FIRST COMMUNITY

FINANCIAL CORPORATION

2008

Annual Report





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LOGO



|                                                                                       |  |      
|-------------------------------------------------------------------------------------- |  | -----
|                                                                                       |  | Page 
|Managements Letter to Shareholders                                                    |  | 2-3  
|                                                                                       | 
|Banking Locations                                                                      |  | 4-5  
|                                                                                       | 
|Managements Assessment of Internal Control Over Financial Reporting                   |  | 6    
|                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                |  | 7    
|                                                                                       | 
|December 31, 2008 and 2007Consolidated Balance Sheets:                                 |  | 8    
|                                                                                       | 
|Years ended December 31, 2008 and 2007Consolidated Statements of Income:               |  | 9    
|                                                                                       | 
|Years ended December 31, 2008 and 2007Consolidated Statements of Shareholders Equity: |  | 10   
|                                                                                       | 
|Years ended December 31, 2008 and 2007Consolidated Statements of Cash Flows:           |  | 11   
|                                                                                       | 
|Notes to Consolidated Financial Statements                                             |  | 12-36
|                                                                                       | 
|Managements Discussion and Analysis of Financial Condition and Results of Operations  |  | 37-52
|                                                                                       | 
|Board of Directors:First Community Financial Corporation                               |  | 53   
|                                                                                       | 
|Officers:First Community Financial Corporation                                         |  | 54   
|                                                                                       | 
|Officers:The First National Bank of Mifflintown                                        |  | 55   
|                                                                                       | 
|Directors Emeriti and Advisory Boards                                                  |  | 56   
|                                                                                       | 
|Bank Locations in Juniata County and Perry County                                      |  | 57   
|                                                                                       | 
|Stock and Dividend Information                                                         |  | 58-59





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MANAGEMENTS LETTER TO SHAREHOLDERS

Dear Shareholder:

During the presentation at our last annual meeting, we
referenced the book Quiet Strength,by Indianapolis Colts Head Coach Tony Dungy, a Super Bowl winner, regarding part of his philosophy of managing a successful organization, to do what you do. In many ways, that phrase applies
very well to community banking. While this may sound simple on the surface, never has it been truer than during the turbulent times of 2008, as many large financial institutions across the country were brought down by sub-prime mortgages and other
activities and investments. In contrast, community banks that maintained their conservative, fundamental operating plans continued to support and serve their markets across the nation.

In this challenging economic environment, we are pleased to report another year of strong financial growth.

Financial
highlights for the year 2008 include:



| |  |  | Earnings grew by 16%.
| | - |  | ---------------------



| |  |  | Assets expanded to $327 million, or 8.1%.
| | - |  | -----------------------------------------



| |  |  | Loans increased by $21 million or 11.2%.
| | - |  | ----------------------------------------



| |  |  | Deposits grew by $18 million or 7.2%.
| | - |  | -------------------------------------



| |  |  | Trust assets gained $25 million or 30%.
| | - |  | ---------------------------------------

Instrumental in these results are our Board of Directors, Advisory Boards, Directors Emeriti, officers and employees. We acknowledge all their efforts, as well as the foresight and service of those in the past who may no longer be with us,
but helped build our foundation and expansion, from one branch to eleven today.

During the year, we continued to add value to our products and services,
while maintaining a focus on customer service and overall efficiency. For example, we added Value Checking and Value Money Market Accounts, offering true benefits to our customers without gimmicks. Branches are now able to remotely process
transactions to our main operations computers during the day, more efficiently handling the increasing volume of transactions. In 2009, we plan to roll out the remote deposit technology to customers.

In addition to the many community organizations that we support with our staff and monetary resources, we held our annual agricultural outlook meeting and a business
breakfast, which provided information on a wide variety of topics.

Also, while making our company more green, as well as enhancing efficiency,
we implemented a new E-board program, converting our board and committee reports into an electronic format.

Hiring and retaining community-minded
employees remains very important to our success; we are pleased to report that our annual turnover was at historical lows last year. We continue to focus on training and developing our staff to better serve our customers.

As our customer base changes, we need to find new and different ways to market and communicate with them. With this in mind, weve begun an e-mail marketing program
and look forward to an upgrade of our web site in 2009.



2



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While the economic times may be turbulent, we will continue to
look for potential opportunities for future success. Meanwhile, we plan to focus on the traditional, conservative, community banking values that have served us well since 1864, as we enter our 145thyear.

As always, your investment in our company is greatly appreciated.



|                  |  |                 
|----------------- |  | ----------------
|John P. Henry III |  | Jody D. Graybill
|Chairman          |  | President       

JUNIATA CO COURTHOUSE AND PERRY CO MONUMENT HERE

PACB AND ICBA LOGOS HERE



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REPORT OF MANAGEMENTS
ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

First Community Financial Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements
and notes included in this annual report have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on managements best estimates and judgments.

We, as management of First Community Financial Corporation, are responsible for establishing and maintaining effective internal control over financial reporting that
is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and receipts and expenditures of the Corporation are only being made in accordance with authorizations of management and directors of the Corporation; and provide a reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporations assets that could have a material effect on the financial statements. The system of internal control over financial
reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are noted.

Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and
misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only a reasonable
assurance with respect to financial statement preparation.

Management assessed the Corporations system of internal control over financial reporting
as of December 31, 2008, in relation to the criteria for effective control over financial reporting as described in Internal Control  Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management concludes that, as of December 31, 2008, its system of internal control over financial reporting is effective and meets the criteria of the Internal Control  Integrated
Framework.

This Annual Report does not include an attestation report of the Corporations registered public accounting firm regarding internal
control over financial reporting. Managements report was not subject to attestation by the Corporations registered public accounting firm pursuant to temporary relief rules of the Securities and Exchange Commission that permit the
Corporation to provide only managements report in this Annual Report.



|                                          
|------------------------------------------
|                                          
|/s/ Jody D. Graybill                      
|Jody D. Graybill                          
|President                                 
|(Principal Executive Officer)             
|                                          
|/s/ Richard R. Leitzel                    
|Richard R. Leitzel                        
|Vice President and Chief Financial Officer
|(Principal Financial Officer)             

February 23, 2009



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Shareholders

First Community Financial Corporation

Mifflintown, Pennsylvania

We have audited the accompanying consolidated balance sheets of First Community Financial Corporation and subsidiaries as of December 31, 2008 and
2007, and the related consolidated statements of income, shareholders equity, and cash flows for the years then ended. First Community Financial Corporations management is responsible for these consolidated financial statements. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporations internal control over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of First Community Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally accepted in the United States of America.



|                         |  |                             
|------------------------ |  | ----------------------------
|                         | 
|Beard Miller Company LLP |  | /s/ Beard Miller Company LLP
|Harrisburg, Pennsylvania |  |                             
|February 20, 2009        |  |                             



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FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
BALANCE SHEETS



|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------- | ------- | - | ---- | - | -------
|                                                                                                                                                                   |  | December 31,                     
|                                                                                                                                                                   |  | 2008                              |         |   | 2007
|                                                                                                                                                                   |  | (In Thousands, Except Share Data)
|ASSETS                                                                                                                                                            
|Cash and due from banks                                                                                                                                            |  | $                                 | 6,278   |   |      | $ | 8,624  
|Interest-bearing demand deposits                                                                                                                                   |  |                                   | 586     |   |      |   | 501    
|Federal funds sold                                                                                                                                                 |  |                                   |        |   |      |   | 957    
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|Cash and Cash Equivalents                                                                                                                                          |  |                                   | 6,864   |   |      |   | 10,082 
|Time certificates of deposit                                                                                                                                       |  |                                   | 396     |   |      |   | 594    
|Securities available for sale                                                                                                                                      |  |                                   | 66,376  |   |      |   | 63,340 
|Securities held to maturity, fair value 2008 $23,248; 2007 $21,288                                                                                                 |  |                                   | 24,127  |   |      |   | 21,229 
|Loans, net of allowance for loan losses 2008 $1,633; 2007 $1,249                                                                                                   |  |                                   | 212,377 |   |      |   | 191,225
|Premises and equipment                                                                                                                                             |  |                                   | 6,397   |   |      |   | 6,770  
|Restricted investment in bank stocks                                                                                                                               |  |                                   | 2,661   |   |      |   | 1,965  
|Investment in life insurance                                                                                                                                       |  |                                   | 4,933   |   |      |   | 4,765  
|Other assets                                                                                                                                                       |  |                                   | 2,583   |   |      |   | 2,325  
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|Total Assets                                                                                                                                                       |  | $                                 | 326,714 |   |      | $ | 302,295
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|                                                                                                                                                                  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                              
|LIABILITIES                                                                                                                                                        |  |                                   |         |   |      |   |        
|Deposits:                                                                                                                                                          |  |                                   |         |   |      |   |        
|Non-interest bearing                                                                                                                                               |  | $                                 | 29,192  |   |      | $ | 26,142 
|Interest-bearing                                                                                                                                                   |  |                                   | 233,414 |   |      |   | 218,904
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|Total Deposits                                                                                                                                                     |  |                                   | 262,606 |   |      |   | 245,046
|Short-term borrowings                                                                                                                                              |  |                                   | 10,613  |   |      |   | 10,320 
|Long-term borrowings                                                                                                                                               |  |                                   | 22,000  |   |      |   | 18,000 
|Junior subordinated debt                                                                                                                                           |  |                                   | 5,155   |   |      |   | 5,155  
|Other liabilities                                                                                                                                                  |  |                                   | 2,927   |   |      |   | 2,241  
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|Total Liabilities                                                                                                                                                  |  |                                   | 303,301 |   |      |   | 280,762
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|SHAREHOLDERS EQUITY                                                                                                                                               |  |                                   |         |   |      |   |        
|Preferred stock, without par value; 10,000,000 shares authorized and unissued                                                                                      |  |                                   |        |   |      |   |       
|Common stock, $5 par value; 10,000,000 shares authorized; Shares issued, 2008  1,401,918; 2007 
1,400,000 Shares outstanding, 2008  1,399,868; 2007  1,400,000 |  |                                   | 7,010   |   |      |   | 7,000  
|Capital in excess of par value                                                                                                                                     |  |                                   | 293     |   |      |   | 245    
|Retained earnings                                                                                                                                                  |  |                                   | 15,406  |   |      |   | 13,993 
|Treasury stock, at cost 2008  2,050 shares; 2007  0 shares                                                                                                       |  |                                   | (62     | ) |      |   |       
|Accumulated other comprehensive income                                                                                                                             |  |                                   | 766     |   |      |   | 295    
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|Total Shareholders Equity                                                                                                                                         |  |                                   | 23,413  |   |      |   | 21,533 
|                                                                                                                                                                   |  |                                   |         |   |      |   |        
|Total Liabilities and Shareholders Equity                                                                                                                         |  | $                                 | 326,714 |   |      | $ | 302,295
|                                                                                                                                                                   |  |                                   |         |   |      |   |        



|                                               |  |   |  | 
|---------------------------------------------- |  | - |  | 
|See notes to consolidated financial statements |  | 8 |  | 





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FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
STATEMENTS OF INCOME



|                                                    |  |                                       |        |      |   |       
|--------------------------------------------------- |  | ------------------------------------- | ------ | ---- | - | ------
|                                                    |  | Years Ended December, 31,            
|                                                    |  | 2008                                  |        | 2007
|                                                    |  | (In Thousands, Except per Share Data)
|INTEREST INCOME                                     |  |                                       |        |      |   |       
|Loans, including fees                               |  | $                                     | 13,942 |      | $ | 12,809
|Securities:                                         |  |                                       |        |      |   |       
|Taxable                                             |  |                                       | 3,414  |      |   | 2,716 
|Tax exempt                                          |  |                                       | 866    |      |   | 784   
|Other                                               |  |                                       | 186    |      |   | 388   
|                                                    |  |                                       |        |      |   |       
|Total Interest Income                               |  |                                       | 18,408 |      |   | 16,697
|                                                    |  |                                       |        |      |   |       
|INTEREST EXPENSE                                    |  |                                       |        |      |   |       
|Deposits                                            |  |                                       | 7,851  |      |   | 7,688 
|Short-term borrowings                               |  |                                       | 169    |      |   | 373   
|Long-term debt                                      |  |                                       | 1,384  |      |   | 1,328 
|                                                    |  |                                       |        |      |   |       
|Total Interest Expense                              |  |                                       | 9,404  |      |   | 9,389 
|                                                    |  |                                       |        |      |   |       
|Net Interest Income                                 |  |                                       | 9,004  |      |   | 7,308 
|                                                    |  |                                      
|PROVISION FOR LOAN LOSSES                           |  |                                       | 365    |      |   | 60    
|                                                    |  |                                       |        |      |   |       
|Net Interest Income after Provision for Loan Losses |  |                                       | 8,639  |      |   | 7,248 
|                                                    |  |                                       |        |      |   |       
|OTHER INCOME                                        |  |                                       |        |      |   |       
|Service charges on deposits                         |  |                                       | 880    |      |   | 752   
|Fiduciary activities                                |  |                                       | 405    |      |   | 382   
|Earnings on investment in life insurance            |  |                                       | 211    |      |   | 211   
|ATM and debit card fees                             |  |                                       | 545    |      |   | 500   
|Realized gains on sales of foreclosed real estate   |  |                                       |       |      |   | 21    
|Other                                               |  |                                       | 255    |      |   | 241   
|                                                    |  |                                       |        |      |   |       
|Total Other Income                                  |  |                                       | 2,296  |      |   | 2,107 
|                                                    |  |                                       |        |      |   |       
|OTHER EXPENSES                                      |  |                                       |        |      |   |       
|Employee compensation and benefits                  |  |                                       | 3,971  |      |   | 3,434 
|Net occupancy and equipment                         |  |                                       | 1,192  |      |   | 1,138 
|Professional fees                                   |  |                                       | 352    |      |   | 356   
|Director and advisory boards compensation           |  |                                       | 371    |      |   | 315   
|ATM expenses                                        |  |                                       | 364    |      |   | 267   
|Supplies and postage                                |  |                                       | 280    |      |   | 259   
|Pennsylvania bank shares tax                        |  |                                       | 242    |      |   | 203   
|Other operating                                     |  |                                       | 1,206  |      |   | 866   
|                                                    |  |                                       |        |      |   |       
|Total Other Expenses                                |  |                                       | 7,978  |      |   | 6,838 
|                                                    |  |                                       |        |      |   |       
|Income before Income Taxes                          |  |                                       | 2,957  |      |   | 2,517 
|                                                    |  |                                      
|PROVISION FOR INCOME TAXES                          |  |                                       | 621    |      |   | 500   
|                                                    |  |                                       |        |      |   |       
|Net Income                                          |  | $                                     | 2,336  |      | $ | 2,017 
|                                                    |  |                                       |        |      |   |       
|BASIC EARNINGS PER SHARE                            |  | $                                     | 1.67   |      | $ | 1.44  
|                                                    |  |                                       |        |      |   |       
|DIVIDENDS PER SHARE                                 |  | $                                     | 0.52   |      | $ | 0.47  
|                                                    |  |                                       |        |      |   |       



|                                               |  |   |  | 
|---------------------------------------------- |  | - |  | 
|See notes to consolidated financial statements |  | 9 |  | 





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FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------------- | ----- | ---------------------------- | - | ---------------- |  | - | ------------- | - |  | ------------------------------------------ | --- | - | ----- | - | ---- | - |  | - | ------ | -
|                                                                                               |  | CommonStock                           |       | Capital InExcess ofPar Value |   | RetainedEarnings |  |   | TreasuryStock |   |  | AccumulatedOtherComprehensiveIncome (Loss) |     |   | Total |  
|                                                                                               |  | (In Thousands, Except per Share Data) |      
|BALANCEJANUARY 1, 2007                                                                        |  | $                                     | 7,000 |                              | $ | 245              |  | $ | 12,634        |   |  | $                                          |    |   |       | $ | (205 | ) |  | $ | 19,674 |  
|                                                                                               |  |                                       |       |                              |   |                 
|Comprehensive income:                                                                          |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|Net income                                                                                     |  |                                       |       |                              |   |                  |  |   | 2,017         |   |  |                                            |     |   |       |   |      |   |  |   | 2,017  |  
|Change in net unrealized losses on securities available for sale, net of deferred income taxes |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   | 500  |   |  |   | 500    |  
|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|Total comprehensive income                                                                     |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   | 2,517  |  
|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|Cash dividends, $0.47 per share                                                                |  |                                       |       |                              |   |                  |  |   | (658          | ) |  |                                            |     |   |       |   |      |   |  |   | (658   | )
|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|BALANCE, DECEMBER 31, 2007                                                                     |  | $                                     | 7,000 |                              | $ | 245              |  | $ | 13,993        |   |  | $                                          |    |   |       | $ | 295  |   |  | $ | 21,533 |  
|                                                                                               |  |                                       |       |                              |   |                 
|Cumulative effect adjustment upon change in accounting principle                               |  |                                       |       |                              |   |                  |  |   | (195          | ) |  |                                            |     |   |       |   |      |   |  |   | (195   | )
|Comprehensive income:                                                                          |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|Net income                                                                                     |  |                                       |       |                              |   |                  |  |   | 2,336         |   |  |                                            |     |   |       |   |      |   |  |   | 2,336  |  
|Change in net unrealized gains on securities available for sale, net of deferred income taxes  |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   | 471  |   |  |   | 471    |  
|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|Total comprehensive income                                                                     |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   | 2,807  |  
|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|Issuance of stock in connection with dividend reinvestment plan 1,918 shares                   |  |                                       | 10    |                              |   | 48               |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   | 58     |  
|Treasury stock acquired  2,050 shares                                                         |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            | (62 | ) |       |   |      |   |  |   | (62    | )
|Cash dividends, $0.52 per share                                                                |  |                                       |       |                              |   |                  |  |   | (728          | ) |  |                                            |     |   |       |   |      |   |  |   | (728   | )
|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  
|BALANCE, DECEMBER 31, 2008                                                                     |  | $                                     | 7,010 |                              | $ | 293              |  | $ | 15,406        |   |  | $                                          | (62 | ) |       | $ | 766  |   |  | $ | 23,413 |  
|                                                                                               |  |                                       |       |                              |   |                  |  |   |               |   |  |                                            |     |   |       |   |      |   |  |   |        |  



|                                               |  |    |  | 
|---------------------------------------------- |  | -- |  | 
|See notes to consolidated financial statements |  | 10 |  | 





