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This discussion contains certain forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements due to a number of factors.

The Company's consolidated total assets at June 30, 2002 of $371,342,000 represents a 1.8% increase over December 31, 2001 assets of $364,623,000. The growth in assets was a combination of a $3,895,000 increase in net portfolio loans and cash in banks, which is used to satisfy regulatory requirements as well as provide the operational funding of the Company's small-loan program. The composition of the loan portfolio at June 30, 2002 and December 31, 2001 follows (dollars in thousands):

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The allowance for credit losses reflects management's current estimate of the amount required to absorb losses on existing loans and commitments to extend credit. Determination of the appropriate level of the allowance is based on an analysis of various factors including: historical loss experience based on volumes and types of loans; volumes and trends in delinquencies and non-accrual loans; trends in portfolio volume; results of internal and independent external credit reviews; and economic conditions. All loans in the portfolio are assigned a grade indicating credit quality by the originating loan officer at the time of loan origination. These grades are reviewed at regular intervals and, if performance concerns arise on an individual loan, the grade is lowered to the appropriate level. Management reviews the composite changes in loan grades within the portfolio in its assessment of the adequacy of the allowance. If a loan becomes impaired, the Company's loss exposure on that loan is measured base d on expected cash flows or collateral values, and if necessary, a portion of the allowance for credit losses is allocated to that loan. After reviewing the composition of the loan portfolio at June 30, 2002, the levels of classified loans, losses experienced during the period, and the changes in the economy, management has determined the allowance for credit losses to be adequate to cover the loss exposure in the loan portfolio at that date. An analysis of the adequacy of the allowance is subject to quarterly review by the Board of Directors.

The allowance for credit losses increased $392,000 in the first half of 2002. The ratio of allowance for credit losses to total loans increased during the first half of 2002 to 1.53% from 1.42% at December 31, 2001. The dollar value change in the allowance consisted of $985,000 of provision less $593,000 in net charge-offs of loans. Charge-offs were concentrated in the Company's small-loan portfolio. Management increased the allowance for credit losses during the six months ended June 30, 2002 in recognition of the increase in non-performing loans as shown in the table above, the increase in loans internally classified in the Bank's loan classification system, and the continued softness of the economy in the Bank's primary market area. The allowance at June 30, 2002 is slightly higher than the mid-point of loss exposure identified in the Bank's loan loss adequacy analysis model.

Investment securities decreased by $516,000, or 2.8% during the first half of 2002 to a total of $18,094,000. Additional securities were purchased during the first quarter primarily as a source of collateral for the Company's operations.

Total deposits increased $2,625,000, or 0.8% in the six months ended June 30, 2002 to $316,355,000. The mix of deposits shifted toward transaction accounts during the first half, with increases shown in savings and interest-bearing deposits and a smaller decrease in time deposits. Short-term borrowings have also been used as a funding source due to their relatively low cost as compared to time deposits. Fed funds purchased and short term borrowings increased during the first half by $1,624,000 to $8,679,000 due to their favorable cost and flexibility in managing funding.

Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Liquidity is generated from both internal and external sources. Internal sources are those assets that can be converted to cash with little or no risk of loss. These include overnight investments in interest bearing deposits in banks and federal funds sold and investment securities, particularly those of shorter maturity, and are the principal source of asset liquidity. At June 30, 2002, cash, deposits in banks, federal funds sold and securities available for sale totaled $43,550,000. External sources refer to the ability to attract new liabilities and capital. They include increasing savings and demand deposits, federal funds purchased, borrowings and the issuance of capital and debt securities. At June 30, 2002, borrowing lines of credit totaled $47,686,000. T hese credit facilities are being used regularly as a source of funds. At June 30, 2002, $7,250,000 was borrowed against these lines of credit in the form of federal funds purchased and term advances.

Management believes the Bank's liquidity position at June 30, 2002, was adequate to meet its short term funding requirements.

Consolidated capital of FCFG increased $1,891,000 during the first half of 2002. The increase comes primarily from net income, which increased capital by $2,990,000. Capital also increased $618,000 from the exercising of stock options $25,000 for the elimination of the debt related to the KSOP plan. Stock repurchases in the amount of $950,000, dividends paid of $440,000 and an after-tax decrease in the valuation of the securities portfolio of $352,000 were reductions to the capital total.

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There are regulatory constraints placed upon capital adequacy, and it is necessary to maintain an appropriate ratio between capital and assets. Regulations require banks and holding companies to maintain a minimum leverage ratio (primary capital to total assets ratio). For the most highly rated holding companies this ratio must be at least 3%, and for others it must be 4 to 5%. At June 30, 2002, the Company's leverage ratio was 9.37%, compared to 8.91% at year-end 2001. In addition, banks and holding companies are required to meet minimum risk-based capital guidelines under which risk percentages are assigned to various categories of assets and off-balance-sheet items to calculate a risk-adjusted capital ratio. Tier I capital generally consists of common stockholders' equity, less goodwill, while total capital includes the allowance for possible credit losses, subject to 1.25% limitation of risk-adjusted assets. The rules require Tier I capital of 4% of risk-adjusted assets an d total capital of 8%. At June 30, 2002, the Tier I capital ratio was 9.87%, and total capital was 11.12%. At December 31, 2001 the Tier I capital ratio was 9.34% and the total capital ratio was 10.52%.

