27 | | 11/19/2028 | | | | | 1,500 | — | 33.50 | | 1/25/2029 | | | | | 1,080 | 270(2) | 36.26 | | 1/31/2030 | 370(2) | 14,430 | | | 1,140 | 760(1) | 32.46 | | 1/27/2031 | 380(1) | 14,820 | | | 800 | 1,200(3) | 42.85 | | 1/28/2032 | 600(3) | 23,400 | | | 320 | 1,280(4) | 40.13 | | 1/27/2033 | 640(4) | 24,960 | | Wes Ochs | 1,200 | — | 28.34 | | 1/27/2027 | | | | | 750 | — | 33.50 | | 1/25/2029 | | | | | 800 | 200(2) | 36.26 | | 1/31/2030 | 330(2) | $12,870 | | | 1,140 | 760(1) | 32.46 | | 1/27/2031 | 380(1) | 14,820 | | | 800 | 1,200(3) | 42.85 | | 1/28/2032 | 600(3) | 23,400 | | | 320 | 1280(4) | 40.13 | | 1/27/2033 | 640(4) | 24,960 |

  19. Outstanding Equity Awards at December 31, 2023

    _____________________________ (1)Vests in two equal annual installments on January 27, 2024 and 2025. (2)Vests on January 31, 2024. (3)Vests in three equal annual installments on January 28, 2024, 2025 and 2026. (4)Vests in four equal annual installments on January 26, 2024, 2025, 2026 and 2027. (5)Value is based on the $39.00 closing price of a share of Sound Financial Bancorp common stock on December 29, 2023. Employment Agreement. On January 25, 2019, the Company and the Bank (collectively, the “Employers”), entered into an amended and restated employment agreement (the “Amended Employment Agreement”) with Ms. Stewart, President and Chief Executive Officer of the Employers. The Amended Employment Agreement amends and restates the amended and restated employment agreement entered into with Ms. Stewart on August 30, 2016. The Amended Employment Agreement currently expires on December 31, 2025 as a result of the automatic renewal of its term for one additional year on January 1, 2024. On January 1 of each year, the term of the Amended Employment Agreement will be extended for a period of one additional year, unless either the Employers give notice to Ms. Stewart or Ms. Stewart gives notice to the Employers in writing at least 60 days prior to such date that the term of the Amended Employment Agreement will not be extended further. If any party gives timely notice that the term will not be extended as of any such January 1st, then the Amended Employment Agreement will terminate at the conclusion of its remaining term. The Amended Employment Agreement also provides that if a change in control of the Company or the Bank occurs during the term of the Amended Employment Agreement, then the term will be extended to the extent necessary so that it expires no earlier than the one-year anniversary of the date of the change in control. This ensures that the cash severance under the Amended Employment Agreement is at least one times Ms. Stewart’s salary. Ms. Stewart's minimum annual base salary under the Amended Employment Agreement is $413,231, her base salary for 2019 as established by the Compensation Committee of the Board of Directors of the Company. The amount of her annual salary is reviewed by the Compensation Committee each year. The Amended Employment Agreement provides for: no salary reductions; participation in bonus plans, retirement plans, group insurance and other benefits provided to full time Bank employees generally and in which executive officers participate; and reimbursement of expenses incurred by Ms. Stewart in performing services for the Employers. Under the Amended Employment Agreement, if Ms. Stewart's employment is terminated for any reason other than cause, death, retirement, or disability, or if she resigns following certain events such as relocation or demotion, she will be entitled to receive for the remaining term of the Amended Employment Agreement: (i) her salary and (ii) at no premium cost to Ms. Stewart, the same group health benefits and other group insurance and group retirement benefits as Ms. Stewart would have received had she continued to be employed by the Employers, to the extent that the Employers can do so under the terms of applicable plans as are maintained by the Employers