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FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
STATEMENTS OF CASH FLOWS



|                                                                                  |  |                         |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Years EndedDecember 31, |        
|                                                                                  |  | 2008                    |         |   | 2007 |  
|                                                                                  |  | (In Thousands)          |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                         |         |   |      |   |         |  
|Net income                                                                        |  | $                       | 2,336   |   |      | $ | 2,017   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |         |   |      |   |         |  
|Depreciation of premises and equipment                                            |  |                         | 559     |   |      |   | 556     |  
|Amortization of intangible assets                                                 |  |                         | 17      |   |      |   | 17      |  
|Net amortization (accretion) of investment securities                             |  |                         | (271    | ) |      |   | (92     | )
|Earnings on investment in life insurance                                          |  |                         | (211    | ) |      |   | (211    | )
|Realized gains on sales of foreclosed real estate                                 |  |                         |        |   |      |   | (21     | )
|Provision for loan losses                                                         |  |                         | 365     |   |      |   | 60      |  
|Deferred income taxes                                                             |  |                         | (227    | ) |      |   | (52     | )
|Increase in accrued interest receivable and other assets                          |  |                         | (241    | ) |      |   | (65     | )
|Increase in accrued interest payable and other liabilities                        |  |                         | 491     |   |      |   | 341     |  
|                                                                                  |  |                         |         |   |      |   |         |  
|Net Cash Provided by Operating Activities                                         |  |                         | 2,818   |   |      |   | 2,550   |  
|                                                                                  |  |                         |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                         |         |   |      |   |         |  
|Securities available for sale:                                                    |  |                         |         |   |      |   |         |  
|Proceeds from maturities and principal repayments                                 |  |                         | 18,292  |   |      |   | 16,261  |  
|Proceeds from sales                                                               |  |                         |        |   |      |   | 26      |  
|Purchases                                                                         |  |                         | (20,643 | ) |      |   | (29,944 | )
|Securities held to maturity:                                                      |  |                         |         |   |      |   |         |  
|Proceeds from maturities and principal repayments                                 |  |                         | 2,670   |   |      |   | 4,715   |  
|Purchases                                                                         |  |                         | (5,275  | ) |      |   | (4,747  | )
|Net increase in loans                                                             |  |                         | (21,517 | ) |      |   | (13,363 | )
|Decrease in time certificates of deposit                                          |  |                         | 198     |   |      |   | 891     |  
|Purchases of premises and equipment                                               |  |                         | (186    | ) |      |   | (113    | )
|Proceeds from sale of foreclosed real estate                                      |  |                         |        |   |      |   | 284     |  
|Proceeds from life insurance                                                      |  |                         |        |   |      |   | 69      |  
|Net redemptions (purchases) of restricted investment in bank stocks               |  |                         | (696    | ) |      |   | 104     |  
|                                                                                  |  |                         |         |   |      |   |         |  
|Net Cash Used in Investing Activities                                             |  |                         | (27,157 | ) |      |   | (25,817 | )
|                                                                                  |  |                         |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING
ACTIVITIES                                              |  |                         |         |   |      |   |         |  
|Net increase in deposits                                                          |  |                         | 17,560  |   |      |   | 22,672  |  
|Net increase in short-term borrowings                                             |  |                         | 293     |   |      |   | 2,903   |  
|Proceeds from long-term borrowings                                                |  |                         | 5,000   |   |      |   | 10,000  |  
|Repayment of long-term borrowings                                                 |  |                         | (1,000  | ) |      |   | (14,000 | )
|Proceeds from issuance of common stock                                            |  |                         | 58      |   |      |   |        |  
|Acquisition of treasury stock                                                     |  |                         | (62     | ) |      |   |        |  
|Cash dividends paid                                                               |  |                         | (728    | ) |      |   | (658    | )
|                                                                                  |  |                         |         |   |      |   |         |  
|Net Cash Provided by Financing Activities                                         |  |                         | 21,121  |   |      |   | 20,917  |  
|                                                                                  |  |                         |         |   |      |   |         |  
|Net Decrease in Cash and Cash Equivalents                                         |  |                         | (3,218  | ) |      |   | (2,350  | )
|                                                                                  |  |                        
|CASH AND CASH
EQUIVALENTSBEGINNING                                               |  |                         | 10,082  |   |      |   | 12,432  |  
|                                                                                  |  |                         |         |   |      |   |         |  
|CASH AND CASH
EQUIVALENTSENDING                                                  |  | $                       | 6,864   |   |      | $ | 10,082  |  
|                                                                                  |  |                         |         |   |      |   |         |  
|SUPPLEMENTARY CASH FLOWS INFORMATION                                              |  |                         |         |   |      |   |         |  
|Interest paid                                                                     |  | $                       | 9,401   |   |      | $ | 9,347   |  
|                                                                                  |  |                         |         |   |      |   |         |  
|Income taxes paid                                                                 |  | $                       | 732     |   |      | $ | 544     |  
|                                                                                  |  |                         |         |   |      |   |         |  



|                                               |  |    |  | 
|---------------------------------------------- |  | -- |  | 
|See notes to consolidated financial statements |  | 11 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SIGNIFICANT
ACCOUNTING POLICIES

First Community Financial Corporation (the Corporation) through its wholly-owned subsidiary, The
First National Bank of Mifflintown (the Bank), provides loan, deposit, trust and other related financial services through eleven full service banking offices in Juniata and Perry Counties of Pennsylvania. The Corporations other subsidiary,
First Community Financial Capital Trust I (the Trust), was established during December 2003 for the purpose of issuing $5,000,000 of trust preferred securities. The Corporation is subject to regulation and supervision by the Federal Reserve
Board and the Bank is subject to regulation and supervision by the Office of the Comptroller of the Currency.

Basis of Presentation

The Corporations consolidated financial statements include the accounts of the Corporation and the Bank. All significant intercompany accounts and
transactions have been eliminated.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the balance sheet dates, and the reported amounts of income and expenses for the years then ended. Actual results could differ from those estimates. The material estimates that
are particularly susceptible to significant change are the determination of the allowance for loan losses and the evaluation of other than temporary impairment of securities.

Assets held by the Trust Department in an agency or fiduciary capacity for its customers are excluded from the financial statements since they do not
constitute assets of the Corporation. The market value of assets held by the Trust Department amounted to $107,626,000 and $82,918,000 at December 31, 2008 and 2007, respectively. Income from fiduciary activities is recognized on the accrual
method.

Significant Group Concentrations of Credit Risk

Most of the Corporations activities are with customers located within the Central Pennsylvania region. Note 3 discusses the types of securities that the Corporation invests in. Note 4 discusses the types of
lending that the Corporation engages in. The Corporation does not have any significant concentrations in any one industry or customer.

Cash and Cash
Equivalents

Cash and cash equivalents includes cash and due from banks, interest bearing demand deposits, federal funds sold and
investments with an original maturity of 90 days or less. Federal funds are typically purchased and sold for one day periods.

Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of
each balance sheet date. Securities available for sale are those securities that the Corporation intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell an available for sale security would be based on
various factors. These securities are stated at fair value. Unrealized gains (losses) are reported as changes in other comprehensive income, a component of shareholders equity, net of the related deferred tax effect. Premiums and discounts are
recognized as interest income over the estimated lives of the securities, using the interest method.



| |  |    |  | 
| |  | -- |  | 
| |  | 12 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)



Securities (Continued)



Securities held to maturity are those securities that the Corporation has the intent and ability to
hold to maturity. These securities are stated at cost adjusted for amortization of premiums and accretion of discounts, which is recognized as interest income over their estimated lives, using the interest method.

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected
in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities
are recorded on the trade date and are determined using the specific identification method.

Time Certificates of Deposit

Time certificates of deposit are carried at cost, which approximates fair value.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and
recognized as an adjustment of the yield (interest income) of the related loans. The Corporation is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 to 120 days past due or management
has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan
is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on non-accrual loans generally is
either applied against principal or reported as interest income, according to managements judgment as to the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in
accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.



| |  |    |  | 
| |  | -- |  | 
| |  | 13 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)



Allowance for Loan Losses (Continued)



The allowance for loan losses is maintained at a level considered adequate to provide for losses that
can be reasonably anticipated. Managements periodic evaluation of the adequacy of the allowance is based on the Corporations past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the
borrowers ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates
that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value
or observable market price) of the impaired loan is lower than the carrying value for that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component
is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for
estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is
probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, financial and agricultural loans by either the present value of
expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify
individual installment and residential loans for impairment disclosures unless such loans are the subject of a restructuring agreement.

Restricted
Investment in Bank Stocks

Restricted investment in bank stocks, which represents required investments in the common stock of
correspondent banks, is carried at cost and as of December 31, 2008 and 2007, consists of the common stock of the Federal Reserve Bank of Philadelphia, Atlantic Central Bankers Bank, and the Federal Home Loan Bank (FHLB) of Pittsburgh. In
December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital stock.

Management evaluates the restricted stock for impairment in accordance with Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of
Others. Managements determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of
whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this
situation has persisted, (2) commitments by the FHLB to



| |  |    |  | 
| |  | -- |  | 
| |  | 14 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)



Restricted Investment in Bank Stocks (Continued)



make payments required by law or regulation and the level of such payments in relation to the
operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to its restricted stock as of December 31, 2008.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation computed on the
straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives or the lease terms. Maintenance and repairs are expensed when incurred and expenditures for
significant improvements are capitalized.

Foreclosed Real Estate

Foreclosed real estate includes assets acquired through foreclosure and loans identified as in-substance foreclosures. A loan is classified as in-substance foreclosure when the Corporation has taken possession of the
collateral regardless of whether formal foreclosure proceedings have taken place. Foreclosed real estate is valued at its estimated fair market value, net of selling costs, at the time of foreclosure. Gains and losses resulting from the sale or
write-down of foreclosed real estate are recorded in other income. Foreclosed real estate, which is included in other assets, amounted to $0 at December 31, 2008 and 2007.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control
over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Advertising Costs

The Corporation charges the costs
of advertising to expense as incurred. Advertising expense was $109,000 and $103,000 for the years ended December 31, 2008 and 2007, respectively.

Income Taxes

Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for
deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets
are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted through the provision for
income taxes for the effects of changes in tax laws and rates on the date of enactment.



| |  |    |  | 
| |  | -- |  | 
| |  | 15 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)



Earnings per Share

The Corporation has a simple capital structure. Basic earnings per share represents net income divided by the weighted average number of common shares outstanding during the period. The weighted average number of
common shares outstanding was 1,399,998 and 1,400,000 for the years ended 2008 and 2007.

Segment Reporting

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, trust and other operations of
the Corporation. As such, discrete financial information is not available and segment reporting would not be meaningful.

Comprehensive Income

Accounting principles generally accepted in the United States of America generally require that recognized revenue, expenses, gains and
losses be included in net income. Changes in certain assets and liabilities, such as unrealized gains (losses) on securities available for sale, are reported as a separate component of the equity section of the balance sheet. Such items, along with
net income, are components of comprehensive income.

The components of other comprehensive income and the related tax effects are as
follows:



|                                                             |  |                          |      |   |      |   |      |  
|------------------------------------------------------------ |  | ------------------------ | ---- | - | ---- | - | ---- | -
|                                                             |  | Years Ended December 31, |     
|                                                             |  | 2008                     |      |   | 2007 |  
|                                                             |  | (In Thousands)           |     
|Unrealized holding gains on available for sale securities    |  | $                        | 708  |   |      | $ | 759  |  
|Reclassification adjustment for gains realized in net income |  |                          |     |   |      |   |     |  
|                                                             |  |                          |      |   |      |   |      |  
|Net Unrealized Gains                                         |  |                          | 708  |   |      |   | 759  |  
|Tax effect                                                   |  |                          | (237 | ) |      |   | (259 | )
|                                                             |  |                          |      |   |      |   |      |  
|Net of Tax Amount                                            |  | $                        | 471  |   |      | $ | 500  |  
|                                                             |  |                          |      |   |      |   |      |  

Off Balance Sheet Financial Instruments

In the ordinary course of business, the Corporation has entered into off balance sheet financial instruments consisting of commitments to extend credit
and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

New Accounting Standards

In September 2006, the FASBs Emerging Issues Task Force (EITF) issued EITF Issue No. 06-4, Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4). EITF 06-4 requires the recognition of a liability related to the postretirement benefits covered by an endorsement
split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the insurance
policy in force for the employees benefit during his or her retirement, then the liability recognized during the employees active



| |  |    |  | 
| |  | -- |  | 
| |  | 16 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)



New Accounting Standards (Continued)



service period should be based on the future cost of insurance to be incurred during the employees retirement. Alternatively, if the policy holder has
agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106 or Accounting Principles Board (APB) Opinion No. 12, as appropriate. For
transition, an entity can choose to apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective application to all periods presented or (b) a change in accounting principle
through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. The Corporation adopted EITF 06-04 on January 1, 2008 as a change in accounting principle through a cumulative effect
adjustment of retained earnings of $195,000. The expense incurred in the year ended December 31, 2008 is not material to the Corporations consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment
of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been
elected will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for our Corporation on January 1, 2008. There was no impact on the consolidated financial statements of the Corporation as a result of the adoption
of SFAS No. 159 during 2008 as the Corporation has not elected the fair value option for any eligible items, as defined in SFAS No. 159.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133(SFAS 161). SFAS 161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires
entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entitys financial
position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Corporation does not expect the adoption of the new
pronouncement will have a material impact on its consolidated financial statements.

In February 2008, the FASB issued a FASB Staff Position
(FSP) FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. This FSP addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one
linked transaction. The FSP includes a rebuttable presumption that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The FSP will be effective for the Corporation
beginning January 1, 2009 and will apply only to original transfers made after that date; early adoption will not be allowed. The Corporation does not expect the adoption of the new pronouncement will have a material impact on its consolidated
financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles.
This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the SECs approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Corporation is currently evaluating the potential impact the new
pronouncement will have on its consolidated financial statements.



| |  |    |  | 
| |  | -- |  | 
| |  | 17 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)



New Accounting Standards (Continued)



In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of
financial statements prepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (IASB). Under the
proposed roadmap, the Corporation may be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Corporation is currently assessing
the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.

NOTE 2RESTRICTIONS ON CASH AND DUE FROM BANKS

In return for services obtained through correspondent banks, the Corporation is required to maintain non-interest bearing cash balances in those
correspondent banks. At December 31, 2008 and 2007, compensating balances approximated $486,000 and $493,000, respectively. During 2008 average required balances totaled $466,000 and during 2007 totaled $491,000.

NOTE 3SECURITIES

Amortized cost and fair value at December 31 were as follows:



|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|------------------------------ |  | -------------- | ------ | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ------
|                               |  | AmortizedCost  |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|                               |  | (In Thousands)
|SECURITIES AVAILABLE FOR SALE: |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|December 31, 2008:             |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|U.S. agencies securities       |  | $              | 6,590  |                      | $ | 134                   |  | $ |          |   |  | $ | 6,724 
|Mortgage-backed securities     |  |                | 58,084 |                      |   | 883                   |  |   | (205      | ) |  |   | 58,762
|Equity securities              |  |                | 507    |                      |   | 387                   |  |   | (4        | ) |  |   | 890   
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|                               |  | $              | 65,181 |                      | $ | 1,404                 |  | $ | (209      | ) |  | $ | 66,376
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|December 31, 2007:             |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|U.S. agencies securities       |  | $              | 9,127  |                      | $ | 50                    |  | $ | (7        | ) |  | $ | 9,170 
|Mortgage-backed securities     |  |                | 53,276 |                      |   | 275                   |  |   | (283      | ) |  |   | 53,268
|Equity securities              |  |                | 450    |                      |   | 452                   |  |   |          |   |  |   | 902   
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|                               |  | $              | 62,853 |                      | $ | 777                   |  | $ | (290      | ) |  | $ | 63,340
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       



| |  |    |  | 
| |  | -- |  | 
| |  | 18 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3SECURITIES (CONTINUED)



|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|------------------------------ |  | -------------- | ------ | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ------
|                               |  | AmortizedCost  |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|                               |  | (In Thousands)
|SECURITIES HELD TO MATURITY:   |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|December 31, 2008:             |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|U.S. agencies securities       |  | $              | 250    |                      | $ | 17                    |  | $ |          |   |  | $ | 267   
|State and municipal securities |  |                | 23,877 |                      |   | 186                   |  |   | (1,082    | ) |  |   | 22,981
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|                               |  | $              | 24,127 |                      | $ | 203                   |  | $ | (1,082    | ) |  | $ | 23,248
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|December 31, 2007:             |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|U.S. agencies securities       |  | $              | 705    |                      | $ | 12                    |  | $ |          |   |  | $ | 717   
|State and municipal securities |  |                | 20,524 |                      |   | 174                   |  |   | (127      | ) |  |   | 20,571
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|                               |  | $              | 21,229 |                      | $ | 186                   |  | $ | (127      | ) |  | $ | 21,288
|                               |  |                |        |                      |   |                       |  |   |           |   |  |   |       

The following table shows the Corporations investments gross unrealized losses and fair value,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2008 and 2007:



|                               |  |                     |        |                   |   |           |  |                  |       |           |   |                  |  |   |        |  |   |      
|------------------------------ |  | ------------------- | ------ | ----------------- | - | --------- |  | ---------------- | ----- | --------- | - | ---------------- |  | - | ------ |  | - | -----
|                               |  | Less than 12 Months |        | 12 Months or More |   | Total    
|                               |  | FairValue           |        | UnrealizedLosses  |   | FairValue |  | UnrealizedLosses |       | FairValue |   | UnrealizedLosses
|DECEMBER 31, 2008              |  | (In Thousands)     
|SECURITIES AVAILABLE FOR SALE: |  |                     |        |                   |   |           |  |                  |       |           |   |                  |  |   |        |  |   |      
|Mortgage-backed securities     |  | $                   | 10,812 |                   | $ | 84        |  | $                | 5,207 |           | $ | 121              |  | $ | 16,019 |  | $ | 205  
|Equity securities              |  |                     | 16     |                   |   | 4         |  |                  |      |           |   |                 |  |   | 16     |  |   | 4    
|                               |  |                     |        |                   |   |           |  |                  |       |           |   |                  |  |   |        |  |   |      
|                               |  |                     | 10,828 |                   |   | 88        |  |                  | 5,207 |           |   | 121              |  |   | 16,035 |  |   | 209  
|                               |  |                     |        |                   |   |           |  |                  |       |           |   |                  |  |   |        |  |   |      
|SECURITIES HELD TO MATURITY:   |  |                     |        |                   |   |           |  |                  |       |           |   |                  |  |   |        |  |   |      
|State and municipal securities |  |                     | 11,408 |                   |   | 818       |  |                  | 1,025 |           |   | 264              |  |   | 12,433 |  |   | 1,082
|                               |  |                     |        |                   |   |           |  |                  |       |           |   |                  |  |   |        |  |   |      
|Total                          |  | $                   | 22,236 |                   | $ | 906       |  | $                | 6,232 |           | $ | 385              |  | $ | 28,468 |  | $ | 1,291
|                               |  |                     |        |                   |   |           |  |                  |       |           |   |                  |  |   |        |  |   |      



