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                                                                    EXHIBIT 10.1


                   RESTATED LIBERTY BAY FINANCIAL CORPORATION
                         INCENTIVE STOCK OPTION PLAN II

                                      PLAN

        1. Purpose of the Plan. The purpose of this Plan is to provide
additional incentives to Employees of Liberty Bay Financial Corporation and
future subsidiaries, thereby helping to attract and retain the best available
personnel for positions of responsibility with the Corporation and otherwise
promoting the success of the business activities of the Corporation. It is
intended that Options issued pursuant to this Plan shall constitute either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code or nonqualified stock options.

        2. Definitions. As used herein, the following definitions shall apply:

               (a) "Board" shall mean the Board of Directors of the Corporation.

               (b) "Committee" shall mean the Board or the Committee appointed
        by the Board in accordance with subsection 4(a) of the Plan.

               (c) "Common Stock" shall mean the Corporation's common stock.

               (d) "Continuous Status as an Employee" shall mean the absence of
        any interruption or termination of service as an Employee. Continuous
        Status as an Employee shall not be considered interrupted in the case of
        sick leave, military leave, or any other approved leave of absence.

               (e) "Corporation" shall mean Liberty Bay Financial Corporation, a
        Washington banking corporation.

               (f) "Employee" shall mean any person employed by the Corporation
        or any Parent or Subsidiary of the Corporation which now exists or is
        hereafter organized or is acquired by the Corporation, who is deemed to
        be a "key employee" by the Committee.

               (g) "Nonqualified Stock Option" shall mean an Option other than
        an Incentive Stock Option.

               (h) "Option" shall mean a stock option granted pursuant to the
        Plan. Options shall include both Incentive Stock Options under Section
        422 of the Internal Revenue Code and Nonqualified Stock Options, as the
        context requires.

               (i) "Optioned Stock" shall mean the Common Stock subject to an
        Option.

               (j) "Optionee" shall mean an Employee who receives an Option.

               (k) "Parent" shall mean any corporation having a relationship
        with the Corporation as described in Section 424(e) of the Internal
        Revenue Code.



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               (l) "Plan" shall mean the Liberty Bay Financial Corporation
        Incentive Stock Option Plan II, as restated.

               (m) "Shareholder-Employee" shall mean an Employee who owns stock
        representing more than 10 percent of the total combined voting power of
        all classes of stock of the Corporation or of any Parent or Subsidiary.
        For this purpose, the attribution of stock ownership rules provided in
        Section 424(d) of the Internal Revenue Code shall apply.

               (n) "Subsidiary" shall mean any corporation having a relationship
        with the Corporation as described in Section 424(f) of the Internal
        Revenue Code.

        3. Stock Subject to Options.

               (a) Number of Shares Reserved. The maximum number of shares
        available pursuant to the Plan is 35,000 shares of the Common Stock of
        the Corporation (subject to adjustment as provided in subsection 6(h) of
        the Plan). During the term of this Plan, the Corporation will at all
        times reserve and keep available a sufficient number of shares of its
        Common Stock to satisfy the requirements of the Plan.

               (b) Expired Options. If any outstanding Option expires or becomes
        unexercisable for any reason without having been exercised in full, the
        shares of Common Stock allocable to the unexercised portion of such
        Option shall again become available for other Options.

        4. Administration of the Plan.

               (a) The Committee. The Plan shall be administered by the Board
        directly, acting as a Committee of the whole, or if the Board elects, by
        a separate Committee appointed by the Board for that purpose and
        consisting of at least three Board members. All references in the Plan
        to the "Committee" shall refer to such separate committee, if any is
        established, or if none is then in existence, shall refer to the Board
        as a whole. Once appointed, any such Committee shall continue to serve
        until otherwise directed by the Board. From time to time the Board may
        increase the size of the Committee and appoint additional members
        thereof, remove members (with or without cause), appoint new members in
        substitution therefor, and fill vacancies however caused.

                      (1) The Committee shall select one of its members as
        chairman, and shall hold meetings at such times and places as the
        chairman or a majority of the Committee may determine.

                      (2) At least annually, the Committee shall present a
        written report to the Board indicating the persons to whom Options have
        been granted since the date of the last such report, and in each case
        the date or dates of Options granted, the number of shares optioned, and
        the Option price per share.



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                      (3) At all times, the Board shall have the power to remove
        all members of the Committee and thereafter to directly administer the
        Plan as a Committee of the whole.