for the benefit of their executive officers from time to time. All of the foregoing payments are subject to cut-back to the extent the payments are deemed "parachute payments" under Section 280G of the IRC. Annual Bonus Plan. Our named executive officers participate in an annual incentive bonus plan (“Annual Bonus Plan”), which provides for annual cash bonuses to designated senior managers, including all the named executive officers, upon the achievement of performance goals established by the Board of Directors based on the recommendation of the Compensation Committee. The participants’ bonuses are based 50% on meeting quantitative goals and 50% on meeting qualitative goals. The quantitative goals are based on overall corporate performance and include performance factors relating to asset size, capital level, delinquency ratio, return on assets, levels of non-interest income and non-interest expense, net interest margin, and the ratio of certificate of deposit balances to total deposits. The qualitative goals are non-financial corporate goals that require leadership of senior management and are ranked based on their relative importance to our operations. The performance goals are the same for all participants. Under the Annual Bonus Plan, Ms. Stewart, Ms. Sexton and Mr. Ochs are entitled to receive a bonus of up to 50.0%, 37.5% and 37.5%, respectively, of their base salary, depending on how actual performance compares with the pre-established quantitative and qualitative corporate performance goals. Based on the Company’s actual performance compared to the pre-established corporate performance goals for 2023, prior to the earnings override adjustment discussed below, Ms. Stewart, Ms. Sexton and Mr. Ochs earned a bonus of 49.32%, 36.99% and 36.99%, respectively, of their base salary. The bonus percentages earned by the participants are subject to upward or downward adjustment by up to 50%, based on the percentage that actual net income is above or below the targeted net income as set by the Board of Directors (“Earnings Override Adjustment”). The Earnings Override Adjustment for 2023 resulted in a 16.9% downward adjustment in the bonus percentages earned. Accordingly, for the year ended December 31, 2023, Ms. Stewart, Ms. Sexton and Mr. Ochs earned bonuses of 40.98%, 30.74% and 30.74% of base salary, respectively. The bonus amount earned by each of the named executive officers for 2023 is included in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table above. Supplemental Executive Retirement Plans. The Company maintains two supplemental executive retirement plans for the benefit of Ms. Stewart, which are intended to be unfunded, non-contributory defined benefit plans maintained primarily to provide her with supplemental retirement income. The first supplemental executive retirement plan (“SERP 1”) became effective as of August 14, 2007. The second supplemental executive retirement plan (“SERP 2”) became effective as of December 30, 2011, at which time the benefits under SERP 1 were frozen. At that time, the Company also entered into a Confidentiality, Non-Competition, and Non-Solicitation Agreement with Ms. Stewart, which is discussed below. Under the terms of SERP 1, as amended, Ms. Stewart is entitled to receive $53,320 per year for life commencing on the first day of the month following her separation from service (as defined in SERP 1) for any reason from Sound Community Bank, subject to a six-month delay if required by Section 409A of the IRC. No payments will be made under SERP 1 in the event of Ms. Stewart’s death and any payments that have commenced will cease upon death. In the event Ms. Stewart is involuntarily terminated in connection with a change in control (as defined in SERP 1), she will be entitled to receive the annual benefit described in the first sentence of this paragraph commencing upon such termination, subject to a six-month delay if required by Section 409A of the IRC.

