<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    ---------


                                    FORM 10-Q

(Mark One)

(X)     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 For the Quarter ended March 31, 2001


( )     Transition report pursuant to Section 13 or 15(d) ) of the Securities
        Exchange Act of 1934 For Transition Period from ________ to ____________

        Commission File Number 000-30447


                                   ---------

                        VALLEY COMMUNITY BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

               WASHINGTON                            91-1913479
      (State or other jurisdiction       (I.R.S. Employer Identification No.)
    of incorporation or organization)

  1307 EAST MAIN, PUYALLUP, WASHINGTON                 98372
(Address of principal executive offices)             (Zip Code)


                                 (253) 848-2316
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

The number of shares of the issuer's Common Stock, $1.00 par value, outstanding
at May 1, 2001 was 1,133,588.


<PAGE>   2
VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q

<TABLE>
<S>                                                                                   <C>
PART I  FINANCIAL INFORMATION
                                                                                      Page

Item 1. Financial Statements

        Independent Accountant's Report                                                  1

        Condensed Consolidated Balance Sheet - March 31, 2001 and December 31, 2000      2

        Condensed Consolidated Statement of Income - Three Months

        Ended March 31, 2001 and 2000                                                    3

        Condensed Consolidated Statement of Cash Flows - Three Months

        Ended March 31, 2001 and 2000                                                    4

        Notes to Condensed Consolidated Financial Statements                             5

Item 2. Management's Discussion and Analysis of Financial Condition
        And Results of Operation                                                         9

Item 3. Quantitative and Qualitative Disclosures about Market Risk                      19

FORWARD-LOOKING STATEMENTS                                                              20

PART II  OTHER INFORMATION                                                              20

        Signatures                                                                      21
</TABLE>

                                       i
<PAGE>   3
Item 1. FINANCIAL STATEMENTS

                         INDEPENDENT ACCOUNTANT'S REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
VALLEY COMMUNITY BANCSHARES, INC.

We have reviewed the accompanying condensed consolidated balance sheet of Valley
Community Bancshares, Inc. and subsidiaries (the "Company") as of March 31,
2001, and the related condensed consolidated statements of income for the
three-month periods ended March 31, 2001 and 2000, and cash flows for the
three-month periods ended March 31, 2001 and 2000. These financial statements
are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Valley Community Bancshares, Inc
and subsidiaries as of December 31, 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended (which are not presented herein), and in our report dated February 16,
2001, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2000, is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.

/s/ Moss Adams LLP

Everett, Washington
April 27, 2001


                                      -1-
<PAGE>   4
VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                 March 31,      December 31,
                                                               -----------------------------
                                                                   2001             2000
                                                               -------------    ------------
<S>                                                            <C>              <C>
ASSETS
     Cash and due from banks                                   $       7,522    $      4,466
     Interest-bearing deposits with banks                             16,490          10,123
     Securities available-for-sale                                    27,584          30,483
     Securities held-to-maturity                                                         279
     Federal Home Loan Bank stock                                        454             447
                                                                ------------     -----------
                                                                      52,050          45,798

     Loans                                                            95,519          94,614
     Less allowance for loan losses                                    1,127           1,096
                                                                ------------     -----------
               Loans, net                                             94,392          93,518

     Accrued interest receivable                                         859             952
     Premises and equipment, net                                       5,777           5,712
     Real estate held for investment                                     224             224
     Other assets                                                        414             565
                                                                ------------     -----------
               Total assets                                    $     153,716    $    146,769
                                                                ============     ===========

LIABILITIES

     Deposits
             Noninterest-bearing                               $      26,286    $     24,140
             Interest-bearing                                        106,095         100,907
                                                                ------------     -----------
               Total deposits                                        132,381         125,047

     Other borrowed funds                                                206             557
     Accrued interest payable                                            653             597
     Other liabilities                                                   413             443
                                                                ------------     -----------
               Total liabilities                                     133,653         126,644
                                                                ------------     -----------

STOCKHOLDERS' EQUITY
     Common stock, par value $1 per share; 5,000,000 shares
         authorized; 1,133,588 shares issued and outstanding
         in 2001 and 2000, respectively.                               1,134           1,134
     Additional paid-in capital                                       16,322          16,322
     Retained earnings                                                 2,359           2,613
     Accumulated other comprehensive income, net of tax                  248              56
                                                                ------------     -----------
               Total stockholders' equity                             20,063          20,125
                                                                ------------     -----------
               Total liabilities and stockholders' equity      $     153,716    $    146,769
                                                                ============     ===========
</TABLE>

The accompanying notes are an integral part of these financial statements


                                      -2-
<PAGE>   5
VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
(dollars in thousands, except for per share amounts)

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                         March 31,
                                                                  ----------------------
                                                                     2001       2000
                                                                -----------  -----------
<S>                                                             <C>          <C>
INTEREST INCOME
   Interest and fees on loans                                   $     2,034  $     1,812
   Interest on federal funds sold and deposits in banks                 213          103
   Interest on securities                                               415          485
                                                                 ----------   ----------
            Total interest income                                     2,662        2,400
                                                                 ----------   ----------

INTEREST EXPENSE
   Interest on deposits                                                 985          768
   Interest on federal funds and other short-term borrowings              5            5
                                                                 ----------   ----------
            Total interest expense                                      990          773
                                                                 ----------   ----------
            Net interest income                                       1,672        1,627

PROVISION FOR LOAN LOSSES                                                31           27
                                                                 ----------   ----------
            Net interest income after provision
              for loan losses                                         1,641        1,600
                                                                 ----------   ----------
NONINTEREST INCOME
   Service charges                                                       93           74
   Gain on sale of investment securities, net                            10
   Origination fees on mortgage loans brokered                           22            3
   Other operating income                                                82           65
                                                                 ----------   ----------
            Total noninterest income                                    207          142
                                                                 ----------   ----------

NONINTEREST EXPENSE
   Salaries                                                             541          494
   Employee benefits                                                    144          127
   Occupancy                                                            146          119
   Equipment                                                            129          110
   Other operating expenses                                             383          353
                                                                 ----------   ----------
            Total noninterest expense                                 1,343        1,203
                                                                 ----------   ----------
INCOME BEFORE INCOME TAX                                                505          539

PROVISION FOR INCOME TAX                                                136          162
                                                                 ----------   ----------
NET INCOME                                                      $      369   $       377
                                                                 ==========   ==========
EARNINGS PER SHARE
   Basic                                                        $      0.33  $      0.33
   Diluted                                                      $      0.32  $      0.33
   Weighted average shares outstanding                            1,133,589    1,125,562
   Weighted average diluted shares outstanding                    1,152,423    1,154,009
</TABLE>