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3SECURITIES (CONTINUED)



|                               |  |                     |        |                   |   |           |  |                  |        |           |   |                  |  |   |        |  |   |    
|------------------------------ |  | ------------------- | ------ | ----------------- | - | --------- |  | ---------------- | ------ | --------- | - | ---------------- |  | - | ------ |  | - | ---
|                               |  | Less than 12 Months |        | 12 Months or More |   | Total    
|                               |  | FairValue           |        | UnrealizedLosses  |   | FairValue |  | UnrealizedLosses |        | FairValue |   | UnrealizedLosses
|DECEMBER 31, 2007              |  | (In Thousands)     
|SECURITIES AVAILABLE FOR SALE: |  |                     |        |                   |   |           |  |                  |        |           |   |                  |  |   |        |  |   |    
|U.S. agencies securities       |  | $                   | 4,177  |                   | $ | 5         |  | $                | 497    |           | $ | 2                |  | $ | 4,674  |  | $ | 7  
|Mortgage-backed securities     |  |                     | 6,957  |                   |   | 26        |  |                  | 17,938 |           |   | 257              |  |   | 24,895 |  |   | 283
|                               |  |                     |        |                   |   |           |  |                  |        |           |   |                  |  |   |        |  |   |    
|                               |  |                     | 11,134 |                   |   | 31        |  |                  | 18,435 |           |   | 259              |  |   | 29,569 |  |   | 290
|                               |  |                     |        |                   |   |           |  |                  |        |           |   |                  |  |   |        |  |   |    
|SECURITIES HELD TO MATURITY:   |  |                     |        |                   |   |           |  |                  |        |           |   |                  |  |   |        |  |   |    
|State and municipal securities |  |                     | 4,078  |                   |   | 112       |  |                  | 2,856  |           |   | 15               |  |   | 6,934  |  |   | 127
|                               |  |                     |        |                   |   |           |  |                  |        |           |   |                  |  |   |        |  |   |    
|Total                          |  | $                   | 15,212 |                   | $ | 143       |  | $                | 21,291 |           | $ | 274              |  | $ | 36,503 |  | $ | 417
|                               |  |                     |        |                   |   |           |  |                  |        |           |   |                  |  |   |        |  |   |    

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of
the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At December 31, 2008, 50 mortgage-backed securities have unrealized losses. The aggregate depreciation from the Corporations amortized cost basis on these
securities is 1.3%. In managements opinion, these unrealized losses relate to changes in interest rates. The Corporations mortgage backed security portfolio consists of only government sponsored agencies, and contains no private label
securities.

At December 31, 2008, 50 state and municipal securities have unrealized losses with aggregate depreciation of 8.0% from the
Corporations amortized cost basis. In managements opinion, these unrealized losses relate primarily to changes in interest rates. In analyzing the issuers financial condition, management considers the issuers bond rating as
well as the financial performance of the respective municipality.

At December 31, 2008, one equity security has an unrealized loss. In
managements opinion this unrealized loss relates to the recent conditions impacting the financial services industry.

As management has the ability
and intent to hold debt securities until recovery, or for the foreseeable future if classified as available for sale, no declines are deemed to be other than temporary.

Amortized cost and fair value at December 31, 2008 by contractual maturity are shown below. Municipal securities with prerefunded issues are included in the category in which payment is expected to occur.
Expected



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3SECURITIES (CONTINUED)



maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.



|                              |  |                    |        |                  |   |               |  |           |        |  |   |       
|----------------------------- |  | ------------------ | ------ | ---------------- | - | ------------- |  | --------- | ------ |  | - | ------
|                              |  | Available for Sale |        | Held to Maturity
|                              |  | AmortizedCost      |        | FairValue        |   | AmortizedCost |  | FairValue
|                              |  | (In Thousands)    
|1 year or less                |  | $                  | 732    |                  | $ | 739           |  | $         | 3,671  |  | $ | 3,683 
|Over 1 year through 5 years   |  |                    | 2,576  |                  |   | 2,659         |  |           | 2,862  |  |   | 2,898 
|Over 5 years through 10 years |  |                    | 3,282  |                  |   | 3,326         |  |           | 8,571  |  |   | 8,334 
|Over 10 years                 |  |                    |       |                  |   |              |  |           | 9,023  |  |   | 8,333 
|Mortgage-backed securities    |  |                    | 58,084 |                  |   | 58,762        |  |           |       |  |   |      
|Equity securities             |  |                    | 507    |                  |   | 890           |  |           |       |  |   |      
|                              |  |                    |        |                  |   |               |  |           |        |  |   |       
|                              |  | $                  | 65,181 |                  | $ | 66,376        |  | $         | 24,127 |  | $ | 23,248
|                              |  |                    |        |                  |   |               |  |           |        |  |   |       

At December 31, 2008 and 2007, securities with a book value of $26,123,000 and $34,360,000, respectively,
were pledged as collateral as required by law on public deposits and for other purposes.

NOTE 4LOANS

Loans at December 31 were as follows:



|                                       |  |                |         |   |      |   |         |  
|-------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                       |  | 2008           |         |   | 2007 |  
|                                       |  | (In Thousands) |        
|Commercial, financial and agricultural |  | $              | 22,944  |   |      | $ | 17,523  |  
|Real estate:                           |  |                |         |   |      |   |         |  
|Commercial                             |  |                | 41,227  |   |      |   | 38,327  |  
|Construction                           |  |                | 5,730   |   |      |   | 1,435   |  
|Residential                            |  |                | 138,209 |   |      |   | 129,563 |  
|Installment                            |  |                | 6,159   |   |      |   | 5,946   |  
|                                       |  |                |         |   |      |   |         |  
|Total                                  |  |                | 214,269 |   |      |   | 192,794 |  
|                                       |  |               
|Allowance for loan losses              |  |                | (1,633  | ) |      |   | (1,249  | )
|Deferred loan fees and costs, net      |  |                | (259    | ) |      |   | (320    | )
|                                       |  |                |         |   |      |   |         |  
|Loans                                  |  | $              | 212,377 |   |      | $ | 191,225 |  
|                                       |  |                |         |   |      |   |         |  

The Bank grants commercial, residential and consumer loans to customers primarily within Juniata and Perry
Counties of Pennsylvania and the surrounding area. A large portion of the loan portfolio is secured by real estate. Although the Bank has a diversified loan portfolio, its debtors ability to honor their contracts is influenced by the
regions economy.

The Corporation, in the ordinary course of business, has loan, deposit and other routine transactions with its officers, directors
and principal shareholders and entities in which they have principal ownership. Loans are made



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FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4LOANS (CONTINUED)



to such customers at the same credit terms as other borrowers and do not represent more than the usual risk of collection. Changes during 2008 in these
related party loans were as follows (in thousands):



|                   |  |   |        |  
|------------------ |  | - | ------ | -
|Balance, beginning |  | $ | 594    |  
|Advances           |  |   | 1,880  |  
|Repayments         |  |   | (1,512 | )
|                   |  |   |        |  
|Balance, ending    |  | $ | 962    |  
|                   |  |   |        |  

Changes in the allowance for loan losses were as follows:



|                                |  |                |       |   |      |   |       |  
|------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                |  | 2008           |       |   | 2007 |  
|                                |  | (In Thousands) |      
|Balance, beginning              |  | $              | 1,249 |   |      | $ | 1,230 |  
|Provision charged to operations |  |                | 365   |   |      |   | 60    |  
|Recoveries on charged off loans |  |                | 28    |   |      |   | 2     |  
|Loans charged off               |  |                | (9    | ) |      |   | (43   | )
|                                |  |                |       |   |      |   |       |  
|Balance, ending                 |  | $              | 1,633 |   |      | $ | 1,249 |  
|                                |  |                |       |   |      |   |       |  

The following is a summary of information pertaining to impaired and nonaccrual loans as of the years ended
December 31:



|                                              |  |                |       |      |   |      
|--------------------------------------------- |  | -------------- | ----- | ---- | - | -----
|                                              |  | 2008           |       | 2007
|                                              |  | (In Thousands)
|Impaired loans without a valuation allowance  |  | $              | 562   |      | $ |     
|Impaired loans with a valuation allowance     |  |                | 73    |      |   | 1,812
|                                              |  |                |       |      |   |      
|Total Impaired Loans                          |  | $              | 635   |      | $ | 1,812
|                                              |  |                |       |      |   |      
|Valuation allowance related to impaired loans |  | $              | 36    |      | $ | 161  
|                                              |  |                |       |      |   |      
|Total nonaccrual loans                        |  | $              | 2,623 |      | $ | 1,976
|                                              |  |                |       |      |   |      



|                                                    |  |                |     |      |   |      
|--------------------------------------------------- |  | -------------- | --- | ---- | - | -----
|                                                    |  | 2008           |     | 2007
|                                                    |  | (In Thousands)
|Average investment in impaired loans                |  | $              | 718 |      | $ | 1,787
|                                                    |  |                |     |      |   |      
|Interest income recognized on impaired loans        |  | $              | 23  |      | $ | 98   
|                                                    |  |                |     |      |   |      
|Interest earned but not accrued on nonaccrual loans |  | $              | 91  |      | $ | 61   
|                                                    |  |                |     |      |   |      

No additional funds are committed to be advanced in connection with impaired loans.



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5PREMISES AND EQUIPMENT



Premises and equipment at December 31 were as follows:



|                                  |  |                                |  |                |        |   |      |   |        |  
|--------------------------------- |  | ------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | -
|                                  |  | Range ofUseful Lives(in years) |  | 2008           |        |   | 2007 |  
|                                  |  |                                |  | (In Thousands) |       
|Land                              |  |                               |  | $              | 741    |   |      | $ | 741    |  
|Buildings and improvements        |  | 7 - 39                         |  |                | 7,627  |   |      |   | 7,613  |  
|Furniture, equipment and software |  | 3 - 20                         |  |                | 4,329  |   |      |   | 4,157  |  
|                                  |  |                                |  |                |        |   |      |   |        |  
|                                  |  |                                |  |                | 12,697 |   |      |   | 12,511 |  
|Accumulated depreciation          |  |                                |  |                | (6,300 | ) |      |   | (5,741 | )
|                                  |  |                                |  |                |        |   |      |   |        |  
|                                  |  |                                |  | $              | 6,397  |   |      | $ | 6,770  |  
|                                  |  |                                |  |                |        |   |      |   |        |  

NOTE 6DEPOSITS

Deposits were comprised of the following as of December 31:



|                                    |  |                |         |      |   |        
|----------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                    |  | 2008           |         | 2007
|                                    |  | (In Thousands)
|Non-interest bearing demand         |  | $              | 29,192  |      | $ | 26,142 
|Interest bearing demand             |  |                | 23,523  |      |   | 22,391 
|Savings                             |  |                | 24,129  |      |   | 21,740 
|Time deposits less than $100,000    |  |                | 132,260 |      |   | 121,481
|Time deposits greater than $100,000 |  |                | 53,502  |      |   | 53,292 
|                                    |  |                |         |      |   |        
|                                    |  | $              | 262,606 |      | $ | 245,046
|                                    |  |                |         |      |   |        

Scheduled maturities of time deposits at December 31, 2008 were as follows (in thousands):



|     |  |   |        
|---- |  | - | -------
|2009 |  | $ | 84,232 
|2010 |  |   | 50,926 
|2011 |  |   | 37,164 
|2012 |  |   | 7,569  
|2013 |  |   | 5,871  
|     |  |   |        
|     |  | $ | 185,762
|     |  |   |        

The following table sets forth maturity information on time deposits of $100,000 or more as of December 31,
2008 (in thousands):



|                                   |  |   |       
|---------------------------------- |  | - | ------
|Three months or less               |  | $ | 6,034 
|Over three and through six months  |  |   | 9,172 
|Over six and through twelve months |  |   | 6,929 
|Over twelve months                 |  |   | 31,367
|                                   |  |   |       
|Total                              |  | $ | 53,502
|                                   |  |   |       



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 7BORROWINGS



Short-term borrowings at December 31 were as follows:



|                                               |  |                |        |      |   |       
|---------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                               |  | 2008           |        | 2007
|                                               |  | (In Thousands)
|Amount outstanding at end of year:             |  |                |        |      |   |       
|Securities sold under agreements to repurchase |  | $              | 4,189  |      | $ | 10,251
|Federal funds purchased                        |  |                | 324    |      |   |      
|Federal Home Loan Bank                         |  |                | 6,000  |      |   |      
|Treasury tax and loan note                     |  |                | 100    |      |   | 69    
|                                               |  |                |        |      |   |       
|                                               |  | $              | 10,613 |      | $ | 10,320
|                                               |  |                |        |      |   |       

Securities sold under agreements to repurchase generally mature within one day from the transaction date.
Securities with a carrying amount of $10,698,000 and $14,036,000 at December 31, 2008 and 2007, respectively, were pledged as collateral for these agreements. As of December 31, 2008, the interest rate on securities sold under agreements
to repurchase was 1.00%. The securities underlying the agreements were under the Corporations control.

The short-term Federal Home Loan Bank
advances mature in January 2009, and have a fixed rate of 0.64%.

Long-term borrowings at December 31 were as follows:



|                                                                                                                                              |  |                |        |      |   |       
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                                                                                                              |  | 2008           |        | 2007
|                                                                                                                                              |  | (In Thousands)
|Fixed rate advances:                                                                                                                          |  |                |        |      |   |       
|Maturing in 2008 with a fixed rate of 3.32%                                                                                                   |  | $              |       |      | $ | 1,000 
|Convertible advances:                                                                                                                         |  |                |        |      |   |       
|Maturing in 2010 with an initial fixed rates ranging from 5.91% to 6.54%, with a weighted average rate of 6.23% at December 31, 2007 and
2008 |  |                | 6,000  |      |   | 6,000 
|Maturing in 2011 with an initial fixed rate of 4.98%                                                                                          |  |                | 1,000  |      |   | 1,000 
|Maturing in 2013 with an initial fixed rate of 3.11%                                                                                          |  |                | 5,000  |      |   |      
|Maturing in 2017 with initial fixed rates ranging from 4.30% to 4.60%, with a weighted average rate of 4.45% at December 31, 2008 and
2007.   |  |                | 10,000 |      |   | 10,000
|                                                                                                                                              |  |                |        |      |   |       
|                                                                                                                                              |  | $              | 22,000 |      | $ | 18,000
|                                                                                                                                              |  |                |        |      |   |       

Convertible advances allow the FHLB the periodic option to convert to a LIBOR adjustable-rate advance after the
specified fixed rate period has elapsed. At December 31, 2008, the FHLB has the option to convert advances to rates that range from three month LIBOR plus 0.07% to 0.13%, of which $17 million is eligible for the conversion option, but not
exercised by the FHLB, at December 31, 2008. The remaining $5 million is not eligible for conversion until 2011. Upon the FHLBs conversion option being exercised, the Bank has the option to repay the respective advance in full.



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 7BORROWINGS (CONTINUED)



The Corporation has a maximum borrowing capacity through the Federal Home Loan Bank of approximately $154,943,000, of
which $126,943,000 was available at December 31, 2008. The borrowing capacity is collateralized by security agreements in certain residential real estate backed assets of the Corporation, including loans and investments.

The Corporation has issued $5,155,000 of floating rate junior subordinated deferrable interest debentures to a non-consolidated subsidiary trust, First Community
Financial Capital Trust I (the Trust). The Corporation owns all of the common equity of the Trust. The debentures held by the trust are the sole assets of the trust.

The Trust issued $5,000,000 of mandatorily redeemable preferred securities to third-party investors. The Corporations obligations under the debentures and related documents, taken together, constitute a full and
unconditional guarantee by the Corporation of the Trusts obligations under the preferred securities. The junior subordinated debt securities pay interest quarterly at 3-month LIBOR plus 3.00%, (7.82% at December 31, 2008) subject to a cap
of 12.00% through January 7, 2009. Pursuant to the debenture agreement, the Corporation can elect to defer payments of interest for up to 20 consecutive quarterly periods, provided as there is no event of default as defined in the indenture.
The preferred securities are redeemable quarterly by the Corporation at 100% of principal plus accrued interest on or after January 7, 2009. The preferred securities must be redeemed upon maturity of the debentures on January 7, 2034. The
terms of the junior subordinated deferrable interest debentures match those of the preferred securities.

NOTE
8OPERATING LEASES

The Corporation leases its Delaware (Juniata County) and Shermans Dale offices and the land on
which its East Waterford office was constructed. The Corporation has an option through 2010 to purchase the land, for predetermined prices ranging from $105,000 up to $125,000. The Corporation also receives rental income for leasing of available
space at its West Perry, Mifflintown and Loysville offices. Net lease expense was $8,000 in 2008 and $7,000 in 2007 after deducting rental expense of $63,000 and $61,000 respectively.

