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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



FOR THE TRANSITION PERIOD FROM
to



Commission file number: 000-49736



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FIRST COMMUNITY FINANCIAL CORPORATION

(Exact name of small business issuer as specified in its charter)



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|PENNSYLVANIA                                                   |  | 23-2321079                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|TWO NORTH MAIN STREET, MIFFLINTOWN, PENNSYLVANIA |  | 17059     
|------------------------------------------------ |  | ----------
|(Address of principal executive offices)         |  | (Zip Code)



(717) 436-2144

(Issuers telephone number, including area code)



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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PROCEEDING FIVE YEARS



Check whether registrant filed all documents and reports required to be filed by Section 12,
13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.    Yes ̈No ̈



APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each of the issuers classes of common stock, as of the latest practical date: COMMON STOCK, Par Value $5.00 per share
700,000 shares outstanding as of October 31, 2003



Transitional Small Business
Disclosure Format (Check one):    Yes ̈No  x



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PART I  FINANCIAL INFORMATION



Item 1. Financial Statements

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FIRST COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars
In Thousands, Except Per Share Data)



|                                                                                               |  | (unaudited) September 30,2003 |         | December 31,2002
|---------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | ----------------
|                                                                                               | 
|ASSETS                                                                                         |  |                               |         |                 
|Cash & Due from Banks                                                                          |  | $                             | 4,306   |                 
|Interest Bearing Deposits with Banks                                                           |  |                               | 695     |                 
|Federal Funds Sold                                                                             |  |                               |        |                 
|                                                                                               |  |                               |         |                 
|Cash & Cash Equivalents                                                                        |  |                               | 5,001   |                 
|Securities available for sale                                                                  |  |                               | 39,792  |                 
|Securities held to maturity, fair value 2003 $19,434; 2002 $ 15,831                            |  |                               | 19,249  |                 
|Loans - Net of allowance for loan losses 2003 $ 1,171; 2002 $ 1,111                            |  |                               | 137,412 |                 
|Premises and Equipment                                                                         |  |                               | 6,308   |                 
|Restricted investment in bank stocks                                                           |  |                               | 1,372   |                 
|Investment in life insurance                                                                   |  |                               | 4,167   |                 
|Other Assets                                                                                   |  |                               | 1,931   |                 
|                                                                                               |  |                               |         |                 
|TOTAL ASSETS                                                                                   |  | $                             | 215,232 |                 
|                                                                                               |  |                               |         |                 
|LIABILITIES                                                                                    |  |                               |         |                 
|Deposits:                                                                                      |  |                               |         |                 
|Non-Interest Bearing                                                                           |  | $                             | 19,735  |                 
|Interest Bearing                                                                               |  |                               | 166,641 |                 
|                                                                                               |  |                               |         |                 
|Total Deposits                                                                                 |  |                               | 186,376 |                 
|Short-Term Borrowings                                                                          |  |                               | 4,041   |                 
|Long-Term Borrowings                                                                           |  |                               | 8,000   |                 
|Other Liabilities                                                                              |  |                               | 1,208   |                 
|                                                                                               |  |                               |         |                 
|TOTAL LIABILITIES                                                                              |  |                               | 199,625 |                 
|                                                                                               |  |                               |         |                 
|SHAREHOLDERS EQUITY                                                                           |  |                               |         |                 
|Preferred stock, without par value; 10,000,000 shares authorized and unissued                  |  |                               |        |                 
|Common stock, $ 5 par value; 10,000,000 shares authorized; 700,000 shares issued & outstanding |  |                               | 3,500   |                 
|Capital in Excess of Par Value                                                                 |  |                               | 245     |                 
|Retained Earnings                                                                              |  |                               | 11,494  |                 
|Accumulated Other Comprehensive Income                                                         |  |                               | 368     |                 
|                                                                                               |  |                               |         |                 
|TOTAL SHAREHOLDERS EQUITY                                                                     |  |                               | 15,607  |                 
|                                                                                               |  |                               |         |                 
|TOTAL LIABILITIES & SHAREHOLDERS EQUITY                                                       |  | $                             | 215,232 |                 
|                                                                                               |  |                               |         |                 



2



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PART I  FINANCIAL INFORMATION, CONTINUED