The accompanying notes are an integral part of these financial statements


                                      -3-
<PAGE>   6
VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(dollars in thousands, except for per share amounts)

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                              March 31,
                                                                     -------------------------
                                                                         2001          2000
                                                                     -----------  ------------
<S>                                                                  <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                        $       369  $        377
   Adjustments to reconcile net income to net cash
       from operating activities
     Provisions for loan losses                                               31            27
     Depreciation                                                            118            94
     Deferred income tax                                                       2             2
     Net amortization on securities                                            7            10
     FHLB stock dividends                                                    (7)           (6)
     Gain on sale of securities available-for-sale                          (10)
     Decrease in accrued interest receivable                                  93            65
     Increase (decrease) in other assets                                      51          (41)
     Increase in accrued interest payable                                     56            75
     Increase (decrease) in other liabilities                               (30)           132
                                                                      ----------   -----------
       Net cash from operating activities                                    680           735
                                                                      ----------   -----------

   Net increase in interest-bearing deposits with banks                  (6,367)         2,701
   Purchase of securities available-for-sale                             (3,788)       (1,306)
   Proceeds from sales of securities available-for-sale                    1,007
   Proceeds from maturities of securities available-for-sale               6,253         2,528
   Proceeds from maturities of securities held-to-maturity                                  27
   Net increase in loans                                                   (905)       (5,298)
   Additions to premises and equipment                                     (184)         (312)
                                                                      ----------   -----------
       Net cash from investing activities                                (3,984)       (1,660)
                                                                      ----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits                                                7,334         1,749
   Net decrease in other borrowed funds                                    (351)          (29)
   Cash dividends paid                                                     (623)         (563)
                                                                      ----------   -----------
       Net cash from financing activities                                  6,360         1,157
                                                                      ----------   -----------

NET INCREASE IN CASH AND DUE
   FROM BANKS                                                              3,056           232

CASH AND DUE FROM BANKS, beginning of year                                 4,466         5,127
                                                                      ----------   -----------
CASH AND DUE FROM BANKS, at end of period                            $     7,522  $      5,359
                                                                      ==========   ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments for
     Interest                                                        $       934  $        698

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
   Unrealized gains (losses) on securities available-for-sale        $       291  $      (120)
   Deferred tax on unrealized (gains) losses on securities
     available-for-sale                                                     (99)            41
   Securities held-to-maturity transferred to securities
     available-for-sale                                                      279
</TABLE>

 The accompanying notes are an integral part of these financial statements


                                      -4-
<PAGE>   7
VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

Valley Community Bancshares, Inc. (the "Company") has prepared the condensed
consolidated financial statements of the Company for the three-month period
ended March 31, 2001 and March 31, 2000 without audit by the Company's
independent auditors. However, the financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Form 10-Q and Article 10 of Regulation S-X.
In the opinion of the Company's management, all adjustments consisting of normal
recurring accruals necessary for a fair presentation of the financial condition
and results of operations for the interim periods included herein have been
made. The consolidated balance sheet of the Company as of December 31, 2000 has
been derived from the audited consolidated balance sheet of the Company as of
that date. The results of operations for the three-months ended March 31, 2001,
are not necessarily indicative of the results to be anticipated for the year
ending December 31, 2001. The report of Moss Adams LLP commenting upon their
review accompanies the consolidated financial statements included in Item 1 of
Part I.

Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
consolidated financial statements and notes thereto should be read in
conjunction with a reading of the financial statements for the year ended
December 31, 2000 and notes thereto included in the Company's Form 10-K filed
with the Securities and Exchange Commission. Certain amounts in the 2000
financial statements have been reclassified to conform to the 2001 presentation.

Note 2. Earnings per share

Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding during the period after giving retroactive effect
to stock dividends and stock splits. Diluted earnings per share amounts are
computed by determining the number of additional shares that are deemed
outstanding due to stock options under the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per
share for the three-months ended March 31, 2001 and 2000 (dollars in thousands,
except per share amounts).

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.                                    Three Months Ended
Earnings Per Share                                                        March 31,
                                                                 ---------------------------
                                                                    2001             2000
                                                                 ----------       ----------
<S>                                                              <C>              <C>
NUMERATOR:

Net income                                                       $      369       $      377

DENOMINATOR:

Denominator for basic earnings per share:
     Weighted average shares                                      1,133,589        1,125,562
     Effect of diluted securities - stock options                    18,834           28,447

Denominator for diluted earnings per share:
     Weighted average shares and assumed
         conversion of diluted stock options                      1,152,423        1,154,009

Basic earnings per share                                         $     0.33       $     0.33

Diluted earnings per share                                       $     0.32       $     0.33
</TABLE>


                                      -5-
<PAGE>   8
Note 3 - Investment Securities

Investment securities have been classified according to management's intent. The
carrying amount of securities and their estimated fair values are as follows (in
thousands):

<TABLE>
<CAPTION>
March 31, 2001

Securities Available-For-Sale                                   Gross        Gross
                                              Amortized    Unrealized   Unrealized         Fair
                                                   Cost         Gains       Losses        Value
                                            -----------  ------------  -----------  -----------
<S>                                         <C>          <C>           <C>          <C>
U.S. Treasury and U.S. Government
  corporations and agencies                 $    11,122  $        164  $         5  $    11,281
State and political subdivisions                  5,264            89                     5,353
Mortgage-backed securities                        9,821           130           12        9,939
Other                                             1,001            10                     1,011
                                             ----------   -----------   ----------   ----------
                                            $    27,208  $        393  $        17  $    27,584
                                             ==========   ===========   ==========   ==========

December 31, 2000

Securities Available-For-Sale                                   Gross        Gross
                                              Amortized    Unrealized   Unrealized         Fair
                                                   Cost         Gains       Losses        Value
                                             ----------   -----------   ----------   ----------
U.S. Treasury and U.S. Government
  corporations and agencies                 $    16,652  $         77  $        30  $    16,699
State and political subdivisions                  4,710            38            7        4,741
Mortgage-backed securities                        7,531            47           30        7,548
Other                                             1,504                          9        1,495
                                             ----------   -----------   ----------   ----------
                                                 30,397           162           76       30,483
                                             ----------   -----------   ----------   ----------
Securities Held-to-Maturity

U.S. Treasury and U.S. Government
  corporations and agencies                         244             4                       248
State and political subdivisions                     35                                      35
                                             ----------   -----------   ----------   ----------
                                                    279             4                       283
                                             ----------   -----------   ----------   ----------
                                            $    30,676  $        166  $        76  $    30,766
                                             ==========   ===========   ==========   ==========
</TABLE>