NOTE 9INCOME TAXES

The components of income tax expense for the
years ended December 31, 2008 and 2007 are as follows:



|         |  |                |      |   |      |   |     |  
|-------- |  | -------------- | ---- | - | ---- | - | --- | -
|         |  | 2008           |      |   | 2007 |  
|         |  | (In Thousands) |     
|Federal: |  |                |      |   |      |   |     |  
|Current  |  | $              | 848  |   |      | $ | 552 |  
|Deferred |  |                | (227 | ) |      |   | (52 | )
|         |  |                |      |   |      |   |     |  
|         |  | $              | 621  |   |      | $ | 500 |  
|         |  |                |      |   |      |   |     |  

Reconciliations of the statutory federal income tax at a rate of 34% to the income tax expense reported in the
consolidated statements of income for the years ended December 31, 2008 and 2007 are as follows:



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9INCOME TAXES (CONTINUED)



|                                         |  |                                         |   |  |       |  
|---------------------------------------- |  | --------------------------------------- | - |  | ----- | -
|                                         |  | Percentage of Incomebefore Income Taxes |  
|                                         |  | 2008                                    |   |  | 2007  |  
|Federal income tax at statutory rate     |  | 34.0                                    | % |  | 34.0  | %
|Tax-exempt income                        |  | (11.2                                   | ) |  | (11.8 | )
|Earnings on investment in life insurance |  | (1.8                                    | ) |  | (2.3  | )
|                                         |  |                                         |   |  |       |  
|                                         |  | 21.0                                    | % |  | 19.9  | %
|                                         |  |                                         |   |  |       |  

Components of deferred tax assets and liabilities at December 31 were as follows:



|                                      |  |                |       |   |      |   |     |  
|------------------------------------- |  | -------------- | ----- | - | ---- | - | --- | -
|                                      |  | 2008           |       |   | 2007 |  
|                                      |  | (In Thousands) |      
|Deferred tax assets:                  |  |                |       |   |      |   |     |  
|Allowance for loan losses             |  | $              | 548   |   |      | $ | 378 |  
|Nonaccrual loans interest             |  |                | 31    |   |      |   | 21  |  
|Intangible assets                     |  |                | 6     |   |      |   | 9   |  
|Retirement liabilities                |  |                | 477   |   |      |   | 428 |  
|State net operating loss carryforward |  |                | 104   |   |      |   | 80  |  
|                                      |  |                |       |   |      |   |     |  
|Gross deferred tax asset              |  |                | 1,166 |   |      |   | 916 |  
|Valuation allowance                   |  |                | (104  | ) |      |   | (80 | )
|                                      |  |                |       |   |      |   |     |  
|                                      |  |                | 1,062 |   |      |   | 836 |  
|                                      |  |                |       |   |      |   |     |  
|Deferred tax liabilities:             |  |                |       |   |      |   |     |  
|Accumulated depreciation              |  |                | 271   |   |      |   | 276 |  
|Available for sale securities         |  |                | 429   |   |      |   | 192 |  
|Other                                 |  |                | 25    |   |      |   | 21  |  
|                                      |  |                |       |   |      |   |     |  
|                                      |  |                | 725   |   |      |   | 489 |  
|                                      |  |                |       |   |      |   |     |  
|Net Deferred Tax Assets               |  | $              | 337   |   |      | $ | 347 |  
|                                      |  |                |       |   |      |   |     |  

As of December 31, 2008, the Corporation has State net operating loss carryforwards of $1,581,000 that expire
through the year 2028. Management does not believe that these net operating loss carryforwards will be utilized prior to their expiration, as they are at the holding company with little revenue opportunities to offset the losses, and as such, a
valuation allowance has been provided for them.

On January 1, 2007, the Corporation adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. The adoption of FIN 48 did not have an impact on the
Corporations financial statements. The Corporations policy is to recognize interest and penalties on unrecognized tax benefits,



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9INCOME TAXES (CONTINUED)



if any, in income tax expense in the consolidated financial statements. The tax years subject to examination by the tax authorities are the years ended
December 31, 2007, 2006 and 2005.

NOTE 10RETIREMENT PLANS

The Corporation maintains a 401(k) plan for the benefit of eligible employees. Employer contributions include matching a portion of employee contributions and a
discretionary contribution determined by the Corporation. Corporation contributions to the Plan were $148,000 and $128,000 for 2008 and 2007 respectively.

The Corporation maintains non-qualified compensation plans for selected employees (supplemental retirement) and directors (deferred fees). The estimated present value of future benefits is accrued over the period from the effective date of
the agreements until the expected retirement dates of the individuals. Expenses include the following amounts for these non-qualified plans:



|                      |  |                |     |      |   |    
|--------------------- |  | -------------- | --- | ---- | - | ---
|                      |  | 2008           |     | 2007
|                      |  | (In Thousands)
|Employee compensation |  | $              | 43  |      | $ | 43 
|Director compensation |  |                | 119 |      |   | 103

The balance accrued for these plans included in other liabilities as of December 31, 2008 and 2007 totaled
$1,403,000 and $1,260,000, respectively.

To fund the benefits under these plans, the Corporation is the owner of single premium life insurance policies on
participants in the non-qualified retirement plans. At December 31, 2008 and 2007, the cash value of these policies was $4,933,000 and $4,765,000, respectively.

NOTE 11REGULATORY MATTERS AND SHAREHOLDERS EQUITY

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporations financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth below) of Tier 1 capital to average assets and of Tier
1 and total capital (as defined in the regulations) to risk weighted assets. Management believes, as of December 31, 2008, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2008, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that notification that management believes have changed the Banks category.



| |  |    |  | 
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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11REGULATORY MATTERS AND
SHAREHOLDERS EQUITY (CONTINUED)



The actual and required capital amounts and ratios were as follows:



|                                                          |  |        |        |       |                             |   |                        |                                                               |       |   |     |        |  |          |  |        |  
|--------------------------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ---------------------- | ------------------------------------------------------------- | ----- | - | --- | ------ |  | -------- |  | ------ | -
|                                                          |  | Actual |        |       | For CapitalAdequacyPurposes |   |                        | To be WellCapitalized underPrompt CorrectiveAction Provisions |      
|                                                          |  | Amount |        | Ratio |                             |   | Amount                 |                                                               | Ratio |   |     | Amount |  | Ratio    | 
|                                                          |  |        |        |       |                             |   | (Dollars in Thousands) |                                                               |       |   |     |        | 
|CORPORATION:                                              |  |        |        |       |                             |   |                        |                                                               |       |   |     |        |  |          |  |        |  
|As of December 31, 2008:                                  |  |        |        |       |                             |   |                        |                                                               |       |   |     |        |  |          |  |        |  
|Tier 1 leverage ratio (to average assets)                 |  | $      | 27,599 |       | 8.4                         | % |                        | $313,100                                                      |       | 3 | 4.0 | %      |  | N/A      |  | N/A    |  
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |        | 27,599 |       | 14.7                        |   |                        | 3  7,486                                                      |       | 3 | 4.0 |        |  | N/A      |  | N/A    |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |        | 29,524 |       | 15.8                        |   |                        | 314,973                                                       |       | 3 | 8.0 |        |  | N/A      |  | N/A    |  
|                                                          |  |        |        |       |                             |  
|As of December 31, 2007:                                  |  |        |        |       |                             |   |                        |                                                               |       |   |     |        |  |          |  |        |  
|Tier 1 leverage ratio (to average assets)                 |  | $      | 26,174 |       | 8.7                         | % |                        | $312,008                                                      |       | 3 | 4.0 | %      |  | N/A      |  | N/A    |  
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |        | 26,174 |       | 15.6                        |   |                        | 3  6,707                                                      |       | 3 | 4.0 |        |  | N/A      |  | N/A    |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |        | 27,626 |       | 16.5                        |   |                        | 313,413                                                       |       | 3 | 8.0 |        |  | N/A      |  | N/A    |  
|                                                          |  |        |        |       |                             |  
|BANK:                                                     |  |        |        |       |                             |   |                        |                                                               |       |   |     |        |  |          |  |        |  
|As of December 31, 2008:                                  |  |        |        |       |                             |   |                        |                                                               |       |   |     |        |  |          |  |        |  
|Tier 1 leverage ratio (to average assets)                 |  | $      | 26,785 |       | 8.2                         | % |                        | $313,058                                                      |       | 3 | 4.0 | %      |  | $316,322 |  | 3  5.0 | %
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |        | 26,785 |       | 14.4                        |   |                        | 3  7,462                                                      |       | 3 | 4.0 |        |  | 311,192  |  | 3  6.0 |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |        | 28,537 |       | 15.3                        |   |                        | 314,923                                                       |       | 3 | 8.0 |        |  | 318,654  |  | 310.0  |  
|                                                          |  |        |        |       |                             |  
|As of December 31, 2007:                                  |  |        |        |       |                             |   |                        |                                                               |       |   |     |        |  |          |  |        |  
|Tier 1 leverage ratio (to average assets)                 |  | $      | 25,584 |       | 8.5                         | % |                        | $311,969                                                      |       | 3 | 4.0 | %      |  | $314,962 |  | 3  5.0 | %
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |        | 25,584 |       | 15.2                        |   |                        | 3  6,720                                                      |       | 3 | 4.0 |        |  | 310,081  |  | 3  6.0 |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |        | 26,833 |       | 16.0                        |   |                        | 313,441                                                       |       | 3 | 8.0 |        |  | 316,801  |  | 310.0  |  

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of
cash dividends, loans or advances. Regulatory approval is required if the total of all dividends declared by a national bank in any calendar year exceeds net profits (as defined) for that year combined with the retained net profits for the two
preceding calendar years. At December 31, 2008, approximately $4,522,000 of undistributed earnings of the Bank, included in consolidated shareholders equity, was available for distribution to the Corporation as dividends without prior
regulatory approval.

In 2008 the Corporation implemented a dividend reinvestment and stock purchase plan. Holders of common stock may participate in the
plan in which reinvested dividends and voluntary cash payments may be invested in additional common shares. The Corporation reserved 100,000 shares to be issued under this plan, of which 2,218 common shares were issued pursuant to this plan.



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11REGULATORY MATTERS AND
SHAREHOLDERS EQUITY (CONTINUED)



On January 8, 2008, the Board of Directors of the Corporation authorized a stock repurchase program pursuant to
which the Corporation is authorized to purchase up to 7.1% of its outstanding shares or 100,000 shares. Share repurchases will be made from time to time and may be effected through open market purchases, block trades, or in privately negotiated
transactions. As of December 31, 2008, the Corporation has purchased 2,050 shares under this repurchase program.

NOTE
12FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

The Corporation is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of
commitments to extend credit (typically mortgages and commercial loans) and, to a lesser extent, standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized
on the balance sheet. The Corporations exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual
amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The Corporation does not anticipate any material losses from these commitments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Corporation evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extensions of credit, is based on managements
credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property and equipment and income-producing commercial properties. On loans secured by real estate, the Corporation generally requires loan to
value ratios of no greater than 80%.

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and similar transactions. The terms of the letters of credit vary and may have renewal features. The credit risk involved in using
letters of credit is essentially the same as that involved in extending loans to customers. The Corporation holds collateral supporting those commitments for which collateral is deemed necessary. Management believes that the proceeds obtained
through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2008 and 2007 for
guarantees under standby letters of credit issued is not material.

The Corporation has not been required to perform on any financial guarantees, and has
not incurred any losses on its commitments, during the past two years.

A summary of the Corporations commitments at December 31 were as
follows:



|                             |  |                |        |      |   |       
|---------------------------- |  | -------------- | ------ | ---- | - | ------
|                             |  | 2008           |        | 2007
|                             |  | (In Thousands)
|Commitments to extend credit |  | $              | 31,822 |      | $ | 31,125
|Standby letters of credit    |  |                | 231    |      |   | 309   



| |  |    |  | 
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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13FAIR VALUE OF FINANCIAL
INSTRUMENTS



Management uses its best judgment in estimating the fair value of the Corporations consolidation financial
instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Bank could have realized in a
sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.
As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework
for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. The Bank adopted SFAS 157 effective for its
fiscal year beginning January 1, 2008.

In December 2007, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement
No. 157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to
fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. As such, the Corporation only partially adopted the provisions of SFAS #157, and will begin to account and report for non-financial assets and
liabilities in 2009. In October 2008, the FASB issued FASB Staff Position 157-3,Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active (FSP 157-3), to clarify the application
of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to the Corporations December 31, 2008 consolidated
financial statements. The adoption of SFAS 157 and FSP 157-3 had no impact on the amounts reported in the financial statements.

SFAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little
or no market activity).

An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement.



| |  |    |  | 
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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13FAIR VALUES OF FINANCIAL
INSTRUMENTS (CONTINUED)



For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the
fair value hierarchy used at December 31, 2008 are as follows:



|                              |  |                  |        |                                                            |   |                                           |  |                                        |        |  |   |    
|----------------------------- |  | ---------------- | ------ | ---------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------ |  | - | ---
|Description                   |  | December 31,2008 |        | (Level 1)Quoted Pricesin ActiveMarkets
forIdentical Assets |   | (Level 2)SignificantOtherObservableInputs |  | (Level 3)SignificantUnobservableInputs
|                              |  | (In Thousands)  
|Securities available for sale |  | $                | 66,376 |                                                            | $ | 465                                       |  | $                                      | 65,486 |  | $ | 425
|                              |  |                  |        |                                                            |   |                                           |  |                                        |        |  |   |    

The following table presents a reconciliation of the securities available for sale measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the year ended December 31:



|                                                               |  |                |    
|-------------------------------------------------------------- |  | -------------- | ---
|                                                               |  | 2008          
|                                                               |  | (In Thousands)
|Beginning balance, January 1                                   |  | $              | 425
|Total unrealized losses included in other comprehensive income |  |                |   
|                                                               |  |                |    
|Ending balance, December 31                                    |  | $              | 425
|                                                               |  |                |    

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within
the fair value hierarchy used at December 31, 2008 are as follows:



|               |  |                        |     |                                                            |   |                                           |  |                                        |   |  |   |    
|-------------- |  | ---------------------- | --- | ---------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | - |  | - | ---
|Description    |  | December 31,2008       |     | (Level 1)Quoted Pricesin ActiveMarkets
forIdentical Assets |   | (Level 2)SignificantOtherObservableInputs |  | (Level 3)SignificantUnobservableInputs
|               |  | (Dollars in Thousands)
|Impaired loans |  | $                      | 599 |                                                            | $ |                                          |  | $                                      |  |  | $ | 599
|               |  |                        |     |                                                            |   |                                           |  |                                        |   |  |   |    

As discussed above, the Bank has delayed its disclosure requirements of non-financial assets and liabilities. Real
estate owned with write-downs subsequent to foreclosure are carried at fair value at the balance sheet date, for which the Corporation has not yet adopted the provisions of SFAS 157.

The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporations assets and
liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporations disclosures and those of other companies may not be meaningful. The following methods
and assumptions were used to estimate the fair values of the Corporations financial instruments at December 31, 2008 and 2007.



| |  |    |  | 
| |  | -- |  | 
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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13FAIR VALUES OF FINANCIAL
INSTRUMENTS (CONTINUED)



Cash and cash equivalents (carried at cost):

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets fair values.

Time certificates of deposit (carried at cost):

The carrying
amount of time certificates of deposit approximates its fair value.

Securities:

The fair value of securities available for sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix
pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities relationship to
other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidy and/or non-transferability, and such adjustments are generally based
on available market evidence (Level 3). The Corporation has one level 3 security, which is a local, closely held, community bank equity security with limited trading activity.

Loans receivable (carried at cost):

For variable rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values of fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered in the market for loans with similar terms to
borrowers of similar credit quality.

Impaired loans (generally carried at fair value):

Impaired loans are those that are accounted for under FASB Statement No. 114,Accounting by Creditors for Impairment of a Loan(SFAS
114),in which the Corporation has measured impairment generally based on the fair value of the loans collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or
discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances
of $599,000, with a valuation allowance of $36,000. No additional provisions for loan losses were recorded for the year on the impaired loans.

Restricted investment in bank stock (carried at cost):

The carrying amount of restricted investment in bank stock approximates fair
value.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit
liabilities (carried at cost):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money
market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow



| |  |    |  | 
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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13FAIR VALUES OF FINANCIAL
INSTRUMENTS (CONTINUED)



calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time
deposits.

Short-term borrowings (carried at cost):

The carrying amounts of short-term borrowings approximate their fair values.

Long-term debt (carried at cost):

Fair values of long-term debt are estimated using discounted cash flow analysis, based on rates currently available to the Corporation for advances from the FHLB with
similar terms and remaining maturities

Junior Subordinated debt (carried at cost):

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on rates currently offered on such debt, with similar terms and remaining
maturities. As the Corporation has the ability to redeem the junior subordinated debt at any time, the fair value approximates its carrying value.

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Corporations off-balance sheet financial
instruments (lending commitments and letters of credit) are based on fees currently charged to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties credit standing.

The estimated fair values of the Corporations financial instruments were as follows at December 31, 2008 and 2007.



|                                        |  |                |         |            |   |                |  |            |         |  |   |        
|--------------------------------------- |  | -------------- | ------- | ---------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                                        |  | 2008           |         | 2007      
|                                        |  | CarryingAmount |         | Fair Value |   | CarryingAmount |  | Fair Value
|                                        |  | (In Thousands)
|Financial assets:                       |  |                |         |            |   |                |  |            |         |  |   |        
|Cash and cash equivalents               |  | $              | 6,864   |            | $ | 6,864          |  | $          | 10,082  |  | $ | 10,082 
|Time certificates of deposit            |  |                | 396     |            |   | 396            |  |            | 594     |  |   | 594    
|Investment securities:                  |  |                |         |            |   |                |  |            |         |  |   |        
|Available for sale                      |  |                | 66,376  |            |   | 66,376         |  |            | 63,340  |  |   | 63,340 
|Held to maturity                        |  |                | 24,127  |            |   | 23,248         |  |            | 21,229  |  |   | 21,288 
|Loans, less allowance for loan losses   |  |                | 212,377 |            |   | 213,544        |  |            | 191,225 |  |   | 189,998
|Accrued interest receivable             |  |                | 1,241   |            |   | 1,241          |  |            | 1,167   |  |   | 1,167  
|Restricted investment in bank stocks    |  |                | 2,661   |            |   | 2,661          |  |            | 1,965   |  |   | 1,965  
|                                        |  |                |         |           
|Financial liabilities:                  |  |                |         |            |   |                |  |            |         |  |   |        
|Deposits                                |  |                | 262,606 |            |   | 263,790        |  |            | 245,046 |  |   | 244,952
|Short-term borrowings                   |  |                | 10,613  |            |   | 10,613         |  |            | 10,320  |  |   | 10,320 
|Long-term borrowings                    |  |                | 22,000  |            |   | 24,281         |  |            | 18,000  |  |   | 18,917 
|Junior subordinated debt                |  |                | 5,155   |            |   | 5,155          |  |            | 5,155   |  |   | 5,155  
|Accrued interest payable                |  |                | 570     |            |   | 570            |  |            | 567     |  |   | 567    
|Off-balance sheet financial instruments |  |                |        |            |   |               |  |            |        |  |   |       



| |  |    |  | 
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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14CONTINGENCIES



The Corporation is subject to claims and lawsuits which arise primarily in the ordinary course of business. Based on
information presently available and advice received from legal counsel representing the Corporation in connection with any such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of any such claims
and lawsuits will not have a material adverse effect on the consolidated financial position, consolidated results of operations or liquidity of the Corporation.