Item 1. Financial Statements, continued

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FIRST COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except Per Share Data)



|                                                    |  | Three Months Ended September 30, |       | Nine MonthsEnded September 30,
|--------------------------------------------------- |  | -------------------------------- | ----- | ------------------------------
|                                                    |  | 2003                             |       | 2002                          
|INTEREST INCOME                                     |  |                                  |       |                               
|Interest & Fees on Loans                            |  | $                                | 2,437 |                               
|Interest on Taxable Securities                      |  |                                  | 323   |                               
|Interest on Tax-Exempt Securities                   |  |                                  | 169   |                               
|Other Interest & Dividends                          |  |                                  | 25    |                               
|                                                    |  |                                  |       |                               
|TOTAL INTEREST INCOME                               |  |                                  | 2,954 |                               
|                                                    |  |                                  |       |                               
|INTEREST EXPENSE                                    |  |                                  |       |                               
|Interest on Deposits                                |  |                                  | 1,151 |                               
|Interest on Short Term Borrowings                   |  |                                  | 6     |                               
|Interest on Long Term Borrowings                    |  |                                  | 122   |                               
|                                                    |  |                                  |       |                               
|TOTAL INTEREST EXPENSE                              |  |                                  | 1,279 |                               
|                                                    |  |                                  |       |                               
|NET INTEREST INCOME                                 |  |                                  | 1,675 |                               
|Provision for Loan Losses                           |  |                                  | 30    |                               
|                                                    |  |                                  |       |                               
|                                                    |  |                                  |       |                               
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                                  | 1,645 |                               
|NON-INTEREST INCOME                                 |  |                                  |       |                               
|Service Charges on Deposits                         |  |                                  | 123   |                               
|Fiduciary Activities                                |  |                                  | 65    |                               
|Earnings on Investment in Life Insurance            |  |                                  | 51    |                               
|ATM Card Fees                                       |  |                                  | 49    |                               
|Realized Gains on Sales of Securities               |  |                                  |      |                               
|Realized Gain on Sale of Foreclosed Real Estate     |  |                                  |      |                               
|Other Income                                        |  |                                  | 47    |                               
|                                                    |  |                                  |       |                               
|TOTAL NON-INTEREST INCOME                           |  |                                  | 335   |                               
|                                                    |  |                                  |       |                               
|NON-INTEREST EXPENSES                               |  |                                  |       |                               
|Employee Compensation & Benefits                    |  |                                  | 664   |                               
|Net Occupancy & Equipment                           |  |                                  | 233   |                               
|ATM Expense                                         |  |                                  | 51    |                               
|Professional & Regulatory Fees                      |  |                                  | 48    |                               
|Director & Advisory Boards Compensation             |  |                                  | 50    |                               
|Supplies & Postage                                  |  |                                  | 72    |                               
|Other Non-Interest Expenses                         |  |                                  | 221   |                               
|                                                    |  |                                  |       |                               
|TOTAL NON-INTEREST EXPENSES                         |  |                                  | 1,339 |                               
|                                                    |  |                                  |       |                               
|Income Before Income Taxes                          |  |                                  | 641   |                               
|Applicable Income Taxes                             |  |                                  | 149   |                               
|                                                    |  |                                  |       |                               
|NET INCOME                                          |  | $                                | 492   |                               
|                                                    |  |                                  |       |                               
|Basic Earnings Per Share                            |  | $                                | 0.70  |                               
|                                                    |  |                                  |       |                               
|Dividends Per Share                                 |  | $                                | 0.16  |                               
|                                                    |  |                                  |       |                               



3



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PART I  FINANCIAL INFORMATION, CONTINUED



Item 1. Financial Statements, continued

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FIRST COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the Nine Months Ended September 30, 2002

(Unaudited)

