<PAGE>

                             SETTLEMENT AGREEMENT


     Michael D. Edwards and Marieke G. Edwards, individually as "Mr. Edwards" 
and "Mrs. Edwards", respectively, and collectively as "the Edwards", and 
First Community Bank and First Community Financial Group, collectively as 
"the Bank", intending to settle and resolve all possible disputes related in 
any way to Mr. Edwards' employment by the Bank or Prairie Security Bank, 
memberships on the Bank Boards or Prairie Security Bank's Board of Directors, 
and/or any other relationships with the Bank and/or Prairie Security Bank and 
the ending of those relationships, and/or related in any way to Mr. Edwards' 
Bank stock options and stock, agree as follows:

     1.   All parties acknowledge that they enter into this Agreement 
knowingly and voluntarily with advice of counsel.  As contemplated by the 
federal Age Discrimination in Employment Act ("ADEA"), Mr. Edwards 
specifically acknowledges that he has had sufficient time to consider 
carefully the terms of this Agreement and to consult with an attorney of his 
choice, which he is hereby advised to do before signing this Agreement.

     2.   Mr. Edwards' thirty days of paid administrative leave ended July 
18, 1997, which date is deemed to be the effective date of his resignations 
from Bank employment and Bank Board memberships.  Mr. Edwards hereby confirms 
his resignations from said employment and Board positions and agrees to 
complete any necessary forms to reflect his resignations.  Mr. Edwards agrees 
not to seek rehire as an employee of the Bank or to seek a position on either 
Bank Board. Mr. Edwards acknowledges that his salary has been paid through 
the last day of his administrative leave.

     3.   So long as the Edwards are not in breach of this Agreement, the 
Bank agrees to do the following:

          a.   Within two business days after receipt by Bank counsel Alice F.
     Gustafson of properly executed duplicate originals of this Agreement,
     including the attached Non-Revocation Statement, deliver to the Edwards'
     counsel, Cynthia D. Turner, a check for $130,000 for general compensatory
     damages, payable to Owens Davies Mackie, P.S. in Trust for Michael D.
     Edwards, and a check for $30,000 for attorneys' fees, payable to Owens
     Davies Mackie, P.S.

          b.   For the period beginning August 1, 1997 and ending December 31,
     2001, pay Mr. Edwards as general compensatory damages and in consideration
     for the noncompete provisions in paragraph 15 below one hundred six (106)
     payments of $3,490.57 each, payable semi-monthly.  Although not wages, the
     parties agree that for the Bank's convenience, such payments will be made
     on the Bank's regular semi-monthly paydays during said period, except that
     any payment due prior to the 


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     execution by the Edwards of this Agreement will be made to Mr. Edwards 
     within two business days following the receipt by Ms. Gustafson of 
     properly executed duplicate originals of this Agreement.  Payments 
     pursuant to this paragraph will be made by mailing checks to Mr. Edwards 
     at his residence.

          c.   For the period beginning August 1, 1997 and ending December 31,
     2001, pay $160 per month to Mr. Edwards to defray the cost of any medical
     insurance coverage Mr. Edwards may elect to continue under COBRA or may
     otherwise purchase.  Payments pursuant to this paragraph will be made by
     mailing checks each month on the first of the Bank's two regular
     semi-monthly paydays to Mr. Edwards at his residence, except that any
     payment due prior to the execution by the Edwards of this Agreement will
     be made to Mr. Edwards within two business days following the receipt by
     Ms. Gustafson of properly executed duplicate originals of this Agreement.

The Bank will also provide one fully executed original of this Settlement 
Agreement to Ms. Turner as soon as reasonably practical.

     4.   The Bank agrees to buy, and the Edwards agree to sell, the Edwards' 
present 3,949 shares of Bank stock, together with any additional shares 
distributed as stock dividends on said shares, for a cash price of $80,000 no 
earlier than February 10, 1998 and no later than July 1, 1998.

     5.   The Bank hereby extends the deadline to July 1, 1999 for the 
exercise by Mr. Edwards of his presently vested stock options for 15,657 
shares.  In all other respects, the terms of said options, including without 
limitations, those provisions regarding adjustments based on changes in 
capitalization, remain the same.  The parties acknowledge that the current 
exercise price for such options is $8.18 per share.