               (b)  Powers of the Committee. Except for the terms and conditions
        explicitly set forth in the Plan, the Committee shall have the authority
        and discretion:

                      (1) To determine the persons to whom Options are to be
        granted, the times of grant and the number of shares to be represented
        by each Option;

                      (2) To determine the Option price for the shares of Common
        Stock to be issued pursuant to each Option, subject to the provisions of
        subsection 6(b) of the Plan;

                      (3) To determine all other terms and conditions of each
        Option granted under the Plan, which need not be identical;

                      (4) To modify or amend the terms of any Option previously
        granted, or to grant substitute Options, subject to the provisions of
        subsections 6(k) and 6(l) of the Plan;

                      (5) To interpret the Plan;

                      (6) To authorize any person or persons to execute and
        deliver Option agreements or to take any other actions deemed by the
        Committee to be necessary or appropriate to effectuate the grant of
        Options;

                      (7) To make all other determinations and take all other
        actions which the Committee deems necessary or appropriate to administer
        the Plan in accordance with its terms and conditions.

               All actions of the Committee shall be either by (i) a majority
        vote of the members of the full Committee at a meeting of the Committee,
        or (ii) by unanimous written consent of all members of the full
        Committee without a meeting thereof.

               All decisions, determinations and interpretations of the
        Committee shall be final and binding upon all persons, including all
        Optionees and any other holders or persons interested in any Options,
        unless otherwise expressly determined by a vote of the majority of the
        entire Board. No member of the Committee or of the Board shall be liable
        for any action or determination made in good faith with respect to the
        Plan or any Option.

        5. Eligibility. Options may be granted only to Employees who the
Committee, in its discretion, from time to time select.

        Granting of Options pursuant to the Plan shall be entirely discretionary
with the Committee, and the adoption of this Plan shall not confer upon any
person any right to receive any Option or Options pursuant to the Plan unless
and until said Options are granted by the Committee, in its sole discretion.
Neither the adoption of the Plan nor the granting of any Options pursuant to the
Plan shall confer upon any Employee any right with respect to



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continuation of employment, nor shall the same interfere in any way with the
Employee's right or with the right of the Corporation or any Subsidiary to
terminate the employment relationship at any time.

        6. Terms and Conditions of Options. All Options granted pursuant to the
Plan must be authorized by the Committee, and must be documented in written
agreements in such form as the Committee shall from time to time approve, which
agreements shall comply with and be subject to all of the following terms and
conditions, unless waived or modified by the Committee.

               (a) Number of Shares; Annual Limitation. Each Option agreement
        shall state whether the Option is an Incentive Stock Option or a
        Nonqualified Stock Option and the number of shares subject to Option.
        Any number of Options may be granted to a single eligible person at any
        time and from time to time, except that in the case of Incentive Stock
        Options, the aggregate fair market value (determined as of the time each
        Option is granted) of all shares of Common Stock with respect to which
        Incentive Stock Options become exercisable for the first time by an
        Employee in any one calendar year (under all incentive stock option
        plans of the Corporation, its Parent and all of its Subsidiaries taken
        together) shall not exceed $100,000.

               (b) Option Price and Consideration. The Option price for the
        shares of Common Stock to be issued pursuant to the Option shall be such
        price as is determined by the Committee, but shall in no event be less
        than the fair market value of the Common Stock on the date of grant of
        the Option. In the case of an Incentive Stock Option granted to an
        Employee who, immediately before the grant of such Incentive Stock
        Option, is a Shareholder-Employee, the Incentive Stock Option price
        shall be at least 110 percent of the fair market value of the Common
        Stock on the date of grant of the Incentive Stock Option. The fair
        market value shall be determined by the Committee in its discretion;
        provided, however, that in the event there is a public market for the
        Common Stock, the fair market value shall be the mean of the bid and
        asked prices of the Common Stock as of the date of grant as reported on
        the National Association of Securities Dealers Automatic Quotation
        System (NASDAQ), or, in the event the Common Stock is listed on a stock
        exchange, the fair market value shall be the closing price on the
        exchange as of the date of grant of the Option.

               The Option price shall be payable either (i) in United States
        dollars upon exercise of the Option, or (ii) such other consideration of
        comparable value deemed to be acceptable by the Committee, including
        without limitation Common Stock of the Corporation, services or other
        property.

               (c) Term of Option. No Incentive Stock Option granted pursuant to
        the Plan shall be exercisable after the expiration of five (5) years
        from the date such Option is granted, and no Option granted shall be
        exercisable prior to the date on which the Employee completes one (1)
        year of continuous employment with the Corporation following the date of
        the grant, subject to the rights under subsection 6(k) hereof. Subject
        to the foregoing and other applicable provisions of the Plan including
        but not limited to subsection 6(e) herein, the term of each Option shall
        be determined by the Committee in its discretion.