                                      -6-
<PAGE>   9
Note 4 - Loans

The major classifications of loans at March 31, 2001 and December 31, 2000 are
summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Loan Portfolio
(dollars in thousands)                                 March 31,               December 31,
                                                ---------------------    ----------------------
                                                         2001                      2000
                                                ---------------------    ----------------------
                                                 Amount      Percent        Amount     Percent
                                                ---------   ---------    ----------   ---------
<S>                                            <C>          <C>         <C>           <C>
 Real Estate
      Construction                             $    7,112        7.4%   $     5,959        6.3%
      Mortgage                                     15,630       16.4%        16,701       17.6%
      Commercial                                   53,034       55.5%        52,620       55.6%
 Commercial                                        16,834       17.6%        16,258       17.2%
 Consumer and other                                 2,262        2.4%         2,523        2.7%
 Lease financing                                      660        0.7%           560        0.6%
                                                ---------   ---------    ----------   ---------
         Total loans                               95,532      100.0%        94,621      100.0%
                                                            =========                 =========
 Deferred loan fees                                  (13)                       (7)
                                                ---------                ----------
         Net loans                             $   95,519               $    94,614
                                                =========                ==========
</TABLE>

Note 5 - Allowance for Loan Losses

Management analyzes the loan portfolio to determine the adequacy of the
allowance for loan losses and the appropriate provision required to maintain an
adequate allowance. In assessing the adequacy of the allowance, management
reviews the size, quality and risks of loans in the portfolio and considers
factors such as specific known risks, past experience, the status and amount of
nonperforming assets and economic conditions. A specific percentage is allocated
to each major classification and not specifically reserved while additional
amounts are added for individual loans considered to have specific loss
potential. Loans identified as losses are charged-off. Based on total
allocations, the provision is recorded to maintain the allowance at a level
deemed appropriate by management. While management uses available information to
recognize losses on loans, there can be no assurance that future additions to
the allowance will not be necessary.

The allowance for loan losses at March 31, 2001 totaled $1,127,000 representing
a net increase of $31,000 or 3% compared to $1,096,000 at December 31, 2000. The
increase is primarily due to the increase in loans since December 31, 2000 and
is not related to any specifically identified problem loan. Management believes
that the allowance for loan losses at March 31, 2001 adequately reflects the
risks in the loan portfolio. Various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize changes to the allowance
based on their judgments of information available to them at the time of their
examination.

The following table summarizes the activity in the allowance for loan losses
(dollars in thousands):

VALLEY COMMUNITY BANCSHARES, INC.
Loan Loss Experience

<TABLE>
<CAPTION>
                                       Three months ended
                                            March 31,
                                     ---------------------
                                        2001        2000
                                     ---------   ---------
<S>                                 <C>         <C>
Balance at beginning of period      $    1,096  $      959

   Charge-offs
   Recoveries:                       ---------   ---------
     Net charge-offs                         0           0
   Additions charged to operations          31          27
                                     ---------   ---------
Balance at end of period            $    1,127  $      986
                                     =========   =========
</TABLE>

                                      -7-
<PAGE>   10
Note 6 - Impact of New Accounting Issues

During the year 2001 the Company adopted the following accounting standard
issued by the Financial Accounting Standard Board.

Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and
138, which established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company implemented this statement
effective January 1, 2001. Implementation of the statement did not result in a
material impact on its financial position or results of operations. As permitted
by the statement the Company reclassified approximately $279,000 securities
held-to-maturity with a market value of $283,000 to securities available-for-
sale.


                                      -8-
<PAGE>   11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS


VALLEY COMMUNITY BANCSHARES, INC.

Valley Community Bancshares, Inc. (the "Company") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended. The Company
was organized and incorporated under the laws of the State of Washington as a
holding company for its principal banking subsidiary, Puyallup Valley Bank, a
state chartered, FDIC insured commercial bank, through a reorganization
completed on July 1, 1998. The Company conducts its business primarily through
Puyallup Valley Bank, but in January 1999 the Company completed the acquisition
of Valley Bank, a newly organized state chartered FDIC insured commercial bank
subsidiary located in Auburn, Washington. Puyallup Valley Bank and Valley Bank
are referred to as the "Banks" in this Form 10-Q.

The Company's main office is located in Puyallup, Washington, which also serves
as the main office of Puyallup Valley Bank. Valley Bank is located in Auburn,
Washington. The Banks provide a full range of commercial banking services to
small and medium-sized businesses, professionals and other individuals through
banking offices located in Puyallup and Auburn, Washington, and their environs.

The principal source of the Company's revenue are (i) interest and fees on
loans; (ii) deposit service charges; (iii) merchant credit card processing fees;
(iv) interest bearing deposits with banks; and (v) interest on investments
(principally government securities). The Bank's lending activity consists of
short-to-medium-term commercial and consumer loans, including operating loans
and lines of credit, equipment loans, automobile loans, recreational vehicle and
truck loans, personal loans or lines of credit, home improvement loans and
rehabilitation loans. The Banks also offer cash management services, merchant
credit card processing, safe deposit boxes, wire transfers, direct deposit of
payroll and social security checks, automated teller machine access, and
automatic drafts for various accounts.

Puyallup Valley Bank

Puyallup Valley Bank is a Washington state-chartered commercial bank, which
commenced operations in October 1973. The Bank provides full-service banking to
businesses and residents within the Puyallup community and its surrounding area.
Puyallup Valley Bank places particular emphasis on serving the small to
medium-sized business segment of the market by making available a line of
banking products tailored to their needs, with those services delivered by
experienced professionals concerned with building long-term relationships.
Puyallup Valley Bank conducts business out of six full-service offices and one
drive-up facility.

Valley Bank

Valley Bank is a Washington state-chartered commercial bank, which commenced
operations in January 1999. The Bank provides full-service banking to businesses
and residents within the Auburn community and its surrounding area. Valley Bank
offers commercial banking services to small and medium size businesses,
professionals and retail customers in the Bank's market area.

Both Puyallup Valley Bank and Valley Bank are solely owned subsidiaries of the
Company.

RESULTS OF OPERATIONS

The Company earned net income of $369,000 or $0.32 per diluted share for the
three months ended March 31, 2001, compared to net income of $377,000, or $0.33
per diluted share, for the three months ended March 31, 2000, a decrease of 2.2
percent. The Company's return on average assets was 1.01 percent for the three
months ended March 31, 2001, compared to 1.13 percent for the three months ended
March 31, 2000.

                                      -9-
<PAGE>   12
The decrease in net income for the three-month period ended March 31, 2001 was
primarily the result of an increase in non-interest expense, which reflects the
higher operating costs associated with Valley Bank's new banking facility that
began operations in June 2000. The decrease was partially offset by increases in
net interest income and non-interest income, which was favorably impacted by
improving operations at Valley Bank.