(In Thousands, Except Per Share Data)



|                                                                              |  | Common Stock |       | Capital In Excess of Par Value |   | Retained Earnings |  |   | Accumulated Other Comprehensive Income |   | Total |  
|----------------------------------------------------------------------------- |  | ------------ | ----- | ------------------------------ | - | ----------------- |  | - | -------------------------------------- | - | ----- | -
|Balance December 31, 2001                                                     |  | $            | 3,500 |                                | $ | 245               |  | $ | 8,822                                  |   |       | $
|Comprehensive income:                                                         |  |              |       |                                |   |                   |  |   |                                        |   |       |  
|Net Income                                                                    |  |              |       |                                |   |                   |  |   | 1,295                                  |   |       |  
|Net change in unrealized gains on securities available for sale, net of taxes |  |              |       |                                |   |                   |  |   |                                        |   |       |  
|                                                                              |  |              |       |                                |   |                   |  |   |                                        |   |       |  
|Total comprehensive income                                                    |  |              |       |                                |   |                   |  |   |                                        |   |       |  
|                                                                              |  |              |       |                                |  
|Cash dividends, $.42 per share                                                |  |              |       |                                |   |                   |  |   | (293                                   | ) |       |  
|                                                                              |  |              |       |                                |   |                   |  |   |                                        |   |       |  
|Balance September 30, 2002                                                    |  | $            | 3,500 |                                | $ | 245               |  | $ | 9,824                                  |   |       | $
|                                                                              |  |              |       |                                |   |                   |  |   |                                        |   |       |  



FIRST COMMUNITY
FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the Nine Months Ended September 30, 2003

(Unaudited)

(In Thousands, Except Per Share Data)



|                                                                              |  | CommonStock |       | CapitalIn Excessof Par Value |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome |   |  | Total |     
|----------------------------------------------------------------------------- |  | ----------- | ----- | ---------------------------- | - | ---------------- |  | - | ----------------------------------- | - |  | ----- | ----
|Balance December 31, 2002                                                     |  | $           | 3,500 |                              | $ | 245              |  | $ | 10,207                              |   |  | $     | 741 
|Comprehensive income:                                                         |  |             |       |                              |   |                  |  |   |                                     |   |  |       |     
|Net Income                                                                    |  |             |       |                              |   |                  |  |   | 1,616                               |   |  |       |     
|Net change in unrealized gains on securities available for sale, net of taxes |  |             |       |                              |   |                  |  |   |                                     |   |  |       | (373
|                                                                              |  |             |       |                              |   |                  |  |   |                                     |   |  |       |     
|Total comprehensive income                                                    |  |             |       |                              |   |                  |  |   |                                     |   |  |       |     
|Cash dividends, $.47 per share                                                |  |             |       |                              |   |                  |  |   | (329                                | ) |  |       |     
|                                                                              |  |             |       |                              |   |                  |  |   |                                     |   |  |       |     
|Balance September 30, 2003                                                    |  | $           | 3,500 |                              | $ | 245              |  | $ | 11,494                              |   |  | $     | 368 
|                                                                              |  |             |       |                              |   |                  |  |   |                                     |   |  |       |     



4



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PART I  FINANCIAL INFORMATION, CONTINUED



Item 1. Financial Statements, continued

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FIRST COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars In Thousands)