  20. Outstanding Equity Awards at December 31, 2023

    Under the terms of SERP 2, as amended, upon Ms. Stewart's termination of employment with Sound Community Bank for any reason other than death, she will be entitled to receive additional retirement benefits each month for life commencing on the first day of the month following her separation from service (as defined in SERP 2) from Sound Community Bank, subject to a six-month delay if required by Section 409A of the IRC. The additional retirement benefits will equal the amount payable from the annuity underlying SERP 2, which benefits would equal $99,450 per year as of December 31, 2023. In the event of Ms. Stewart's death prior to the commencement of the additional retirement benefits, her beneficiary will be entitled to a single lump sum payment within 90 days thereafter in an amount equal to the Bank's accrual for her retirement benefit under SERP 2 as of the date of death, or approximately $1.1 million at December 31, 2023. If a change in control occurs (as defined in SERP 2), Ms. Stewart will receive her full retirement benefit under SERP 2 commencing upon the first day of the month following her separation from service from Sound Community Bank, subject to a six-month delay if required by Section 409A of the IRC. Confidentiality, Non-Competition, and Non-Solicitation Agreement. On December 13, 2019, the Bank entered into an Amended and Restated Confidentiality, Non-Competition, and Non-Solicitation Agreement (the “Amended Non-Compete Agreement”) with Ms. Stewart. The Amended Non-Compete Agreement amends and restates the Confidentiality, Non-Competition, and Non-Solicitation Agreement between the Bank and Ms. Stewart as originally adopted effective December 30, 2011, as amended and restated on November 23, 2015 and January 25, 2019 (the “Prior Non-Compete Agreement”). The Amended Non-Compete Agreement provides that the term of the non-compete and non-solicitation periods applicable to Ms. Stewart is a fixed period of 18 months from the date of Ms. Stewart’s separation from service with the Company and the Bank (the “Restricted Period”). Under the terms of the Amended Non-Compete Agreement, upon Ms. Stewart's termination of employment by the Bank for cause or voluntarily by Ms. Stewart (other than for good reason), Ms. Stewart will be entitled to receive a bi-monthly payment, in an amount equal to Three Thousand Five Hundred Forty-Two Dollars ($3,542), which amount shall be paid in equal bi-monthly payments during the Restricted Period beginning on the fifth day of the month following her separation from service with the Bank. Upon Ms. Stewart’s termination of employment with the Bank for any reason other than set forth in the preceding sentence, she will be entitled to receive an amount equal to 150% of the aggregate of the sum of her then-base salary plus the average of her past three years short term bonus pay, or approximately $973,213 at December 31, 2023, payable in 12 monthly installments beginning on the first day of the month following her termination. If Ms. Stewart breaches any of the covenants contained in the Amended Non-Compete Agreement, her right to any of the payments specified above after the date of the breach shall be forever forfeited. Notwithstanding the foregoing, under her Amended Non-Compete Agreement, if Ms. Stewart’s employment with the Bank is involuntarily terminated or she terminates her employment with the Bank for good reason at any time within 24 months following a change in control, Ms. Stewart will be entitled to receive an amount equal to 150% of the aggregate of the sum of her then-base salary plus the average of her past three years’ short term bonus, payable in a lump sum. Change in Control Agreement. We have entered into change in control agreements with a number of our officers, including Ms. Sexton and Mr. Ochs. These agreements remain in effect until canceled by either party, upon at least 12 months prior written notice to the other party. Under the terms of the change in control agreement, the executive is entitled to a change of control payment from the Company if he or she is involuntary terminated (as defined in the agreement) concurrently with or within 12 months following a change in control (as defined in the agreement). In such an event, the executive is entitled to receive a cash payment equal to two times his or her then current annual base salary. The change in control agreements also provide that for a period ending at the earlier of (i) twenty-four (24) months after the effective date of the executive’s termination or (ii) the date of the executive’s full time employment by another employer that provides substantially similar benefits, at no premium cost to the executive, the Company shall maintain the same group health benefits and other group insurance and group retirement benefits as the executive would have received had he or she continued to be employed by the Company and/or the Bank, to the extent that the Company and the Bank can do so under the terms of applicable plans as are maintained by the Company and the Bank for the benefit of its executive officers from time to time. All of the above payments that would be made in connection with a change of control are subject to cut-back to the extent the payments are deemed “parachute payments” under Section 280G of the IRC. Nonqualified Deferred Compensation Plan. The Bank adopted a nonqualified deferred compensation plan effective on January 1, 2017, which was amended on April 1, 2020 to include employer contributions with additional vesting schedules and start dates for vesting periods (the “NQDC Plan”). The purpose of the NQDC Plan is to provide a select group of management or highly-compensated employees of the Bank with an opportunity to defer the receipt of up to eighty percent (80%) of their annual base salary, bonus, performance-based compensation and any commission income and to assist the Bank in attracting, retaining and motivating employees of high caliber and experience. In addition to elective deferrals, the Bank may make discretionary and other contributions to be credited to the account of any or all participants, subject to the vesting requirements set forth in the NQDC Plan. For discretionary contributions made by the Bank for 2023 to our named executive officers, including the vesting schedules for such officers, see “- Summary Compensation Table” and Note (5) thereto. Each participant’s deferred compensation account is credited with an investment return determined as if the account was invested in one or more investment funds. Each participant elects the investment funds in which his or her account shall be deemed to be invested. Distributions of vested account balances are made upon death, disability, separation from service, or a specified in-service date unforeseeable emergency. Distributions shall be made in a single cash payment or, at the election of the participant, in annual installments for a period of up to ten (10) years in the case of a separation from service and in annual installments for a period of up to five (5) years in the case of an in-service distribution. The obligations of the Bank under the NQDC Plan are general unsecured obligations of the Bank to pay deferred compensation in the future to eligible participants in accordance with the terms of the NQDC Plan from the general assets of the Bank, although the Bank may establish a trust to hold amounts which the Bank may use to satisfy NQDC Plan distributions from time to time. Distributions from the NQDC Plan are governed by the IRC and the NQDC Plan. The Company may, at any time, in its sole discretion, terminate the NQDC Plan or amend or modify the NQDC Plan, in whole or in part, except that no such termination, amendment or modification shall have any retroactive effect to reduce any amounts deemed to be accrued and vested prior to such amendment.

