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                         FIRST COMMUNITY FINANCIAL GROUP
                              EMPLOYMENT AGREEMENT



         THIS EMPLOYMENT AGREEMENT ("Agreement"), signed December 28, 1998,
between FIRST COMMUNITY FINANCIAL GROUP and FIRST COMMUNITY BANK OF WASHINGTON
(collectively, the "Bank") and JAMES F. ARNESON ("Executive") takes effect on
the Effective Date of this document ("Effective Date").

                                    RECITALS

A.       Executive is presently the Bank's Chief Financial Officer. The Bank
         wishes to continue Executive's employment in that capacity under the
         terms and conditions of this Agreement.

B.       Under the terms of this Agreement, Executive wishes to continue his
         employment with the Bank (or its successor, if any) on a full-time
         basis for the period provided in this Agreement.

                                    AGREEMENT

         The parties agree as follows.

1.       EMPLOYMENT.  The Bank will continue Executive's employment during the 
         Term, and Executive accepts employment by the Bank on the terms and
         conditions set forth in this Agreement. Executive's title will be
         "Chief Financial Officer."

2.       EFFECTIVE DATE AND TERM.

         (a)      EFFECTIVE DATE.  This Agreement is effective as of 
                  March 1, 1998.

         (b)      TERM. The term of this Agreement ("Term") is two years,
                  beginning on the Effective Date and will be automatically
                  extended one additional year on the anniversary of the
                  Effective Date.

3.       DUTIES. Executive will faithfully and diligently perform the duties
         assigned to Executive from time to time by the Bank's Chairman or
         President, consistent with the duties that have been normal and
         customary to Executive's position. Executive will use his best efforts
         to perform his duties and will devote full time and attention to these
         duties. Executive will report directly to the Bank's President. The
         Bank's board of directors may, from time to time, modify Executive's
         title or performance responsibilities to accommodate management
         succession, as well as any other management objectives of the Bank.

4.       SALARY. Initially, Executive will receive a salary of $90,000 per
         year, to be paid in accordance with the Bank's regular payroll
         schedule.


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5.       INCENTIVE COMPENSATION. The Bank's board of directors, will
         determine the amount of bonus, if any, to be paid by the Bank to
         Executive for each year during the Term. In making this determination,
         the Bank's board of directors will consider factors such as Executive's
         performance of his duties and the safety, soundness, and profitability
         of the Bank. Executive's bonus, if any, will reflect Executive's
         contribution to the performance of the Bank during the year.

6.       INCOME DEFERRAL AND BENEFITS. Subject to eligibility requirements and 
         in accordance with and subject to any policies adopted by the Bank.
         Executive will be entitled to receive benefits (including stock options
         and participation in the Executive Supplemental Income Plan) similar to
         those offered to other executive officers of the Bank and its
         subsidiaries with position and duties comparable to those of Executive.

7.       BUSINESS EXPENSES. The Bank will reimburse Executive for ordinary and 
         necessary expenses (including, without limitation, travel,
         entertainment, and similar expenses) incurred in performing and
         promoting the Bank's business. Executive will present from time to time
         itemized accounts of these expenses, subject to any limits of Bank
         policy or the rules and regulations of the Internal Revenue Service.

8.       CHANGE IN CONTROL

                  (a) DEFINITION OF "CHANGE IN CONTROL." "Change in Control" of
                  the Bank shall be deemed to have occurred if (i) any person,
                  firm, corporation or other business entity, at any time, by
                  merger, consolidation, purchase or otherwise, is or becomes
                  the "beneficial owner" directly or indirectly, of securities
                  of the Bank representing 50% or more of the combined voting
                  power of the Bank's then outstanding securities; or (ii) an
                  agreement is approved for the sale or disposition of all or
                  substantially all of the Bank's assets; or (iii) during any
                  period of two consecutive years, individuals who at the
                  beginning of such period constitute the Board of Directors of
                  Company cease for any reason to constitute at least a majority
                  thereof unless the election, or the nomination for election by
                  stockholders, of each new director was approved by a vote of a
                  least two-thirds of the directors then still in office who
                  were directors at the beginning of the period.