The Company's net income is derived principally from the operating results of
its banking subsidiaries, namely Puyallup Valley Bank and Valley Bank. Puyallup
Valley Bank is a well-established commercial bank and generates the Company's
operating income. Puyallup Valley Bank earned net income of $383,000 for the
three months ended March 31, 2001 compared to $405,000 for the three months
ended March 31, 2000. Valley Bank, incurred losses of $11,000 for the three
months ended March 31, 2001 compared to losses of $19,000 for the three months
ended March 31, 2000. Valley Bank is expected to begin contributing positive
earnings to the Company beginning the second quarter of 2001. However, there can
be no assurance that Valley Bank will not incur more losses, which could have an
adverse impact on the Company's earnings, dividend payments or future growth.

The following table shows the various performance ratios for the Company for the
three months ended March 31, 2001 and 2000, respectively:

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Selected Financial Data
(dollars in thousands, except per share amounts)    THREE MONTHS  ENDED MAR. 31,
                                                       2001            2000
                                                    ------------  --------------
<S>                                                 <C>           <C>
FINANCIAL PERFORMANCE

    Net Income                                      $     369     $      377
    Average Assets                                    148,387        134,132
    Average Stockholders' Equity                       19,978         18,417

    Return on Assets (net income divided by
      average assets)                                   1.01%          1.13%
    Return on Equity  (net income divided by
      average equity)                                   7.49%          8.21%
    Net Interest Margin (net interest income
      (tax adjusted) divided by earning assets)         5.05%          5.36%
    Efficiency Ratio (noninterest expense
      divided by noninterest income plus net
      interest income)                                 71.47%         68.00%

    Ratio of noninterest income to average
      assets                                            3.67%          3.60%
</TABLE>

Net Interest Income

The component contributing most significantly to the Company's net income is net
interest income, which is the difference between interest earned on earning
assets (primarily loans and investments) and interest paid on interest bearing
liabilities (deposits and borrowings). The volume of and yields earned on
earning assets and the volume of and the rates paid on interest bearing
liabilities determine net interest income. Interest earned and interest paid is
also affected by general economic conditions, particularly changes in market
interest rates, and by government policies and the action of regulatory
authorities. Net interest income, with tax-exempt income adjusted to a
tax-equivalent basis, divided by average earning assets is referred to as net
interest margin. For the three months ended March 31, 2001, the Company's net
interest margin was 5.05 percent compared to 5.38 percent for the three months
ended March 31, 2000.

Interest income was $2,662,000 for the three months ended March 31, 2001
compared to $2,400,000 for the three months ended March 31, 2000. The increase
was due to growth in interest earning assets and the yield earned thereon. The
yield on interest-earning assets increased to 7.99 percent for the three months
ended March 31, 2001 compared to 7.89 percent during the same period a year ago.
The yield increase was primarily as a result of increasing yields on investment
securities.

Interest expense was $990,000 for the three months ended March 31, 2001 compared
to $773,000 for the three months ended March 31, 2000. The increase was due to
an increase in the cost of funds and growth in interest bearing liabilities. The
cost of funds increased to 3.91 percent for the three months ended March 31,
2001 compared to 3.39 percent during the same period a year ago. The cost of
funds increase was primarily related to a higher concentration in certificate of
deposits greater than $100,000, an above market rate certificate of deposit
special offered to Valley Bank customers in June 2000, and an overall increase
in market interest rates. In addition, as a result of higher market


                                      -10-
<PAGE>   13
interest rates, the Company experienced a trend of deposit customers
transferring funds from non-interest bearing or low-interest bearing deposit to
higher interest paying certificates of deposit. This trend is not anticipated to
continue; however, if it does continue the Company may experience an increase in
the cost of funds and potentially a lower net interest margin, and lower
profitability.

During the three months ended March 31, 2001, market interest rates decreased
and may decrease further during the balance of the year as a result of a slower
national and regional economy. In periods of falling interest rates, the
Company's net interest income and margin may increase because the Company has a
greater amount of interest-bearing liabilities subject to repricing than
interest earning assets. However, this increase may be offset as loan customers
refinance their higher yielding loans to a lower interest rate. In addition, in
a slowing economy, the demand for loans may decrease resulting in a higher
percentage of the Company's earning assets invested in lower yielding
securities. In addition, the rate paid on other deposits with administered
interest rates such as NOW, savings and money market accounts generally do not
decrease as rapidly as market interest rates.

The following table sets forth information concerning the Company's average
balance and average interest rates earned or paid, interest rate spread and net
interest margin:

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
AVERAGE BALANCES AND INTEREST RATES EARNED/PAID
(dollars in thousands)
                                                  For the Three Months Ended March 31,
                                                    2001                           2000
                                      -----------------------------  ------------------------------
                                       Average    Revenue/   Yield/    Average    Revenue/   Yield/
ASSETS                                balance(1)  expense(2)  rate    balance(1)  expense(2)  rate
                                      ---------   ---------  ------   ---------   ---------  ------
<S>                                  <C>         <C>          <C>    <C>         <C>           <C>
Interest-earning assets
    Loans (including fees)           $   93,801  $   2,034    8.79%  $   82,040  $   1,812     8.88
    Investment securities                28,345        438    6.27%      34,553        509     5.92%
    Interest bearing deposits with
       banks                             13,992        213    6.17%       6,976        103     5.94%
    Federal Home Loan Bank Stock            447          7    6.35%         420          7     6.70%
                                      ---------   --------   ------   ---------   --------   -------
        Total Interest-earning
          assets                        136,585      2,692    7.99%     123,989      2,431     7.89%
    Total noninterest-earning
        assets                           11,802                          10,143
                                      ---------                       ---------
    TOTAL ASSETS                     $  148,387                      $  134,132
                                      =========                       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities

    Deposits                         $  102,406        985    3.90%  $   91,240        768     3.39%
    Other borrowed funds                    388          5    5.23%         419          5     4.80%
                                      ---------   --------   ------   ---------   --------   -------
        Total Interest-bearing
          liabilities                   102,794        990    3.91%      91,659        773     3.39%
    Noninterest-bearing
        liabilities                      25,615                          24,056
    Stockholders' equity                 19,978                          18,417

    TOTAL LIABILITIES AND             ---------                       ---------
    STOCKHOLDERS' EQUITY             $  148,387                      $  134,132
                                      =========                       =========
                                                  --------   ------               --------   -------
Net interest spread                              $   1,702    4.09%              $   1,658     4.49%
                                                  ========                        ========

Margin Analysis
    Interest income/ earning
        assets                                   $   2,692    7.99%              $   2,431     7.89%
    Interest expense/earning
        assets                                         990    2.94%                    773     2.51%
                                                  --------   ------               --------   -------
    Net interest margin                          $   1,702    5.05%              $   1,658     5.38%
                                                  ========                        ========
</TABLE>

    (1) Average loan balance includes nonaccrual loans, if any. Interest income
        on nonaccrual loans has been included.

