SECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM  10-Q (mark
one)ýQUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For
the quarterly period ended March 31, 2001 OR  ̈TRANSITION REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from _________ to _________ Commission
File Number     0-24024   First Community Financial Group, Inc.(Exact name
  of registrant as specified in its charter)Washington
  91 -1277503(State or
  other jurisdiction
  of incorporation or organization)
  (IRS
  Employer Identification Number)721 College Street.SE, P.O.
  Box 3800, Lacey, WA  98509(Address of
  principal executive offices) Issuer's telephone
number:    (360) 459-1100 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 past 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: YesýNo ̈ Indicate the number of shares outstanding of each of the issuers
classes of common stock as of the latest practicable date. Title of Class
  Outstanding at March 31, 2001Common Stock
  2,186,681    First Community Financial Group,
Inc.

Table of Contents

PART I - FINANCIAL INFORMATIONItem
  1
  Financial
  StatementsCondensed
  Consolidated Balance SheetsCondensed
  Consolidated Statements of Income and Comprehensive IncomeCondensed
  Consolidates Statement of Stockholders EquityCondensed
  Consolidated Statements of Cash FlowsNotes to
  Condensed Consolidated Financial StatementsItem
  2
  Management's
  Discussion and Analysis of Financial Condition andResults of OperationsPART II - OTHER INFORMATIONItem 6
  Exhibits
  and Reports on Form 8-KSIGNATURESFIRST COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIESCondensed
Consolidated Balance Sheets (Unaudited)

(Dollars
  in thousands)March 31
  December 312001
  2000AssetsCash and due from banks
  $15,205
  $12,640Interest bearing deposits in banks
  177
  172Federal funds sold
  12,860
  0Securities available for sale
  26,545
  26,729Securities held to maturity
  676
  676Loans held for sale
  6,496
  4,121Loans
  260,338
  255,183Allowance for credit losses
  3,514
  3,503Net loans
  256,824
  251,680Premises and equipment
  10,303
  10,067Foreclosed real estate
  4,296
  4,097Accrued interest receivable
  1,833
  1,817Cash value of life insurance
  3,110
  3,110Goodwill
  6,574
  6,677Other assets
  932
  2,449Total
  assets
  $345,831
  $324,235LiabilitiesDeposits:Demand
  $49,285
  $48,715Savings and interest bearing demand
  102,061
  98,036Time deposits
  153,155
  124,626Total
  deposits
  304,501
  271,377Federal funds purchased
  0
  2Short term borrowing
  649
  13,999Long term debt
  1,258
  1,303Accrued interest payable
  494
  450Other liabilities
  3,142
  2,731Total
  liabilities
  310,044
  289,862Stockholders
  EquityCommon stock, par value $2.50 per share;         10,000,000 shares authorized,
  2,186,681 shares issued         in 2001, and 2,184,003 shares
  issued in 2000
  5,467
  5,460Surplus
  23,119
  23,099Retained earnings
  7,201
  6,349Accumulated other comprehensive income (loss)
  158
  (332)Debt related to KSOP
  (158)
  (203)Total stockholders equity
  35,787
  34,373Total liabilities and stockholders
  equity
  $345,831
  $324,235See
notes to condensed consolidated financial statements

FIRST COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIESCondensed
Consolidated Statements of Income and Comprehensive Income(Unaudited)



(Dollars
  in thousands, except per share amounts)Three months
  ended 
  March 312000
  2001Interest
  incomeLoans
  $6,702
  $6,195Federal funds sold and deposits in banks
  56
  4Investments
  408
  454Total interest income
  7,166
  6,653Interest
  ExpenseDeposits
  2,777
  1,911Other
  57
  296Total interest expense
  2,834
  2,207Net interest income
  4,332
  4,446Provision
  for credit losses
  145
  170Net interest income after provision for
  credit losses
  4,187
  4,276Non-interest
  incomeService charges on deposit accounts
  458
  459Origination fees on mortgage loans sold
  426
  235Other
  operating income
  607
  582Total non-interest income
  1,491
  1,276Non-interest
  expenseSalaries
  and employee benefits
  2,199
  2,129Occupancy and equipment
  567
  557Other
  expense
  1,353
  1,130Total non-interest expense
  4,119
  3,816Operating
  income before income taxes
  1,559
  1,736Income Taxes
  488
  597Net
  income
  $1,071
  $1,139Other
  comprehensive income, net of tax:Unrealized holding gains (losses) on securities arising during the
  period
  490
  (20)Comprehensive
  Income
  $1,561
  $1,119Earnings
  Per Share DataBasic earnings per share
  $.49
  $.53Diluted earnings per share
  $.48
  $.50Weighted average number of common shares
  outstanding
  2,175,130
  2,157,940Weighted average number of common shares
  outstanding,Including dilutive stock options
  2,218,499
  2,260,820Return on average assets
  1.29%
  1.54%See
notes to condensed consolidated financial statements

FIRST
COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIESCondensed
Consolidated Statements of Stockholders Equity (Unaudited)