     6.   The parties agree that any stock options of Mr. Edwards which were 
not vested as of July 18, 1997, including those for 40,000 shares granted 
pursuant to Mr. Edwards' Employment Agreement with the Bank dated September 
11, 1996 and those for 7,829 shares granted pursuant to an agreement between 
Mr. Edwards and Prairie Security Bank are canceled upon execution by all 
parties of this Agreement.  The Edwards acknowledge that there are no other 
unvested options.

     7.   The Bank agrees to pay the full mediation fee for the mediation 
conducted by Elizabeth Martin.


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     8.   Mr. Edwards agrees to purchase the Bank automobile he presently 
uses for $23,600, which amount shall be offset against the payment to be made 
by the Bank pursuant to paragraph 3a above.

     9.   With the exception of the laptop computer and the pager currently 
in his possession, Mr. Edwards agrees to return all Bank keys, credit cards, 
cellular telephones and other property of the Bank which he may have, or have 
control of, by delivering same no later than the time of his execution of 
this Agreement to Ms. Turner, who will make such items immediately available 
to the Bank.  Mr. Edwards agrees to purchase the pager for $50, which amount 
shall be offset against the payment to be made under paragraph 3a above.  
Further, the Bank may offset against the payment to be made by it pursuant to 
paragraph 3a above, monies Mr. Edwards owes to the Bank to settle his expense 
accounts.  Mr. Edwards will promptly pay any of his expenses reflected on 
credit card statements received after the date of this Agreement.  In 
addition, Mr. Edwards is responsible for all personal charges on his credit 
card, pager and cellular telephones, regardless of when incurred.  All such 
charges and all other sums, if any, which Mr. Edwards owes the Bank, may be 
offset against sums owed him by the Bank pursuant to this Agreement.  The 
Bank will provide documentation of any such charges and offsets to Mr. 
Edwards.

     10.  The Bank has delivered Mr. Edwards' mail and the personal 
possessions from his Bank office to Ms. Turner.  The Bank agrees to forward 
any personal mail that it receives in the future for Mr. Edwards to his 
residence.

     11.  Mr. Edwards agrees to cooperate with the Bank and its attorneys in 
the Bank's defense of any and all litigation and disputes which are based on 
events that occurred during the term of his employment by the Bank or Prairie 
Security Bank, as the case may be, including but not limited to the presently 
pending lawsuit by Plaintiff Jamie Riveness.  Mr. Edwards acknowledges that 
he will not be paid a fee by the Bank for his time spent in complying with 
this paragraph, other than statutorily provided witness fees and expenses.

     12.  The parties agree that the First Community Bank of Washington 
Employment Agreement for Mr. Edwards dated September 11, 1996 is terminated 
and the terms of this Agreement are intended to supersede the terms of said 
Employment Agreement.  With respect to rights under his Executive 
Supplemental Income Agreement, the parties agree that Mr. Edwards, at 
retirement, is entitled to the Actuarially Determined Amount of his 
Retirement Benefit accrued through June 18, 1997, which the parties agree is 
$15, 104.10.  Said Retirement Benefit of $15,104.10 is to be paid as a lump 
sum upon Mr. Edwards' request but no later than within a reasonable period 
after he attains age 65.  Further, the parties agree that the Death Benefit 
provided by Mr. Edwards' Executive Supplemental Income Agreement is $33,908 
in the first year following his death, $25,431 


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<PAGE>

for each of the next four years and $16,954 for each of the next ten years 
after that, but that Mr. Edwards is entitled to such Death Benefit only if he 
dies prior to receiving said Retirement Benefit.  The Bank acknowledges that 
nothing in this Agreement is intended to be a waiver of Mr. Edwards' rights 
in his 401(k) plan or KSOP.

