THE BANK OF GRAYS HARBOR
                       EMPLOYEE DEFERRED COMPENSATION PLAN

1.   Purpose of the Plan,  The purpose of this Deferred  Compensation  Plan (the
     "Plan") is to provide an additional  incentive to key employees of The Bank
     of Grays Harbor, a Washington banking corporation (the "Employer"), thereby
     helping to attract and retain the best available  personnel as employees of
     Employer and otherwise  promoting the success of the business activities of
     Employer.

2.   Participation in Plan. Participation in the Plan by an employee shall be at
     the  discretion  of  Employer  with the  consent of the  employee,  and the
     adoption  of this Plan  shall not  Confer  upon any  employee  any right to
     participation  or receipt of any benefits  unless and until an employee has
     been designated by Employer as  participating in the Plan. Such designation
     shall  be made by the  Board  of  Directors  of  Employer,  or a  Committee
     appointed  by the Board,  and shall be  documented  in a written  agreement
     identifying the employee,  the  Participation  Date, and the  Participant's
     Deferred Compensation (the "Participant's Agreement"). (An employee who has
     been so  designated  by Employer is  referred to as a  "Participant".)  The
     "Participation  Date"  shall be the date as of which an  employee  shall be
     designated by Employer as a Participant in the Plan,  which may be any date
     during the fiscal year in which a Participant is so designated.

3.   Deferred Compensation. In the case of each Participant,  Employer agrees to
     pay that portion of  Participant's  Compensation  that is designated by the
     Participant in a manner authorized by Employer as Deferred  Compensation in
     accordance with the terms of this Plan and of the Participant's  Agreement,
     in addition to any other compensation  provided for in any other agreements
     between the Employer and such Participant.

4.   Amount of Deferred Compensation. The Deferred Compensation of a Participant
     shall equal (i) that amount  specified in writing by the  Participant on or
     before the first  business day of each calendar  quarter of each plan year,
     plus (ii) an Investment  Return (as defined below) on all such  accumulated
     amounts (including  Investment  Return),  determined as if such amounts and
     Investment  Return were  credited to a separate  account for the benefit of
     the  Participant  as of the last day of each such  year.  Such  accumulated
     amounts shall be allocated among  investment  options selected by Employer.
     Participant  may request the allocation of  accumulated  amounts among such
     investment  options.  "Investment  Return"  shall  mean the  return on such
     accumulated funds credited to the Employer during any fiscal period reduced
     by  reasonable  administrative  expenses  incurred  in the  investment  and
     handling of such funds.

5.   Payment of Deferred Compensation.

      (a)  Payment Period. Payment of the Deferred Compensation shall be made in
           no more than ten (10) equal annual  installments,  the first of which
           shall be made on the first  business  day of  January  following  the
           Payment  Commencement Date as defined below, and the balance of which
           installments  shall be made on the  first day of each  calendar  year
           thereafter until paid in full.  Deferred  Compensation  totaling less
           than One Hundred Thousand Dollars ($100,000) shall be paid in no more
           than  five  (5)  equal  annual  installments.  The  Participant  must
           stipulate  by written  notice to  Employer  not less than thirty (30)
           days  before  the  Payment  Commencement  Date,  if  the  Participant
           requests full payment of the Deferred  Compensation  in less than the
           maximum number of payments permitted under this Plan.

      (b)  Lump-Sum Payment. At the option of Employer,  payment of the Deferred
           Compensation  may be prepaid  at any time by making a single  payment
           equal to the  remaining  unpaid  balance  of  Participant's  Deferred
           Compensation.  At the  option of  Participant,  exercised  by written
           notice to Employer  not less than thirty (30) days before the Payment
           Commencement  Date,  payment  of  the  Deferred  Compensation  may be
           prepaid by making a single  payment equal to ninety  percent (90%) of
           Participant's Deferred Compensation on the Payment Commencement Date.
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      (c)  Payment  Commencement Date. Payment of the Deferred  Compensation
           --------------------------
           shall  commence  on the  earliest  of the  following  dates  (the
           "Payment Commencement Date"):

           (i) Normal Retirement. The first day of a calendar quarter
               -------------------
               following termination of a Participant's employment on or
               after the Participant's sixty-fifth (65th birthday.