NOTE 15CONDENSED FINANCIAL INFORMATION FOR PARENT COMPANY ONLY

BALANCE SHEETS



|                                              |  |                |        |      |   |       
|--------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                              |  | December 31,  
|                                              |  | 2008           |        | 2007
|                                              |  | (In Thousands)
|ASSETS                                        |  |                |        |      |   |       
|Cash                                          |  | $              | 324    |      | $ | 145   
|Investment in bank subsidiary                 |  |                | 27,369 |      |   | 25,671
|Investment in unconsolidated subsidiary trust |  |                | 155    |      |   | 155   
|Securities available for sale                 |  |                | 890    |      |   | 902   
|Other assets                                  |  |                | 79     |      |   | 94    
|                                              |  |                |        |      |   |       
|Total Assets                                  |  | $              | 28,817 |      | $ | 26,967
|                                              |  |                |        |      |   |       
|LIABILITIES AND SHAREHOLDERS EQUITY          |  |                |        |      |   |       
|Liabilities                                   |  | $              | 249    |      | $ | 279   
|Junior subordinated debt                      |  |                | 5,155  |      |   | 5,155 
|Shareholders equity                          |  |                | 23,413 |      |   | 21,533
|                                              |  |                |        |      |   |       
|Total Liabilities and Shareholders Equity    |  | $              | 28,817 |      | $ | 26,967
|                                              |  |                |        |      |   |       

STATEMENTS OF INCOME



|                                                    |  |                          |       |      |   |      
|--------------------------------------------------- |  | ------------------------ | ----- | ---- | - | -----
|                                                    |  | Years Ended December 31,
|                                                    |  | 2008                     |       | 2007
|                                                    |  | (In Thousands)          
|Dividends from bank subsidiary                      |  | $                        | 1,298 |      | $ | 1,008
|Other dividends                                     |  |                          | 38    |      |   | 43   
|                                                    |  |                          | 1,336 |      |   | 1,051
|Expenses                                            |  |                          | 380   |      |   | 469  
|                                                    |  |                          |       |      |   |      
|                                                    |  |                          | 956   |      |   | 582  
|Equity in undistributed earnings in bank subsidiary |  |                          | 1,380 |      |   | 1,435
|                                                    |  |                          |       |      |   |      
|Net Income                                          |  | $                        | 2,336 |      | $ | 2,017
|                                                    |  |                          |       |      |   |      



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---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 15CONDENSED FINANCIAL INFORMATION
FOR PARENT COMPANY ONLY (CONTINUED)



STATEMENTS OF CASH FLOWS



|                                                    |  |                          |        |   |      |   |        |  
|--------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                    |  | Years Ended December 31, |       
|                                                    |  | 2008                     |        |   | 2007 |  
|                                                    |  | (In Thousands)           |       
|CASH FLOWS FROM OPERATING ACTIVITIES                |  |                          |        |   |      |   |        |  
|Net income                                          |  | $                        | 2,336  |   |      | $ | 2,017  |  
|Equity in undistributed earnings of bank subsidiary |  |                          | (1,380 | ) |      |   | (1,435 | )
|Decrease in other assets                            |  |                          | 42     |   |      |   | 6      |  
|Increase (decrease) in other liabilities            |  |                          | (30    | ) |      |   | 6      |  
|                                                    |  |                          |        |   |      |   |        |  
|Net Cash Provided by Operating Activities           |  |                          | 968    |   |      |   | 594    |  
|                                                    |  |                          |        |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES                |  |                          |        |   |      |   |        |  
|Purchase of securities available for sale           |  |                          | (57    | ) |      |   |       |  
|                                                    |  |                          |        |   |      |   |        |  
|Net Cash Used in Investing Activities               |  |                          | (57    | ) |      |   |       |  
|                                                    |  |                          |        |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES                |  |                          |        |   |      |   |        |  
|Proceeds from issuance of common stock              |  |                          | 58     |   |      |   |       |  
|Acquisition of treasury stock                       |  |                          | (62    | ) |      |   |       |  
|Cash dividends paid                                 |  |                          | (728   | ) |      |   | (658   | )
|                                                    |  |                          |        |   |      |   |        |  
|Net Cash Used in Financing Activities               |  |                          | (732   | ) |      |   | (658   | )
|                                                    |  |                          |        |   |      |   |        |  
|Net Increase (Decrease) in Cash                     |  |                          | 179    |   |      |   | (64    | )
|CASH - BEGINNING                                    |  |                          | 145    |   |      |   | 209    |  
|                                                    |  |                          |        |   |      |   |        |  
|CASH - ENDING                                       |  | $                        | 324    |   |      | $ | 145    |  
|                                                    |  |                          |        |   |      |   |        |  



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FIRST COMMUNITY FINANCIAL CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 16QUARTERLY FINANCIAL DATA
(UNAUDITED)



The following represents summarized unaudited quarterly financial data of the Corporation which in the opinion of
management, reflects adjustments (comprising only normal recurring accruals) necessary for fair presentation:



|                                   |  |                                          |       |              |   |         |  |          |       |  |   |      
|---------------------------------- |  | ---------------------------------------- | ----- | ------------ | - | ------- |  | -------- | ----- |  | - | -----
|                                   |  | Three Months Ended                      
|                                   |  | December 31                              |       | September 30 |   | June 30 |  | March 31
|                                   |  | (In Thousands, Except per Share Amounts)
|2008:                              |  |                                          |       |              |   |         |  |          |       |  |   |      
|Interest income                    |  | $                                        | 4,672 |              | $ | 4,711   |  | $        | 4,534 |  | $ | 4,491
|Interest expense                   |  |                                          | 2,259 |              |   | 2,288   |  |          | 2,373 |  |   | 2,484
|Net interest income                |  |                                          | 2,413 |              |   | 2,423   |  |          | 2,161 |  |   | 2,007
|Provision for loan losses          |  |                                          | 197   |              |   | 93      |  |          | 75    |  |   |     
|Provision for federal income taxes |  |                                          | 109   |              |   | 220     |  |          | 173   |  |   | 119  
|Net income                         |  |                                          | 502   |              |   | 719     |  |          | 611   |  |   | 504  
|Net income per share, basic        |  |                                          | 0.36  |              |   | 0.51    |  |          | 0.44  |  |   | 0.36 
|2007:                              |  |                                          |       |              |   |         |  |          |       |  |   |      
|Interest income                    |  | $                                        | 4,389 |              | $ | 4,266   |  | $        | 4,085 |  | $ | 3,957
|Interest expense                   |  |                                          | 2,498 |              |   | 2,377   |  |          | 2,284 |  |   | 2,230
|Net interest income                |  |                                          | 1,891 |              |   | 1,889   |  |          | 1,801 |  |   | 1,727
|Provision for loan losses          |  |                                          | 30    |              |   | 30      |  |          |      |  |   |     
|Provision for federal income taxes |  |                                          | 114   |              |   | 170     |  |          | 118   |  |   | 98   
|Net income                         |  |                                          | 511   |              |   | 603     |  |          | 472   |  |   | 431  
|Net income per share, basic        |  |                                          | 0.36  |              |   | 0.43    |  |          | 0.34  |  |   | 0.31 



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---

MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL

CONDITION AND RESULTS
OF OPERATIONS

The following discussion represents managements analysis of the financial condition and results of
operations of First Community Financial Corporation (the Corporation) and should be read in conjunction with the accompanying financial statements and other financial data included elsewhere in this report.

FORWARD-LOOKING STATEMENTS

Except for historical information, this report may be deemed to contain forward-looking statements regarding the Corporation. Examples of forward-looking statements include, but are not limited to, (a) projections or
statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure and other financial terms, (b) statements of plans and objectives of
management or the board of directors, and (c) statements of assumptions, such as economic conditions in the Corporations market areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as
believes, expects, may, intends, will, should, anticipates, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by
discussion of strategy.

No assurance can be given that the future results covered by forward-looking statements will be achieved. Such statements are
subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could impact the Corporations operating
results include, but are not limited to, (i) the effects of changing economic conditions in the Corporations market areas and nationally, (ii) credit risks of commercial, real estate, consumer and other lending activities,
(iii) significant changes in interest rates, (iv) changes in federal and state banking laws and regulations which could impact the Corporations operations, (v) funding costs and (vi) other external developments which could
materially affect the Corporations business and operations.



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EXECUTIVE SUMMARY

The Corporations results are primarily determined by the results of operations of its principal subsidiary, The First National Bank of Mifflintown (the Bank). The Bank is a traditional community bank which
operates branches in two rural counties of central Pennsylvania. The Banks earnings are largely driven by its net interest income.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements include the Corporation and
its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated.

The consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the United States of America, which require the Corporation to make estimates and assumptions (see footnote 1 to the financial statements). The Corporation believes
that of its significant accounting policies, the allowance for loan losses and valuation of its securities may involve a higher degree of judgment and complexity.

The allowance for loan losses is established through a charge to earnings for the provision for loan losses. In determining the balance in the allowance for loan losses, consideration is given to a variety of factors in establishing this
estimate. In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers perceived financial and
managerial strengths, the adequacy of the underlying collateral, if collateral dependent, or present value of future cash flows and other relevant factors. The use of different estimates or assumptions could produce different provisions for loan
losses. Additional information is provided in the Provision for Loan Losses and Allowance for Loan Losses sections.

Declines in
the fair value of securities held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses,
management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain
its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. No securities were deemed to be other than temporarily impaired as of December 31, 2008.

OVERVIEW

In 2008, the Corporation recorded net income
of $2,336,000, an increase of $319,000 or 15.8%, from net income of $2,017,000 in 2007.

The increase in net income during 2008 as compared to 2007 is
primarily a result of the following:



| |  |  | Increase in net interest income after provision for loan losses of $1,391,000;
| | - |  | ------------------------------------------------------------------------------



| |  |  | Increase in total other income of $189,000;
| | - |  | -------------------------------------------



| |  |  | Increase in total other operating expenses of $1,140,000; and
| | - |  | -------------------------------------------------------------



| |  |  | Increase in provision for income taxes of $121,000.
| | - |  | ---------------------------------------------------

Basic earnings per share were $1.67 in 2008 compared to $1.44 in 2007. Return on average equity for 2008 was 10.52% compared to 9.91% in 2007. Return on average assets was 0.73% for 2008 compared with 0.70% in 2007.

During 2008, the Corporation experienced $21,152,000 or 11.1% growth in loans, $5,934,000 or 7.0% growth in securities, and $17,560,000 or 7.2% growth in deposits. These
increases were offset by a $3,218,000 or 31.9% decrease in cash and cash equivalents. As a result of these trends total assets of the Corporation grew by $24,419,000 or 8.1%.



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---

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income is the difference between interest income earned on investments and loans, and interest expense incurred on deposits and other liabilities. For
analysis purposes, net interest income is evaluated on a fully tax equivalent (FTE) basis. The FTE basis is calculated by grossing up the yield on tax-exempt securities and loans by the Federal tax rate of 34%, in order that the yield on tax-exempt
assets may be comparable to interest earned on taxable assets. The factors that affect net interest income include changes in interest rates and changes in average balances of interest-earning assets and interest-bearing liabilities. Net interest
income on an FTE basis increased to $9,541,000 in 2008 from $7,783,000 in 2007 and $7,518,000 in 2006.



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---

NET INTEREST INCOME AND NET
INTEREST MARGIN (CONTINUED)



The following table includes average balances, rates and interest income and expense adjusted to an FTE basis, the
interest rate spread and the net interest margin:

Average Balances, Rates and Interest Income and Expense

(Dollars in Thousands)



|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|------------------------------------------ |  | -------------- | ------- | -------- | ---- | ---------- |  | ---- | -------------- |  | -------- | ------- | ---------- | - | ------ | -------------- | ---- | -------- |  | ---------- | ------- |  | - | ------ |  | ---- | -
|                                           |  | 2008           |         |          | 2007 |            |  | 2006 |               
|                                           |  | AverageBalance |         | Interest |      | Yield/Rate |  |      | AverageBalance |  | Interest |         | Yield/Rate |   |        | AverageBalance |      | Interest |  | Yield/Rate |        
|ASSETS                                     |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|INTEREST EARNING ASSETS                    |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Securities:                                |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Taxable                                    |  | $              | 67,980  |          | $    | 3,414      |  | 5.02 | %              |  | $        | 57,315  |            | $ | 2,716  |                | 4.74 | %        |  | $          | 50,672  |  | $ | 2,164  |  | 4.27 | %
|Tax-exempt                                 |  |                | 21,185  |          |      | 1,312      |  | 6.19 | %              |  |          | 20,140  |            |   | 1,188  |                | 5.90 | %        |  |            | 22,790  |  |   | 1,285  |  | 5.64 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Total Securities                           |  |                | 89,165  |          |      | 4,726      |  | 5.30 | %              |  |          | 77,455  |            |   | 3,904  |                | 5.04 | %        |  |            | 73,462  |  |   | 3,449  |  | 4.69 | %
|Other                                      |  |                | 5,065   |          |      | 186        |  | 3.67 | %              |  |          | 6,687   |            |   | 388    |                | 5.80 | %        |  |            | 5,929   |  |   | 292    |  | 4.92 | %
|Loans:                                     |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Taxable                                    |  |                | 200,771 |          |      | 13,766     |  | 6.86 | %              |  |          | 180,907 |            |   | 12,671 |                | 7.00 | %        |  |            | 168,328 |  |   | 11,542 |  | 6.86 | %
|Tax-exempt                                 |  |                | 3,490   |          |      | 267        |  | 7.65 | %              |  |          | 2,754   |            |   | 209    |                | 7.59 | %        |  |            | 2,532   |  |   | 191    |  | 7.54 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Total Loans                                |  |                | 204,261 |          |      | 14,033     |  | 6.87 | %              |  |          | 183,661 |            |   | 12,880 |                | 7.01 | %        |  |            | 170,860 |  |   | 11,733 |  | 6.87 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Total Interest Earning Assets              |  |                | 298,491 |          |      | 18,945     |  | 6.35 | %              |  |          | 267,803 |            |   | 17,172 |                | 6.41 | %        |  |            | 250,251 |  |   | 15,474 |  | 6.18 | %
|Non-interest earnings assets               |  |                | 20,799  |          |      |            |  |      |                |  |          | 20,716  |            |   |        |                |      |          |  |            | 21,641  |  |   |        |  |      |  
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Total Assets                               |  | $              | 319,290 |          |      |            |  |      |                |  | $        | 288,519 |            |   |        |                |      |          |  | $          | 271,892 |  |   |        |  |      |  
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|                                           |  |                |         |          |      |            |  |      |               
|LIABILITIES AND SHAREHOLDERS EQUITY       |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|INTEREST BEARING LIABILITIES               |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Demand deposits, interest bearing          |  | $              | 22,876  |          | $    | 91         |  | 0.40 | %              |  | $        | 21,637  |            | $ | 116    |                | 0.54 | %        |  | $          | 21,786  |  | $ | 121    |  | 0.56 | %
|Savings deposits                           |  |                | 22,840  |          |      | 189        |  | 0.83 | %              |  |          | 22,848  |            |   | 231    |                | 1.01 | %        |  |            | 24,359  |  |   | 221    |  | 0.91 | %
|Time deposits                              |  |                | 185,808 |          |      | 7,571      |  | 4.07 | %              |  |          | 165,060 |            |   | 7,341  |                | 4.45 | %        |  |            | 147,338 |  |   | 5,910  |  | 4.01 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Total Interest Bearing Deposits            |  |                | 231,524 |          |      | 7,851      |  | 3.39 | %              |  |          | 209,545 |            |   | 7,688  |                | 3.67 | %        |  |            | 193,483 |  |   | 6,252  |  | 3.23 | %
|Short-term borrowings                      |  |                | 9,146   |          |      | 169        |  | 1.85 | %              |  |          | 8,344   |            |   | 373    |                | 4.47 | %        |  |            | 7,064   |  |   | 319    |  | 4.52 | %
|Long-term borrowings                       |  |                | 26,966  |          |      | 1,384      |  | 5.13 | %              |  |          | 23,454  |            |   | 1,328  |                | 5.66 | %        |  |            | 27,539  |  |   | 1,385  |  | 5.03 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Total Interest Bearing Liabilities         |  |                | 267,636 |          |      | 9,404      |  | 3.51 | %              |  |          | 241,343 |            |   | 9,389  |                | 3.89 | %        |  |            | 228,086 |  |   | 7,956  |  | 3.49 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Demand deposits, non-interest bearing      |  |                | 26,941  |          |      |            |  |      |                |  |          | 24,859  |            |   |        |                |      |          |  |            | 23,372  |  |   |        |  |      |  
|Other liabilities                          |  |                | 2,506   |          |      |            |  |      |                |  |          | 1,969   |            |   |        |                |      |          |  |            | 1,721   |  |   |        |  |      |  
|Shareholders equity                       |  |                | 22,207  |          |      |            |  |      |                |  |          | 20,348  |            |   |        |                |      |          |  |            | 18,713  |  |   |        |  |      |  
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|Total Liabilities and Shareholders Equity |  | $              | 319,290 |          |      |            |  |      |                |  | $        | 288,519 |            |   |        |                |      |          |  | $          | 271,892 |  |   |        |  |      |  
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|NET INTEREST INCOME                        |  |                |         |          | $    | 9,541      |  |      |                |  |          |         |            | $ | 7,783  |                |      |          |  |            |         |  | $ | 7,518  |  |      |  
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|INTEREST RATE SPREAD                       |  |                |         |          |      |            |  | 2.84 | %              |  |          |         |            |   |        |                | 2.52 | %        |  |            |         |  |   |        |  | 2.70 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  
|NET INTEREST MARGIN                        |  |                |         |          |      |            |  | 3.20 | %              |  |          |         |            |   |        |                | 2.91 | %        |  |            |         |  |   |        |  | 3.00 | %
|                                           |  |                |         |          |      |            |  |      |                |  |          |         |            |   |        |                |      |          |  |            |         |  |   |        |  |      |  

Yields on tax-exempt assets have been computed on a fully tax equivalent basis assuming a tax rate of 34%.

For yield calculation purposes, non-accruing loans are included in average loan balances.

Interest income on loans includes amortized fees and costs on loans totaling $(24,000) in 2008, $38,000 in 2007, and $80,000 in 2006.

Securities available for sale are carried at amortized cost for purposes of calculating the average yield on taxable securities.