                  (b) DEFINITION OF "CHANGE IN CONTROL PERIOD." "Change in
                  Control Period" shall be defined as any time during a period
                  beginning six months prior to the earlier of a public
                  announcement of a Change In Control if public announcement is
                  made, or the date on which the Board of Directors knows, or
                  should reasonably know of an impending Change in Control, and
                  ending twenty four (24) months subsequent to the consummation
                  of a Change in Control.

                  (c) STOCK OPTIONS. Upon a change in control rights to all
                  unexpired stock options granted to Executive will fully and
                  immediately vest. If terminated within the Change in Control
                  Period, but prior to the Change in Control, any options that
                  may have expired as a result of the termination will be
                  reinstated upon the consummation of the Change in Control such
                  that the option or the related right as defined in the option
                  plan may be exercised in accordance with the plan.


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         (d)      SALARY CONTINUATION PAYMENT. Upon Termination on
                  Change in Control Executive will receive cash payments for a
                  period of 24 months equal to the highest monthly base salary
                  he has received in any of the 24 months prior to termination.



9.       TERMINATION.

         (a)      TERMINATION BY BANK FOR CAUSE. If, before the end of the
                  Term, the Bank terminates Executive's employment for Cause or
                  Executive terminates his employment without Good Reason, the
                  Bank will pay Executive the salary earned and expenses
                  reimbursable under this Agreement incurred through the date of
                  Executive's termination. At the election of the Bank,
                  Executive will be subject to the noncompetition and
                  nonsolicitation requirements as described in SECTION 13 and
                  will receive noncompetition compensation as described in
                  SECTION 13e.

         (b)      TERMINATION BY BANK OR EXECUTIVE. If before the end of the
                  Term, the Bank terminates Executive's employment without Cause
                  or Executive terminates his employment for Good Reason
                  (defined below), the Bank will pay Executive an amount equal
                  to one year's salary. Additionally, Executive will be subject
                  to the noncompetition and nonsolicitation requirements of
                  SECTION 13 for 12 months following termination and will
                  receive noncompetition compensation as described in SECTION
                  13e.

         (c)      DEATH OR DISABILITY. This Agreement terminates (1) if
                  Executive dies or (2) if Executive is unable to perform his
                  duties and obligations under this Agreement for a period of 90
                  days as a result of a physical or mental disability arising at
                  any time during the term of this Agreement, unless with
                  reasonable accommodation Executive could continue to perform
                  his duties under this Agreement and making these
                  accommodations would not require the Bank to expend any funds.
                  If termination occurs under this Section 8(c), Executive or
                  his estate will be entitled to receive only the compensation
                  and benefits earned and expenses reimbursable through the date
                  this Agreement terminated.

         (d)      TERMINATION RELATED TO A CHANGE IN CONTROL. In the event
                  that any person extends any proposal or offer which is
                  intended to or may result in a Change in Control, Executive
                  shall, at the Company's request, assist the Company in
                  evaluating such proposal or offer. Further, as a condition to
                  receipt of the Salary Continuation Payment defined below,
                  Executive agrees not to resign his position with the Company
                  during any period from the receipt of a specific Change in
                  Control proposal up to the consummation or abandonment of the
                  transaction contemplated by such Proposal.

                  (1)      TERMINATION BY BANK. If the Bank, or its
                           successor in interest by merger, or its transferee in
                           the event of a purchase in an assumption transaction,
                           for reasons other than Executive's death, disability,
                           or Cause terminates Executive's employment within the
                           Change in Control Period, the Bank will pay Executive
                           the Salary Continuation Payment.


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                  (2)      TERMINATION BY EXECUTIVE. If Executive terminates
                           Executive's employment, with or without Good Reason,
                           within one year following a Change in Control, the
                           Bank will pay Executive the Salary Continuation
                           Payment.