    (2) Tax-exempt income has been adjusted to a tax-equivalent basis using an
        incremental rate of 34%.


                                      -11-
<PAGE>   14
The following table sets forth information concerning the Company's change in
net interest income for the periods that are attributable to changes in interest
rate and changes in volume for the three month period ended March 31, 2001
compared to the three months ended March 31, 2000:

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Volume/Rate Analysis - For the Three Months ended March 31,
(dollars in thousands)

                                      2001 Compared to 2000
                                ---------------------------------
                                  Volume       Rate         Net
                                ---------   ---------   ---------
<S>                            <C>         <C>         <C>
Interest income
   Loans (including fees)      $      211  $       11  $      222
   Investment securities             (96)          25        (71)
   Interest bearing deposits
     with banks                       106           4         110
                                ---------   ---------   ---------
       Total Interest-earning
          assets                      221          40         261

Interest-bearing liabilities
   Total deposits                     129          88         217
   Other borrowed funds
                                ---------   ---------   ---------
       Total Interest-bearing
          liabilities                 129          88         217
                                ---------   ---------   ---------
       Net interest income     $       92  $     (48)  $       44
                                =========   =========   =========
</TABLE>

1    The change in interest due to both volume and yield/rate has been allocated
     to change due to volume and change due to yield/rate in proportion to the
     absolute value of the change in each.

2    Balances of nonaccrual loans, if any, and related income recognized have
     been included for computational purposes.

3    Tax-exempt income has been converted to a tax-equivalent basis using an
     incremental rate of 34%


Provision for loan losses

Provisions for loan losses reduce net interest income. The Company provided
$31,000 for loan losses for the three months ended March 31, 2001 compared to
$27,000 during the same three-month period last year. The provision was made as
a result of increasing loans.

As a result of the increase in the provision for loan losses management believes
the amount of the allowance for loan losses to be adequate to absorb losses in
the current portfolio. This statement is based upon management's continuing
evaluation of inherent risks in the current loan portfolio, current levels of
classified assets, and economic factors. The Company will continue to monitor
the allowance and make future adjustments to the allowance as conditions
dictate. For further discussion regarding the allowance for loan losses, see the
discussion on allowance for loan losses under Risk Elements.

Noninterest income and expense

Net income is also affected by noninterest income (primarily service charges,
and other operating income) and noninterest expenses (primarily salaries and
employee benefits, occupancy, equipment, and other operating expenses).

Noninterest income was $207,000 for the three months ended March 31, 2001, a 46
percent increase from $142,000 for the three months ended March 31, 2000. The
increase in noninterest income for the first quarter was primarily the result of
higher origination fees on mortgage loans brokered, gains realized on the sale
of available-for-sale securities, and income received on newly issued bank debit
cards. Based on the current lower interest rate environment, the Company
anticipates that mortgage loans brokered will increase during the remainder of
the year 2001 compared to the levels realized in 2000 as borrowers refinance
their higher rate mortgage loans.

                                      -12-
<PAGE>   15
Noninterest expense was $1,343,000 for the three months ended March 31, 2001,
compared to $1,203,000 for the three months ended March 31, 2000, a 12 percent
increase. Noninterest expense continues to be impacted by higher salary and
employee benefits, occupancy and equipment, and other operating expenses
associated with the operation of the holding company and the new Valley Bank
main office that opened in June 2000. The percentage of noninterest expense to
average assets was 3.67 percent for the three months ended March 31, 2001,
compared to 3.60 percent during the same period last year.

The Company's efficiency ratio, which is the ratio of noninterest expense to net
interest income plus noninterest income, was 71.47 percent for the three months
ended March 31, 2001 compared to 68.00 percent for the three months ended March
31, 2000. The increase in the ratio was primarily due to a greater increase in
noninterest expense when compared to increases in net interest income and
noninterest income.

Provision for income tax

The Company's provision for income tax is a significant reduction of operating
income. The provision for the three months ended March 31, 2001, was $136,000
compared to $162,000 for the three months ended March 31, 2000. The provision
represents an effective tax rate of approximately 27 percent during 2001 and 30
percent during 2000. The Company's marginal tax rate is currently 34 percent.
The difference between the Company's effective and marginal tax rate is
primarily related to investments made in tax-exempt securities. The decrease in
the Company's effective taxing rate results from a year 2000 current tax refund
partially offset by a decrease in the amount of tax-exempt securities held for
the three months ended March 31, 2001, compared to the same period a year ago.

FINANCIAL CONDITION

The Company's total consolidated assets were $153.7 million as of March 31,
2001, compared to $146.8 million as of December 31, 2000. The 4.7 percent
increase in assets was primarily in interest bearing deposits with banks and
loans, funded by increasing deposits and maturing securities. The increase in
interest bearing deposits with banks represents the temporary investment of
funds received from several large depositors, which are anticipated to be
withdrawn during the second and third quarters of 2001 and from maturing
securities. Valley Bank also impacted the growth in deposits.

Investment Portfolio

As of March 31, 2001, the Company had $27.6 million of securities
available-for-sale, compared to $30.5 million as of December 31, 2000. The
decrease resulted from maturities and principal repayments on amortizing
securities. A portion of the maturing securities were reinvested in higher
yielding certificates of deposits with other banks. Although, not as liquid as
securities, certificates of deposits generally mature within a year. As of March
31, 2001, all of the Company's securities were classified as available for sale.
As permitted by the SFAS No. 133, as amended, the Company reclassified
approximately $279,000 securities held-to-maturity with a market value of
$283,000 to securities available-for-sale. Management believes that securities
classified as available for sale provides greater flexibility to respond to
interest rate changes and liquidity needs to fund loan growth.

Loan Portfolio

Loans were $95.5 million as of March 31, 2001, compared to $94.6 million as of
December 31, 2000. The increase was primarily in real estate construction and
real estate commercial loans partially offset by a decrease in real estate
mortgage loans. The percentage of loans to total assets was 62 percent and 64
percent at March 31, 2001 and December 31, 2000, respectively. It is
management's intent to grow the loan portfolio and to increase the percent of
loans to assets, which potentially could improve the Company's net interest
margin. However, the decrease in the percentage of loans to total assets during
the quarter was the result of decreased loan originations and increasing loan
refinances resulting from a slower local economy and lower interest rates.

