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                                                                   EXHIBIT 10.3



                   PEMCO DIRECTORS' DEFERRED COMPENSATION PLAN

                                    ARTICLE I

                                     PURPOSE


        This nonqualified Deferred Compensation Plan (the "Plan") for Directors
of PEMCO Life Insurance Company, PEMCO Insurance Company, Evergreen Bank, PEMCO
Corporation, and PEMCO Mutual Insurance Company (all of which are referred to
hereinafter as the "Company") is designed to permit Directors to defer all or a
portion of their Director's Fees earned in any calendar year.

                                   ARTICLE II

                                   DEFINITIONS


        2.1 Administrator. "Administrator" of the Plan means the Administrative
Committee appointed by the Board.

        2.2 Board. "Board" means each Company's Board of Directors.

        2.3 Committee. "Committee" means the Administrative Committee appointed
by the Board.

        2.4 Director. "Director" means a member of the Board of Directors of a
Company sponsoring this Plan.

        2.5 Director's Fees. "Director's Fees" means any fees earned by a
Director of a Company sponsoring this Plan.

        2.6 Effective Date. The "Effective Date" of the Plan is January 1, 1999.



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        2.7 Participant. "Participant" means a Director of a Company sponsoring
this Plan.

        2.8 Plan. "Plan" means the PEMCO Directors' Deferred Compensation Plan
as contained in this document, and as amended from time to time, plus any
administrative rules or regulations adopted by the Committee.

        2.9 Plan Year. "Plan Year" means the calendar year, beginning with the
1999 calendar year.


                                   ARTICLE III

                        DIRECTOR'S DEFERRED COMPENSATION

        Annually on or before December 31, a Participant may irrevocably elect
in writing on a form provided by the Company to defer an amount equal to all or
a portion of his or her Director's Fees for the following Plan Year. Any change
of election with respect to future years' Director's Fees must be filed with the
Company prior to the end of the Plan Year preceding the Plan Year in which the
change is to take effect.

        Notwithstanding the previous paragraph, a new Director who first becomes
eligible to participate in the Plan may elect to defer receipt of all or a
portion of his or her Director's Fees payable for the remainder of the initial
Plan Year of eligibility. That election must be made in writing within thirty
(30) days after the Director becomes a Director eligible to participate in this
Plan, and shall be irrevocable as to any Director's Fees payable in the
remainder of the Plan Year.



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                                   ARTICLE IV

                        FORM AND TIME OF BENEFIT PAYMENT

        A Participant's Plan benefits shall be 100% vested and nonforfeitable at
all times. A Participant (or if a Participant dies before payments commence, a
deceased Participant's beneficiary) shall be entitled to a distribution of his
or her Plan benefits upon the occurrence of the earliest of a future date
specified by the Participant in his or her initial election to defer Director's
Fees, the Participant's death, or the date the Participant ceases to be a
Director. The Participant or his or her beneficiary must irrevocably elect in
writing to receive the Participant's Plan benefits in the form of:

           a. a single lump sum payment, or

           b. installment payments over a period not to exceed ten (10) years.

        Such election must be delivered to the Committee no more than sixty (60)
calendar days after the earliest to occur of the future date specified by the
Participant in his or her initial election to defer Director's Fees, the date
the Participant ceases to be a Director, or the Participant's death. If the
Participant or beneficiary fails to elect a form of payment within such time,
the Participant's Plan benefits shall be paid in the form of annual installment
payments over a period of three years. Payment(s) shall commence within thirty
(30) calendar days after the sixty (60) day election period ends.
Notwithstanding the foregoing, if a Participant is receiving installment
payments and dies before all installments have been paid, the Participant's
beneficiary shall be paid the Participant's remaining installment payments.



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                                    ARTICLE V

                                EARNINGS CREDITED

        All amounts deferred under the Plan shall be credited to a Company
recordkeeping account on behalf of the Participant, and such account shall be
credited quarterly with a deemed rate of earnings equal to the rate of return on
ninety (90) day U.S. Treasury Bills determined as of the last day of each
calendar quarter.