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NET INTEREST INCOME AND NET
INTEREST MARGIN (CONTINUED)



The following table shows changes in net interest income attributed to changes in rates and changes in average
balances of interest-earning assets and interest-bearing liabilities:

Rate/Volume Analysis

(In Thousands)



|                                  |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|--------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ----- | ------------- |  | - | ----- | - |  | ------ | ---- | - | ----- | - | ----- | - |  | - | ----- | -
|                                  |  | 2008 versus 2007 |        |   | 2007 versus 2006 |  
|                                  |  | Change Due to    |        |   |                  |   |       | Change Due to |  |   |       |  
|                                  |  | Rate             |        |   | Volume           |   |       | Total         |  |   | Rate  |   |  | Volume |      |   | Total |  
|INTEREST EARNING ASSETS           |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|Securities:                       |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|Taxable                           |  | $                | 163    |   |                  | $ | 535   |               |  | $ | 698   |   |  | $      | 237  |   |       | $ | 315   |   |  | $ | 552   |  
|Tax-exempt                        |  |                  | 59     |   |                  |   | 65    |               |  |   | 124   |   |  |        | 59   |   |       |   | (156  | ) |  |   | (97   | )
|Other                             |  |                  | (148   | ) |                  |   | (54   | )             |  |   | (202  | ) |  |        | 65   |   |       |   | 31    |   |  |   | 96    |  
|Total loans                       |  |                  | (265   | ) |                  |   | 1,418 |               |  |   | 1,153 |   |  |        | 249  |   |       |   | 898   |   |  |   | 1,147 |  
|                                  |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|Total                             |  |                  | (191   | ) |                  |   | 1,964 |               |  |   | 1,773 |   |  |        | 610  |   |       |   | 1,088 |   |  |   | 1,698 |  
|                                  |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|                                  |  |                  |        |   |                  |  
|INTEREST BEARING LIABILITIES      |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|Demand deposits, interest bearing |  |                  | (30    | ) |                  |   | 5     |               |  |   | (25   | ) |  |        | (4   | ) |       |   | (1    | ) |  |   | (5    | )
|Savings deposits                  |  |                  | (42    | ) |                  |   |      |               |  |   | (42   | ) |  |        | 26   |   |       |   | (16   | ) |  |   | 10    |  
|Time deposits                     |  |                  | (616   | ) |                  |   | 846   |               |  |   | 230   |   |  |        | 643  |   |       |   | 788   |   |  |   | 1,431 |  
|Short-term borrowings             |  |                  | (219   | ) |                  |   | 15    |               |  |   | (204  | ) |  |        | (3   | ) |       |   | 57    |   |  |   | 54    |  
|Long-term borrowings              |  |                  | (124   | ) |                  |   | 180   |               |  |   | 56    |   |  |        | 174  |   |       |   | (231  | ) |  |   | (57   | )
|                                  |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|Total                             |  |                  | (1,031 | ) |                  |   | 1,046 |               |  |   | 15    |   |  |        | 836  |   |       |   | 597   |   |  |   | 1,433 |  
|                                  |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  
|Net Interest Income               |  | $                | 840    |   |                  | $ | 918   |               |  | $ | 1,758 |   |  | $      | (226 | ) |       | $ | 491   |   |  | $ | 265   |  
|                                  |  |                  |        |   |                  |   |       |               |  |   |       |   |  |        |      |   |       |   |       |   |  |   |       |  

Interest income is presented on a fully tax equivalent basis, assuming a tax rate of 34%.

The net change attributable to the combination of rate and volume has been allocated to the change due to volume.

2008 VERSUS 2007

During 2008, tax equivalent interest income
increased by $1,773,000 as the result of an increase in earning assets, offset by a slight decrease in the yield on earning assets of 0.06%. Average loans increased $20,600,000 impacting interest income by $1,418,000 and the yield on loans decreased
0.14% impacting interest income by $265,000. Total average securities increased $11,710,000 increasing interest income $600,000 and the yield on securities increased 0.26% increasing interest income $222,000.

Total average interest-bearing liabilities grew by $26,293,000 between 2008 and 2007 increasing interest expense by $1,046,000 for 2008, and the average rate paid on
interest-bearing liabilities decreased 0.38% decreasing interest expense by $1,031,000.

The net interest margin is the ratio of net interest income to
interest-earning assets, reflecting a net yield on earning assets. The 0.29% increase in net interest margin from 2007 to 2008 reflects the decrease in rates on interest-bearing liabilities out-pacing the decrease in rates on interest-earning
assets.

2007 VERSUS 2006

During 2007, tax equivalent
interest income increased by $1,698,000 compared to 2006 fueled by both an increase in earning assets and an increase in the yield on earning assets of 0.23%. Average loans increased $12,801,000 impacting interest income by $898,000 and the yield on
loans increased 0.14% impacting interest



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NET INTEREST INCOME AND NET
INTEREST MARGIN (CONTINUED)



income by $249,000. Total average securities increased $3,993,000 increasing interest income $159,000 and the yield
on securities increased 0.35% increasing interest income $296,000.

Total average interest-bearing liabilities grew by $13,257,000 between 2007 and 2006
increasing interest expense by $597,000 for 2007, and the average rate paid on interest-bearing liabilities increased 0.40% increasing interest expense by $836,000.

The net interest margin is the ratio of net interest income to interest-earning assets, reflecting a net yield on earning assets. The 0.09% decrease in net interest margin from 2006 to 2007 reflects the increase in
rates on interest-bearing liabilities out-pacing the increase in rates on interest-earning assets.

PROVISION FOR
LOAN LOSSES

The provision for loan losses and allowance for loan losses are based on managements ongoing assessment
of the Corporations credit exposure and consideration of other relevant factors. The allowance for loan losses is a valuation reserve, which is available to absorb future loan charge-offs. The provision for loan losses is the amount charged to
earnings on an annual basis.

The Corporation recorded a $365,000 provision for loan losses in 2008 compared to $60,000 in 2007. Provisions for loan losses
are charged to income to bring the allowance for loan losses to a level deemed appropriate by management based on the factors discussed under the Allowance for Loan Losses section. Based on that analysis, the level of the allowance for
loan losses is appropriate at this time.

OTHER INCOME

2008 VERSUS 2007

Other income of $2,296,000 during 2008 increased by $189,000 compared to 2007, primarily as
a result of the following:

An increase in income from fiduciary activities of $23,000.

An increase in service charges on deposit accounts of $128,000 or 17.0%, which is consistent with the increase in deposit accounts coupled with an
increase in NSF fees.

An increase in ATM card fees of $45,000, reflecting the increasing use of our ATM and debit cards.

2007 Versus 2006

Other income of $2,107,000 during 2007 increased by
$187,000 compared to 2006, primarily as a result of the following:

An increase in income from fiduciary activities of $38,000.

An increase in service charges on deposit accounts of $64,000 or 9.3%, which is consistent with the increase in deposit accounts.

An increase in ATM card fees of $53,000, reflecting the increasing use of our ATM locations.



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OTHER EXPENSES



2008 VERSUS 2007

Other expenses increased $1,140,000 or 16.7% to $7,978,000 during 2008 compared to $6,838,000 during 2007, primarily as a result of the following:

An increase in employee compensation and benefits of $537,000 as the result of increases in the number of staff and merit increases during the year.

An increase in net occupancy and equipment expense of $54,000.

An increase in director and advisory board compensation of $56,000 as a result of increased directors fees and costs of deferred compensation plans.

An increase in ATM expense of $97,000 primarily because of a refund of prior expenses in 2007, with no similar refund in 2008.

An increase in other operating expenses of $340,000 consisting of increases in FDIC/OCC assessments of $97,000, a provision for unfunded commitments of
$119,000, loan collection costs of $18,000, correspondent charges of $21,000, and training expense increases of $36,000. With the current turmoil in the banking industry, management anticipates FDIC insurance expenses will rise dramatically in 2009
as well.

2007 Versus 2006

Other expenses increased
$328,000 or 5.0% to $6,838,000 during 2007 compared to $6,510,000 during 2006, primarily as a result of the following:

An increase in
employee compensation and benefits of $139,000 as the result of increases in the number of staff and merit increases during the year.

An
increase in professional fees of $193,000 or 118.4% as the result of increased legal and accounting fees, including costs associated with outsourced Sarbanes Oxley compliance consulting services.

An increase in director and advisory board compensation of $52,000 as a result of increased directors fees and costs of deferred compensation plans.

A decrease in ATM expense of $42,000 as a result of the buydown of the current contract by our ATM and debit card processor, which resulted
in a refund of amounts previously expensed of $92,000.

INCOME TAXES

Income tax expense was $621,000 for 2008 compared to $500,000 for 2007 and $461,000 for 2006. Income tax expense as a percentage of income before income taxes was 21.0%
for 2008 and 19.9% for 2007. The actual effective rate deviates from the 34% statutory rate due to tax exempt interest income and income earned on cash surrender value of life insurance. The Corporations higher effective tax rate in 2008 was a
result of a decrease in the percentage of pre-tax income being derived from tax-exempt investments and loans and tax-exempt income earned on life insurance. Refer to footnote 9 to the consolidated financial statements for further analysis of
income taxes.



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FINANCIAL CONDITION

SECURITIES

The securities portfolio is a component of
interest-earning assets and is second in size only to the Corporations loan portfolio. Investment securities not only provide interest income, they provide a source of liquidity, diversify the earning asset portfolio and provide collateral for
public funds and securities sold under agreements to repurchase.

The Corporations securities are classified as either held to maturity or available
for sale. Securities in the held to maturity category are accounted for at amortized cost. Available for sale securities are accounted for at fair value with unrealized gains and losses, net of taxes, reported as a separate component of
comprehensive income.

The Corporation generally intends to hold its investment portfolio until maturity; however, about 73.3% or $66,376,000, of total
securities at December 31, 2008 was classified as available for sale. Net unrealized gains at year-end 2008 were $1,195,000 compared to $487,000 at year-end 2007. The net unrealized gain at December 31, 2008 is reflected as accumulated
other comprehensive income of $766,000 in shareholders equity, net of deferred income taxes compared to $295,000 at December 31, 2007. This increase reflects changes in interest rates during 2008. Management evaluates securities for
other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less
than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in
fair value. As of December 31, 2008, the Corporation has not recognized other-than-temporary impairment on any of its investment securities. For additional information on unrealized losses by investment type, see footnote 3 to the consolidated
financial statements.

Held to maturity securities totaled $24,127,000 at December 31, 2008 compared to $21,229,000 a year ago. The increase was a
result of new purchases exceeding maturities of U.S. Government agency securities and state and municipal securities. A significant portion of this portfolio is comprised of state and municipal securities that provide tax-exempt interest income to
the Corporation.

The following tables set forth the composition of the securities portfolio and the securities maturity schedule, including weighted
average yield, as of the dates indicated:



Investment Securities

(In Thousands)

|                                              |  |      |        |      |   |        |  |   |       
|--------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                              |  | 2008 |        | 2007 |   | 2006  
|AVAILABLE FOR SALE SECURITIES AT FAIR
VALUE   |  |      |        |      |   |        |  |   |       
|U.S. Agencies                                 |  | $    | 6,724  |      | $ | 9,170  |  | $ | 12,121
|Mortgage-backed securities                    |  |      | 58,762 |      |   | 53,268 |  |   | 35,957
|Stock in other banks                          |  |      | 890    |      |   | 902    |  |   | 877   
|                                              |  |      |        |      |   |        |  |   |       
|                                              |  |      | 66,376 |      |   | 63,340 |  |   | 48,955
|                                              |  |      |        |      |   |        |  |   |       
|HELD TO MATURITY SECURITIES AT AMORTIZED
COST |  |      |        |      |   |        |  |   |       
|U.S. Agencies                                 |  |      | 250    |      |   | 705    |  |   | 781   
|State and municipal                           |  |      | 23,877 |      |   | 20,524 |  |   | 20,292
|                                              |  |      |        |      |   |        |  |   |       
|                                              |  |      | 24,127 |      |   | 21,229 |  |   | 21,073
|                                              |  |      |        |      |   |        |  |   |       
|                                              |  | $    | 90,503 |      | $ | 84,569 |  | $ | 70,028
|                                              |  |      |        |      |   |        |  |   |       



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SECURITIES (CONTINUED)



Securities Maturity Schedule

(Dollars in Thousands)



|                           |  |                |       |  |                |      |   |                 |   |       |                             |  |      |        |  |   |        |  |  |        |   |  |       |        |  |        |      |   |       |   |        |  |  |      |  
|-------------------------- |  | -------------- | ----- |  | -------------- | ---- | - | --------------- | - | ----- | --------------------------- |  | ---- | ------ |  | - | ------ |  |  | ------ | - |  | ----- | ------ |  | ------ | ---- | - | ----- | - | ------ |  |  | ---- | -
|                           |  | 1 Year or Less |       |  | Over 1-5 Years |      |   | Over 5-10 Years |   |       | Over 10 Years orno Maturity |  |      | Total  | 
|                           |  | Amount         |       |  | Yield          |      |   | Amount          |   |       | Yield                       |  |      | Amount |  |   | Yield  |  |  | Amount |   |  | Yield |        |  | Amount |      |   | Yield |  
|U.S. Agencies              |  | $              | 739   |  |                | 4.75 | % |                 | $ | 2,909 |                             |  | 4.53 | %      |  | $ | 3,326  |  |  | 5.25   | % |  | $     |       |  |        |     | % |       | $ | 6,974  |  |  | 4.90 | %
|State and municipal        |  |                | 3,671 |  |                | 5.15 |   |                 |   | 2,612 |                             |  | 5.21 |        |  |   | 8,571  |  |  | 6.64   |   |  |       | 9,023  |  |        | 6.19 |   |       |   | 23,877 |  |  | 6.08 |  
|Mortgage-backed securities |  |                | 156   |  |                | 4.12 |   |                 |   | 3,749 |                             |  | 4.25 |        |  |   | 7,873  |  |  | 4.92   |   |  |       | 46,984 |  |        | 5.10 |   |       |   | 58,762 |  |  | 5.02 |  
|Equity securities          |  |                |      |  |                |     |   |                 |   |      |                             |  |     |        |  |   |       |  |  |       |   |  |       | 890    |  |        |     |   |       |   | 890    |  |  |     |  
|                           |  |                |       |  |                |      |   |                 |   |       |                             |  |      |        |  |   |        |  |  |        |   |  |       |        |  |        |      |   |       |   |        |  |  |      |  
|                           |  | $              | 4,566 |  |                | 5.05 | % |                 | $ | 9,270 |                             |  | 4.61 | %      |  | $ | 19,770 |  |  | 5.72   | % |  | $     | 56,897 |  |        | 5.19 | % |       | $ | 90,503 |  |  | 5.24 | %
|                           |  |                |       |  |                |      |   |                 |   |       |                             |  |      |        |  |   |        |  |  |        |   |  |       |        |  |        |      |   |       |   |        |  |  |      |  

Held to maturity securities are accounted for at amortized cost and available for sale securities are accounted
for at fair value.

Weighted average yields are calculated on a fully tax equivalent basis assuming a tax rate of 34%.

LOANS

Loans at December 31 were as follows:



|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                       |  | 2008           |         |   | 2007 |   |         | 2006 |  |   | 2005    |   |  | 2004 |        
|                                       |  | (In Thousands) |        
|Commercial, financial and agricultural |  | $              | 22,944  |   |      | $ | 17,523  |      |  | $ | 16,691  |   |  | $    | 14,562  |   |  | $ | 12,918  |  
|Real estate:                           |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial                             |  |                | 41,227  |   |      |   | 38,327  |      |  |   | 36,021  |   |  |      | 33,622  |   |  |   | 31,578  |  
|Construction                           |  |                | 5,730   |   |      |   | 1,435   |      |  |   |        |   |  |      | 34      |   |  |   | 99      |  
|Residential                            |  |                | 138,209 |   |      |   | 129,563 |      |  |   | 121,419 |   |  |      | 110,256 |   |  |   | 100,043 |  
|Installment                            |  |                | 6,159   |   |      |   | 5,946   |      |  |   | 5,398   |   |  |      | 5,008   |   |  |   | 4,527   |  
|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total                                  |  |                | 214,269 |   |      |   | 192,794 |      |  |   | 179,529 |   |  |      | 163,482 |   |  |   | 149,165 |  
|Allowance for loan losses              |  |                | (1,633  | ) |      |   | (1,249  | )    |  |   | (1,230  | ) |  |      | (1,264  | ) |  |   | (1,264  | )
|Deferred loan fees and costs, net      |  |                | (259    | ) |      |   | (320    | )    |  |   | (369    | ) |  |      | (418    | ) |  |   | (383    | )
|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Loans                                  |  | $              | 212,377 |   |      | $ | 191,225 |      |  | $ | 177,930 |   |  | $    | 161,800 |   |  | $ | 147,518 |  
|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  

The loan portfolio comprises the major portion of the Corporations earning assets. The increase in loans of
$21,152,000, or 11.1%, during 2008 was attributable to increases in all loan categories. Residential real estate grew by $8,646,000, commercial real estate which grew by $2,900,000, construction loans grew by $4,295,000, and commercial, financial,
and agricultural loans grew by $5,421,000.



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LOANS (CONTINUED)



The following table sets forth information on the contractual maturities for commercial and construction loans as of
the dates indicated:

Loan MaturitiesCommercial and Construction Loans

(In Thousands)



|                                       |  |                 |        |           |   |             |  |       |        |  |   |       
|-------------------------------------- |  | --------------- | ------ | --------- | - | ----------- |  | ----- | ------ |  | - | ------
|                                       |  | Less than 1Year |        | 1-5 Years |   | Over 5Years |  | Total
|Commercial, financial and agricultural |  | $               | 8,089  |           | $ | 7,056       |  | $     | 7,799  |  | $ | 22,944
|Real estate:                           |  |                 |        |           |   |             |  |       |        |  |   |       
|Commercial                             |  |                 | 2,406  |           |   | 2,242       |  |       | 36,579 |  |   | 41,227
|Construction                           |  |                 | 1,712  |           |   | 3,950       |  |       | 68     |  |   | 5,730 
|                                       |  |                 |        |           |   |             |  |       |        |  |   |       
|Total                                  |  | $               | 12,207 |           | $ | 13,248      |  | $     | 44,446 |  | $ | 69,901
|                                       |  |                 |        |           |   |             |  |       |        |  |   |       
|Loans with a fixed interest rate       |  | $               | 3,633  |           | $ | 12,874      |  | $     | 15,799 |  | $ | 32,306
|Loans with a variable interest rate    |  |                 | 8,574  |           |   | 374         |  |       | 28,647 |  |   | 37,595
|                                       |  |                 |        |           |   |             |  |       |        |  |   |       
|Total                                  |  | $               | 12,207 |           | $ | 13,248      |  | $     | 44,446 |  | $ | 69,901
|                                       |  |                 |        |           |   |             |  |       |        |  |   |       

The Corporation has a significant concentration of residential and commercial mortgage loans collateralized by
properties located in Juniata and Perry Counties of Pennsylvania and the surrounding area.