         (e)      RETURN OF BANK PROPERTY. If and when Executive ceases, for
                  any reason, to be employed by the Bank, Executive must return
                  to the Bank all keys, pass cards, identification cards and any
                  other property of the Bank. At the same time, Executive also
                  must return to the Bank all originals and copies (whether in
                  hard copy, electronic or other form) of any documents,
                  drawings, notes, memoranda, designs, devices, diskettes,
                  tapes, manuals, and specifications which constitute
                  proprietary information or material of the Bank. The
                  obligations in this paragraph include the return of documents
                  and other materials which may be in Executive's desk at work,
                  in Executive's car or place of residence, or in any other
                  location under Executive's control.

         (f)      EXECUTIVE SUPPLEMENTAL INCOME (ESI) PLAN. In
                  addition to the benefits described above, Executive may be
                  covered under an Executive Supplemental Income agreement. Upon
                  termination, Executive's rights with respect to ESI benefits
                  will be determined in accordance with the ESI agreement.

10.      DEFINITION OF CAUSE  "Cause" means any one or more of the following:

                  Willful misfeasance or gross negligence in the performance of
                  Executive's duties;

                  Conviction of a crime in connection with his duties;

                  Conduct demonstrably and significantly harmful to the Bank, as
                  reasonably determined by the Bank's board of directors on the
                  advice of legal counsel; or

                  Permanent disability, meaning a physical or mental impairment
                  which renders Executive incapable of substantially performing
                  the duties required under this Agreement, and which is
                  expected to continue rendering Executive so incapable for the
                  reasonably foreseeable future.

11.      DEFINITION OF GOOD REASON.  "Good Reason" means only any one or more 
         of the following:

                  Reduction, without Executive's consent, of Executive's salary
                  or elimination of any compensation or benefit plan benefitting
                  Executive unless applicable to all officers;

                  The assignment to Executive without his consent of any
                  authority or duties materially inconsistent with Executive's
                  position as of the date of this Agreement; or

                  A relocation or transfer of Executive's principal place of
                  employment that would require Executive to commute on a
                  regular basis more than 30 miles each way from his current
                  business office at the Bank on the date of this Agreement,
                  unless Executive consents to the relocation or transfer.


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12.      CONFIDENTIALITY. Executive will not, after signing this Agreement,
         including during and after its Term, use for his own purposes or
         disclose to any other person or entity any confidential information
         concerning the Bank, unless (1) the Bank consents to the use or
         disclosure of their respective confidential information, (2) the use or
         disclosure is consistent with Executive's duties under this Agreement,
         or (3) disclosure is required by law or court order.

13.      NONCOMPETITION.

         (a)      PARTICIPATION IN A COMPETING BUSINESS. During the Term and
                  for twelve (12) months after expiration of the Term (such
                  12-months being the "Post-Term Period") (regardless of whether
                  Executive's employment ends at the end of the Term or at some
                  other point after the end of the Term), Executive will not
                  become involved with a Competing Business or serve, directly
                  or indirectly, a Competing Business in any manner, including,
                  without limitation, as a shareholder, member, partner,
                  director, officer, manager, investor, organizer, "founder,"
                  employee, consultant, or agent; PROVIDED, HOWEVER, that
                  Executive may acquire and own an interest not exceeding 2% of
                  the total equity interest in any publicly held entity whose
                  equity securities are listed on a national securities exchange
                  (whether or not such entity is a Competing Business).
                  Executive's noncompetition obligations for the Post-Term
                  Period will not apply if termination occurs within the Change
                  in Control Period.

         (b)      NO SOLICITATION. During the Term and for the Post-Term
                  Period (regardless of whether Executive's employment ends at
                  the end of the Term or at some other point after the end of
                  the Term), Executive will not directly or indirectly solicit
                  or attempt to solicit (1) any employees located in Thurston,
                  Pierce, Mason or Lewis Counties in Washington State (the
                  "Counties") of the Bank, to leave their employment or (2) any
                  customers located in the Counties of the Bank, to remove their
                  business from the Bank, or to participate in any manner in a
                  Competing Business. Solicitation prohibited under this Section
                  includes solicitation by any means, including, without
                  limitation, meetings, letters or other mailings, electronic
                  communications of any kind, and internet communications.
                  Executive's nonsolicitation obligations for the Post-Term
                  Period will not apply if termination occurs within the Change
                  in Control Period.