                                   ARTICLE VI

                                  BENEFICIARIES

        6.1 Designation. Any amount due to a Participant which is unpaid upon
his or her death shall be paid to the beneficiary designated by him or her on a
form provided by the Company and filed with the Company. The designated
beneficiary may be changed from time to time by filing a new beneficiary
designation with the Company. The designation last filed will control.

        6.2 Failure to Designate a Beneficiary. If a Participant fails to
designate a beneficiary or if the person or persons designated on the
beneficiary designation predecease the Participant and the beneficiary
designation form does not indicate who receives the amount due, the amount owing
shall be paid to the following in the order named:

        a.      Surviving spouse;

        b.      Surviving descendants, per stirpes;

        c.      Surviving parents in equal shares;

        d.      Surviving brothers and sisters, in equal shares, provided that
                the share of a



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                sibling who is then deceased shall be paid to his or her then
                living descendants, per stirpes; and

        e.      Executors or administrators.

        6.3 Payment to a Beneficiary. Payment of a Participant's Plan benefits
to the beneficiary of a deceased Participant shall be made in accordance with
Article IV.

                                  ARTICLE VII

                                 ADMINISTRATION

        The Committee is the Administrator of this Plan. The construction and
interpretation by the Committee of any provision of this Plan shall be final,
conclusive and binding upon all parties. The Committee shall have the power and
authority in its sole discretion to adopt, interpret, alter, amend or revoke
rules and regulations necessary to assist it in the administration of the Plan,
and to delegate ministerial duties and employ such outside professionals as may
be required for prudent administration of the Plan. Expenses of administration
of the Plan shall be borne by the Company and no part thereof shall be payable
directly by the Participants. Expenses incurred in the acquisition of
investments, such as commissions, may not be payable by the Company, but may
reduce the Participant's account balance.

        Social Security ("FICA") self-employment taxes are due on the
Participant's deferrals in the year of deferral. The Director shall pay
applicable FICA self-employment taxes on such deferrals at the appropriate
times.



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                                  ARTICLE VIII

                            AMENDMENT AND TERMINATION

        8.1 Amendment. The Board of Directors of PEMCO Mutual Insurance Company
shall have the right to amend the Plan at any time and from time to time, in
whole or in part. That Board shall notify each Participant in writing of any
Plan amendment.

        8.2 Termination. Although the Employer has established this Plan with a
bona fide intention and expectation to maintain the Plan indefinitely, the
Company may terminate or discontinue the Plan in whole or in part at any time
without any liability for such termination or discontinuance. Upon Plan
termination, all deferrals shall cease. The Company shall retain all prior
deferrals until each Participant's payment commences under Article IV.

                                   ARTICLE IX

                                  MISCELLANEOUS

        9.1 Representations. The Company does not represent or guarantee that
any particular federal or state income, payroll, or personal property or other
tax consequence will result from participation in the Plan. A Participant should
consult with his or her tax advisor to determine the tax consequences of his or
her participation.

        9.2 Limitation of Rights; Employment Relationship. Nothing contained
herein shall be construed as giving a Participant or other person any legal or
equitable right against the Company except as provided in the Plan, or create a
right in the Participant to remain under contract with the Company, nor will it
interfere with the right of the Company to discharge or otherwise deal with a
Participant without regard to the existence of the Plan.



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        9.3 Assignment. No amounts deferred hereunder shall be assignable in
whole or in part, either by voluntary or involuntary act or operation of law.
Rights hereunder are not subject to anticipation, alienation, sale, transfer,
assignment, pledge or encumbrance, and such rights may not be subject to the
debts, contracts, liabilities, engagements or torts of the Participant or his or
her beneficiary.