                                      -13-
<PAGE>   16
The following table sets forth the composition of the Company's loan portfolio
as of the dates indicated:

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Loan Portfolio
(dollars in thousands)          March 31,              December 31,
                          ----------------------  ---------------------
                                  2001                    2000
                          ----------------------  ---------------------
                            Amount     Percent     Amount      Percent
                          ---------   ---------   ---------   ---------
<S>                      <C>          <C>        <C>          <C>
Real Estate
    Construction         $    7,112        7.4%  $    5,959       6.3%
    Mortgage                 15,630       16.4%      16,701      17.6%
    Commercial               53,034       55.5%      52,620      55.6%
Commercial                   16,834       17.6%      16,258      17.2%
Consumer and other            2,262        2.4%       2,523       2.7%
Lease financing                 660        0.7%         560       0.6%
                          ---------   ---------   ---------   --------
       Total loans           95,532      100.0%      94,621     100.0%
                                      =========               ========
Deferred loan fees             (13)                     (7)
                          ---------               ---------
       Net loans         $   95,519              $   94,614
                          =========               =========
</TABLE>

Risk Elements

The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Non-performing Assets
                                    March 31,     December 31,
                                      2001           2000
                                   -----------    ------------
<S>                               <C>             <C>
Non-performing assets:
     Nonaccrual loans             $        195   $         -0-
     Loans 90 days or more past
       due
     Restructured loans
                                   -----------    ------------
                                           195             -0-
     Other real estate owned
                                   -----------    ------------
       Total non-performing
       assets                     $        195   $         -0-
                                   ===========    ============
</TABLE>


As of March 31, 2001, the Company had $195,000 in nonperforming assets, which
include nonaccrual loans, loans 90 days or more past due and still accruing
interest, and restructured loans. The Company had no nonperforming assets as of
December 31, 2000.

The accrual of interest on nonaccrual and other impaired loans is discontinued
at 90 days or when, in the opinion of management, the borrower may be unable to
meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received. Interest income on restructured
loans is recognized pursuant to the terms of the new loan agreement. Interest
income on other impaired loans is monitored and based upon the terms of the
underlying loan agreement. However, the recorded net investment in impaired
loans, including accrued interest, is limited to the present value of the
expected cash flows of the impaired loan or the observable fair market value of
the loan's collateral.

During the three-month period ended March 31, 2001 there was one commercial loan
placed on nonaccrual status. The gross income that would have been recorded for
the three months ended March 31, 2001 if the nonaccrual loan had been current
and in accordance with its original term approximates $5,000. Interest
recognized on the loan for the year was insignificant. The Company does not
anticipate any loss with respect to this credit.

There were no nonaccrual loans during the three-months ended March 31, 2000 and
therefore, there was no impact to interest income during that period.

                                      -14-
<PAGE>   17
Summary of Loan Loss Experience

Changes in the Allowance for Loan Losses

The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries), and established through a provision for loan
losses charged to expense. Loans are charged against the allowance for credit
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses inherent in existing loans, commitments to extend credit and
standby letters of credit based on evaluations of collectibility and prior loss
experience of loans, commitments to extend credit and standby letters of credit.
The evaluations take into consideration such factors as changes in the nature
and volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, commitments, standby letters of credit and current
economic conditions that may affect the borrowers' ability to pay.

The majority of the Company's loan portfolio consists of commercial loans and
single-family residential loans secured by real estate in the Puyallup and
Pierce County areas and also in the Auburn and King County areas. Real estate
prices in this market are stable at this time. However, the ultimate
collectibility of a substantial portion of the Company's loan portfolio may be
susceptible to change in local market conditions in the future.

While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Company to recognize additional
losses based on their judgment about information available to them at the time
of their examination.

The following table sets forth information regarding changes in the Company's
allowance for loan losses for the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Loan Loss Experience

                                          Analysis of the Allowance for
                                                   Loan Losses
                                          Three months ended March 31,
                                          -----------------------------
                                               2001          2000
                                            ----------     ---------
<S>                                       <C>             <C>
 Balance at beginning of period             $    1,096    $      959

    Charge-offs
    Recoveries:
                                             ---------     ---------
      Net charge-offs
    Additions charged to operations                 31            27
                                             ---------     ---------
 Balance at end of period                   $    1,127    $      986
                                             =========     =========

 Average Loans Outstanding                  $   93,801    $   82,040

 Ratio of net charge-off during
   the period to average loans
   outstanding                                   0.00%         0.00%

 Ratio of allowance for loan
   losses to average loans
   outstanding                                   1.23%         1.20%
</TABLE>


There were no charge-offs loans during the three months ended March 31, 2001 and
2000. The ratio of the allowance for loan losses to average loans outstanding
increased from 1.20 percent at December 31, 2000 to 1.23 percent during


                                      -15-
<PAGE>   18
the three months ended March 31, 2001. The increase was the result of growth in
the allowance for loan losses exceeding loan growth. The ratio is anticipated to
decrease during the balance of the year 2001, as a result of increased loan
growth.

Analysis of the Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered adequate by
management to provide for loan losses inherent in the loan portfolio based on
management's assessment of various factors affecting the loan portfolio,
including, local economic conditions, growth of the loan portfolio and its
composition. Non-performing loans and net charge-offs during the periods
presented have been minimal demonstrating strong credit quality. Increases in
the allowance for loan losses made though provisions were primarily a result of
loan growth.

Management determines the amount of the allowance for loan losses by utilizing a
loan grading system to determine risk in the loan portfolio and by considering
the results of credit reviews. The loan portfolio is separated by quality and
then by loan type. Loans of acceptable quality are evaluated as a group, by loan
type, with a specific loss rate assigned to the total loans in each type, but
unallocated to any individual loan. Conversely, each adversely classified loan
is individually analyzed, to determine an estimated loss amount. A valuation
allowance is also assigned to these adversely classified loans, but at a higher
loss rate due to the greater risk of loss. For those loans where the estimated
loss is greater than the background percentage, the estimated loss amount is
considered specifically allocated to the allowance.

Although management has allocated a portion of the allowance to the loan
categories using the method described above, the adequacy of the allowance must
be considered as a whole. To mitigate the imprecision in most estimates of
expected loan losses, the allocated component of the allowance is supplemented
by an unallocated component. The unallocated portion includes management's
judgmental determination of the amounts necessary for qualitative factors such
as the consideration of new products and policies, economic conditions,
concentrations of credit risk, and the experience and abilities of lending
personnel. Loan concentrations, quality, terms and basic underlying assumptions
remained substantially unchanged during the period.

