**Exhibit 10.1**

**SKAGITSTATE BANK/SKAGIT STATE BANCORP, INC.**

**CHANGE INCONTROL SEVERANCE AGREEMENT**

THIS CHANGE IN CONTROLSEVERANCE AGREEMENT (**“Agreement”**)is entered into by and between SKAGIT STATE BANCORP, INC., a Washingtoncorporation (**“Bancorp”**), its whollyowned subsidiary SKAGIT STATE BANK, a Washington state-chartered bank (the **“Bank”**), and RICHARD C. HUMPHREY, theExecutive Vice President and Chief Credit Officer of the Bank (**“Executive”**), effective as of August 15,2006.

**Recitals**

A.            Executive and the Bankare parties to that certain Employment Agreement, dated August 4, 2004 (the **“Employment Agreement”**), which provides,among other things, for certain payments to be made to Executive if hisemployment with the Bank is terminated under certain circumstances.

B.            Subject to thefollowing sentence, the parties to this Agreement wish to terminate theEmployment Agreement and to enter into this Agreement, which shall supersedeand replace the Employment Agreement in its entirety.  With respect to Section 4(g) of theEmployment Agreement, which governs the terms and conditions of a common stockgrant that was awarded to Executive, the parties wish for such grants tocontinue in existence pursuant to the provisions of Section 8.2 of thisAgreement.

**Agreement**

The parties agree asfollows:

## **1.****            ****Commitment of Executive.**  In the event that any person extends anyproposal or offer that is intended to or may result in a Change in Control(defined below), Executive shall, at the request of Bancorp and/or the Bank(either and/or both being the **“Company”**),assist the Company in evaluating such proposal or offer.  Further, subject to the additional terms andconditions of this Agreement, in order to receive the Change in Control Payment(defined below), Executive cannot resign from the Company during any periodfrom the receipt of a specific Change in Control proposal up to theconsummation or abandonment of the transaction contemplated by such proposal.

## **2.****            ****Change In Control.**  **“Change in Control”**means a change “in the ownership or effective control” or “in the ownership ofa substantial portion of the assets” of the Company, within the meaning ofSection 280G of the Internal Revenue Code of 1986, as amended (the **“Code”**); provided,however, that an internal reorganization of the Company shall not constitute aChange in Control.

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## **3.****            ****Payment Obligations.**

### 3.1           TerminationPrior to Change in Control.  If theCompany terminates Executive’s employment without Cause or Executive resignsfor Good Reason (each as defined below), and within eighteen (18) monthsthereafter the Company enters into an agreement for a Change in Control or anyparty announces or is required by law to announce a prospective Change inControl, which Change in Control isconsummated, then upon the closing of such Change in Control, theCompany shall pay Executive a single cash payment in an amount equal to two (2)times the greater of (a) the highest compensation (as reportable on Executive’sIRS W-2 form) received by Executive from the Company during any of the mostrecent three (3) calendar years ending before, or simultaneously with, the dateon which Executive’s employment terminated; or (b) 130% of Executive’s basecompensation as of the date on which Executive’s employment terminated (the **“Termination-Based Change in Control Payment”**).

### 3.2           ComparablePosition Not Offered.  If a Change inControl is consummated while Executive is employed by the Company, andExecutive is not offered a Comparable Position (as defined below) with theacquiring company, then upon the closing of such Change in Control (regardlessof whether Executive continues his employment with the acquiring company), theCompany shall pay Executive a single cash payment in an amount equal to two (2)times the greater of (a) the highest compensation (as reportable on Executive’sIRS W-2 form) received by Executive from the Company during any of the mostrecent three (3) calendar years ending before, or simultaneously with, the dateon which such closing occurs; or (b) 130% of Executive’s base compensation asof the date on which such closing occurs (the **“Closing-BasedChange in Control Payment”**). For purposes of this Agreement, a **“Comparable Position”**means the position of Executive Vice President and Chief Credit Officer of theacquiring company, with compensation and benefits in the aggregate no lessfavorable to Executive than those in effect immediately prior to the closing ofthe Change in Control.  Further,effective on such closing, the Company will also provide Executive with, andpay the cost of Executive’s premiums for, group health plan benefits to theextent authorized by and consistent with 29 U.S.C. § 1161 *et seq*. (commonly known as **“COBRA”**), for the shorter of the statutory COBRA period ortwo (2) years following such closing.

