EXHIBIT 10.3

# EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the
Agreement), between The Bank of the Pacific, a Washington business corporation
(The Bank) and Bruce D. MacNaughton (Executive) is dated as of
June 15, 2005 and will be effective July 1, 2005.

# RECITALS

| | A. | The Bank of the Pacific is a Washington banking corporation. The Bank is engaged
               in the business of commercial banking in Grays Harbor County, Pacific County,
               Skagit County, Whatcom County, and Wahkiakum County, Washington. The Bank also
               engages business in Oregon Counties.
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| | B. | The Executive represents that he has considerable experience, expertise and
               training related to banking and services offered by The Bank. The Bank desires
               and intends to employ the Executive pursuant to the terms and conditions set
               forth in this Agreement.
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| | C. | Both The Bank and the Executive have read and understand the terms and
               provisions set forth in this Agreement, and have been afforded a reasonable
               opportunity to review this Agreement and to consult with an attorney.
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# AGREEMENT

The parties agree as follows:

| | 1. | Employment. The Bank will employ the Executive for the
               Term, except as specifically stated herein, and the Executive accepts employment
               with The Bank on the terms and conditions set forth in this Agreement. The
               Executives title will be Executive Vice President & Chief Credit
               Officer.
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| | 2. | Effective Date and Term.
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| | (a) | Effective Date. This Agreement is effective as of the 1st day
               of July, 2005.
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| | (b) | Term. The initial term of this Agreement is two years (24 months),
               beginning on the Effective Date stated in paragraph 2(a), and shall
               automatically renew for an additional term of one year on each anniversary date
               of the Agreement, so as to create a two year term on each anniversary date,
               unless notice of termination or nonrenewal is provided by either party pursuant
               to paragraph 5(a).
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| | 3. | Duties.The Executive will serve as the Executive Vice
               President and Chief Credit Officer for the Bank and faithfully and diligently
               perform the duties assigned to the Executive by the Chief Executive Officer
               (CEO). The Executive will report directly to the CEO of The Bank.
               The Executive will use his best efforts to perform his duties and will devote
               all his working time and attention to these duties.
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| | 4. | Compensation.
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| | (a) | Salary. Initially,
the Executive will receive an annualized salary of           $116,400.00 per year, to be
paid at regular intervals by The Bank in accordance           with its regular payroll
schedules. The Executives salary will be subject           to annual review and
adjustment as set forth in section 4(f).
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| | (b) | Incentive Compensation. Executive will be eligible to participate in an
               incentive plan relative to The Banks approved plan. A disinterested
               majority of The Banks Board of Directors will determine the amount of the
               bonus pool, if any, based on the profitability, safety, and soundness of The
               Bank. The Executives bonus, if any, will reflect the Executives
               performance in his area of responsibility and his contribution to the overall
               performance of The Bank during the year, as determined in the sole discretion of
               The Banks Board of Directors. No incentive compensation bonus shall be
               paid for any calendar year or portion thereof, in which this Agreement is
               terminated or not renewed, or in which notice of nonrenewal or termination is
               given, regardless of reasons for termination or nonrenewal, and regardless of
               which party terminates or declines to renew this Agreement. The Executive will
               also be entitled to participate in stock bonus or option plans generally
               available to senior executives of The Bank.
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| | (c) | Standard Benefits. The Bank will provide to the Executive the standard
               Executive benefits provided in accordance with The Banks benefit plans and
               policies, including but not limited to health insurance, disability insurance,
               life insurance and four (4) weeks of paid vacation per year accrued in
               accordance with The Banks benefit plans and policies. The Executive also
               will be entitled to participate in retirement plans, including 401(k) plans.
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| | (d) | Automobile. The Bank will provide the Executive with the use of an
               automobile, of a model typically appropriate for the performance of the services
               by a similarly situated executive.
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| | (e) | Expenses. The Bank will reimburse the Executive for all reasonable
               expenses that the Executive may incur in the performance of his duties including
               monthly country club dues. The Executive will request reimbursement and provide
               documentation of such expenses within a reasonable time, but no later than 90
               days after the expense has been incurred.
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| | (f) | Annual Review and Adjustment. The Executives compensation as set
               forth in this Section 4(a), will be subject to annual review and adjustment by a
               disinterested majority of The Banks Board of Directors or Compensation
               Committee. In no case, however, will the Executives salary, vacation and
               expense reimbursement be less than the amounts set forth in this section 4.
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| | 5. | Termination.
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| | (a) | Notice of Termination or Nonrenewal. Either party may unilaterally
               terminate or decline to renew this Agreement for any reason by providing the
               other party with written notice of the termination or nonrenewal no less than
               ninety (90) days prior to the termination date or the final date of the then
               current Term of this Agreement.
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| | (b) | Termination or Nonrenewal by The Bank: In the event that the Bank