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               (d) Manner of Exercise. An Option shall be deemed to be exercised
        when written notice of exercise has been given to the Corporation in
        accordance with the terms of the Option by the person entitled to
        exercise the Option, together with full payment for the shares of Common
        Stock subject to said notice.

               (e) Death or Disability of Optionee. In the event of the death or
        disability of an Optionee who at the time of his death or disability was
        an Employee and who had been in Continuous Status as an Employee since
        the date of grant of the Option, the Option shall terminate on the
        earlier of (i) 90 days after the date of death or disability of the
        Optionee or such later date as may be set in the discretion of the
        Committee; or (ii) the expiration date otherwise provided in the Option
        Agreement, except that if the expiration date of an Option should occur
        during the 90-day period immediately following the Optionee's death or
        disability, such Option shall terminate at the end of such 90-day
        period. The Option shall be exercisable at any time prior to such
        termination by the Optionee's estate, or by such person or persons who
        have acquired the right to exercise the Option by bequest or by
        inheritance or by reason of the death or disability of the Optionee.

               (f) Termination of Status as an Employee. If an Optionee's status
        as an Employee is terminated at any time after the grant of his Option
        for any reason other than death or disability, as provided in
        subparagraph (e), above, and not by reason of personal dishonesty,
        incompetence, willful misconduct, fraud, breach of fiduciary duty
        involving personal profit, intentional failure to perform stated duties,
        or willful violation of any law, rule or regulation, as provided below:

                      (1) His Incentive Stock Option shall terminate on the
        earlier of (i) the same day of the third month after the date of
        termination of his status as an Employee, or (ii) the expiration date
        otherwise provided in his Option Agreement.

                      (2) If an Optionee's status as an Employee is terminated
        at any time after the grant of his Option by reason of personal
        dishonesty, incompetence, willful misconduct, fraud, breach of fiduciary
        duty involving personal profit, intentional failure to perform stated
        duties, or willful violation of any law, rule or regulation, then his
        Option shall terminate on the date of termination of his status as an
        Employee.

               (g) Non-Transferability of Options. No Option granted pursuant to
        the Plan may be sold, pledged, assigned, hypothecated, transferred, or
        disposed of in any manner other than by will or by the laws of descent
        or distribution and may be exercised during the lifetime of the
        Optionee, only by the Optionee.

               (h) Adjustments Upon Changes in Capitalization. Subject to any
        required action by the shareholders of the Corporation, the number of
        shares of Common Stock covered by each outstanding Option, the number of
        shares of Common Stock available for grant of additional Options, and
        the price per share of Common Stock specified in each outstanding
        Option, shall be proportionately adjusted for any increase or decrease
        in the number of issued shares of Common Stock resulting from any stock
        split or other subdivision or consolidation of shares, the payment of
        any stock dividend (but only on the Common Stock) or any other increase
        or decrease in the number of such shares of


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        Common Stock effected without receipt of consideration by the
        Corporation; provided, however, that conversion of any convertible
        securities of the Corporation shall not be deemed to have been "effected
        without receipt of consideration." Such adjustment shall be made by the
        Committee, whose determination in that respect shall be final, binding
        and conclusive.

               No Incentive Stock Option shall be adjusted by the Committee
        pursuant to this subparagraph 6(i) in a manner which causes the
        Incentive Stock Option to fail to continue to qualify as an incentive
        stock option within the meaning of Section 422 of the Internal Revenue
        Code.

               Except as otherwise expressly provided in this subsection 6(h),
        no Optionee shall have any rights by reason of any stock split or the
        payment of any stock dividend or any other increase or decrease in the
        number of shares of Common Stock. Except as otherwise expressly provided
        in this subsection 6(h), any issue by the Corporation of shares of stock
        of any class, or securities convertible into shares of stock of any
        class, shall not affect the number of shares or price of Common Stock
        subject to any Options, and no adjustments in Options shall be made by
        reason thereof. The grant of an Option pursuant to the Plan shall not
        affect in any way the right or power of the Corporation to make
        adjustments, reclassifications, reorganizations or changes of its
        capital or business structure.

               (i) Date of Grant of Option. The date of grant of an Option
        shall, for all purposes, be the date on which the Committee makes the
        determination granting such Option. Said date of grant shall be
        specified in the Option Agreement.

               (j) Conditions Upon Issuance of Shares. Shares of Common Stock
        shall not be issued with respect to an Option granted under the Plan
        unless the exercise of such Option and the issuance and delivery of such
        shares pursuant thereto shall comply with all relevant provisions of
        law, including applicable federal and state securities laws.