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NON-PERFORMING ASSETS

Non-performing assets include loans on a non-accrual basis, loans past due more than ninety days and still accruing, troubled debt restructurings and foreclosed real
estate. These groups of assets represent the asset categories posing the greatest risk of loss to the Corporation. Non-accruing loans are loans no longer accruing interest due to apparent financial difficulties of the borrower. The Corporation
generally discontinues accrual of interest when principal or interest becomes doubtful based on prevailing economic conditions and collection efforts. Loans are returned to accrual status only when all factors indicating doubtful collectibility
cease to exist. Troubled debt restructurings result when an economic concession has been made to a borrower taking the form of a reduction or deferral of interest and/or principal. As of December 31, 2008 and 2007, the Corporation had no
troubled debt restructurings. Potential problem loans include impaired loans that are not on non-accrual basis or past due more than 90 days and still accruing, which, as of December 31, 2008, totaled $111,000 and included 1 residential
mortgage, 1 commercial mortgage and 1 commercial loan. Foreclosed real estate is acquired through foreclosure or in lieu of foreclosure and is recorded at fair value at the date of foreclosure establishing a new cost basis. Gains on the sale of
foreclosed real estate are included in other income, while losses and writedowns resulting from periodic revaluations are included in other expenses.

The
following table sets forth the Corporations non-performing assets as of the dates indicated:

Non-Performing Assets

(Dollars in Thousands)



|                                                                   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |       |  
|------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ----- | - |  | - | ----- | -
|                                                                   |  | 2008 |        |   | 2007 |   |        | 2006 |  |   | 2005   |   |  | 2004 |      
|Non-accrual loans                                                  |  | $    | 2,623  |   |      | $ | 1,976  |      |  | $ | 2,532  |   |  | $    | 1,131 |   |  | $ | 504   |  
|Accruing loans 90 days past due                                    |  |      |       |   |      |   |       |      |  |   |       |   |  |      |      |   |  |   |      |  
|                                                                   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |       |  
|Total Non-Performing Loans                                         |  |      | 2,623  |   |      |   | 1,976  |      |  |   | 2,532  |   |  |      | 1,131 |   |  |   | 504   |  
|Foreclosed real estate                                             |  |      |       |   |      |   |       |      |  |   | 255    |   |  |      | 106   |   |  |   | 56    |  
|                                                                   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |       |  
|Total Non-Performing Assets                                        |  | $    | 2,623  |   |      | $ | 1,976  |      |  | $ | 2,787  |   |  | $    | 1,237 |   |  | $ | 560   |  
|                                                                   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |       |  
|Potential problem loans                                            |  | $    | 635    |   |      | $ | 1,812  |      |  | $ | 1,914  |   |  | $    | 1,336 |   |  | $ | 1,964 |  
|                                                                   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |       |  
|Ratios:                                                            |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |       |  
|Non-performing loans to total loans                                |  |      | 1.24   | % |      |   | 1.03   | %    |  |   | 1.42   | % |  |      | 0.70  | % |  |   | 0.34  | %
|Non-performing assets to total loans and foreclosed real estate    |  |      | 1.24   | % |      |   | 1.03   | %    |  |   | 1.56   | % |  |      | 0.76  | % |  |   | 0.38  | %
|Non-performing loans to allowance for loan losses                  |  |      | 160.62 | % |      |   | 158.21 | %    |  |   | 205.85 | % |  |      | 89.48 | % |  |   | 39.87 | %
|Non-accrual loans:                                                 |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |       |  
|Interest income that would have been recorded under original terms |  |      | 91     |   |      |   | 159    |      |  |   | 287    |   |  |      | 129   |   |  |   | 34    |  
|Interest income recorded during the year                           |  |      | 23     |   |      |   | 98     |      |  |   | 228    |   |  |      | 96    |   |  |   | 21    |  

Total non-performing assets at year-end 2008 increased $647,000 as a result of the increase in loans in
non-accrual status. This increase is primarily the result of a $487,000 increase in residential mortgage loans in non-accrual status.



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ALLOWANCE FOR LOAN LOSSES

The Bank has established a systematic methodology for the determination of the allowance for loan losses. The methodology is set forth in a formal policy and takes into
consideration the need for an overall general valuation as well as specific allowances that are tied to individual loans.

In originating loans, the Bank
recognizes that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the collateral for the loan.

The Banks evaluation of the adequacy of the allowance for loan losses includes a review of
all loans on at least a quarterly basis. For residential mortgage loans and consumer loans, the primary factors used to determine the adequacy of the allowance are delinquency, collateral value, general economic conditions and, where applicable,
individual borrower information that is known to the Bank. For commercial loans and commercial real estate loans, the review includes financial performance of the borrower, payment history, collateral value, general economic conditions and more
specific economic conditions affecting specific industries or business activities of the borrowers within the portfolio agreements.

Management maintains
an allowance for loan losses that it considers adequate based on the evaluation process that it performs on a quarterly basis. As part of this process, management considers it appropriate to maintain a portion of the allowance that is based on
credit quality trends, loan volume, current economic trends and other uncertainties. This portion of the allowance for loan losses is reflected as the unallocated portion in the table below that indicates the distribution of the allowance.

The allowance for loan losses is based on estimates and ultimate losses may vary from current estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the periods in which they become known.

The following tables set forth information on the
analysis of the allowance for loan losses and the allocation of the allowance for loan losses as of the dates indicated:

Analysis of
Allowance for Loan Losses

(Dollars in Thousands)



|                                       |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|-------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                       |  | Years Ended December 31,
|                                       |  | 2008                     |       |   | 2007 |   | 2006  |  | 2005 |       | 2004
|Beginning balance                      |  | $                        | 1,249 |   |      | $ | 1,230 |  | $    | 1,264 |      | $ | 1,264 |  | $ | 1,212
|Provision for loan losses              |  |                          | 365   |   |      |   | 60    |  |      |      |      |   | 30    |  |   | 121  
|Loans charged off:                     |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|Commercial, financial and agricultural |  |                          |      |   |      |   |      |  |      |      |      |   |      |  |   | 50   
|Real estate                            |  |                          |      |   |      |   | 21    |  |      | 24    |      |   | 18    |  |   |     
|Installment                            |  |                          | 9     |   |      |   | 22    |  |      | 15    |      |   | 14    |  |   | 22   
|                                       |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|Total Charged-off                      |  |                          | 9     |   |      |   | 43    |  |      | 39    |      |   | 32    |  |   | 72   
|                                       |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|Recoveries:                            |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|Commercial, financial and agricultural |  |                          |      |   |      |   |      |  |      |      |      |   |      |  |   |     
|Real estate                            |  |                          | 24    |   |      |   |      |  |      |      |      |   |      |  |   |     
|Installment                            |  |                          | 4     |   |      |   | 2     |  |      | 5     |      |   | 2     |  |   | 3    
|                                       |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|Total Recoveries                       |  |                          | 28    |   |      |   | 2     |  |      | 5     |      |   | 2     |  |   | 3    
|                                       |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|Net charge-offs (recoveries)           |  |                          | (19   | ) |      |   | 41    |  |      | 34    |      |   | 30    |  |   | 69   
|                                       |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      
|Ending balance                         |  | $                        | 1,633 |   |      | $ | 1,249 |  | $    | 1,230 |      | $ | 1,264 |  | $ | 1,264
|                                       |  |                          |       |   |      |   |       |  |      |       |      |   |       |  |   |      



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| |  | 48 |  | 





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ALLOWANCE FOR LOAN LOSSES (CONTINUED)





|                                         |  |                          |    |  |      |   |  |      |   |  |      |   |  |      |  
|---------------------------------------- |  | ------------------------ | -- |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                         |  | Years Ended December 31, |   
|                                         |  | 2008                     |    |  | 2007 |   |  | 2006 |   |  | 2005 |   |  | 2004 |  
|Ratios:                                  |  |                          |    |  |      |   |  |      |   |  |      |   |  |      |  
|Net charge-offs to average loans         |  | (0.01                    | )% |  | 0.02 | % |  | 0.02 | % |  | 0.02 | % |  | 0.06 | %
|Allowance for loan losses to total loans |  | 0.76                     | %  |  | 0.65 | % |  | 0.69 | % |  | 0.78 | % |  | 0.86 | %

Allocation of the Allowance for Loan Losses

(Dollars in Thousands)



|                                       |  |        |       |                                 |        |   |        |      |                                 |  |        |        |  |                                 |       |  |        |   |                                 |   |       |        |        |                                 |  |   |       |  |        |  
|-------------------------------------- |  | ------ | ----- | ------------------------------- | ------ | - | ------ | ---- | ------------------------------- |  | ------ | ------ |  | ------------------------------- | ----- |  | ------ | - | ------------------------------- | - | ----- | ------ | ------ | ------------------------------- |  | - | ----- |  | ------ | -
|                                       |  | 2008   |       |                                 | 2007   |   |        | 2006 |                                 |  | 2005   |        |  | 2004                            |      
|                                       |  | Amount |       | Percent ofLoanType toTotalLoans |        |   | Amount |      | Percent ofLoanType toTotalLoans |  |        | Amount |  | Percent ofLoanType toTotalLoans |       |  | Amount |   | Percent ofLoanType toTotalLoans |   |       | Amount |        | Percentof LoanType toTotalLoans | 
|Commercial, financial and agricultural |  | $      | 403   |                                 | 10.71  | % |        | $    | 357                             |  | 9.09   | %      |  | $                               | 314   |  | 9.30   | % |                                 | $ | 297   |        | 8.90   | %                               |  | $ | 286   |  | 8.66   | %
|Real estate:                           |  |        |       |                                 |        |   |        |      |                                 |  |        |        |  |                                 |       |  |        |   |                                 |   |       |        |        |                                 |  |   |       |  |        |  
|Commercial                             |  |        | 334   |                                 | 19.24  |   |        |      | 449                             |  | 19.88  |        |  |                                 | 448   |  | 19.85  |   |                                 |   | 365   |        | 20.57  |                                 |  |   | 338   |  | 21.17  |  
|Construction                           |  |        |      |                                 | 2.67   |   |        |      |                                |  | 0.75   |        |  |                                 |      |  |       |   |                                 |   |      |        | 0.02   |                                 |  |   |      |  | 0.07   |  
|Residential                            |  |        | 692   |                                 | 64.50  |   |        |      | 262                             |  | 67.20  |        |  |                                 | 235   |  | 67.84  |   |                                 |   | 224   |        | 67.45  |                                 |  |   | 262   |  | 67.07  |  
|Installment                            |  |        | 126   |                                 | 2.88   |   |        |      | 142                             |  | 3.08   |        |  |                                 | 139   |  | 3.01   |   |                                 |   | 128   |        | 3.06   |                                 |  |   | 26    |  | 3.03   |  
|Unallocated                            |  |        | 78    |                                 | N/A    |   |        |      | 39                              |  | N/A    |        |  |                                 | 94    |  | N/A    |   |                                 |   | 250   |        | N/A    |                                 |  |   | 352   |  | N/A    |  
|                                       |  |        |       |                                 |        |   |        |      |                                 |  |        |        |  |                                 |       |  |        |   |                                 |   |       |        |        |                                 |  |   |       |  |        |  
|Total                                  |  | $      | 1,633 |                                 | 100.00 | % |        | $    | 1,249                           |  | 100.00 | %      |  | $                               | 1,230 |  | 100.00 | % |                                 | $ | 1,264 |        | 100.00 | %                               |  | $ | 1,264 |  | 100.00 | %
|                                       |  |        |       |                                 |        |   |        |      |                                 |  |        |        |  |                                 |       |  |        |   |                                 |   |       |        |        |                                 |  |   |       |  |        |  

Management believes the allowance for loan losses at December 31, 2008 and 2007 is adequate to absorb losses
inherent in the loan portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary, and the results of operations could be
significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while the Bank believes it has established its existing allowance for loan losses in accordance with
accounting principles generally accepted in the United States of America, there can be no assurance that the Office of the Comptroller of the Currency or the Federal Reserve System, in reviewing our loan portfolio, will not request us to increase
our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that material increases
will not be necessary should the quality of loans deteriorate as a result of factors discussed above. Any material increase in the allowance for loan losses may adversely affect the Banks financial condition and results of operations.

With the change in current economic conditions, particularly the residential real estate market, management has reevaluated the economic factors as they
relate to the loan loss reserve analysis. As disclosed in the table above the allocation for residential real estate has increased dramatically in 2008 compared to 2007, as a result of increased qualitative factors in the reserve allocation,
reflective of a weakening economy and softening real estate market.

DEPOSITS

Management believes that the development and retention of deposits is the basis of sound growth and profitability. These deposits provide the primary source of funding
for loans and investments. The Corporations continued expansion and business development within its market area fueled the growth in deposits. As of December 31, 2008, deposits totaled $262,606,000 up $17,560,000 or 7.2%, from year-end
2007. Time deposits



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DEPOSITS (CONTINUED)



contributed most of the growth with a $10,989,000 or 6.3% increase. Demand deposits increased $4,182,000 and savings
deposits increased $2,389,000. The growth in deposits resulted from continuing bank-wide promotions.

BORROWINGS

Short-term borrowings at December 31 were as follows:



|                                                        |  |                        |        |   |      |   |        |      |  |   |       |  
|------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                        |  | 2008                   |        |   | 2007 |   |        | 2006 | 
|                                                        |  | (Dollars in Thousands) |       
|Amount outstanding at end of year:                      |  |                        |        |   |      |   |        |      |  |   |       |  
|Federal funds purchased                                 |  | $                      | 324    |   |      | $ |       |      |  | $ |      |  
|Securities sold under agreements to repurchase          |  |                        | 4,189  |   |      |   | 10,251 |      |  |   | 7,322 |  
|Short-term FHLB advances                                |  |                        | 6,000  |   |      |   |       |      |  |   |      |  
|Treasury tax and loan note                              |  |                        | 100    |   |      |   | 69     |      |  |   | 95    |  
|                                                        |  |                        |        |   |      |   |        |      |  |   |       |  
|                                                        |  | $                      | 10,613 |   |      | $ | 10,320 |      |  | $ | 7,417 |  
|                                                        |  |                        |        |   |      |   |        |      |  |   |       |  
|Weighted average interest rate at end of year           |  |                        | 0.78   | % |      |   | 3.63   | %    |  |   | 4.71  | %
|Maximum amount outstanding at any end of month          |  | $                      | 15,865 |   |      | $ | 11,234 |      |  | $ | 8,656 |  
|Daily average amount outstanding                        |  |                        | 9,147  |   |      |   | 8,344  |      |  |   | 7,064 |  
|Approximate weighted average interest rate for the year |  |                        | 1.85   | % |      |   | 4.47   | %    |  |   | 4.52  | %

Long-term borrowings increased $4,000,000 in 2008 due to the net increase in FHLB advances. Additional information
on borrowings is located in footnote 7 to the consolidated financial statement.

OFF-BALANCE SHEET
ARRANGEMENTS

The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and, to a lesser extent, standby letters of credit. At December 31, 2008, the Corporation had unfunded outstanding commitments to extend credit
of $31.8 million and outstanding standby letters of credit of $231,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future
cash requirements. Refer to footnote 12 of the consolidated financial statements for a discussion of the nature, business purpose and importance of the Corporations off-balance sheet arrangements.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity represents the Corporations ability to efficiently manage cash flows to support customers loan demand, withdrawals by depositors, the payment of operating expenses, as well as the ability to take
advantage of business and investment opportunities as they arise. Liquidity is essential to compensate for fluctuations in the balance sheet and provide funds for growth.

The primary sources of liquidity are the Corporations deposit base and a strong capital position. The stability of the deposits is reflected in a comparison of year-end balances to yearly averages. Deposits at
year-end 2008 totaled $262,606,000 and averaged $258,465,000 for the year; this is consistent with the increase in deposits for the year. Likewise, year-end 2007 deposits totaled $245,046,000 and averaged $234,404,000 for the year.



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LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)



Other sources of liquidity are available from investment securities maturing in one year or less, which totaled
$4,410,000 at year-end 2008 and from investments in mortgage-backed securities, which supply income and principal cash flow streams on an ongoing basis. Mortgage-backed securities represented 65.0% of the total amortized cost of securities as of
December 31, 2008. These sources provide the Corporation with adequate resources to meet its short-term liquidity requirements. Longer term liquidity needs may include selling securities available for sale, which had a fair value of $66,376,000
at December 31, 2008, selling loans or raising additional capital. In addition, the Corporation has established federal funds lines of credit at the Federal Home Loan Bank of Pittsburgh and the Atlantic Central Bankers Bank, which are reliable
sources for short and long-term funds. The maximum borrowing capacity through the Federal Home Loan Bank approximated $154,943,000 at December 31, 2008, of which $126,943,000 or 81.9% was available.

The Corporations loan to deposit ratio, for 2008, was maintained at an average of 79.0% and ended the year at 80.9% compared to an average of 78.4% in 2007 and
80.0% at the end of 2006.

The Corporations financial statements do not reflect various commitments that are made in the normal course of business,
which may involve some liquidity risk. These commitments consist mainly of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments. Commitments to extend credit, at December 31, 2008 totaled $31.8
million and standby letters of credit totaled $231,000.

The Corporation is not aware of any known trends or any known demands, commitments, events or
uncertainties, which would result in the liquidity increasing or decreasing in a material way.

The greater the capital resources, the more likely the
Corporation will be able to meet its cash obligations and unforeseen expenses. The Corporations strong capital position is related to the Corporations earnings stability. The dividend payout ratio was 31.2% in 2008, compared to 32.6% in
2007. Shareholders equity at the end of 2008 totaled $23,413,000, an increase of $1,880,000 or 8.7% over year-end 2007. The increase was a result of net income, an increase in the unrealized gain on securities available for sale, net of taxes
of $471,000, an increase in common stock and surplus of $58,000 as a result of our dividend reinvestment plan, partially offset by the dividend payout of $728,000, a decrease of $195,000 in retained earnings reflecting the cumulative effect
adjustment upon adaption of EITF 06-04 and the purchase of treasury stock of $62,000. Likewise, shareholders equity at the end of 2007 totaled $21,533,000, an increase of $1,859,000 or 9.4% over year-end 2006. The increase was a result of net
income, an increase in the unrealized loss on securities available for sale, net of taxes of $500,000, partially offset by the dividend payout of $658,000.