|                                                                                  |  | Nine Months Ended September 30, |        
|--------------------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                                  |  | 2003                            |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                                 |        
|Net income                                                                        |  | $                               | 1,616  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |        
|Provision for loan losses                                                         |  |                                 | 90     
|Depreciation and amortization                                                     |  |                                 | 412    
|Net amortization of securities premium                                            |  |                                 | 324    
|Net realized gain on sale of foreclosed real estate                               |  |                                 | (124   
|Net realized gain on sale of securities                                           |  |                                 | (123   
|Earnings on life insurance                                                        |  |                                 | (156   
|Increase in other assets                                                          |  |                                 | (528   
|Increase in other liabilities                                                     |  |                                 | 52     
|                                                                                  |  |                                 |        
|Net cash provided by operating activities                                         |  |                                 | 1,563  
|                                                                                  |  |                                
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                                 |        
|Securities held to maturity:                                                      |  |                                 |        
|Maturities, calls and principal repayments                                        |  |                                 | 4,246  
|Purchases                                                                         |  |                                 | (8,106 
|Securities available for sale:                                                    |  |                                 |        
|Maturities, calls and principal repayments                                        |  |                                 | 15,000 
|Purchases                                                                         |  |                                 | (21,055
|Proceeds from sales                                                               |  |                                 | 5,531  
|Net increase in loans receivable                                                  |  |                                 | (11,904
|Net increase in Federal Home Loan Bank stock                                      |  |                                 | (356   
|Purchases of premises and equipment                                               |  |                                 | (303   
|Proceeds from sale of foreclosed real estate                                      |  |                                 | 331    
|                                                                                  |  |                                 |        
|Net cash used in investing activities                                             |  |                                 | (16,616
|                                                                                  |  |                                
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                                 |        
|Net increase in non-interest bearing demand and savings deposits                  |  |                                 | 7,575  
|Net increase in time deposits                                                     |  |                                 | 4,675  
|Net decrease in short-term borrowings                                             |  |                                 | 431    
|Repayment of long-term borrowings                                                 |  |                                 |       
|Dividends paid                                                                    |  |                                 | (329   
|                                                                                  |  |                                 |        
|Net cash provided by financing activities                                         |  |                                 | 12,352 
|                                                                                  |  |                                 |        
|Net increase (decrease) in cash and cash equivalents                              |  |                                 | (2,701 
|                                                                                  |  |                                
|Cash and due from banks:                                                          |  |                                 |        
|Beginning of year                                                                 |  |                                 | 7,702  
|                                                                                  |  |                                 |        
|End of period                                                                     |  | $                               | 5,001  
|                                                                                  |  |                                 |        
|SUPPLEMENTAL DISCLOSURES:                                                         |  |                                 |        
|Cash payments for interest                                                        |  | $                               | 3,919  
|                                                                                  |  |                                 |        
|Cash payments for income taxes                                                    |  | $                               | 575    
|                                                                                  |  |                                 |        



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PART I  FINANCIAL INFORMATION, CONTINUED



Item 1. Financial Statements, continued

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FIRST COMMUNITY FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)



September 30, 2003



Note A  Basis of Presentation



The consolidated financial statements include the accounts of First Community Financial
Corporation (the Corporation) and its wholly-owned subsidiary, The First National Bank of Mifflintown (the Bank). All material inter-company transactions have been eliminated. First Community Financial Corporation was
organized on November 13, 1984 and is subject to regulation by the Board of Governors of the Federal Reserve System.



The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial
information and are presented in accordance with the instructions to Form 10-QSB and Rule 10-01 of the Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the
three months and nine months ended September 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.



The consolidated financial statements presented in this report should be read in conjunction with the audited financial statements and the accompanying notes for the
year ended December 31, 2002, included in the Corporations Form 10-KSB filed with the Securities and Exchange Commission on March 10, 2003.



Note B  Accounting Policies



The accounting policies of the Corporation as applied in the interim financial statements presented, are substantially the same as those followed on an annual basis as
presented in the Corporations Form 10-KSB.



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Note C  Comprehensive Income



The only comprehensive income item that the Corporation presently has is unrealized gains (losses) on securities available for sale. The
components of the change in unrealized gains (losses) are as follows:



|                                                            |  | Three MonthsEnded September 30, |      |   | Nine MonthsEnded September 30, |  
|----------------------------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------ | -
|                                                            |  | 2003                            |      |   | 2002                           |  
|                                                            |  | (Dollars in Thousands)          |     
|Unrealized holding gains (losses) arising during the period |  | $                               | (463 | ) |                                | $
|Reclassification of gains realized in net income            |  |                                 |     |   |                                |  
|                                                            |  |                                 |      |   |                                |  
|                                                            |  |                                 | (463 | ) |                                |  
|Deferred income tax effect                                  |  |                                 | 158  |   |                                |  
|                                                            |  |                                 |      |   |                                |  
|Change in accumulated other comprehensive income            |  | $                               | (305 | ) |                                | $
|                                                            |  |                                 |      |   |                                |  



Note D - 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 700,000 in 2003 and 2002.



Note E  New Accounting Standards



In July 2002, the Financial Accounting Standards Board issued Statement No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, which nullifies EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). This statement delays recognition of these costs until liabilities are incurred, rather than at the date of commitment to the plan, and requires fair value measurement. It does not impact the recognition of
liabilities incurred in connection with a business combination or the disposal of long-lived assets. The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002 and are not expected to have a
significant impact on the Corporations financial condition or results of operations.



