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                                                                   EXHIBIT 10.1



                              EMPLOYMENT AGREEMENT
                               MICHAEL J. CLEMENTZ

        This EMPLOYMENT AGREEMENT ("Agreement") signed March 15, 2000, between
FRONTIER FINANCIAL CORPORATION ("Frontier"), FRONTIER BANK and MICHAEL J.
CLEMENTZ ("Executive") takes effect on the Effective Date of the Merger of
Liberty Bay Financial Corporation ("Liberty") into Frontier and North Sound Bank
into Frontier Bank ("Effective Date").

                                    RECITALS

        A. Frontier and Frontier Bank have entered into a Plan and Agreement of
Mergers ("Plan") with Liberty and North Sound Bank, pursuant to which Liberty
will merge into Frontier and North Sound Bank will merge into Frontier Bank
("Mergers").

        B. Executive is presently the President and Chief Executive Officer
("CEO") of Liberty and the Chairman and CEO of North Sound Bank. Frontier and
Frontier Bank wish to retain Executive's services following the Mergers, and
Executive wishes to accept employment with Frontier and Frontier Bank following
the Mergers.

        C. The purpose of this Agreement is to set forth the terms agreed to by
the parties to achieve the goals set forth in paragraph B, above.

                                    AGREEMENT

        The parties agree as follows:

        1. EMPLOYMENT. Frontier and Frontier Bank agree to employ Executive, and
Executive agrees to accept employment, with Frontier. During the Term of his
employment under this Agreement, Executive will have the title of Executive Vice
President of Frontier Financial Corporation and Frontier Bank (hereafter
referred to jointly as "Frontier" unless Frontier Bank is specifically
mentioned). In addition, during the Term of this Agreement, Executive will be a
member of the Frontier Executive Management Team.

        2. EFFECTIVE DATE AND TERM.

                (a) Effective Date. This Agreement is effective as of the
        Effective Date.

                (b) Term. The term of this Agreement ("Term") is three years,
        beginning on the Effective Date.

                (c) Abandonment of the Mergers. If the Plan terminates before
        Closing, this Agreement will not become effective and will be void.

        3. DUTIES. Executive will faithfully and diligently perform the duties
assigned to Executive from time to time by the Board of Directors of Frontier
and Frontier Bank (hereinafter



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referred to jointly as the "Board") and by the President and CEO of Frontier.
These duties will include, without limitation, the following:

                (a) Executive will oversee the integration of the branches of
        North Sound Bank into Frontier Bank and will be responsible for the
        development and preservation of banking relationships and other business
        development efforts (including appropriate civic and community duties)
        in the Peninsula Region.

                (b) Executive will assist Frontier with the development and
        implementation of acquisition strategies and in the analysis of the
        viability of new product offerings and opportunities to engage in new
        activities "closely related to banking."

                (c) Executive will serve as a member of the Board of Directors
        of Frontier Financial Corporation, Frontier Bank and FFP, Inc.,
        receiving all the benefits and compensation received by other directors.

        4. SALARY. Initially, Executive will receive a base salary from Frontier
Bank of $150,000 per year, to be paid in accordance with Frontier Bank's regular
payroll schedule ("Base Salary").

        5. INCENTIVE COMPENSATION. The Board will determine the amount of bonus
to be paid by Frontier to Executive for each year during the Term. In making
this determination, the Board will consider factors such as Executive's
performance of his duties and the safety, soundness and profitability of
Frontier.

        6. STAY BONUS. In addition to any incentive compensation granted
Executive under paragraph 5 hereof, on each anniversary of the Effective Date of
this Agreement during the Term, Executive shall receive a "Stay Bonus" of
$40,000 (three payments--$120,000 in total).

        7. INCOME DEFERRAL AND BENEFITS. Subject to eligibility requirements and
in accordance with and subject to any policies adopted by the Board with respect
to any benefit plans or programs, Executive will be entitled to receive benefits
(including stock options) similar to those offered to other executive officers
of Frontier and its Subsidiaries with positions and duties comparable to those
of Executive.