               provides the Executive with a notice of termination without cause or nonrenewal
               under paragraph 5(a), The Bank will pay to the Executive his salary from the
               date of the notice for the balance of the then current Term or for twelve (12)
               months from the date of the notice, whichever is greater, and in its discretion
               will advise the Executive of those duties and responsibilities, if any, it wants
               him to perform during this time. All forfeiture provisions regarding restricted
               stock awards and all vesting requirements regarding stock options shall lapse or
               be deemed fully completed.
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| | (c) | Termination or Nonrenewal by the Executive: In the event the Executive
               seeks to terminate or refuses to renew this Agreement without providing at least
               (90) days written notice prior to the termination date or final date of
               the then current term, the Executive will pay to The Bank liquidated damages as
               follows: (A) in the event the Executive provides notice of termination or
               nonrenewal 29 days or less prior to the termination date of the Agreement, the
               Executive shall pay The Bank $25,000 in liquidated damages; (B) in the event the
               Executive provides notice of termination or nonrenewal at least 30 days but not
               more than 59 days prior to the termination date of the Agreement, the Executive
               shall pay The Bank $20,000 in liquidated damages; (C) in the event the Executive
               provides notice of termination or nonrenewal at least 60 days but not more than
               89 days prior to termination of this Agreement, the Executive shall pay to The
               Bank $15,000 in liquidated damages.
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| | (d) | Termination by The Bank for Cause. Notwithstanding paragraph 4(a), The
               Bank may immediately terminate this Agreement with no advance notice if
               termination is for cause. For purposes of this Agreement, cause
               means dishonesty; fraud; commission of a felony or of a crime involving moral
               turpitude; deliberate violation of statutes, regulations, or orders pertaining
               to financial institutions or reckless disregard of such statutes, regulations,
               or orders; destruction or theft of Bank property or assets of customers of The
               Bank; physical attack of a fellow employee or a customer; intoxication at work;
               use of narcotics or alcohol to an extent that materially impairs
               Executives performance of his duties; willful malfeasance or gross
               negligence in the performance of Executives duties; violation of law in
               the course of employment that has a material adverse impact on The Bank, its
               Executives, or its customers; Executives refusal to perform
               Executives duties; Executives refusal to follow reasonable
               instructions or directions; misconduct materially injurious to The Bank;
               significant neglect of duty; or any material breach of Executives duties
               or obligations to The Bank that results in material harm to The Bank. If
               termination occurs under this paragraph, the Executive will be entitled to
               receive only the salary earned through the date this Agreement is terminated and
               shall not be entitled to any payment pursuant to paragraph 4(a), and except as
               otherwise provided by law, participation in benefit plans ceases upon
               termination of this Agreement.
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| | (e) | Death or Disability. Notwithstanding paragraph 4(a), this Agreement will
               terminate immediately upon the Executives death. Notwithstanding paragraph
               4(a), if the Executive is unable to perform his duties and obligations under
               this Agreement for a period of 90 days as a result of a disability that
               substantially limits one or more of his major life activities, this Agreement
               will terminate immediately upon expiration of such 90 day period unless
               Executive is thereafter able to perform the essential functions of the position
               referenced in paragraph 2(c) with or without a reasonable accommodation. If
               termination occurs under this paragraph, the Executive or his estate will be
               entitled to receive only the salary earned through the date this Agreement is
               terminated and shall not be entitled to any payment pursuant to paragraph 4(a),
               and except as otherwise provided by law, participation in benefit plans ceases
               upon termination of this Agreement, except that as of such termination date, all
               vesting requirements regarding then currently pending stock options shall be
               deemed fully completed.
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| | (f) | Termination Related to a Change in Control. This paragraph will apply to
               any termination related to a Change in Control, as set forth herein.
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| | i. | Change in Control means a change in the ownership or effective
               control or in the ownership of a substantial portion of the
               assets of The Bank, within the meaning of Section 280G of the Internal
               Revenue Code. An initial public offering by The Bank will not, however, be
               deemed to be a Change in Control under this Agreement.
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| | ii. | Termination by The Bank. Notwithstanding the provisions of paragraph
               5(a), if The Bank or its successors in interest by merger, or their transferees
               in the event of a purchase and assumption transaction, and for reasons other
               than the provisions in paragraphs 5(d) and 5(e) terminates this Agreement within
               twenty-four (24) months following a Change in Control, The Bank will pay the
               Executive twenty four (24) times the base compensation received by the Executive
               during the most recent calendar month ending on or prior to the effective date
               of termination, less statutory payroll deductions. Payment under this paragraph
               shall be made in accordance with The Banks ordinary payroll policies and
               procedures, unless the parties mutually agree to a different payment schedule.
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| | iii. | Executive Assignment Related to Change in Control. If the assignment to
               the Executive by The Bank or its successors in interest by merger, or their