On July 11 2002, the Company completed an offering of trust preferred securities and received net proceeds of approximately $12,600,000. The proceeds are expected to fund the acquisition of Harbor Bank, N.A., with the remaining balance added to the capital of First Community Bank. Trust preferred securities consist of the issuance of subordinated debt securities to a wholly owned subsidiary business trust, which then issues preferred stock to investors. The interest payments on the debt securities are approximately equal to the dividend payments on the preferred stock of the trust. The Company will be able to recognize a deduction of the interest cost for income tax purposes, while the net proceeds will qualify as Tier 1 capital.

Net income for the six months ended June 30, 2002 was $2,990,000, compared to $2,063,000 for the same period in 2001. This represents a 45% increase over the prior year. Net income for the three months ended June 30, 2002 was $1,644,000, compared to $992,000 for the three months ended June 30, 2001. This represents a 66% increase in net income for the period.

Net interest income increased $1,510,000, an increase of 16% for the six months ended June 30, 2002 over the same period for 2001. Net interest income increased $622,000, or 13%, for the three months ended June 30, 2002. The increase in the Company's net interest income is primarily the result of the reduction in interest rates, and corresponding reduction in cost of funds. The Company's small-loan product also had an impact on the growth in net interest income. This product's contribution to net interest income grew to $2,257,000 in the first half of 2002 from $1,548,000 in the first half of 2001, a $709,000 increase.

Interest income for the six months ended June 30, 2002 decreased $899,000, or 6%, from the same period of the prior year. Increased volume of earning assets provided an additional $2,728,000 of interest income, which was more than offset by the $3,627,000 reduction in interest income due to the reduced earnings rate of these assets. Average earning assets for the first six months of 2002 were $17,746,000, or 6% higher than in the same period of 2001. The average rate earned on assets decreased 114 basis points from 10.03% in the first half of 2001 to 8.89% for the same period of 2002. The percentage of average loans to total average earning assets increased over the prior year and represents 93.4% of total average earning assets, up from 89.8% in 2001. Interest income for the three months ended June 30, 2002 was $669,000 lower than the same period in the previous year.

Total interest expense for the six months ended June 30, 2002 decreased $2,409,000, or 43%, from the comparable period of the prior year. This reduction is even more dramatic when considering that the volume of interest bearing liabilities increased by 9%. The decrease in the interest rate paid on deposits and borrowings, which declined 214 basis points, from 4.48% in the first half of 2001 to 2.34% in the first half of 2002, produced a reduction in interest expense of $2,988,000. Of this amount, $579,000 was offset by an increase in the volume of these liabilities, which rose from an average of $251,802,000 in 2001 to $274,532,000 in 2002. Total interest expense for the three months ended June 30, 2002 was $1,291,000 lower than the second quarter of 2001.

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Net interest margin, defined as net interest income as a percentage of average earning assets, increased by 61 basis points to 6.86% from 6.25% in the first half of 2002 compared to the same period in 2001.

Non-interest expenses for the first half of 2002 increased by $455,000, or 5%, over the first half of 2001. Compensation expense increased $68,000, or 1%. Occupancy expenses increased $21,000, or 2%. The other expenses increase of $366,000 included an additional $103,000 in expenses related to the operation of the small-loan program, including increased business and occupation taxes and correspondent bank fees, as well as $86,000 in expenses related to the implementation of a new overdraft product in the third quarter of 2001. Non-interest expenses for the second quarter of 2002 increased $115,000, or 3%, over the second quarter of 2001. The ratio of non-interest expense to average assets decreased to 4.87% for the six months ended June 30, 2002 from 5.07% in 2001. The ratio of net overhead (non-interest expense minus non-interest income) divided by average total assets decreased to 1.46% for the six months ended June 30, 2002 from 3.42% for the same period in 2001.

The Company is managed along two major lines of business; Community Banking, its core business, and the small-loan division, which was entered into in the fourth quarter of 2000. Community Banking consists of all lending, deposit and administrative operations conducted through its 19 offices in Washington state. The small-loan division provides small, short-term consumer loans to customers in Alabama and Arkansas.

Prior to 2001, the Company was managed as a whole, not by discrete operating segments. When the Company began offering small loans, its operating results were segregated in the General Ledger system to better manage financial performance. The financial performance of the business lines is measured by the Company's profitability reporting process, which utilizes various management accounting techniques to more accurately reflect each business line's financial results. Revenues and expenses are primarily assigned directly to business lines.

The organizational structure of the Company and its business line financial results are not necessarily comparable across companies. As such, the Company's business line performance may not be directly comparable with similar information from other financial institutions.

Selected comparative financial information for the small loan division, which are included in the overall financial results, as of and for the six months ended June 30, 2002 are as follows (dollars in thousands):

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