### 3.3           Termination AfterChange in Control.  If, within two(2) years after accepting a Comparable Position, Executive’s employment isterminated without Cause or if Executive resigns for Good Reason, then uponsuch termination or resignation, Executive shall receive the Closing-BasedChange in Control Payment less the amount of any salary, bonuses andother cash compensation earned by Executive and paid to him by the acquiringcompany following the closing of the Change in Control through the date of suchtermination or resignation; provided, that in no event shall Executivereceive less than one (1) times his highest compensation (as reportable onExecutive’s IRS W-2 form) received from the Company during any 

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### of the most recent three (3) calendar yearsending before, or simultaneously with, the date on which the Change in Controloccurred.  Upon such termination,Executive shall also be entitled to COBRA benefits and premium payments for theshorter of the statutory COBRA period or one (1) year following such termination.

### 3.4           ParachutePayment Limitation.  Notwithstandinganything in this Agreement to the contrary, if the Termination-Based Change inControl Payment or the Closing-Based Change in Control Payment (either, a **“Change in Control Payment”**), together with any otherpayments or benefits received by Executive from the Company or the acquiringcompany will be an amount that would cause them to be a “parachute payment”within the meaning of Section 280G(b)(2)(A) of the Code (the **“Parachute Payment Amount”**), then the Change in ControlPayment shall be reduced so that the total amount thereof is $1 less than theParachute Payment Amount.

### 3.5           Payment of AmountsWithin 2 1⁄2 Months.  All amountsrequired to be paid by the Company hereunder shall be paid by the later of the15th day of the third month following the Executive’sfirst taxable year in which the amount is no longer subject to a substantialrisk of forfeiture or the 15th day of the third month following the end ofthe Company’s first taxable year in which the amount is no longer subject to asubstantial risk of forfeiture.  Thisprovision is intended to comply with regulations issued under Section 409A ofthe Code and shall be interpreted and applied consistently therewith.

## **4.****             Termination ofAgreement.**

### 4.1           ThisAgreement terminates upon payment by the Company (or its successor) toExecutive of the Change in Control Payment and the related payments providedfor herein.

### 4.2           TheCompany may terminate this Agreement by action of its Board of Directors, andsuch termination shall be effective one (1) year following the date on whichwritten notice of such termination is provided to Executive.

### 4.3           ThisAgreement terminates immediately if, at any time before the Change in Controltransaction closes, (i) the Company terminates Executive’s employment forCause, (ii) Executive resigns from the Company without Good Reason,(iii) Executive dies, or (iv) Executive is unable to perform his dutiesand obligations to the Company for a period of ninety (90) consecutive days asa result of a physical or mental disability, unless with reasonableaccommodation Executive could continue to perform such duties and making theseaccommodations would not pose an undue hardship on the Company.  If no Change in Control has occurred, thisAgreement will terminate eighteen (18) months after Executive’s employment isterminated by the Company without Cause or by Executive for Good Reason, unlessduring such eighteen (18) month 

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### period, theCompany enters into an agreement for a Change in Control, or a Change inControl is announced or required by law to be announced, in which case thisAgreement will terminate upon payment of the Closing-Based Change in ControlPayment pursuant to *Section 3.1*or the abandonment of such Change in Control.

## **5.****             Definitions.**

### 5.1           Cause.  **“Cause”** meansonly any one or more of the following:

#### a.             Willfulmisfeasance or gross negligence in the performance of Executive’s duties.

#### b.             Convictionof a crime in connection with his duties.

#### c.             Conductdemonstrably and significantly harmful to the Bank and/or Bancorp, asreasonably determined on the advice of legal counsel by the board of directorsof the Bank and/or Bancorp, as the case may be.

### 5.2           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 anycompensation or benefit plan benefiting Executive.

#### b.             Theassignment to Executive without his consent of any authority or dutiesmaterially inconsistent with Executive’s position as of the date of thisAgreement.

#### c.             Arelocation or transfer of Executive’s principal place of employment that wouldincrease Executive’s commute as of the Effective Date by more than 30 mileseach way on a regular basis, unless Executive consents to the relocation ortransfer.

## **6.****            ****Arbitration.**  At any party’s request, theparties must submit any dispute, controversy or claim arising out of or inconnection with, or relating to, this Agreement or any breach or alleged breachof this Agreement, to arbitration under the American Arbitration Association’srules then in effect (or under any other form of arbitration mutuallyacceptable to the parties).  A singlearbitrator agreed on by the parties will conduct the arbitration.  If the parties cannot agree on a singlearbitrator, each party must select one arbitrator and those two arbitratorswill select a third arbitrator.  Thisthird arbitrator will hear the dispute. The arbitrator’s decision is final (except as otherwise specificallyprovided by law) and binds the parties, and any party may request any courthaving jurisdiction to enter a judgment and to enforce the arbitrator’sdecision.  The arbitrator will providethe parties with a written decision naming the substantially prevailing partyin the action.  This prevailing party isentitled to reimbursement from the other parties for its costs and expenses,including reasonable attorneys’ fees.  Allproceedings will be held at a place 

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## designated bythe arbitrator in Skagit County, Washington. The arbitrator, in rendering a decision as to any state law claims, willapply Washington law.