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In April 2003, the Financial Accounting Standards Board issued Statement No. 149, Amendment of Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement clarifies the definition of a derivative and incorporates certain decisions made by the Board as part of the Derivatives Implementation Group process. This statement
is effective for contracts entered into or modified, and for hedging relationships designated after June 30, 2003 and should be applied prospectively. The provisions of the Statement that relate to implementation issues addressed by the Derivatives
Implementation Group that have been effective should continue to be applied in accordance with their respective effective dates. Adoption of this standard is not expected to have a significant impact on the Corporations financial condition or
results of operations.



In May 2003, the Financial Accounting Standards Board
issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement requires that an issuer classify a financial instrument that is within its scope as a liability.
Many of these instruments were previously classified as equity. This Statement was effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective beginning July 1, 2003. The adoption of this standard did
not have any impact on the Companys financial condition or results of operations.



In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. This Interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation
assumed under certain specified guarantees. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies. In general, FIN 45 applies to contracts or indemnification agreements that contingently require the
guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability or equity security of the guaranteed party, which would include financial standby letters of credit. Certain guarantee
contracts are excluded from both the disclosure and recognition requirements of this Interpretation, including, among others, guarantees related to commercial letters of credit and loan commitments. The disclosure requirements of FIN 45 require
disclosure of the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee and the current amount of the liability, if any, for the guarantors obligations under
the guarantee. The accounting recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. Adoption of FIN 45 did not have a significant impact on the Corporations financial
condition or results of operations.



Outstanding letters of credit written are
conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The Corporations exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby
letters of credit is represented by the contractual amount of those instruments. The Corporation had $160,000 of standby letters of credit as of September 30, 2003. The Corporation uses the same credit policies in making conditional obligations as
it does for on-balance sheet instruments.



8



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The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending other loan commitments. The Corporation requires collateral and personal guarantees supporting these letters of credit as deemed necessary. Management believes that the proceeds
obtained through a liquidation of such collateral and the enforcement of personal guarantees 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 September 30, 2003 for guarantees under standby letters of credit issued after December 31, 2002 is not material.



In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51. This interpretation provides new guidance for the consolidation of variable interest entities (VIEs) and requires such entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among
parties involved. The interpretation also adds disclosure requirements for investors that are involved with unconsolidated VIEs. The disclosure requirements apply to all financial statements issued after January 31, 2003. The consolidation
requirements apply immediately to VIEs created after January 31, 2003 and are effective for the first fiscal year or interim period beginning after December 15, 2003 for VIEs acquired before February 1, 2003. The adoption of this interpretation did
not have any impact on the Companys financial condition or results of operations.



Item 2- Managements Discussion and Analysis of Financial Condition and Results of Operations



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.



9



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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 (iv) other external developments which could materially affect the
Corporations business and operations.



Critical Accounting Policies



The consolidated financial statements include the Corporation and its
wholly-owned subsidiary, The First National Bank of Mifflintown (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 may involve a higher degree of judgement and complexity.



The allowance for loan losses is established through a charge to 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 discussion below about the Provision for Loan Losses.



Financial Condition



Total assets of the Corporation increased $13,462,000 or 6.7% during the first nine months
of 2003. Loans increased $11,786,000 or 9.4% and securities increased by $3,619,000 or 6.5% since December 31, 2002, which were partially offset by a decline in cash and cash equivalents of $2,701,000. The increase in loans was primarily in
residential and commercial mortgages.



10



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Total deposits increased by $12,250,000 or 7.0% since year-end 2002. Short-term borrowings increased by $431,000 during
the same time period. The current rate environment contributed to the growth in deposits, along with the Corporations expansion and business development.



Results of Operations



Net income for the nine month period ending September 30, 2003 was $1,616,000 or $2.31 per share compared to $1,295,000 or $1.85 per share for the same period in 2002.
This reflects a 24.8% increase in net income for the first nine months of this year compared to last year. Annualized return on average equity was 14.08% for the first nine months of 2003 and 12.62% for the same period in 2002. Annualized return on
average assets was 1.04% for the first nine months of 2003 and 0.92% for the same period in 2002.