        8. BUSINESS EXPENSES. Frontier will reimburse Executive for ordinary and
necessary expenses (including, without limitation, travel, entertainment, club
dues and similar expenses) incurred in performing and promoting Frontier's
business. The level of reimbursement will be comparable to the reimbursement
Executive currently receives at North Sound Bank. Executive will present from
time to time itemized accounts of these expenses, subject to any rules and
regulations of the Internal Revenue Service.

        9. TERMINATION.

                (a) Termination By Frontier for Cause. If, before the end of the
        Term, Frontier terminates Executive's employment for Cause or Executive
        terminates his employment without Good Reason (defined below), Frontier
        will pay Executive the



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        salary earned and expenses reimbursable under this Agreement incurred
        through the date of Executive's termination. Executive will have no
        right to receive compensation or other benefits, including Stay Bonus,
        for any period after termination under this Section 9(a).

                (b) Other Termination By Frontier. If, before the end of the
        Term, Frontier terminates Executive's employment without Cause or
        Executive terminates his employment for Good Reason (defined below),
        Frontier will pay Executive for the remainder of the Term the Base
        Salary and Stay Bonus Executive would have been entitled to under this
        Agreement if his employment had not terminated.

                (c) Death or Disability. This Agreement terminates (1) if
        Executive dies or (2) if Executive is unable to perform his duties and
        obligations under this Agreement for a period of 90 days as a result of
        a physical or mental disability arising at any time during the Term of
        this Agreement, unless with reasonable accommodation Executive could
        continue to perform his duties under this Agreement and making these
        accommodations would not pose undue hardship to Frontier. If termination
        occurs under this Section 9(c), Executive or his estate will be entitled
        to receive only the compensation and benefits earned and expenses
        reimbursable through the date this Agreement terminated, together with
        the balance of any Stay Bonus otherwise payable under this Agreement.

                (d) Health Benefits. Upon termination of Executive's employment
        with Frontier (whether prior to or after expiration of the Term of this
        Agreement), Frontier will make a single cash payment (the "Insurance
        Payment") to Executive in an amount sufficient to cover the
        present-value costs (after income tax calculated at the then highest
        individual rate) of (1) Executive's coverage under Frontier's COBRA
        Plan, and (2) such other individual or group health insurance plan(s)
        providing in the aggregate the same level of health benefits to
        Executive as those enjoyed by comparably situated Frontier employees.
        The Insurance Payment, which is based on projected rates in effect at
        the expiration of Executive's employment, is intended to cover Executive
        until the time of his 65th birthday. This section 9(d) will survive
        termination of this Agreement.

                (e) Return of Bank Property. If and when Executive ceases, for
        any reason, to be employed by Frontier, Executive must return to
        Frontier all keys, pass cards, identification cards and any other
        property of Frontier. At the same time, Executive also must return to
        Frontier all originals and copies (whether in hard copy, electronic or
        other form) of any documents, drawings, notes, memoranda, designs,
        devices, diskettes, tapes, manuals and specifications which constitute
        proprietary information or material of Frontier. The obligations in this
        paragraph include the return of documents and other materials which may
        be in Executive's desk at work, in Executive's car or place of
        residence, or in any other location under Executive's control.

        10. DEFINITION OF "CAUSE". "Cause" means any one or more of the
following:

                (a) Willful misfeasance or gross negligence in the performance
        of Executive's duties.

                (b) Conviction of a crime in connection with his duties.



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                (c) Conduct demonstrably and significantly harmful to Frontier,
        as reasonably determined by the Board on the advice of legal counsel.

        11. DEFINITION OF "GOOD REASON". "Good Reason" means only any one or
more of the following:

                (a) Reduction, without Executive's consent, of Executive's
        salary or elimination of any compensation or benefit plan benefiting
        Executive, unless the reduction or elimination is generally applicable
        to substantially all similarly situated Frontier employees formerly
        benefited.

                (b) The assignment to Executive without his consent of any
        authority or duties materially inconsistent with Executive's position as
        of the Effective Date of this Agreement.

                (c) A relocation or transfer of Executive's principal place of
        employment that would require Executive to commute on a regular basis
        more than thirty (30) miles each way from his current business office at
        North Sound Bank on the Effective Date of this Agreement, unless
        Executive consents to the relocation or transfer.

                (d) The written consent of Frontier to such resignation.

