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                                                                    EXHIBIT 10.3


                           CHANGE OF CONTROL AGREEMENT



        This Agreement dated August 14, 1999, by and between LIBERTY BAY
FINANCIAL CORPORATION AND NORTH SOUND BANK (hereinafter refereed to jointly as
the "Bank"), and MARK D. FREEMAN (the "Executive"):

        WHEREAS, the Executive has rendered valuable services to the Bank and
        the Bank desires to be assured that the Executive will continue
        rendering such services to the Bank,

        WHEREAS, the Bank wishes to assure itself of continuity of management in
        the event of any actual or threatened Change of Control of the Bank, and

        WHEREAS, the Executive is willing to continue to serve the Bank but
        desires assurance that he will be protected in the event of any Change
        of Control;

        NOW, THEREFORE, in consideration of the mutual covenants and promises
        herein, the parties agree as follows:

        1. Severance Benefits. The Bank agrees that if there is a Change of
Control of the Bank, and the Executive leaves the employment of the Bank,
whether voluntarily or involuntarily (other than discharge for cause, as defined
below), within twelve (12) months after such Change of Control:

                a. The Executive shall receive monthly, commencing on the first
        day of the first calendar month following discontinuance of his
        employment due to a Change of Control, a cash payment in an amount equal
        to his total compensation (W-2 income before salary deferrals plus
        Liberty Bay Financial Corporation/North Sound Bank director's fees) over
        the twelve (12) months preceding the month in which the Change of
        Control occurs, divided by 12, which cash payment shall be paid for
        twenty four (24) consecutive months.

                b. The Executive shall continue to be covered by all of the
        Bank's medical, health (including disability), and dental plans for
        twenty-four (24) months following discontinuance of his employment due
        to a Change of Control.

        2. Termination Before Change of Control. If the Executive's employment
is involuntarily terminated (other than discharge for cause, as defined below)
before a Change of Control but after negotiations which result in a Change of
Control have commenced, the Executive shall be entitled to the Severance
Benefits described in Paragraph 1, said benefits to be paid after the Change of
Control actually occurs.

        3. Consideration.

                a. The amounts paid to the Executive hereunder shall be
        considered severance pay in consideration of the past services he has
        rendered to the Bank and in consideration of his continued service from
        the date hereof to his entitlement to those payments.

                b. The Executive shall have no duty to mitigate his damages by
        seeking other employment. Should the Executive actually receive other
        payments from any such other



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        employment, the payments called for hereunder shall not be reduced or
        offset by any such future earnings.

        4. Change of Control. As used herein, a "Change of Control" will be
deemed to have occurred when there is a change in ownership of the Bank's common
stock, whereby any person, entity, or group of associated persons and/or
entities acting in concert increases its beneficial ownership (whether direct or
indirect) to fifty-one percent (51%) of the Bank's common stock or the common
stock of the bank holding company, Liberty Bay Financial Corporation. The
ownership of the holding company will be considered "essentially the same" if no
more than ten percent (10%) of the shares of the bank holding company following
the bank holding company formation are held by shareholders who were not
shareholders of the Bank.

        5. Discharge for Cause. For purposes of this Agreement, the termination
of the Executive's employment shall be deemed to have been made for cause only
upon the following circumstances:

                a. The termination is as a result of acts of dishonesty on the
        part of the Executive constituting a felony and resulting or intended to
        result directly or indirectly in gain or personal enrichment of the
        Executive at the expense of the Bank; or

                b. The Executive has, willfully and in bad faith, refused or
        neglected to carry out the reasonable duties which may have been
        assigned to him and such refusal shall continue after written notice to
        the Executive and a period of ten (10) days in which time the Executive
        shall have the opportunity to cure such failure.

        6. Termination of the Agreement. This Agreement shall terminate if prior
to the Change of Control of the Bank as defined here, the Executive shall
voluntarily resign, retire, become permanently and totally disabled, voluntarily
take another position requiring a substantial portion of his time, or die.

        7. Effect on Other Benefits. The arrangements called for by this
Agreement are not intended to have any effect on the Executive's participation
in any other benefits available to executive personnel or to preclude other
compensation or additional benefits as may be authorized by the Board of
Directors from time-to-time.

        8. Automobile. Upon termination of the Executive's employment following
a Change of Control, the Executive shall be permitted to purchase the Bank's
automobile that he is then using, at the Bank's depreciated cost.

        9. Golden Parachute (FDIC). The Bank shall not be obligated to make, and
the Executive shall not be entitled to, any payment under this Agreement if such
payment would constitute a "golden parachute" payment prohibited by 12 U.S.C.
1828(k) or 12 CFR ss.359.0 et seq. The Bank shall have no liability to the
Executive under or in relation to this Agreement should any payment be deemed a
prohibited "golden parachute" payment.

        10. Binding Effect. This Agreement shall be binding and shall inure to
the benefit of the respective successors, assigns, legal representatives and
heirs to the parties hereto.

        11. Miscellaneous. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions shall continue to be fully effective. No provision of this Agreement
may be modified, waived, or discharged unless such waiver, modification, or



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discharge is agreed to in writing by the Executive and the Board of Directors of
the Bank. This is the entire agreement between the parties. This Agreement shall
be governed under the laws of the State of Washington.

        12. Jurisdiction/Venue/Mandatory Arbitration. Any legal action brought
to resolve disputes arising out of this Change of Control Agreement, or any
amendments thereto, shall be commenced in Kitsap County Superior Court in the
State of Washington and shall be resolved in accordance with the Superior Court
Mandatory Arbitration Rules and the Kitsap County Local Rules for Mandatory
Arbitration, if any, with the parties agreeing to waive the jurisdictional
limits. The decision of the arbitrator shall be binding on the parties, and the
parties waive the right of de novo appeal from such decision.

        It is agreed that the arbitrator shall award to the prevailing or
substantially prevailing party all fees incurred by such party with regard to
such arbitration, including reasonable legal, accounting, and expert witness
fees. If the arbitrator determines that there is no prevailing or substantially
prevailing party, the reasonable legal, accounting, and expert witnesses fees
shall be the responsibility of each party.

        IN WITNESS WHEREOF, the parties have signed this Agreement this 14th day
of August 1999.



                                      Liberty Bay Financial Corporation
                                      and North Sound Bank


                                      By:        /s/
                                          -------------------------------------
                                          Michael J. Clementz
                                          President/CEO


                                                 /s/
                                      -----------------------------------------
                                          Mark D. Freeman




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