Income before income taxes increased $494,000 during the first nine months of 2003 compared to the same time period in 2002. This increase includes gains on sales of securities of $123,000 and a gain of $124,000 on
the sale of foreclosed real estate.



Net income for the quarter ending
September 30, 2003 was $492,000 or $0.70 per share compared to $450,000 or $0.64 per share for the same period in 2002. Annualized return on average equity was 12.41% for the third quarter 2003 and 12.79% for the same period in 2002. Annualized
return on average assets for the third quarter 2003 was 0.91% compared to 0.92% during the third quarter 2002.



Income before income taxes was $641,000 for the quarter ended September 30, 2003 compared to $569,000 for the same time period in 2002.



Net interest income for the first nine months of 2003 increased by $448,000 or 9.9% compared to the same period in 2002. This increase is
primarily a result of increased volume of interest earning assets. For the first nine months of 2003, the net interest margin on a fully tax equivalent (FTE) basis was 3.69% compared to 3.77% for the same period in 2002. 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 primary driver of the decrease in the net interest
margin was the decline in the yield on earning assets of 0.75% from 7.14% in 2002 to 6.39% in 2003. This was partially offset by a decrease in the cost of funds of 0.67% from 3.37% to 2.70% during the same time period. The Corporation expects the
margin to continue to compress as the year progresses.



Net interest income for
the quarter ending September 30, 2003 increased by $150,000 compared to the same period last year. Net interest margin for the quarter was 3.56% compared to 3.65% during the same period in 2002. The decrease in the cost of funds from 3.26% to 2.56%
was more than offset by the decrease in the yield on earning assets from 6.91% to 6.12%.



11



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The Corporation recorded a $90,000 provision for loan losses for the first nine months of 2003, the same as the provision
for the first nine months of 2002. The provision for the third quarter 2003 was $30,000, the same as the provision for the third quarter of 2002. As a percentage of loans, the allowance for loan losses was 0.84% at September 30, 2003, compared to
0.88% at year-end 2002 and 0.86% at September 30, 2002. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. Management determines the adequacy of the allowance based on
on-going quarterly assessments of the loan portfolio, including such factors as: changes in the nature and volume of the portfolio, effects of concentrations of credit, current and projected economic and business conditions, regulatory and
consultant recommendations, repayment patterns on loans, borrowers financial condition, current charge-offs, trends in volume and severity of past due loans and classified loans, potential problem loans and supporting collateral. Management
believes the allowance is presently adequate to cover the inherent risks associated with the Corporations loan portfolio.



Excluding the $123,000 securities gain and the $124,000 gain on sale of other real estate in the first nine months of 2003, non-interest income in the first nine months
of 2003 increased by $86,000 or 10.0% compared to the same period in 2002. Service charges on deposits increased by $60,000, primarily as a result of an increase in demand deposits and an increase in the collection of overdraft fees. Income from
fiduciary activities increased by $47,000, primarily from an increase in assets under management, and ATM card fees increased by $10,000, while earnings on investment in life insurance decreased $17,000.



Non-interest income for the quarter ending September 30, 2003 was $335,000 compared to
$305,000 for the same time period in 2002.



Total non-interest expense
increased in the first nine months of 2003 by $287,000 compared to the first nine months of 2002. Employee compensation and benefits increased by $86,000 or 4.5% compared to the same period in 2002. Several factors contributed to this increase
including payroll increases as a result of normal merit increases, additions to staff, and increases in medical insurance. Additional increases in employee compensation and benefits are anticipated as the Corporation continues to grow in size and
number of locations. Also, net occupancy and equipment expense increased $74,000 and ATM expense increased $27,000. As the Corporation continues to add new offices and services, additional operating costs will be generated. Over time it is
anticipated these costs will be offset by the additional income generated through the expansion of services to our customers and community and new business development.



12



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During the quarter ending September 30, 2003, total non-interest expense increased $108,000 compared to the third quarter
of 2002. Net occupancy and equipment expense increased by $33,000, supplies and postage increased by $46,000, and professional fees increased by $21,000. These were the principal drivers of the increase in total non-interest expense.