     13.  Mr. Edwards acknowledges that in the course of his employment with 
First Community Bank and Prairie Security Bank and his service as a member of 
the Bank Boards of Directors and of the Prairie Security Bank Board of 
Directors, he has obtained knowledge of confidential information and other 
secrets concerning the Bank and Prairie Security Bank and their business and 
affairs which are valuable to the Bank and which it does not want disclosed. 
Mr. Edwards promises to maintain all such information on a confidential basis 
and not to disclose it to any third party, without the Bank's express written 
consent.  This promise of Mr. Edwards is intended to and will apply in the 
broadest sense possible to information regarding the Bank's business 
activities and customers and is not intended to be limited solely to matters 
which might meet the legal definition of "trade secrets" under Washington 
law.  Confidential information shall not include any information which is 
otherwise in the public domain or which was lawfully received by Mr. Edwards 
from a source other than the Bank, which source was not under any obligation 
of confidentiality to the Bank.

     14.  Through the period ending December 31, 2001, Mr. Edwards shall not 
induce or attempt to induce any Bank employee to leave the employ of the Bank 
or in any way interfere with the relationship between the Bank and any 
employee of the Bank.  Further, through the period of payments to be made 
pursuant to paragraphs 3b and 3c above, Mr. Edwards agrees not to induce or 
attempt to induce any customer, shareholder, trade association, supplier, 
licensee, or other person or business to change its relationship with the 
Bank.

     15.  The parties agree to the following noncompete provisions:

          a.   Until the end of the period of payments to be made pursuant to
     paragraphs 3b and 3c above, Mr. Edwards shall not in Thurston, Pierce,
     Lewis, Mason or Grays Harbor Counties (the "Noncompetition Area"):
     a) engage in efforts to organize or invest in a new financial institution
     (for purposes of this Agreement, "financial institution" is defined to be a
     bank, mortgage company, or other entity in the business of making
     commercial, consumer or real estate loans or loan equivalents) or b) work
     as an executive or senior level officer, manager, loan officer, loan
     representative or consultant or seek business for a financial institution.

          b.   If Mr. Edwards has violated these noncompete provisions, the Bank
     will advise him in writing and Mr. Edwards will have ten calendar days
     following the date of such notice to cure such violation.  The Bank may not
     exercise any 


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<PAGE>

     remedies hereunder unless and until such ten day period has expired 
     without cure of such violation.

          c.   Mr. Edwards agrees to submit annually by April 15 of each year
     copies of all W-2 and 1099 forms reporting income paid to him during the
     previous tax year and copies of the first two pages of his completed 1040
     form for said year to his counsel, who will then verify that all W-2 and
     1099 forms have been included.  Said counsel will then forward copies of
     all of said W-2 and 1099 forms (amounts paid may be redacted) to Graham &
     Dunn at its Seattle office, together with said counsel's certification that
     the income shown on the W-2 and 1099 forms is consistent with the 1040. 
     The Bank acknowledges that Graham & Dunn will not advise the Bank of any
     information in such forms, unless the firm in good faith perceives a breach
     of this Agreement.  The obligations in this paragraph apply only to tax
     years in which Mr. Edwards is subject to these noncompete provisions, for
     either the entire year or part of it.

          d.   After July 15, 1999, Mr. Edwards may engage in activity
     prohibited by these noncompete provisions, but all Bank payment obligations
     pursuant to paragraphs 3b and 3c above will cease as of the date of his
     first engaging in such activity.  Mr. Edwards agrees to give the Bank
     reasonable advance notice of his intent to engage in such activity.

          e.   Mr. Edwards' activities in various national trade associations
     (including their for-profit subsidiaries which may serve financial
     institutions in the Noncompetition Area, but excluding those for-profit
     subsidiaries which may provide services in competition with the Bank) or
     his service as an expert witness (other than in litigation against or
     involving the Bank) or consultant to law firms on specific litigation
     (other than on litigation against or involving the Bank) shall not
     constitute violations of these noncompete provisions.

          f.   The parties agree that if a trial judge with jurisdiction over a
     dispute related to this Agreement should determine that the noncompete
     provisions set forth in this Agreement are unreasonably broad, the parties
     authorize said trial judge to narrow same so as to make them reasonable,
     given all relevant circumstances, and to enforce same.