               transferees in the event of a purchase and assumption transaction, is other than
               the position of Executive Vice President and Chief Credit Officer, without the
               Executives expressed written consent, then the provisions of paragraph
               5(f)(ii) shall apply.
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| | iv. | Limitations on Payments Related to Change in Control. The following apply
               notwithstanding any other provision of this Agreement:
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| | 1) | The payment described in Section 5(f)(ii) shall be less than the amount that
               would cause it to be a parachute payment within the meaning of
               Section 280G (b)(2)(A) of the Internal Revenue Code; and
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| | 2) | The Executives right to receive the payment described in Section 5(f)(ii)
               terminates (a) immediately if before the Change in Control transaction closes,
               the Executive terminates his employment without good reason or the Company
               terminates the Executives employment for cause, or (b) two years after
               Change in Control occurs.
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| | 6. | Confidentiality. The Executive will not, after signing this
               Agreement, including during and after its Term, disclose to any other person or
               entity any confidential information concerning The Bank or its business
               operations or customers, or use for his own purposes or permit or assist in the
               use of such confidential information by third parties unless The Bank consents
               to the use or disclosures of their respective information, or disclosure is
               required by law or court order. The provisions of this paragraph survive the
               termination of the Executives employment by The Bank.
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| | 7. | Noncompetition. During the Term and for twenty-four (24)
               months after the Executives employment with The Bank ends, the Executive
               will not become involved with a Competing Business or serve, directly or
               indirectly, a Competing Business in any matter. Competing Business
               means any company that competes with or will compete with The Bank in Grays
               Harbor, Pacific, Wahkiakum, Whatcom, and Skagit Counties, or any other
               Washington or Oregon county in which The Bank maintains a banking office(s) at
               the time of the termination of this Agreement. Competing Business
               includes, without limitation, any existing or newly formed financial institution
               or trust company.
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| | 8. | Enforcement. The Bank and the Executive agree that, in
               light of all of the facts and circumstances of the relationship between The Bank
               and the Executive, the agreements referred to in paragraphs 5(a), 6 and 7 are
               fair and reasonably necessary for the protection of The Banks confidential
               information, goodwill and other protectible interests. The parties acknowledge
               and agree that the time and expense involved in proving in any forum the actual
               damage or loss suffered by The Bank if there is a breach of paragraphs 5(a), 6
               or 7 make this case appropriate for liquidated damages. Accordingly, The Bank
               and the Executive agree that the following schedule of liquidated damages is
               reasonable and fair, and shall be the amount of damages which the Executive
               shall pay to The Bank for each, separate breach of paragraphs 5(a), 6 or 7 by
               the Executive:
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| |  | a. for a breach of paragraph 5(a), the sum of $25,000;
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| |  | b. for a breach of paragraph 6, the sum of $75,000;
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| |  | c.  for a breach of paragraph 7, the sum of $150,000.
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| |  | For purposes
of paragraph 7, a separate breach shall be deemed to have occurred with each
Competing Business with which the Executive becomes involved or serves in violation of
paragraph 7.
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| |  | Neither the
breach of paragraphs 5(a), 6 or 7, nor the payment of liquidated damages by the
Executive, shall affect the continuing validity or enforceability of this Agreement, or
The Banks right to seek and obtain injunctive relief. If a court of competent
jurisdiction should decline to enforce any of these covenants and agreements, the
Executive and the Bank hereby stipulate that the Court shall reform these provisions to
restrict the Executives use of confidential information and the Executives
ability to compete with The Bank to the maximum extent, in time, scope of activities, and
geography, as the court finds enforceable.
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| | 9. | Adequate Consideration. The Executive specifically
               acknowledges the receipt of adequate consideration for the covenants contained
               in paragraph 5(a), 6, and 7, and that The Bank is entitled to require him to
               comply with these paragraphs. These paragraphs will survive termination of this
               agreement. The Executive represents that if his employment is terminated,
               whether voluntarily or involuntarily, the Executive has experience and
               capabilities sufficient to enable the 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 the Executive from earning a
               livelihood.
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| | 10. | Miscellaneous Provisions. This Agreement constitutes the
               entire understanding between the parties concerning its subject matter. This
               Agreement will bind and inure to the benefit of The Banks and the
               Executives heirs, legal representatives, successors and assigns. This
               Agreement may be modified only through a written instrument signed by both
               parties. This Agreement will be governed and construed in accordance with
               Washington law, except that certain matters may be governed by federal law.
               Venue for enforcement of any terms of this Agreement shall be in Grays Harbor
               County, Washington Superior Court.
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# Signed as of June
_______, 2005:

|                                      |                         
|------------------------------------- | ------------------------
|THE BANK OF THE PACIFIC               | EXECUTIVE               
|                                      |                         
|/s/ Dennis A. Long                    | /s/ Bruce D. MacNaughton
|Dennis A. LongChief Executive Officer | Bruce D. MacNaughton