         (c)      EMPLOYMENT OUTSIDE THE COUNTIES. Nothing in this Agreement
                  prevents Executive from accepting employment after the end of
                  the Term outside the Counties from a Competing Business, as
                  long as Executive will not (a) act as an employee or other
                  representative or agent of the Competing Business within the
                  Counties or (b) have any responsibilities for the Competing
                  Business' operations within the Counties.

         (d)      COMPETING BUSINESS. "Competing Business" means any
                  financial institution or trust company that competes with, or
                  will compete in the Counties with, the Bank. The term
                  "Competing Business" includes, without limitation, any
                  start-up or other financial institution or trust company 
                  information.


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         (e)      NONCOMPETITION COMPENSATION. As compensation for the
                  agreements referred to in Section 13, commencing at the
                  beginning of the Post-Term Period, Executive will receive cash
                  payments from the Bank for a period of 12 successive months
                  equal to the highest monthly base salary paid in any of the 12
                  months prior to termination.

14.      ENFORCEMENT.

         (a)      The Bank and Executive stipulate that, in light of all of
                  the facts and circumstances of the relationship between
                  Executive and the Bank, the agreements referred to in Sections
                  12 and 13 (including without limitation their scope, duration
                  and geographic extent) are fair and reasonably necessary for
                  the protection of the Bank's confidential information,
                  goodwill and other protectable interests. If a court of
                  competent jurisdiction should decline to enforce any of those
                  covenants and agreements, Executive and the Bank request the
                  court to reform these provisions to restrict Executive's use
                  of confidential information and Executive's ability to compete
                  with the Bank to the maximum extent, in time, scope of
                  activities, and geography, the court finds enforceable.

(b)               Executive acknowledges that the Bank will suffer immediate
                  and irreparable harm that will not be compensable by damages
                  alone, if Executive repudiates or breaches any of the
                  provisions of Sections 12 or 13 or threatens or attempts to do
                  so. For this reason, under these circumstances, the Bank, in
                  addition to and without limitation of any other rights,
                  remedies or damages available to it at law or in equity, will
                  be entitled to obtain temporary, preliminary, and permanent
                  injunctions in order to prevent or restrain the breach, and
                  neither the Bank will be required to post a bond as a
                  condition for the granting of this relief.

15.      ADEQUATE CONSIDERATION. Executive specifically acknowledges the
         receipt of adequate consideration for the covenants contained in
         Sections 12 and 13 and that the Bank is entitled to require him to
         comply with these Sections. These Sections will survive termination of
         this Agreement. Executive represents that if his employment is
         terminated, whether voluntarily or involuntarily, Executive has
         experience and capabilities sufficient to enable Executive to obtain
         employment in areas which do not violate this Agreement and that the
         Bank's enforcement of a remedy by way of injunction will not prevent
         Executive from earning a livelihood.

16.      ARBITRATION.

         (a)      ARBITRATION. At either party's request, the parties must
                  submit any dispute, controversy or claim arising out of or in
                  connection with, or relating to, this Agreement or any breach
                  or alleged breach of this Agreement, to arbitration under the
                  American Arbitration Association's rules then in effect (or
                  under any other form of arbitration mutually acceptable to the
                  parties). A single arbitrator agreed on by the parties will
                  conduct the arbitration. If the parties cannot agree on a
                  single arbitrator, each party must select one arbitrator and
                  those two arbitrators will select a third arbitrator. This
                  third arbitrator will hear the dispute. The arbitrator's
                  decision is final (except as otherwise specifically provided
                  by law) and binds the parties, and either party may request
                  any court having jurisdiction to enter a judgment and to
                  enforce the arbitrator's decision. The arbitrator will


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                  provide the parties with a written decision naming the
                  substantially prevailing party in the action. This prevailing
                  party is entitled to reimbursement from the other party for
                  its costs and expenses, including reasonable attorneys' fees.

