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 January 2, 2003 and will be  effective  January 2,
2003.

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 and Wahkakiam County, Washington.

B.       The Executive represents he has considerable experience,  expertise and
         training in management  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.

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.

                                    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 and Chief Credit  Officer" for the
                  Bank.

         2.       EFFECTIVE DATE AND TERM.

                  (a)      Effective Date. This Agreement is effective as of the
                           2nd Day of January 2003

                  (b)      Term. The initial term of this Agreement is two years
                           (24 months),  beginning on the Effective  Date stated
                           in paragraph 2.(a).

         3.       DUTIES.  The  Executive  will  serve  as  the  Executive  Vice
                  President  and  Chief  Credit   Officer  and   faithfully  and
                  diligently perform the duties assigned to the Executive by the
                  CEO.  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.

                  (a)      SALARY. Initially, the employee will receive a salary
                           of $102,500 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).

                  (b)      INCENTIVE COMPENSATION. Executive will be eligible to
                           participate  in  the  Executive   bonus  program.   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 stock option plans  generally  available to senior
                           executives of the Bank.

                  (c)      STANDARD  BENEFITS.  The  Bank  will  provide  to the
                           Executive   the   standard   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  will also be  entitled  to
                           participate  in retirement  plans,  including  401(K)
                           plans and deferred  compensation plans, and including
                           any supplements or additions to such plans, which are
                           generally available to senior executives of the Bank.

                  (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.

                  (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.
<PAGE>

                  (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  Executive   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.

         5.       TERMINATION.

                  (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.

                  (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 this
                           paragraph,  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 vesting  requirements
                           regarding  stock  options  shall  lapse or be  deemed
                           fully completed.

                  (c)      TERMINATION  OR NONRENEWAL BY THE  EXECUTIVE:  In the
                           event that the Executive seeks to terminate or refuse
                           to renew this  Agreement  without  providing at least
                           ninety  (90)  days'  written   notice  prior  to  the
                           termination  date of final  date of the then  current
                           Term, the Executive  shall 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 $15,000
                           in  liquidated  damages;  (B) in the  event  that 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 to the Bank $10,000 in liquidated
                           damages; (C) in the event that 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
                           $5,000 in liquidated damages.

                  (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


<PAGE>

                           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
                           employees,  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.

                  (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(e) 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  5(b), 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.

                  (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.

                  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,


<PAGE>

                           however,  be deemed to be a Change in  Control  under
                           this Agreement.

                  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, terminates this Agreement within two (2)
                           years  following a Change in  Control,  The Bank will
                           pay the Executive two (2) times the annualized salary
                           amount  received  by the  Executive  during  the most
                           recent  calendar  year  ending  on or  prior  to  the
                           effective date of termination, but in no case will it
                           be less  than  two (2)  times  paragraph  4(a),  less
                           statutory payroll deductions, and as of such date all
                           vesting requirements regarding then currently pending
                           stock  options  shall  be  deemed  fully   completed.
                           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.

                  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  CCO of  The  Bank  without  the
                           Executive's   express  written   consent,   then  the
                           provisions of paragraph 5(f)(ii) shall apply.

                  iv.      Limitations on Payments Related to Change in Control.
                           The  following   apply   notwithstanding   any  other
                           provision of this agreement:

                  a.       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

                  b.       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 a Change in Control occurs.
<PAGE>



         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.

         7.       NONCOMPETITION.  During  the Term and for two (2) years  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  and
                  Wahkiakum  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  limitiation,  any existing or newly formed
                  financial institution or trust company.

         8.       ENFORCEMENT.  The Bank and the Executive  agree that, in light
                  of all of the  facts  and  circumstances  of the  relationship
                  between  the  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:

                  a.       for a breach of paragraph 5(a), the sum of $25,000;

                  b.       for a breach of paragraph 6, the sum of $100,000;

                  c.       for a breach of paragraph 7, the sum of $250,000.

                  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.

                  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

<PAGE>

                  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.

         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.

         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.  Jurisdiction  and venue for
                  enforcement of any terms of this  Agreement  shall be in Grays
                  Harbor County Superior Court.


Signed as of January 2, 2003:


THE BANK OF THE PACIFIC                                EXECUTIVE



/s/ Dennis A. Long                                     /s/ Bruce D. MacNaughton
----------------------------                           -------------------------
Dennis A. Long President                               Bruce D. MacNaughton