## **7.****            ****Withholding.**  All payments required to be made by theCompany hereunder to Executive shall be subject to the withholding of suchamounts, if any, relating to tax and other payroll deductions as the Companymay reasonably determine should be withheld pursuant to any applicable law orregulation.

## **8.****            ****Other Compensation and Terms of Employment.**

### 8.1           Not an EmploymentAgreement.  This Agreement is not anemployment agreement.  Accordingly,except with respect to the Change In Control Payment and as provided in Section8.2, this Agreement shall have no effect on the determination of anycompensation payable by the Company to Executive, or upon any of the otherterms of Executive’s employment with the Company.  The specific arrangements referred to hereinare not intended to exclude any other benefits that may be available toExecutive upon a termination of employment with the Company pursuant to employeebenefit plans of the Company.

### 8.2           Grant of CommonStock.  Executive shall continue tobe entitled to the unvested portion of the five hundred (500) shares of commonstock granted pursuant to the Employment Agreement, except that any referencesto “Bank common stock” shall now mean “Bancorp common stock.”  Executive was granted five (500) shares ofcommon stock on August 4, 2004, which vest one hundred (100) shares on each ofthe first five anniversary dates of August 4, 2004, provided that Executiveremains employed by the Company on each such anniversary date.  Should Executive’s employment terminate priorto any such anniversary date, he shall not be entitled to any prorated stockgrant for the period after the most recent anniversary date on which vestingoccurred, or to any of the remaining unvested stock grants.  Any unvested shares shall be forfeited backto Bancorp automatically.  In the eventExecutive is terminated in connection with a Change in Control, Executive shallbe fully vested in all 500 shares of stock as of the date of his termination.

## **9.****            ****Miscellaneous Provisions.**

### 9.1           EntireAgreement.  This Agreementconstitutes the entire understanding and agreement between the partiesconcerning its subject matter and supersedes all prior agreements,correspondence, representations, or understandings between the parties relatingto its subject matter.  By executing thisAgreement, each of the Bank and Executive are terminating the EmploymentAgreement in its entirety.

### 9.2           BindingEffect.  This Agreement will bind andinure to the benefit of the parties’ heirs, legal representatives, successorsand assigns.

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### 9.3           Waiver. Any waiver by a party of its rights under this Agreement must be writtenand signed by the party waiving its rights. A party’s waiver of the other party’s breach of any provision of thisAgreement will not operate as a waiver of any other breach by the breachingparty.

### 9.4           Amendment. This Agreement may be modified only through a written instrument signedby all parties.

### 9.5           Amendment to Comply WithSection 409A.  From time to time, the Company mayamend this Agreement as required to comply with the requirements of Section409A of the Code and U.S. Treasury regulations issued thereunder.

### 9.6           Severability. The provisions of this Agreement are severable.  The invalidity of any provision will notaffect the validity of other provisions of this Agreement.

### 9.7           CounselReview.  Executive acknowledges thathe has consulted with independent counsel with respect to the negotiation,preparation, and execution of this Agreement and the related termination of theEmployment Agreement.

### 9.8           GoverningLaw and Venue.  This Agreement willbe governed by and construed in accordance with Washington law, except to theextent that federal law may govern certain matters.  The parties must bring any legal proceedingarising out of this Agreement in Skagit County, Washington, and the partieswill submit to jurisdiction in that county.

### 9.9           Counterparts. This Agreement may be executed in one or more counterparts, each ofwhich will be deemed an original, but all of which taken together willconstitute one and the same document.

**[signatures appear on following page]**

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ThisChange in Control Severance Agreement is effective as of the date first setforth above.

 
|   | SKAGIT STATE BANK          |
|--------|----------------------------|
|   |                       |
|   |                       |
|   | By                         | /s/ B. Marvin Omdal |   |
|   |                       | B. Marvin Omdal, Chairman of the Board |
|   |                       |   |
|   |                       |   |
|   | SKAGIT STATE BANCORP, INC. |
|   |                       |
|   |                       |
|   | By                         | /s/ B. Marvin Omdal |   |
|   |                       | B. Marvin Omdal, Chairman of the Board |
|   |                       |   |
|   |                       |   |
|   | EXECUTIVE:                 |
|   |                       |   |
|   |                       |   |
|   | /s/ Richard C.  Humphrey   |   |
|   | Richard C.  Humphrey       |   |
|   |                       |   |
|        |                            |  |  |  |  |  |

 

Approvedby Board of Directors August 15, 2006

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