               As a condition to the exercise of an Option, the Corporation may
        require the person exercising such Option to represent and warrant at
        the time of exercise that the shares of Common Stock are being purchased
        only for investment and without any present intention to sell or
        distribute such Common Stock if, in the opinion of counsel for the
        Corporation, such a representation is required by any of the
        aforementioned relevant provisions of law.

               (k) Merger, Sale of Assets, Etc. In the event of the merger or
        other reorganization of the Corporation with or into any other
        corporation, or in the event of a proposed sale of substantially all of
        the assets of the Corporation, or in the event of a proposed dissolution
        or liquidation of the Corporation, (i) all outstanding and unexercised
        Options shall become immediately exercisable, and (ii) such Options
        shall either be assumed by the successor corporation, or parent thereof,
        in the reorganization transaction described above or be replaced with a
        comparable award for the purchase of shares of the capital stock of the
        successor corporation, except that if such Options are not so assumed or
        replaced, then (iii) the Committee may, in the exercise of its sole
        discretion, terminate



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        all outstanding Options as of a date fixed by the Committee which may be
        sooner than the originally stated option term. The Committee shall
        notify each Optionee of such action in writing not less than 60 days
        prior to the termination date fixed by the Committee, and each Optionee
        shall have the right to exercise his Option to and including said
        termination date.

               (l) Substitute Stock Options. In connection with the acquisition
        or proposed acquisition by the Corporation or any Subsidiary, whether by
        merger, acquisition of stock or assets, or other reorganization
        transaction, of a business, any employees of which have been granted
        Incentive Stock Options, the Committee is authorized to issue, in
        substitution of any such unexercised stock option, a new Option under
        this Plan which confers upon the Optionee substantially the same
        benefits as the old option; provided, however, that the issuance of any
        new Option for an old Incentive Stock Option shall satisfy the
        requirements of Section 424(a) of the Internal Revenue Code.

               (m) Tax Compliance. The Corporation, in its sole discretion, may
        take any actions reasonable believed by it to be required to comply with
        any local, state or federal tax laws relating to the reporting or
        withholding of taxes attributable to the grant or exercise of any Option
        or the disposition of any shares of Common Stock issued upon exercise of
        an Option, including, but not limited to, (i) withholding from any
        person exercising an Option a number of shares of Common Stock having a
        fair market value equal to the amount required to be withhold by the
        Corporation under applicable tax laws, and (ii) withholding from any
        form of compensation or other amount due an Optionee or holder of shares
        of Common Stock issued upon exercise of an Option any amount required to
        be withheld by the Corporation under applicable tax laws. Withholding or
        reporting shall be considered required for purposes of this subparagraph
        if any tax deduction or other favorable tax treatment available to the
        Corporation is conditioned upon such reporting or withholding.

               (n) Other Provisions. Option Agreements exercised pursuant to the
        Plan may contain such other provisions as the Committee shall deem
        advisable, provided in the case of Incentive Stock Options the
        provisions are not inconsistent with the provisions of Section 422(b) of
        the Internal Revenue Code or with any of the other terms and conditions
        of this Plan.

        7. Term of the Plan. The Plan shall become effective on the earlier of
(a) the date of adoption of the Plan by the Board; or (b) the date of
shareholder approval of the Plan as provided in section 9 of the Plan. Unless
sooner terminated as provided in subsection 8(a) of the Plan, the Plan shall
terminate on the tenth anniversary of its effective date. Options may be granted
at any time after the effective date and prior to the date of termination of the
Plan.

        8. Amendment or Early Termination of the Plan.

               (a) Amendment or Early Termination. The Board may terminate the
        Plan at any time. The Board may amend the Plan at any time and from time
        to time in such respects as the Board may deem advisable, except that,
        without approval of the holders of a



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        majority of the outstanding shares of the Common Stock, no such revision
        or amendment shall:

                      (1) Increase the number of shares of Common Stock subject
        to the Plan other than in connection with an adjustment under subsection
        6(h) of the Plan; or

                      (2) Change the designation of the class of persons
        eligible to be granted Options, as provided in section 5 of the Plan; or

                      (3) Make any amendments to the Plan which would require
        shareholder approval under any applicable law or regulation.

               (b) Effect of Amendment or Termination. No amendment or
        termination of the Plan shall affect Options granted prior to such
        amendment or termination, and all such Options shall remain in full
        force and effect notwithstanding such amendment or termination.

        9. Shareholder Approval. The Plan shall be subject to approval by a
majority of the outstanding shares of Common Stock of the Corporation present
and entitled to vote at a duly convened meeting of the shareholders of the
Corporation.


                                        /s/ Michael J. Clementz
                                        ----------------------------------------
                                        Michael J. Clementz
                                        President and Chief Executive Officer



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