     16.  Mr. Edwards acknowledges that his breach of paragraphs 13, 14 or 15 
above would cause irreparable injury and damage which cannot be reasonably or 
adequately compensated by damages.  Therefore, in addition to any other 
remedies available to the Bank, Mr. Edwards agrees that the Bank will have 
the right to seek to enjoin any acts contrary to the terms of those 
paragraphs and that injunctive relief would be an appropriate remedy.


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<PAGE>

     17.  The Bank's obligations hereunder are in full settlement of any and 
all claims in connection with Mr. Edwards' employment by First Community Bank 
and Prairie Security Bank, memberships on the Bank Boards and Prairie 
Security Bank's Board of Directors, and/or any other relationships with the 
Bank and/or Prairie Security Bank and the ending of those relationships and 
in connection with the Edwards' Bank stock and Mr. Edwards' stock options 
which were not vested as of July 18, 1997, including but not limited to any 
claims which could be made under any stock option agreement, any implied or 
express contract, the ADEA, or any other federal, state or local law 
(statutory or common).  The Edwards accept the Bank's undertakings in this 
Agreement as full settlement of any and all such claims against the Bank 
and/or its shareholders, directors (in their capacity as directors), and 
employees, known or unknown, including but not limited to any claim for 
attorneys' fees.  The Edwards realize this constitutes a full and final 
settlement of any and all such claims, and, except only for the obligations 
undertaken in this Agreement, this settlement releases the Bank (and its 
shareholders, directors (in their capacity as directors) and employees, and 
anyone else against whom the Edwards could assert a claim related to said 
relationships and their ending, and the spouses and marital communities of 
all such individuals), from any further liability to the Edwards (or to 
anyone whom either has the power to bind in this settlement) in connection 
with such claims. This settlement is not an admission that the Bank or any 
other person or organization violated any law or failed to fulfill any duty 
to the Edwards.

     18.  The Edwards' obligations hereunder are in full settlement of any 
and all claims in connection with Mr. Edwards' employment with First 
Community Bank and Prairie Security Bank and memberships on the Bank's Boards 
and Prairie Security Bank's Board of Directors, and/or any other 
relationships with the Bank and/or Prairie Security Bank and the ending of 
those relationships, including but not limited to any claims which could be 
made under any implied or express contract or any other federal, state or 
local law (statutory or common), but excluding any claims arising from acts 
and omissions which were intentional and contrary to statutory or common law 
or which resulted in an improper personal benefit to Mr. Edwards.  The Bank 
accepts the Edwards' undertakings in this Agreement as full settlement of any 
and all such claims against the Edwards, known or unknown, including but not 
limited to any claim for attorneys fees. The Bank realizes this constitutes a 
full and final settlement of any and all such claims, and, except only for 
the obligations undertaken in this Agreement, this settlement releases the 
Edwards (and anyone else against whom the Bank could assert a claim related 
to said relationships and their ending, and the spouses and marital 
communities of all such individuals), from any further liability to the Bank 
(or to anyone the Bank has the power to bind in this settlement) in 
connection with such claims.  This settlement is not an admission that the 
Edwards violated any law or failed to fulfill any duty to the Bank.

     19.  The parties acknowledge that the mutual releases set forth in the 
above two paragraphs are not intended to abridge or alter any indemnification 
rights Mr. Edwards may have for his service as a member of the Bank's Boards 
or the Board of Prairie Security 


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<PAGE>

Bank as provided in the Articles of Incorporation and Bylaws of the Bank as of 
the date of this Agreement or as they may hereafter be amended.

     20.  In the absence of a valid court order requiring disclosure or as 
otherwise required to comply with the law, the Edwards agree to keep 
confidential the negotiations regarding the terms of this Agreement and the 
terms themselves, except only as to the Edwards' attorneys and financial 
advisors, who shall be instructed by the Edwards to keep same confidential as 
well.  In the absence of a valid court order requiring disclosure or as 
otherwise required to comply with the law, the Bank agrees to keep 
confidential the negotiations regarding the terms of this Agreement and the 
terms themselves, except only a) as to present and future employees who have 
a need to know and present and future Bank Board members, attorneys and 
accountants, all of whom shall be instructed by the Bank to keep same 
confidential as well, and b) in those instances where the Bank in its good 
faith business judgment is required to make disclosures.