Income tax expense was $520,000 for the nine month time period ending September 30, 2003
compared to $347,000 for the same time period in 2002. Income tax expense as a percentage of income before income taxes was 24.3% for the period compared to 21.1% for 2002. Income tax expense for the quarter ending September 30, 2003 was $149,000,
an effective rate of 23.2%, compared to $119,000, an effective rate of 20.9%, during the same period in 2002. The reason for the increase in the effective tax rate for the period in 2003 compared to 2002 is due primarily to the tax-exempt income
representing a smaller portion of income before taxes in 2003 compared to 2002.



The decrease in the Corporations effective tax rate below the statutory rate of 34.0% is a result of tax-exempt income on loans, securities and bank-owned life insurance.



Liquidity



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. One of the Corporations sources of liquidity is $186,376,000 in deposits at September 30, 2003, which increased $12,250,000
over total deposits of $174,126,000 at year-end 2002. Other sources of liquidity at September 30, 2003 are available from the following: (1) investments in interest-bearing deposits with banks and federal funds sold, which totaled $695,000, (2)
securities maturing in one year or less, which totaled $1,115,000, and (3) investments in mortgage-backed securities, which supply income and principal cash flow streams on an ongoing basis. In addition, the Corporation has established federal funds
lines of credit with Atlantic Central Bankers Bank and with the Federal Home Loan Bank of Pittsburgh, which can be drawn upon if needed as a source of liquidity. Management is of the opinion that the Corporations liquidity is sufficient to
meet its anticipated needs.



Capital Resources



Total shareholders equity was $15,607,000 as of September 30, 2003, representing a
$914,000 increase from December 31, 2002. The growth in capital was primarily a result of net earnings retention of $1,287,000, which was partially offset by an other comprehensive loss of $373,000. The other comprehensive loss is due to the change
in value of the Corporations available for sale securities.



13



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At September 30, 2003, the Corporation had a leverage ratio of 7.06%, a Tier I capital to risk-based assets ratio of
12.76% and a total capital to risk-based assets ratio of 13.98%. These ratios indicate the Corporation exceeds the federal regulatory minimum requirements for a well capitalized bank. The Banks ratios are not materially different
than those of the Corporation.



Quantitative and Qualitative Disclosure
about Market



There are no material changes in the Corporations
interest rate risk exposure since December 31, 2002. Please refer to the Annual Report on Form 10-KSB of First Community Financial Corporation, filed with the Securities and Exchange Commission on March 10, 2003.



Item 3. Controls and Procedures



We maintain a system of controls and procedures designed to provide reasonable assurance as
to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. The Corporations Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2003. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective
in timely alerting them to information required to be included in our periodic Securities and Exchange Commission filings. There was no significant change in our internal control over financial reporting that occurred during the quarter ended
September 30, 2003, that materially affected or is reasonably likely to materially affect, the Corporations internal control over financial reporting



PART II  OTHER INFORMATION



Item 1. Legal Proceedings



Not Applicable



Item 2. Changes in Securities and Use of Proceeds



Not Applicable



Item 3. Defaults Upon Senior
Securities



Not Applicable



Item 4. Submission of Matters to a Vote of Security Holders



Not Applicable



Item 5. Other Information



Not Applicable



14



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Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits



|Exhibit |  | Title                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|3.1     |  | Articles of Incorporation of the Corporation. (Incorporated by reference to Exhibit 2(a) to the Corporations December 31, 2001 Registration Statement on Form 10-SB, as filed
with the Securities and Exchange Commission on April 17, 2002.)                                                                 
|        | 
|3.2     |  | Bylaws of the Corporation. (Incorporated by reference to Exhibit 2(b) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange
Commission on April 17, 2002.)                                                                                                      
|        | 
|10.1    |  | Lease Agreement  Delaware Branch Office (Incorporated by reference to Exhibit 6(b)(1) to the Corporations Registration Statement on Form 10-SB, as filed with the
Securities and Exchange Commission on April 17, 2002.)                                                                                     
|        | 
|10.2    |  | Lease Agreement  East Waterford Branch Office (Incorporated by reference to Exhibit 6(b)(2) to the Corporations Registration Statement on Form 10-SB, as filed with the
Securities and Exchange Commission on April 17, 2002.)                                                                               
|        | 
|10.3    |  | Lease Agreement  Shermans Dale Branch Office (Incorporated by reference to Exhibit 6(b)(3) to the Corporations Registration Statement on Form 10-SB, as filed with the
Securities and Exchange Commission on April 17, 2002.)                                                                                
|        | 
|10.4    |  | Salary Continuation Agreement dated August 19,1997 between James McLaughlin and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c) (1) to the
Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)      
|        | 
|10.5    |  | Salary Continuation Agreement dated September 22,1997 between Leona Shellenberger and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c) (2) to the
Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)
|        | 
|10.6    |  | Salary Continuation Agreement dated August 28,1997 between Jody Graybill and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c) (3) to the
Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)         
|        | 
|10.7    |  | Salary Continuation Agreement dated September 18,1997 between Timothy Stayer and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c) (4) to the
Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)     
|        | 
|10.8    |  | Salary Continuation Agreement dated April 10,2000 between Marcie A. Barber and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c) (5) to the
Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)       