        12. CONFIDENTIALITY. Executive will not, after signing this Agreement,
including during and after its Term, use for his own purposes or disclose to any
other person or entity any confidential information concerning Frontier or their
business operations or customers, unless (1) Frontier consents to the use or
disclosure of their respective confidential information, (2) the use or
disclosure is consistent with Executive's duties under this Agreement, or (3)
disclosure is required by law or court order.

        13. NONCOMPETITION.

                (a) Participation in a Competing Business. During the period
        Executive is employed by Frontier and for twenty-four (24) months after
        Executive's employment with Frontier terminates, Executive will not
        become involved with a Competing Business or serve, directly or
        indirectly, a Competing Business in any manner, including, without
        limitation, as a shareholder, member, partner, director, officer,
        manager, investor, organizer, "founder," employee, consultant, or agent;
        provided, however, that Executive may acquire and passively own an
        interest not exceeding 2% of the total equity interest in any Competing
        Business.

                (b) No Solicitation. During the period Executive is employed
        with Frontier and for twenty-four (24) months after Executive's
        employment with Frontier terminates, Executive will not directly or
        indirectly solicit or attempt to solicit (1) any employees of Frontier,
        or any of Frontier's Subsidiaries, to leave their employment or (2) any
        customers of Frontier, or any of Frontier's Subsidiaries, to remove
        their business from Frontier or to participate in any manner in a
        Competing Business. Solicitation prohibited under this Section includes
        solicitation by any means, including, without limitation,



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        meetings, letters or other mailings, electronic communications of any
        kind, and internet communications.

                (c) Employment Outside the Restricted Area. Nothing in this
        Agreement prevents Executive from accepting employment after the end of
        the Term outside the Restricted Area (defined below) from a Competing
        Business, as long as Executive will not (a) act as an employee or other
        representative or agent of the Competing Business within the Restricted
        Area or (b) have any responsibilities for the Competing Business'
        operations within the Restricted Area.

                (d) Competing Business. "Competing Business" means any financial
        institution ("financial institution" means a state or national bank, a
        state or federal savings and loan association, a mutual savings bank, or
        a state or federal credit union), trust company or mortgage company
        (including without limitation, any start-up or other financial
        institution, trust company or mortgage company) that competes with, or
        will compete with, Frontier in Kitsap, Jefferson or Clallam Counties in
        the State of Washington (the "Restricted Area").

        14. ENFORCEMENT.

                (a) Frontier and Executive stipulate that, in light of all of
        the facts and circumstances of the relationship between Executive and
        Frontier, the agreements referred to in Sections 12 and 13 (including
        without limitation their scope, duration and geographic extent) are fair
        and reasonably necessary for the protection of Frontier's confidential
        information, goodwill and other protectable interests. If a court of
        competent jurisdiction should decline to enforce any of those covenants
        and agreements, Executive and Frontier request the court to reform these
        provisions to restrict Executive's use of confidential information and
        Executive's ability to compete with Frontier to the maximum extent, in
        time, scope of activities and geography, the court finds enforceable.

                (b) Executive acknowledges that Frontier will suffer immediate
        and irreparable harm that will not be compensable by damages alone, if
        Executive repudiates or breaches any of the provisions of Sections 12 or
        13 or threatens or attempts to do so. For this reason, under these
        circumstances, Frontier, in addition to and without limitation of any
        other rights, remedies or damages available to it at law or in equity,
        will be entitled to obtain temporary, preliminary and permanent
        injunctions in order to prevent or restrain the breach, and Frontier
        will not be required to post a bond as a condition for the granting of
        this relief.

        15. ADEQUATE CONSIDERATION. Executive specifically acknowledges the
receipt of adequate consideration for the covenants contained in Sections 12 and
13 and that Frontier is entitled to require him to comply with these Sections.
These Sections will survive termination of this Agreement. Executive represents
that if his employment is terminated, whether voluntarily or involuntarily,
Executive has experience and capabilities sufficient to enable Executive to
obtain employment in areas which do not violate this Agreement and that the
Bank's enforcement of a remedy by way of injunction will not prevent Executive
from earning a livelihood.



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        16. ARBITRATION.