     21.  The parties agree that their comments to persons or entities not 
covered by the exceptions to the confidentiality provisions in paragraph 20 
above will be limited to the substance of the material contained in the 
attached Joint Statement.  In other words, for example, if Mr. Edwards is 
asked to comment on his separation from the Bank by anyone other than his 
attorneys or financial advisors, his comments will be limited to the 
substance of the material contained in said Joint Statement.

     22.  The parties shall refrain from making any disparaging remarks or 
statements about each other.

     23.  In the event of a dispute regarding the terms of this Agreement and 
compliance with it, the parties agree to submit any such disputes to 
mediation by a mutually acceptable mediator and then, if such dispute is not 
resolved fully by mediation, to binding arbitration, the latter to be 
conducted in accordance with the Commercial Arbitration Rules of the American 
Arbitration Association.  The parties agree that the substantially prevailing 
party in any such dispute shall be entitled to recover its/their costs and 
reasonable attorneys' fees from the other party(ies).

     24.  The release provisions of this Agreement will remain in full force 
and effect, except only to the extent revoked by Mr. Edwards pursuant to 
paragraph 26 below, even if a provision of this Agreement is breached.


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     25.  The invalidity or unenforceability of all or part of any provision 
of this Agreement will in no way affect the validity or enforceability of any 
other provision of this Agreement.

     26.  Mr. Edwards understands that he may revoke his release of claims 
under the ADEA during the seven days following his signing of this Agreement. 
 He further understands that the release of any ADEA claims will not become 
effective or enforceable and the Bank will not be obligated to make the 
payments specified in paragraph 3a above until the seven day revocation 
period has expired and he has properly executed the attached Non-Revocation 
Statement.

     27.  This Agreement shall be binding upon the parties hereto, the 
Edwards' heirs, and the Bank's successors and assigns.  Without limiting the 
foregoing, the Bank acknowledges and agrees that all payments due Mr. Edwards 
hereunder shall continue to be paid in accordance with this Agreement 
notwithstanding his death.

     28.  Any demand, request or notice which either party hereto desires or 
may be required to make or deliver to the other shall be in writing and shall 
be deemed given when delivered by facsimile, personally delivered, delivered 
by private courier service (such as Federal Express), or three days after 
being deposited in the United States Mail in registered or certified form, 
return receipt requested, addressed as follows:


               To Edwards:         Michael D. Edwards
                                   920 East Bay, Unit 3D-301
                                   Olympia WA 98506

               With a copy to:     Owens Davies Mackie, P.S.
                                   926 24th Way SW
                                   P.O. Box 187
                                   Olympia WA 98507
                                   Attn:  Brian L. Budsberg


               To the Bank:        First Community Bank
                                   721 College Street SE
                                   P.O. Box 3800
                                   Lacey WA 98509-3800
                                   Attn:  Ken F. Parsons, Sr.


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               With a copy to:     Graham & Dunn PC
                                   1420 Fifth Avenue, 33rd Floor
                                   Seattle WA 98101
                                   Attn:  Alice F. Gustafson

or to such other single address and person as either party may communicate to 
the other by like written notice.


               EXECUTED as of the dates indicated below.



                                   FIRST COMMUNITY BANK



Date:____________________          By_________________________________

                                   Its________________________________


                                   FIRST COMMUNITY FINANCIAL GROUP



Date:____________________          By_________________________________

                                   Its________________________________



Date:____________________          ___________________________________
                                   MICHAEL D. EDWARDS



Date:____________________          ____________________________________
                                   MARIEKE G. EDWARDS


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                           NON-REVOCATION STATEMENT


               I declare that I have not revoked my release of claims under 
the Age Discrimination in Employment Act during the seven days following my 
execution of my Settlement Agreement with First Community Bank and First 
Community Financial Group and that such release is now effective and 
enforceable.



               Date:____________________




                                   _______________________
                                   MICHAEL D. EDWARDS


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