Board of Directors
Community Savings Bank, SSB
708 South Church Street
Post Office Box 1837
Burlington, North Carolina 27216-1837

Board of Directors:

The notice of intent to convert from mutual to stock form filed on behalf of Community Savings Bank, SSB, Burlington, North Carolina (the "Bank"), has been reviewed by the Federal Deposit Insurance Corporation ("FDIC") pursuant to the FDIC regulations at 12 C.F.R. Sections 303.163 and 333.4.

This notice was filed in connection with the Community Savings Bank, SSB, Burlington, North Carolina "Plan of Holding Company Conversion" (the "Plan"). Pursuant to the Plan, the Bank will convert to a North Carolina-chartered stock savings bank and become a wholly-owned subsidiary of the newly formed First Community Financial Corporation ("First Community"), a North Carolina corporation. Concurrently, with the reorganization, First Community intends to offer for sale its common stock on a priority basis to qualifying depositors and to an employee stock ownership plan. In addition, the Bank will fund a charitable foundation (the "Foundation") with 100,000 shares of First Community stock issued in the conversion.

The FDIC has relied on information provided in the Bank's notice of conversion and the accompanying business plan in reaching its decision regarding that notice. Management of the Bank and First Community has represented that for three years after the closing of the conversion, the FDIC will be given 30 days prior written notice before implementing any material deviation from the business plan, such as a return of capital. Management has further represented that neither the Bank nor First Community will award a return of capital during the first year following the Bank's conversion to stock form. Management is reminded that payment of regular or special dividends by First Community must be made from the earnings of First Community; any distribution to First Community shareholders in excess of First Community's earnings would be considered a return of capital.

Based on the information and representations presented, the FDIC plans to issue a letter of non-objection to the proposed conversion transaction provided that the bank satisfies the following conditions:

1) The Bank must execute the enclosed Tolling Agreement and deliver it to this office on or before May 21, 1999;

2) The Foundation's organizers shall commit to the following oversight provisions:

(a) Common stock of First Community held by the Foundation shall be voted by the Foundation at the same ratio as the shares voted on each and every proposal considered by the stockholders of First Community;

(b) The Foundation shall be subject to examination by the FDIC;

(c) The Foundation shall comply with all supervisory directives imposed by the FDIC;

(d) The Foundation shall operate in accordance with written policies adopted by the Foundation's board of directors; and

(e) The Foundation shall provide annual reports to the FDIC describing the grants made and grant recipients.

3) The Bank must submit final disclosure materials acceptable to the FDIC Division of Supervision, Registration and Disclosure Section;

4) The Bank must provide written evidence that its Plan of Conversion has been approved by the affirmative vote of a majority of the votes eligible to be cast at a special meeting of the Bank's voting participants;

5) The Bank must advise this office of the results of the subscription offering and deliver an updated appraisal that:

(a) takes the results of the subscription offering into account;

(b) discusses any material occurrences during the subscription period; and

(c) explains any orders that may have been rejected.

6) The Bank must receive the necessary approvals from the Savings Institution Division of the State of North Carolina and the Federal Reserve.

Provided the Bank meets the foregoing conditions and that the FDIC is satisfied with the appraiser's determination in the updated appraisal that the results of the subscription offering represent the fair value for First Community, the FDIC will issue a letter of non-objection to the proposed conversion transaction.

Sincerely,

James L. Sexton
Director