The table in footnote 11 to the financial statements sets forth the Corporations and Banks capital ratios as of December 31, 2008 and 2007. These ratios show that the Bank exceeds the federal regulatory minimum requirements
for a well capitalized bank. The minimum regulatory requirements of a well capitalized bank for the leverage ratio, Tier 1 and total risk-based capital ratios are 5.00%, 6.00% and 10.00%, respectively.

The Corporation is not under any agreement with the regulatory authorities nor is it aware of any current recommendations by the regulatory authorities that, if
implemented, would have a material effect on the Corporations capital, liquidity or its operations.

On January 8, 2008, the Board of Directors
of the Company authorized a stock repurchase program pursuant to which the Company is authorized to purchase up to 7.1% of its outstanding shares or 100,000 shares. Share repurchases will be made from time to time and may be effected through open
market purchases, block trades, or in privately negotiated transactions. As of December 31, 2008, the Corporation has purchased 2,050 shares under this repurchase program.

INFLATION

The impact of inflation upon banks differs from the impact upon non-banks. The majority of
assets and liabilities of a bank are monetary in nature and, therefore, change with movements in interest rates. The exact impact of



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inflation on the Corporation is difficult to measure. Inflation may cause operating expenses to increase at a rate not matched by increased earnings.
Inflation may also affect the borrowing needs of consumers, thereby affecting growth of the Corporations assets. Inflation may also affect the general level of interest rates, which could have an effect on the Corporations profitability.
However, as discussed previously, the Corporation strives to manage its interest sensitive assets and liabilities offsetting the effects of inflation.

Summary of Selected Financial Data

(Amounts in Thousands, Except Per Share Data)



|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                          |  | 2008 |         |   | 2007 |   |         | 2006 |  |   | 2005    |   |  | 2004 |        
|Income Statement Data                                     |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income                                       |  | $    | 9,004   |   |      | $ | 7,308   |      |  | $ | 7,016   |   |  | $    | 6,978   |   |  | $ | 6,994   |  
|Provision for loan losses                                 |  |      | 365     |   |      |   | 60      |      |  |   |        |   |  |      | 30      |   |  |   | 121     |  
|Gains on sales of securities                              |  |      |        |   |      |   |        |      |  |   | 24      |   |  |      | 299     |   |  |   | 133     |  
|Other income                                              |  |      | 2,296   |   |      |   | 2,107   |      |  |   | 1,896   |   |  |      | 1,663   |   |  |   | 1,497   |  
|Other expenses                                            |  |      | 7,978   |   |      |   | 6,838   |      |  |   | 6,510   |   |  |      | 6,286   |   |  |   | 5,761   |  
|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income before Income Taxes                                |  |      | 2,957   |   |      |   | 2,517   |      |  |   | 2,426   |   |  |      | 2,624   |   |  |   | 2,742   |  
|Income tax expense                                        |  |      | 621     |   |      |   | 500     |      |  |   | 461     |   |  |      | 553     |   |  |   | 619     |  
|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net Income                                                |  | $    | 2,336   |   |      | $ | 2,017   |      |  | $ | 1,965   |   |  | $    | 2,071   |   |  | $ | 2,123   |  
|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance Sheet Data (Period End)                           |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total assets                                              |  | $    | 326,714 |   |      | $ | 302,295 |      |  | $ | 278,520 |   |  | $    | 267,157 |   |  | $ | 247,655 |  
|Loans, net                                                |  |      | 212,377 |   |      |   | 191,225 |      |  |   | 177,930 |   |  |      | 161,800 |   |  |   | 147,518 |  
|Investments:                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Held to maturity                                          |  |      | 24,127  |   |      |   | 21,229  |      |  |   | 21,073  |   |  |      | 24,824  |   |  |   | 23,327  |  
|Available for sale                                        |  |      | 66,376  |   |      |   | 63,340  |      |  |   | 48,955  |   |  |      | 52,140  |   |  |   | 51,120  |  
|Deposits                                                  |  |      | 262,606 |   |      |   | 245,046 |      |  |   | 222,374 |   |  |      | 211,944 |   |  |   | 203,130 |  
|Short-term borrowings                                     |  |      | 10,613  |   |      |   | 10,320  |      |  |   | 7,417   |   |  |      | 8,937   |   |  |   | 4,449   |  
|Long-term borrowings                                      |  |      | 27,155  |   |      |   | 23,155  |      |  |   | 27,155  |   |  |      | 26,155  |   |  |   | 21,155  |  
|Shareholders equity                                      |  |      | 23,413  |   |      |   | 21,533  |      |  |   | 19,674  |   |  |      | 18,332  |   |  |   | 17,408  |  
|                                                          |  |      |         |   |     
|Per Share Data                                            |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic earnings                                            |  | $    | 1.67    |   |      | $ | 1.44    |      |  | $ | 1.40    |   |  | $    | 1.48    |   |  | $ | 1.52    |  
|Cash dividends declared                                   |  |      | 0.52    |   |      |   | 0.47    |      |  |   | 0.43    |   |  |      | 0.39    |   |  |   | 0.35    |  
|Book value                                                |  |      | 16.73   |   |      |   | 15.38   |      |  |   | 14.05   |   |  |      | 13.10   |   |  |   | 12.43   |  
|Weighted average common shares outstanding                |  |      | 1,400   |   |      |   | 1,400   |      |  |   | 1,400   |   |  |      | 1,400   |   |  |   | 1,400   |  
|                                                          |  |      |         |   |     
|Selected Ratios                                           |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Return on average assets                                  |  |      | 0.73    | % |      |   | 0.70    | %    |  |   | 0.72    | % |  |      | 0.81    | % |  |   | 0.89    | %
|Return on average shareholders equity                    |  |      | 10.52   | % |      |   | 9.91    | %    |  |   | 10.50   | % |  |      | 11.59   | % |  |   | 12.77   | %
|Average equity to average assets                          |  |      | 6.96    | % |      |   | 7.05    | %    |  |   | 6.88    | % |  |      | 6.98    | % |  |   | 6.93    | %
|Allowance for loan losses to total loans at end of period |  |      | 0.76    | % |      |   | 0.65    | %    |  |   | 0.69    | % |  |      | 0.78    | % |  |   | 0.86    | %
|Dividend payout ratio                                     |  |      | 31.14   | % |      |   | 32.62   | %    |  |   | 30.64   | % |  |      | 26.36   | % |  |   | 23.08   | %



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DIRECTORS

FIRST COMMUNITY FINANCIAL CORPORATION

and

THE FIRST NATIONAL BANK OF MIFFLINTOWN

JOHN P. HENRY, III

Chairman of the Board of Directors of the Company and the Bank;

Vice President of JPH Enterprises, LLC, Port Royal, PA

ROGER SHALLENBERGER

Vice Chairman of the Board of Directors of the Company and the Bank;

President of KSM Enterprises

JODY D. GRAYBILL

President of the Company and the Bank; Trust Officer of the Bank

LOWELL M. SHEARER

Secretary of the Board of Directors of the Company and the

Bank; Self-employed timber, logs, logging and log hauling

JAMES R. McLAUGHLIN

Chairman Emeritus of the Board of Directors of the Company and the Bank;

Retired President and Chief Executive Officer of the Company and the Bank

JOSEPH E. BARNES, SR.

Owner/Operator of Barnes Body Shop, Thompsontown, PA

NANCY S. BRATTON

Owner of Bratton Insurance
Agency, Millerstown, PA

SAMUEL G. KINT

Retired businessman

CHARLES C. SANER

Dairy Farmer

DAVID L. SWARTZ

County Extension Director and Senior Dairy Educator for Penn State Cooperative Extension in Perry

and
Cumberland Counties

FRANK L. WRIGHT

Attorney-at-Law, Harrisburg, PA



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Officers

FIRST COMMUNITY FINANCIAL CORPORATION

JOHN P. HENRY, III

Chairman

ROGER SHALLENBERGER

Vice Chairman

JODY D. GRAYBILL

President

LOWELL M. SHEARER

Secretary

RICHARD R. LEITZEL

Treasurer

JENNIFER S. KAUFFMAN

Assistant Secretary



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OFFICERS

THE FIRST NATIONAL BANK OF MIFFLINTOWN

JODY D. GRAYBILL

President and Trust Officer

K. LEE HOPKINS

Senior Vice President and Credit Services Division Manager

KIMBERLY A. BENNER

Vice President and Trust and Investment Services Division Manager

RICHARD R. LEITZEL

Vice President and Chief
Financial Officer

DAVID S. RUNK

Vice President and Senior Risk Manager

TIMOTHY P. STAYER

Vice President and Community Banking Services Division Manager

SCOTT E. FRITZ

Vice President and Commercial Loan Officer

PATTI L. MCLAUGHLIN

Assistant Vice President and Commercial Loan Officer

FLORENCE E. DRESSLER

Assistant Vice President
and Community Office Manager, Fermanagh Office

AUDRA L. HUNTER

Assistant Vice President and Community Office Manager, Loysville, New Bloomfield and

Bloomfield Borough
Offices

ROY A. LEISTER, JR.

Assistant Vice President and Community Office Manager, Delaware Office

BRADLEY D. SHERMAN

Assistant Vice President and Community Office Manager, West Perry and Ickesburg Offices

DIANE E. ZEIDERS

Assistant Vice President and Community Office Manager, Tuscarora
Valley and East Waterford Offices

NANCI A. LOUDENSLAGER

Assistant Vice President and Risk Manager/Security and AML Officer

DUNCAN A. MACRAE

Assistant Vice President and Credit Administration Manager

TINA J. SMITH

Assistant Vice President and Human Resources Manager

NANETTE W. STAKE

Assistant Vice President and
IT Manager and IT Security Officer

CHRISTOPHER W. MEALS

Community Office Manager, Mifflintown Office

KIM W. MILLS

Community Office Manager, Shermans Dale Office

ADAM E. TRUITT

Assistant Trust Officer

JENNIFER S. KAUFFMAN

Assistant Secretary



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DIRECTORS EMERITI AND ADVISORY
BOARDS

DIRECTORS EMERITI

DONALD Q. ADAMS

DALE BEASTON

HARRY E. CLARK

ELWOOD S. HENCH

RAYMOND T. LONG

JANE B. MARHEFKA

JAMES L. MCCLURE

CLAIR E. MCMILLEN

PHYLLIS S. MOHLER

GEORGE L. SETTLEMYER

ROBERT E. SHEAFFER

JOHN A.
TETWILER

H. SCOTT WEIBLEY

A.
JACK WELLER

RICHARD L. WIBLE

ADVISORY BOARDS

DELAWARE OFFICE

JOHN M. AUKER

DENNIS L. BASSLER

C. ROBERT HOCKENBROCK

MERVIN J. STRAWSER

FERMANAGH OFFICE

DANIEL B. BROWN

RONALD H. MAST

RICHARD E. RHINE

SAMUEL RITZMAN

ALAN E. VARNER

TUSCARORA VALLEY AND EAST WATERFORD OFFICES

WILLIAM A. GILLILAND

NORMAN F. LOVE

JAMES M. SHEAFFER

BARBARA G. WILSON

NEW BLOOMFIELD, SHERMANS DALE AND BLOOMFIELD BOROUGH OFFICES

WILLIAM R. BUNT

DARWIN L. KITNER

JOHN K.
MCCLELLAN

FRED E. MORROW

JAMES
E. SWENSON

WEST PERRY, ICKESBURG AND LOYSVILLE OFFICES

DAVID M. MCMILLEN

CHARLES C. NYCE

TERRY K. URICH

FLOYD H. WEARY



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BANK LOCATIONS

First Community Financial Corporation

and Wholly Owned Subsidiary,

The First National Bank of Mifflintown

The First National Bank of Mifflintown is a full-service financial institution

serving customers from five locations in Juniata
County and six locations in Perry County.

MAIN OFFICE

Two North Main Street

Mifflintown, PA 17059

717-436-2144

BLOOMFIELD BOROUGH OFFICE

216 South Carlisle Street

New Bloomfield, PA

717-582-3977

DELAWARE
OFFICE

1 1/2miles North of Interchange Routes 333 and 22/322

717-535-5158

EAST WATERFORD OFFICE

Route 75, East
Waterford, PA

717-734-2400

FERMANAGH OFFICE

Interchange Routes 35 and 22/322

717-436-8968

ICKESBURG OFFICE

Route 17, Ickesburg, PA

717-438-3050

LOYSVILLE OFFICE

Intersection Routes 850 and 274

717-789-2400

NEW BLOOMFIELD OFFICE

Intersection Route 274 West and Cold Storage Road

717-582-7599

SHERMANS DALE OFFICE

Intersection Routes 34 and 850

717-582-7424

TUSCARORA VALLEY OFFICE

Intersection Routes 75 and Old 22/322

717-436-8947

WEST PERRY OFFICE

Intersection Routes 74 and 274

717-789-4500



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Stock and Dividend Information

The Corporation has only one class of common stock authorized, issued and outstanding. Although shares of the Corporations common stock are traded from time to time in private transactions, there is no
established public trading market for the stock. The Corporations common stock is not listed on any stock exchange or automated quotation system and there are no present plans to so list the stock. There can be no assurance that, at any given
time, any persons will be interested in acquiring shares of the Corporations common stock. Price quotations for the Corporations common stock do not appear in any generally recognized investment media.

The Corporation pays dividends on the outstanding shares of our common stock as determined by the Board of Directors from time to time. It has been the practice of the
Board of Directors to declare cash dividends on a quarterly basis. Future dividends will depend upon our earnings, financial position, cash requirements and such other factors as the Board of Directors may deem relevant. The following table sets
forth the cash dividends declared per share of the Corporations common stock and the highest and lowest per share prices at which the Corporations common stock has actually traded in private transactions during the periods indicated. To
the best of managements knowledge, such prices do not include any retail mark-up, mark-down or commission. Shares may have been sold in transactions, the price and terms of which are not known to the Corporation. Therefore, the per share
prices at which the Corporations stock has previously traded may not necessarily be indicative of the true market value of the shares.



|            |  |                      |       |                    |   |       |  |   |      
|----------- |  | -------------------- | ----- | ------------------ | - | ----- |  | - | -----
|            |  | Per ShareSales Price |       | Dividendsper Share
|Quarter     |  | High                 |       | Low                |  
|            |  |                      |      
|First, 2008 |  | $                    | 31.50 |                    | $ | 31.00 |  | $ | 0.125
|            |  |                      |      
|Second      |  |                      | 31.50 |                    |   | 30.00 |  |   | 0.125
|            |  |                      |      
|Third       |  |                      | 31.50 |                    |   | 29.50 |  |   | 0.135
|            |  |                      |      
|Fourth      |  |                      | 31.00 |                    |   | 29.50 |  |   | 0.135
|            |  |                      |      
|First, 2007 |  | $                    | 31.00 |                    | $ | 30.00 |  | $ | 0.115
|            |  |                      |      
|Second      |  |                      | 31.00 |                    |   | 30.00 |  |   | 0.115
|            |  |                      |      
|Third       |  |                      | 31.00 |                    |   | 31.00 |  |   | 0.120
|            |  |                      |      
|Fourth      |  |                      | 31.50 |                    |   | 31.00 |  |   | 0.120

The authorized common stock of the Corporation consists of 10,000,000 shares of common stock, par value $5.00 per
share, of which 1,399,868 shares were outstanding at December 31, 2008. There were no shares of the Corporations common stock (i) that are subject to outstanding options, warrants or securities convertible into common stock;
(ii) that the Corporation has agreed to register under the Securities Act for sale by security holders; or (iii) that are or have been proposed to be publicly offered by the Corporation. The Corporation had approximately 656 shareholders
of record as of December 31, 2008.

The following graph shows a comparison of the cumulative total return on Corporation common stock for the period
ending December 31, 2003 through December 31, 2008, as compared to the Nasdaq Composite Index and the Nasdaq Bank index. Shareholder returns on Corporation common stock are based upon reports to the Corporation by shareholders that bought
or sold shares during the indicated period. The Corporation is not aware of all prices at which shares traded during this period. The shareholder returns shown in the graph are not necessarily indicative of future performance.



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Stock and Dividend Information (continued)

LOGO



|                                      |  |               |        |          |   |          |  |          |        |          |   |          |  |   |        |  |   |       
|------------------------------------- |  | ------------- | ------ | -------- | - | -------- |  | -------- | ------ | -------- | - | -------- |  | - | ------ |  | - | ------
|                                      |  | Period Ending
|Index                                 |  | 12/31/03      |        | 12/31/04 |   | 12/31/05 |  | 12/31/06 |        | 12/31/07 |   | 12/31/08
|First Community Financial Corporation |  | $             | 100.00 |          | $ | 112.20   |  | $        | 135.53 |          | $ | 137.42   |  | $ | 141.76 |  | $ | 141.83
|Nasdaq Composite Index                |  | $             | 100.00 |          | $ | 108.59   |  | $        | 110.08 |          | $ | 120.56   |  | $ | 132.39 |  | $ | 78.72 
|Nasdaq Bank Index                     |  | $             | 100.00 |          | $ | 110.99   |  | $        | 106.18 |          | $ | 117.87   |  | $ | 91.85  |  | $ | 69.88 

The performance illustrated assumes that $100 was invested in Corporation common stock and each index on
December 31, 2003 and that all dividends were reinvested.

Annual Report on Form 10-K

The Corporations Annual Report on Form 10-K, which contains additional information about the Corporation, was filed with the Securities & Exchange
Commission and may be obtained without charge, by writing to:

Mr. Richard R. Leitzel

Vice President & Chief Financial Officer

First Community Financial Corporation

P.O. Box 96

Mifflintown, PA 17059

The Form 10-K is also
available on the Securities & Exchange Commissions Internet site at http://www.sec.gov.

Notice of Annual Meeting

The Annual Meeting of Shareholders of the Corporation will be held on Tuesday, April 14, 2009, beginning at 10:00 a.m., at: Cedar Grove Brethren in Christ Church,
located near the PA Route 75 and U.S. Route 22/322 interchange in Mifflintown, Pennsylvania. A Notice of the Annual Meeting, Proxy Statement and Proxy are being delivered together with this Annual Report to shareholders entitled to vote at the
meeting.



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