                (a) Arbitration. At either party's request, the parties must
        submit any dispute, controversy or claim arising out of or in connection
        with, or relating to, this Agreement or any breach or alleged breach of
        this Agreement, to arbitration under the American Arbitration
        Association's rules then in effect (or under any other form of
        arbitration mutually acceptable to the parties). A single arbitrator
        agreed on by the parties will conduct the arbitration. If the parties
        cannot agree on a single arbitrator, each party must select one
        arbitrator and those two arbitrators will select a third arbitrator.
        This third arbitrator will hear the dispute. The arbitrator's decision
        is final (except as otherwise specifically provided by law) and binds
        the parties, and either party may request any court having jurisdiction
        to enter a judgment and to enforce the arbitrator's decision. The
        arbitrator will provide the parties with a written decision naming the
        substantially prevailing party in the action. This prevailing party is
        entitled to reimbursement from the other party for its costs and
        expenses, including reasonable attorneys' fees.

                (b) Governing Law. All proceedings will be held at a place
        designated by the arbitrator in King County, Washington. The arbitrator,
        in rendering a decision as to any state law claims, will apply
        Washington law.

                (c) Exception to Arbitration. Notwithstanding the above, if
        Executive violates Section 12 or 13, Frontier will have the right to
        initiate the court proceedings described in Section 14(b), in lieu of an
        arbitration proceeding under this Section 16. Frontier may initiate
        these proceedings wherever appropriate within Washington State; but
        Executive will consent to venue and jurisdiction in King County,
        Washington.

        17. MISCELLANEOUS PROVISIONS.

                (a) Defined Terms. Capitalized terms used as defined terms, but
        not defined in this Agreement, will have the meanings assigned to those
        terms in the Plan.

                (b) Automobile. Executive shall retain the automobile he is
        presently using, which is owned by North Sound Bank, for the Term of
        this Agreement. Upon termination of Executive's employment, Executive
        shall be permitted to purchase the vehicle (or comparable replacement
        vehicle) at Frontier's depreciated cost.

                (c) Entire Agreement. This Agreement constitutes the entire
        understanding between the parties concerning its subject matter and
        supersedes all prior agreements. Accordingly, Executive specifically
        waives the terms of and all of his rights under all employment,
        change-in-control and salary continuation agreements, whether written or
        oral, he has previously entered into with Liberty or North Sound Bank.

                (d) Binding Effect. This Agreement will bind and inure to the
        benefit of Frontier's and Executive's heirs, legal representatives,
        successors and assigns.

                (e) Litigation Expenses. If either party successfully seeks to
        enforce any provision of this Agreement or to collect any amount claimed
        to be due under it, this party will be entitled to reimbursement from
        the other party for any and all of its out-of-



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        pocket expenses and costs including, without limitation, reasonable
        attorneys' fees and costs incurred in connection with the enforcement or
        collection.

                (f) Waiver. Any waiver by a party of its rights under this
        Agreement must be written and signed by the party waiving its rights. A
        party's waiver of the other party's breach of any provision of this
        Agreement will not operate as a waiver of any other breach by the
        breaching party.

                (g) Assignment. The services to be rendered by Executive under
        this Agreement are unique and personal. Accordingly, Executive may not
        assign any of his rights or duties under this Agreement.

                (h) Amendment. This Agreement may be modified only through a
        written instrument signed by both parties and consented to by Frontier.

                (i) Severability. The provisions of this Agreement are
        severable. The invalidity of any provision will not affect the validity
        of other provisions of this Agreement.

                (j) Governing Law. This Agreement will be governed by and
        construed in accordance with Washington law, except to the extent that
        certain matters may be governed by federal law.

                (k) Counterparts. This Agreement may be executed in one or more
        counterparts, each of which will be deemed an original, but all of which
        taken together will constitute one and the same document.



                                      FRONTIER FINANCIAL CORPORATION


                                      By:        /s/
                                          -------------------------------------
                                          Robert J. Dickson, President and CEO

                                  FRONTIER BANK


                                      By:        /s/
                                          -------------------------------------
                                          Robert J. Dickson, President and CEO


                                      By:        /s/
                                          -------------------------------------
                                          MICHAEL J. CLEMENTZ





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