  21. Outstanding Equity Awards at December 31, 2023

    Deferred Compensation Account. The Bank maintains a deferred compensation account for the benefit of Ms. Stewart, which account was established in 1994 in connection with an incentive plan which is no longer active. Ms. Stewart became fully vested in her benefits under this plan as of January 2005. Pursuant to the terms of the plan, payments in an amount equal to the fair market value of the assets in the deferred compensation account shall be made to Ms. Stewart (or to her designated beneficiary in the event of her death) in 120 equal monthly installments commencing on the last day of the month following the month in which her employment with the Bank is terminated. In the event of the death of Ms. Stewart and her designated beneficiary prior to the account being fully paid, the remaining value of the account shall be paid in a lump sum to the beneficiary’s estate. The assets in the deferred compensation account consist of cash which is held in a certificate of deposit at the Bank and earns interest at market rates. At December 31, 2023, the deferred compensation account had a fair market value of $113,294. Equity Incentive Plans. We maintain equity incentive plans that provide for the grant or award of stock options, stock appreciation rights, restricted stock and restricted stock units to our directors, advisory directors, officers and other employees. The Compensation Committee administers the plans, determines participant eligibility, grants awards and sets the terms of awards. Awards are discretionary and are based on an assessment of the participant’s position, years of service, and contribution to our success and growth. The exercise price of options awarded must be no less than the fair market value of a share of Sound Financial Bancorp’s common stock on the date of grant. Restricted stock awards and options granted pursuant to the Company’s equity incentive plans generally (i) are subject to a vesting period and (ii) accelerate vesting in the event of the participant’s death or disability or a change in control of Sound Financial Bancorp or Sound Community Bank. In the event of a termination of service, other than in connection with death, disability or a change in control, all non-vested awards typically would be canceled.

  22. Pay versus Performance

    Pay versus Performance The following table sets forth information concerning the compensation of our named executive officers for the fiscal years ended December 31, 2023, 2022 and 2021 and certain measures of our financial performance for those years.