        9.4 Unsecured Benefit. The unpaid balance of any account maintained
pursuant to this Plan is an unsecured, general obligation of the Company. All
amounts deferred hereunder remain the unrestricted assets of the Company. Any
assets purchased shall remain the sole property of the Company subject to the
claims of its general creditors and shall be available for the Company's use for
whatever purpose desired. No Participant hereunder shall have any right other
than the unsecured promise of the Company to pay deferred Compensation in the
future. No Participant has ownership rights with respect to any asset of the
Company by reason of his or her participation in this plan.

        9.5 Severability. If a court of competent jurisdiction holds any
provision of this Plan to be invalid or unenforceable, the remaining provisions
of the Plan shall continue to be fully effective.

        9.6 Governing Law. The Plan shall be construed, administered and
enforced according to the laws of the State of Washington. Venue shall also be
in the State of Washington.



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                                    ARTICLE X

                                CLAIMS PROCEDURE

        If a Participant disagrees with the information or computations in
connection with any benefits paid pursuant to Article IV, or the Plan
Administrator fails to make payments to which the Participant believes he or she
is entitled under the terms of this Plan, the Participant may make a claim to
the Plan Administrator. A claim must be in the form of a letter stating the
basis of the disagreement and include all relevant facts and information. The
Participant shall be advised of the acceptance or rejection of a claim within
ninety (90) days after the claim is received, unless special circumstances
require an extension of time for processing the claim. If the Plan Administrator
requires an extension, written notice of the extension stating the special
circumstances requiring the extension of time and the date by which the Plan
Administrator will make a final decision shall be furnished to the Participant
prior to the end of the initial ninety (90) day period. The extension may not
exceed an additional period of ninety (90) days.

        If the claim is denied, the Plan Administrator shall state in detail:

                1.      the specific reasons for the denial;

                2.      the specific Plan provisions upon which the denial is
                        based;

                3.      any additional material or information which the
                        Participant may provide which would entitle the
                        Participant to the benefits claimed; and

                4.      an explanation of why such material or information is
                        necessary.

The notice of denial must also explain the steps to be taken if the Participant
or a beneficiary wishes to submit a claim for review. If notice of denial of the
initial claim is not furnished within



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the time period allowed above, the claim shall be deemed denied and the
Participant may proceed to request a review of the denied claim.

        A claim for review by the Plan Administrator must be submitted within
sixty (60) days after the date the initial claim is denied. A request for review
of a denied claim must include a statement of the reasons the claim should be
allowed. The Participant or an authorized representative may examine any
documents the Plan Administrator has in its files and will use in reaching a
decision, and may also submit additional written comments to the Plan
Administrator which support the claim.

        The Plan Administrator shall advise the Participant or beneficiary of
its decision in writing within sixty (60) days following receipt of the request
for review, unless special circumstances require an extension of time for
processing. If the Plan Administrator requires an extension, written notice of
the extension stating the special circumstances requiring the extension of time
and the date by which the Plan Administrator will make a final decision shall be
furnished to the Participant prior to the end of the initial sixty (60) day
period. The extension may not exceed an additional period of ninety (90) days.

        The Plan Administrator's decision on review shall be in writing and
include specific reasons for the decision, as well as specific references to the
Plan provisions upon which the decision is based. The decision of the Plan
Administrator is final and subject to no further appeal or review.

        IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly




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authorized representatives this 17th day of December, 1998.



                                             PEMCO LIFE INSURANCE COMPANY

                                             By /s/ Stan W. McNaughton
                                                --------------------------------
                                                Its  President
                                                     ---------------------------


                                             PEMCO INSURANCE COMPANY


                                             By /s/ Stan W. McNaughton
                                                --------------------------------
                                                Its  President
                                                     ---------------------------


                                             EVERGREEN BANK


                                             By /s/ Gerald O. Hatler
                                                --------------------------------
                                                Its  President
                                                     ---------------------------


                                             PEMCO CORPORATION


                                             By /s/ Stan W. McNaughton
                                                Its  President
                                                     ---------------------------


                                             PEMCO MUTUAL INSURANCE COMPANY


                                             By /s/ Stan W. McNaughton
                                                --------------------------------
                                                Its  President
                                                     ---------------------------



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