The Company uses the historical loss experience method in conjunction with the
specific identification method for calculation of the amount of allowance for
loan losses. A six-year average historical loan loss rate is calculated. This
experience loss rate is applied to graded loans that are not adversely
classified for a subtotal of needed allowance. Loans adversely classified are
analyzed for potential loss on an individual basis. This subtotal is added to
the experience subtotal and the total is compared to the allowance for loan
losses.

The Company also evaluates current conditions and may adjust the historical loss
estimate by qualitative factors that effect loan repayment. These factors may
include levels of, and trends in, delinquencies and non-accruals; trends in
volume and terms of loans; effects of any changes in lending policies;
experience, ability and depth of management and lending staff; national and
local economic trends; concentrations of credit; and any legal and regulatory
requirements.


                                      -16-
<PAGE>   19
Deposits

The Company's primary source of funds is customer deposits. The Company attempts
to maintain a high percentage of noninterest-bearing deposits, which are a low
cost funding source. In addition, the Company offers a variety of
interest-bearing accounts designed to attract both short-term and longer-term
deposits from customers. Interest-bearing accounts earn interest at rates
established by management based on competitive market factors and the Company's
need for funds. The Company traditionally has not purchased brokered deposits
and does not intend to do so in the future.

The following table sets forth the balances for each major category of deposit
by amount and percent during the periods indicated:

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Deposits
(dollars in thousands)                                 Period ended,
                                         -------------------   --------------------
                                           March 31, 2001       December 31, 2000
                                         -------------------   --------------------
                                          Amount    Percent     Amount      Rate
                                         -------------------   --------------------
<S>                                     <C>         <C>        <C>          <C>
 Noninterest bearing demand
    deposits                            $   26,285    19.86%  $   24,140     19.30%
 Interest bearing demand deposits           18,347    13.86%      17,417     13.93%
 Money market deposits                      31,658    23.91%      29,841     23.86%
 Savings deposits                           10,630     8.03%      10,320      8.25%
 Time certificates [LESS THAN] $100,000     24,631    18.61%      23,575     18.85%
 Time certificates [MORE THAN] $100,000     20,830    15.73%      19,754     15.80%
                                         -------------------   --------------------
                                        $  132,381   100.00%  $  125,047    100.00%
                                         ===================   ====================
</TABLE>

Deposits increased to $132.4 million as of March 31, 2001, compared to $125.0
million as of December 31, 2000. The increase in noninterest bearing demand
deposits and money market was the result of large deposits by several commercial
customers. These funds are considered temporary and are anticipated to be
withdrawn during the second quarter of 2001. Management believes the increase in
time certificates less than $100,000 resulted from investors seeking safer
investments.

Liquidity and Capital Resources

Management actively analyzes and manages the Company's liquidity position. The
objective of liquidity management is to ensure the availability of sufficient
cash flows to meet all financial commitments and to capitalize on opportunities
for profitable business expansion. Management believes that the Company's cash
flow will be sufficient to support its existing operations for the foreseeable
future.

Cash flows from operations contribute significantly to liquidity as well as
proceeds from maturities of securities and increasing customer deposits. As
indicated on the Company's Condensed Consolidated Statement of Cash Flows, net
cash from operating activities for the three months ended March 31, 2001
contributed $.7 million to liquidity compared to $.7 million for the three
months ended March 31, 2000. The majority of the Company's funding comes from
customer deposits within its operating region. Customer deposits provided $7.3
million for the three months ended March 31, 2001 compared to $1.7 million for
the three months ended March 31, 2000. For the first three months ended March
31, 2001, noninterest bearing demand deposits, money market deposits, and
certificates of deposit provided the majority of the deposit growth. Another
important source of liquidity is investments in federal funds and
interest-bearing deposits with banks and the Company's securities portfolio. The
Company maintains a ladder of securities that provides prepayments and payments
at maturity and a portfolio of available-for-sale securities that could be
converted to cash quickly. Proceeds from maturities of securities provided $6.3
million for the three months ended March 31, 2001 compared to $2.5 million for
the three months ended March 31, 2000.

At March 31, 2001, the Company held cash and due from banks and Interest bearing
deposits with banks of approximately $24.0 million. In addition, at such date
$27.6 million of the Company's investments were classified as available for
sale.

                                      -17-
<PAGE>   20
The Banks have capacity to borrow funds, up to ten percent of assets, from the
Federal Home Loan Bank of Seattle ("FHLB") through pre-approved credit lines as
a secondary source of liquidity. However, these credit lines have pledge
requirements whereby the Banks must maintain unencumbered collateral with a
value at least equal to the outstanding balance. At March 31, 2001, the Banks
had no advances outstanding to the FHLB. In addition to the FHLB credit line,
the Banks have committed line of credit agreements totaling approximately $7.1
million from unaffiliated banks.

The Company's total stockholders' equity decreased slightly to $20.06 million at
March 31, 2001 from December 31, 2000. The decrease was the result of a $.55
dividend paid to stockholders of record on December 31, 2000, partially offset
by net income earned during the three months ended March 31, 2001 and an
increase in unrealized gains recorded on securities available for sale, net of
income tax. At March 31, 2001, stockholders' equity was 13.0 percent of total
assets, compared to 13.7 percent at December 31, 2000.

The market value of available for sale securities was greater than book value at
both March 31, 2001 and December 31, 2000, primarily as a result of decreasing
interest rates, which resulted in an unrealized gain in the investment
portfolio. Management may sell securities in order to supplement earnings but
management does not believe the resulting sale would materially affect the
overall condition of the Company.

Capital Adequacy Requirements.

The Federal Reserve and the FDIC have adopted risk-based capital guidelines for
banks and bank holding companies that are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies and account for off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios in excess
of the minimums. Failure to achieve and maintain adequate capital levels may
give rise to supervisory action through the issuance of a capital directive to
ensure the maintenance of required capital levels.

The current guidelines require all federally-regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier 1 capital. Tier 1 capital includes common shareholders' equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
the allowance for loan and lease losses. Tier 2 capital includes the excess of
any preferred stock not included in Tier 1 capital, mandatory convertible
securities, hybrid capital instruments, subordinated debt and intermediate
term-preferred stock, 20% of unrealized gain of equity securities, and general
reserves for loan and lease losses up to 1.25% of risk-weighted assets. Neither
of the Banks has received any notice indicating that it will be subject to
higher capital requirements.