         (b)      GOVERNING LAW. All proceedings will be held at a place
                  designated by the arbitrator in Thurston County, Washington.
                  The arbitrator, in rendering a decision as to any state law
                  claims, will apply Washington law.

         (c)      EXCEPTION TO ARBITRATION. Notwithstanding the above, if
                  Executive violates Section 12 or 13, the Bank will have the
                  right to initiate the court proceedings described in Section
                  14(b), in lieu of an arbitration proceeding under this Section
                  16. The Bank may initiate these proceedings wherever
                  appropriate within Washington State; but Executive will
                  consent to venue and jurisdiction in Thurston County,
                  Washington.

17.      MISCELLANEOUS PROVISIONS.

         (a)      DEFINED TERMS. Capitalized terms used as defined terms,
                  but not defined in this Agreement, will have the meanings
                  assigned to those terms in the Plan.

         (b)      ENTIRE AGREEMENT. This Agreement constitutes the entire
                  understanding between the parties concerning its subject
                  matter and supersedes all prior agreements. Accordingly,
                  Executive specifically waives the terms of and all of his
                  rights under all employment, change-in-control and salary
                  continuation agreements, whether written or oral, he has
                  previously entered into with the Bank or any of its
                  Subsidiaries or affiliates.

         (c)      BINDING EFFECT. This Agreement will bind and inure to the
                  benefit of the Bank's, and Executive's heirs, legal
                  representatives, successors and assigns.

         (d)      LITIGATION EXPENSES. If either party successfully seeks to
                  enforce any provision of this Agreement or to collect any
                  amount claimed to be due under it, this party will be entitled
                  to reimbursement from the other party for any and all of its
                  out-of-pocket expenses and costs including, without
                  limitation, reasonable attorneys' fees and costs incurred in
                  connection with the enforcement or collection.

         (e)      WAIVER. Any waiver by a party of its rights under this
                  Agreement must be written and signed by the party waiving its
                  rights. A party's waiver of the other party's breach of any
                  provision of this Agreement will not operate as a waiver of
                  any other breach by the breaching party.

         (f)      COUNSEL REVIEW. Executive acknowledges that he has had the
                  opportunity to consult with independent counsel with respect
                  to the negotiation, preparation, and execution of this
                  Agreement.

         (g)      ASSIGNMENT. The services to be rendered by Executive under
                  this Agreement are unique and personal. Accordingly, Executive
                  may not assign any of his rights or duties under this
                  Agreement.


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         (h)      AMENDMENT. This Agreement may not be modified or amended
                  except by a written instrument signed by both parties with the
                  prior written consent of the Bank.

         (i)      SEVERABILITY. The provisions of this Agreement are
                  severable. The invalidity of any provision will not affect the
                  validity of other provisions of this Agreement.

         (j)      GOVERNING LAW AND VENUE. This Agreement will be governed
                  by and construed in accordance with Washington law, except to
                  the extent that certain matters may be governed by federal
                  law. Except as otherwise provided in Section 16(c), the
                  parties must bring any legal proceeding arising out of this
                  Agreement in Thurston County, Washington, and the parties will
                  submit to jurisdiction in that county.

         (k)      COUNTERPARTS. This Agreement may be executed in one or
                  more facsimile counterparts, each of which will be deemed an
                  original, but all of which taken together will constitute one
                  and the same document.

Signed: December 28, 1998:
        -----------------

                                        FIRST COMMUNITY FINANCIAL GROUP



                                         /s/ Ken F. Parsons                     
                                         ---------------------------------------
                                         By:  Ken F. Parsons
                                         Its: President and CEO

                                         FIRST COMMUNITY BANK OF WASHINGTON

                                         /s/ Ken F. Parsons                     
                                         ---------------------------------------
                                         By:  Ken Parsons
                                         Its: Chairman, President and CEO

                                         JAMES F. ARNESON, individually


                                         /s/ James F. Arneson                   
                                         ---------------------------------------
                                         JAMES F. ARNESON







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