  23. Pay versus Performance

    | Year | Summary Compensation Table Total for PEO (1) | Compensation "Actually Paid" to PEO (2) | Average Summary Compensation Table Total for Non-PEO Named Executive Officers (3) | Average Compensation "Actually Paid" to Non-PEO Named Executive Officers (4) | Value of Initial Fixed $100 Investment Based on Total Shareholder Return (5) | Net Income (6) | | | | | | | | (In thousands) | | 2023 | $1,016,958 | $1,016,690 | $526,857 | $527,026 | $129.91 | $7,439 | | 2022 | 939,196 | 938,320 | 520,649 | 517,564 | 128.38 | 8,804 | | 2021 | 767,736 | 771,536 | 430,497 | 473,523 | 141.04 | 9,156 |

  24. Pay versus Performance

    (1)Represents the total compensation of our principal executive officer (“PEO”), Ms. Stewart, as reported in the Summary Compensation Table for each year indicated. Ms. Stewart was the only person who served as our PEO during those years. (2)Represents the “compensation actually paid” to Ms. Stewart, as calculated in accordance with Item 402(v) of Regulation S-K. The following table presents the adjustments made to Ms. Stewart’s Summary Compensation Table total for each year to determine her compensation actually paid.

  25. Pay versus Performance

    | Adjustments to Determine Compensation "Actually Paid" to PEO | | 2023 | 2022 | 2021 | | Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table | | $(32,104) | $(10,712) | $— | | Deduction for amounts reported under the “Option Awards” column in the Summary Compensation Table | | (20,394) | — | (1,692) | | Increase for fair value as of the end of the covered year of awards granted during the covered year that remained outstanding and unvested as of the end of the covered year | | 44,784 | 9,818 | 1,990 | | Increase for fair value at the vesting date of awards granted during the covered year that vested during the covered year | | 6,798 | — | 564 | | (Deduction)/increase for the change in fair value from the prior year-end to the end of the covered year of awards granted prior to the covered year that were outstanding and unvested as of the end of the covered year | | (12) | (16) | 2,101 | | Increase for the change in fair value from the prior year-end to the vesting date of awards granted prior to the covered year that vested during the covered year | | 660 | 34 | 837 | | | Total Adjustments | $(268) | $(876) | $3,800 |

  26. Pay versus Performance

    (3)Represents the average of the total compensation of each of our non-PEO named executive officers (Ms. Sexton and Mr. Ochs), as reported in the Summary Compensation Table for each year indicated. Ms. Sexton and Mr. Ochs were our only non-PEO named executive officers for those years. (4)Represents the average of the compensation actually paid to our non-PEO named executive officers, as calculated in accordance with Item 402(v) of Regulation S-K. The following table presents the adjustments made to the average of the non-PEO named executive officers’ Summary Compensation Table totals for each year to determine their average compensation actually paid.

  27. Pay versus Performance

    | Adjustments to Determine Average Compensation "Actually Paid" to Non-PEO Named Executive Officers | | 2023 | 2022 | 2021 | | Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table | | $(25,683) | $(34,280) | $(24,670) | | Deduction for amounts reported under the “Option Awards” column in the Summary Compensation Table | | (18,128) | (19,904) | (10,716) | | Increase for fair value as of the end of the covered year of awards granted during the covered year that remained outstanding and unvested as of the end of the covered year | | 39,450 | 49,528 | 48,564 | | Increase for fair value at the vesting date of awards granted during the covered year that vested during the covered year | | 3,626 | 3,981 | 2,143 | | (Deduction)/increase for the change in fair value from the prior year-end to the end of the covered year of awards granted prior to the covered year that were outstanding and unvested as of the end of the covered year | | (213) | (3,083) | 26,649 | | Increase for the change in fair value from the prior year-end to the vesting date of awards granted prior to the covered year that vested during the covered year | | 1,118 | 673 | 1,057 | | | Total Adjustments | $169 | $(3,085) | $43,027 |

  28. Pay versus Performance

    (5)Represents the cumulative two-year total return to shareholders of our common stock and assumes that the value of the investment was $100 on December 31, 2021, and that the subsequent dividends were reinvested. The stock price performance included in this column is not necessarily indicative of future stock price performance. (6)Represents our reported net income for each year indicated. The following graphs show the relationship between the compensation actually paid to our PEO and the average of the compensation actually paid to our other named executive officers to our total shareholder return and net income over the three most recently completed fiscal years.