Under these guidelines, banks' assets are given risk-weights of 0%, 20%, 50% or
100%. Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property and, under certain
circumstances, residential construction loans (both carry a 50% rating). Most
investment securities are assigned to the 20% category, except for municipal or
state revenue bonds (which have a 50% rating) and direct obligations of or
obligations guaranteed by the United States Treasury or United States Government
Agencies (which have a 0% rating). The Agencies have also implemented a leverage
ratio, which is equal to Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to limit the maximum degree to
which a bank may leverage its equity capital base. The minimum required leverage
ratio for top-rated institutions is 3%, but most institutions are required to
maintain an additional cushion of at least 100 to 200 basis points. Any
institution operating at or near the 3% level is expected to be a strong banking
organization without any supervisory, financial or operational weaknesses or
deficiencies. Any institutions experiencing or anticipating significant growth
would be expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels.

The capital levels of the Company currently exceed applicable regulatory
guidelines, and the Banks' are qualified as "well-capitalized" at March 31,
2001. Management believes that under the current regulations the Banks will
continue to meet well-capitalized capital requirements in the foreseeable
future. However, events beyond the control of the Banks such as a downturn in
the economy where the Banks have most of their loans, could adversely affect
future earnings and, consequently, the ability of the Banks to meet future
well-capitalized capital requirements.

                                      -18-
<PAGE>   21
The capital amounts and ratios for the Company and the Banks as of March 31,
2001, are presented in the following table (dollars in thousands):

<TABLE>
<CAPTION>
VALLEY COMMUNITY BANCSHARES, INC.
Capital
                                                                                              To Be Well
                                                                                           Capitalized Under
                                                                    For Capital            Prompt Corrective
                                               Actual            Adequacy Purposes         Action Provisions
                                       -------------------      --------------------     ---------------------
As of March 31, 2001                     Amount     Ratio        Amount      Ratio         Amount      Ratio
                                       ---------   -------      ---------   -------      ---------    --------
<S>                                    <C>          <C>         <C>          <C>         <C>            <C>
Total Capital
      (to Risk-Weighted Assets)
          Consolidated                 $  20,942    19.20%  >   $  8,737  >  8.00%   >   $  10,922  >   10.00%
                                                            -             -          -              -
          Puyallup Valley Bank         $  14,473    15.40%  >   $  7,535  >  8.00%   >   $   9,419  >   10.00%
                                                            -             -          -              -
          Valley Bank                  $   3,938    30.20%  >   $  1,043  >  8.00%   >   $   1,304  >   10.00%
                                                            -             -          -              -

Tier I Capital
      (to Risk-Weighted Assets)
          Consolidated                 $  19,815    18.10%  >   $  4,369  >  4.00%   >   $   6,553  >    6.00%
                                                            -             -          -              -
          Puyallup Valley Bank         $  13,487    14.30%  >   $  3,768  >  4.00%   >   $   5,651  >    6.00%
                                                            -             -          -              -
          Valley Bank                  $   3,797    29.10%  >   $    522  >  4.00%   >   $     782  >    6.00%
                                                            -             -          -              -

Tier I Capital
      (to Average Assets)
          Consolidated                 $  19,815    13.40%  >   $  5,936  >  4.00%   >   $   7,420  >    5.00%
                                                            -             -          -              -
          Puyallup Valley Bank         $  13,487    10.20%  >   $  5,292  >  4.00%   >   $   6,615  >    5.00%
                                                            -             -          -              -
          Valley Bank                  $   3,797    26.70%  >   $    569  >  4.00%   >   $     711  >    5.00%
                                                            -             -          -              -
</TABLE>


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's results of operation are dependent upon its ability to manage
interest rate risk. Management considers interest rate risk to be a significant
risk that could have a material effect on the Company's financial condition and
results of operations. The Company does not currently use derivatives to manage
market and interest rate risk.

A number of measures are used to monitor and manage interest rate risk,
including income simulations and interest sensitivity (gap) analyses. An income
simulation model is the primary tool used to assess the direction and magnitude
of changes in net interest income resulting from changes in interest rates. Key
assumptions in the model include repayment speeds on certain assets, cash flows
and maturities of other investment securities, loan and deposit volumes and
pricing. These assumptions are inherently uncertain and, as a result, the model
cannot precisely estimate net interest income or precisely predict the impact of
higher or lower interest rates on net interest income.

Actual results will differ from simulated results due to timing, magnitude and
frequency of interest rate changes and changes in market conditions and
management strategies, among other factors. At March 31, 2001, based on the
measures used to monitor and manage interest rate risk, there has not been a
material change in the Company's interest rate risk since December 31, 2000. For
additional information, refer to the Company's annual report on Form 10-K for
the year ended December 31, 2000.


                                      -19-
<PAGE>   22
FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes forward-looking statements about the
future operations of the Company. These forward-looking statements involve
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
competitive pressure in the banking industry significantly increasing; changes
in the interest rate environment reducing margins; general economic conditions,
either nationally or regionally, are less favorable than expected, resulting in,
among other things, a deterioration in credit quality and an increase in the
provision for possible loan losses; changes in the regulatory environment;
changes in business conditions; volatility of rate sensitive deposits;
operational risks including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets. Because of these uncertainties, actual future results may be
materially different from the results indicated by these forward-looking
statements. In addition, the Company's past results do not necessarily indicate
its future results.

PART II -- OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

The Company faces ordinary routine litigation arising in the normal course of
business. In the opinion of management, liabilities (if any) arising from such
claims will not have a material adverse effect upon the business, results of
operations or financial condition of the Company.

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

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          3.1  Articles of Incorporation of Valley Community Bancshares, Inc.
               (incorporated by reference to Exhibit 3.1 to the registrant's
               Annual Report on Form 10-K for the fiscal year ended December 31,
               2000).

          3.2  Bylaws of Valley Community Bancshares, Inc. (incorporated by
               reference to Exhibit 3.2 to the registrant's Annual Report on
               Form 10-K for the fiscal year ended December 31, 2000).

          10.  Material contracts of Valley Community Bancshares, Inc.
               (incorporated by reference to Exhibits 10.1 through 10.8 to
               registrant's Annual Report on Form 10-K for the fiscal year ended
               December 31, 2000).

     (b)  Reports on Form 8-K

          Valley Community Bancshares, Inc. filed no report on Form 8-K during
          the three months ending March 31, 2001.


                                      -20-
<PAGE>   23
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.

                                               VALLEY COMMUNITY BANCSHARES, INC.
                                                          (Registrant)


                       Date    May 3, 2001        /s/             David H. Brown
                       -------------------        ------------------------------
                                                                  David H. Brown
                                                                   President and
                                                         Chief Executive Officer

                       Date    May 3, 2001        /s/          Joseph E. Riordan
                       -------------------        ------------------------------
                                                               Joseph E. Riordan
                                                    Executive Vice President and
                                                         Chief Financial Officer

                                      -21-