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|      | 
|----- | 
|10.9  | 
|      | 
|10.10 | 
|      | 
|10.11 | 
|      | 
|10.12 | 
|      | 
|10.13 | 
|      | 
|10.14 | 
|      | 
|10.15 | 
|      | 
|10.16 | 
|      | 
|10.17 | 
|      | 
|10.18 | 
|      | 
|10.19 | 



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|10.20 |  | Director Revenue Neutral Retirement Agreement dated September 29,1997 between Joseph Barnes and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c)
(17) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)      
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.21 |  | Director Revenue Neutral Retirement Agreement dated September 29,1997 between Samuel F. Metz and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c)
(18) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)     
|      | 
|10.22 |  | Director Revenue Neutral Retirement Agreement dated September 30,1997 between Clair E. McMillen and The First National Bank of Mifflintown (Incorporated by reference to Exhibit
6(c) (19) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)  
|      | 
|10.23 |  | Director Revenue Neutral Retirement Agreement dated September 29,1997 between Roger Shallenberger and The First National Bank of Mifflintown (Incorporated by reference to Exhibit
6(c) (20) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)
|      | 
|10.24 |  | Director Revenue Neutral Retirement Agreement dated September 29,1997 between John Tetweiler and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c)
(21) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)     
|      | 
|10.25 |  | Director Revenue Neutral Retirement Agreement dated September 29,1997 between Richard Weible and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c)
(22) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)     
|      | 
|10.26 |  | Director Revenue Neutral Retirement Agreement dated March 31,1998 between Lowell M. Shearer and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c)
(23) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)      
|      | 
|10.27 |  | Director Revenue Neutral Retirement Agreement dated March 24,1998 between Charles C. Saner and The First National Bank of Mifflintown (Incorporated by reference to Exhibit 6(c)
(24) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on April 17, 2002.)       
|      | 
|31.1  |  | Certification of Chief Executive Officer of First Community Financial Corporation Pursuant to Securities and Exchange Commission Rule 13a-14(a) / 15d-14(a).                                                                                                                                                                    
|      | 
|31.2  |  | Certification of Chief Financial Officer of First Community Financial Corporation Pursuant to Securities and Exchange Commission Rule 13a-14(a) / 15d-14(a).                                                                                                                                                                    
|      | 
|32.1  |  | Certification of Chief Executive Officer of First Community Financial Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    
|      | 
|32.2  |  | Certification of Chief Financial Officer of First Community Financial Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    



17



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(b) Reports on Form 8-K



On August 15, 2003, the Corporation filed a Form 8-K with the Securities and Exchange Commission to report under Item 5 that
Samuel F. Metz, Chairman of the Board of the Corporation and its wholly-owed subsidiary, The First National Bank of Mifflintown, announced his retirement as Chairman effective January 13, 2004 and that President and Chief Executive Officer James R.
McLaughlin would succeed Mr. Metz as Chairman.



18



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|                        |  | FIRST COMMUNITY FINANCIAL CORPORATION
|----------------------- |  | -------------------------------------
|                        |  | (Registrant)                         
|                        |  |                                      
|Date: November 13, 2003 |  |                                      
|                        |  |                                      
|                        |  |                                      
|                        |  |                                      
|Date: November 13, 2003 |  |                                      
|                        |  |                                      
|                        |  |                                      



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