           (ii)Death  or  Permanent  Disability.  The  first  day of a  calendar
               quarter following termination of a Participant's  employment as a
               result of Participant's death or Permanent Disability. "Permanent
               Disability"  shall  mean that  because of injury or  sickness,  a
               Participant cannot perform substantially all of the Participant's
               regular  duties for a period or periods  aggregating  one-hundred
               eighty (180) days in any twelve (12) month period.

          (iii)Termination  by  Employer  Without  Cause.  The first day of a
               calendar  quarter  following a Participant's  sixty-fifth  (65th)
               birthday,  where  the  Participant's  employment  was  terminated
               (whether by Employer or Participant) prior to such birthday.

           (iv)Termination Within 3 Years After Change in Control. The first day
               of  a  calendar   quarter   following   any   termination   of  a
               Participant's employment within three (3) years after a Change in
               Control.

           (v) Tenth  Anniversary  Date. The first day of a calendar quarter
               ------------------------
               following  the  tenth   anniversary   of  the   Participant's
               Participation Date.

           (vi)Employer's  Discretion.  Such date  designated by Employer in its
               sole discretion.

6.   Change  in  Control.  "Change  in  Control"  shall  mean a  change  "in the
     ownership  or  effective  control" or "in the  ownership  of a  substantial
     portion of the assets" of the Employer or its parent  corporation,  if any,
     with the quoted  phrases of this  sentence  having the same meaning as when
     used in Section  280G(b)(2)(A)  of the Internal  Revenue  Code.  "Change in
     Control" shall also include any change within a twelve-month  period in the
     composition  of the Board of  Directors  of the  Employer  or of its parent
     corporation,  if any,  whereby  the  persons  serving as  directors  at the
     beginning  of such period cease to  constitute  at least a majority of such
     Board at any time during such period.  A "Change in Control"  shall also be
     deemed to occur on the date that any party  announces or under any state or
     federal  law should  announce  any  prospective  Change in Control and such
     Change in Control occurs within eighteen (18) months of such termination. A
     "Change in Control" shall not include a Change in Control effected by means
     of any merger or sale of the  Employer or its parent  corporation,  if any,
     which is imposed or encouraged by  regulatory  authorities,  or by means of
     any financial assistance from the Federal Deposit Insurance Corporation, or
     its successor.

7.   Parachute Payment Limitation. Notwithstanding anything in this Agreement to
     the  contrary,  if and to the extent any part of the Deferred  Compensation
     would,  but for this Section 7,  constitute an "excess  parachute  payment"
     within the meaning of Section 280G of the Internal  Revenue Code,  Employer
     may, at its option, reduce the amount of such Deferred Compensation so that
     no amount will constitute an "excess parachute payment."

8.   Beneficiaries  of Employee.  In the event a Participant  shall die prior to
     receipt of all amounts to which the Participant is entitled under the Plan,
     any  amounts  remaining  unpaid  shall  be  paid  to  such  beneficiary  or
     beneficiaries  as the Participant may designate by filing with the Employer
     a notice in  writing.  In the  absence  of such  designation,  such  unpaid
     amounts shall be so paid to the Participant's estate.
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9    No  Employment  Agreement.  Neither  the  adoption  of  the  Plan  nor  the
     designation  of an employee as a  Participant  shall  confer any right with
     respect to  continuation  of  employment,  or interfere in any way with the
     Participant's or Employer's right to terminate employment at any time.

10.  Non-assignment.   Except  as  otherwise  provided  by  this  Agreement,  no
     Participant  shall have any right to sell,  assign,  transfer,  encumber or
     otherwise  convey the right to receive any payments  under the Plan,  which
     payments and the right thereto are expressly  declared to be non-assignable
     and non-transferable.

11.  Non-secured  Promise.  The rights of a Participant under this Plan shall be
     solely those of a general unsecured creditor of the Employer.

12.  Amendment or  Termination of Plan. The Plan may be amended or terminated by
     Employer  at any  time.  No  amendment  or  termination  of the Plan  shall
     adversely  affect  a  Participant's  designation  as  such  prior  to  such
     amendment or  termination,  and rights  accrued prior to such  amendment or
     termination  shall  remain in full  force and effect  notwithstanding  such
     amendment or termination.

                             CERTIFICATE OF ADOPTION

      I certify that the foregoing plan was adopted by the Board of Directors of
The Bank of Grays Harbor on December 11, 1996.



                                     By: /s/ Janice M. Pearce
                                        -----------------------
                                       Janice M. Pearce
                                       Corporate Secretary