(Dollars
  in thousands)Three Months
  Ended March 31, 2000 and 2001Common 
  Stock
  Surplus
  Retained
  Earnings
  AccumulatedOtherComprehensive
  Income (Loss)
  Unearned
  KSOP
  Shares
  TotalBalance, December 31, 1999
  $5,443
  $23,428
  $2,855
  $(728)
  $(380)
  $30,618Net income
  - -
  - -
  1,139
  - -
  - -
  1,139Stock options exercised
  1
  - -
  - -
  - -
  - -
  1Cash dividend ($0.10 per share)
  - -
  - -
  (218)
  - -
  - -
  (218)Other comprehensive income
  - -
  - -
  - -
  (20)
  - -
  (20)Net decrease in unearned KSOP shares
  - -
  - -
  - -
  - -
  44
  44Balance,
  March 31, 2000
  $5,444
  $23,428
  $3,776
  $(748)
  $(336)
  $31,564Balance,
  December 31, 2000
  $5,460
  $23,099
  $6,349
  $(332)
  $(203)
  $34,373Net income
  - -
  - -
  1,071
  - -
  - -
  1,071Stock options exercised
  7
  20
  - -
  - -
  - -
  27Cash dividend ($0.10 per share)
  - -
  - -
  (219)
  - -
  - -
  (219)Other comprehensive income
  - -
  - -
  - -
  490
  - -
  490Net decrease in unearned KSOP shares
  - -
  - -
  - -
  - -
  45
  45Balance,
  March 31, 2001
  $5,467
  $23,119
  $7,201
  $158
  ($158)
  $35,787See notes to condensed consolidated financial statements



FIRST
COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIESCondensed
Consolidated Statements of Cash Flows (Unaudited)

(Dollars
  in thousands)Three months
  ended March 312001
  2000Cash
  Flows from Operating Activities
  $1,071
  $1,139Net
  IncomeAdjustments to reconcile net income to net cash provided     by operating activities:Provision for credit losses
  145
  170Depreciation and amortization
  266
  269Amortization of goodwill
  103
  102Other - net
  1,472
  983Originations of loans held for sale
  (18,157)
  (11,255)Proceeds from sales of loans held for sale
  15,782
  10,308Net cash provided by operating
  activities
  682
  1,716Cash
  Flows from Investing ActivitiesNet
  (increase) decrease in interest bearing deposits in banks
  (5)
  36Net
  increase in Federal funds sold
  (12,860)
  0Proceeds from maturities and prepayments of available-for-sale
  securities
  1,004
  544Net
  increase in loans
  (5,289)
  (16,851)Additions to premises and equipment
  (502)
  (119)Net cash used by investing activities
  (17,652)
  (16,390)Cash
  Flows from Financing ActivitiesNet
  increase in deposits
  33,124
  11,725Net
  increase (decrease) in short-term borrowings
  (13,352)
  4,812Sale
  of common stock
  27
  1Repayment of long-term borrowings
  (45)
  (44)Payment of cash dividends
  (219)
  (218)Net cash provided by financing
  activities
  19,535
  16,276Net change in cash and due from banks
  2,565
  1,602Cash
  and Due from Banks:Beginning of period
  12,640
  10,349End of period
  $15,205
  $11,951Supplemental
  Disclosures of Cash Flow Information:Cash payments for:Interest
  $2,790
  $2,210Taxes
  0
  414Supplemental
  Disclosures of Non-Cash Investing Activities:Other
  real estate acquired in settlement of loans
  0
  647Decrease in unearned KSOP shares
  (45)
  (44)See notes to condensed
consolidated financial statements

FIRST COMMUNITY FINANCIAL GROUP,
INC. and SUBSIDIARIESNotes to
Consolidated Financial Statements(Unaudited)1.Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Rule 10-01
of 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, adjustments
considered necessary for a fair presentation (consisting of normally recurring
accruals) have been included.  Operating
results for the three months ended March 31, 2001 are not necessarily
indicative of the results anticipated for the year ending December 31, 2001.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could
differ from those estimates.

2.Basic and Diluted Earnings Per Share

Basic and diluted earnings per share are calculated by dividing net
income by the weighted average number of common shares outstanding during the
periods presented.  Diluted earnings per
share assumes that all dilutive stock options outstanding are issued such that
their dilutive effect is maximized.



Management's
Discussion and Analysis of Financial Condition and Results of Operations

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

Financial Condition

Overview

The Companys consolidated total assets at March 31, 2001 of
$345,831,000 represents a 6.7% increase over December 31, 2000 assets of
$324,235,000.  Reflective of the growth
in deposits, federal funds sold increased by $12,860,000 and cash and due from
banks also increased $2,565,000.  Loan
balances, net of allowance for credit losses, increased $7,519,000 in the first
quarter to $263,320,000 from $255,801,000 at December 31, 2000.

Nonperforming assets were as follows (dollars in thousands):

March 31
  2001
  December 31
  2000Non-accrual loans
  $871
  $857Accruing loans past due 90 days or more
  1,641
  1,264Foreclosed real estate
  4,296
  4,097Other assets
  7
  7$6,815
  $6,225Total nonperforming assets increased $590,000, or
  9.5%.The allowance for
credit losses reflects managements current estimate of the amount required to
absorb losses on existing loans and commitments to extend credit.  Determination of the appropriate level of
the allowance is based on an analysis of various factors including historical
loss experience based on volumes and types of loans; volumes and trends in delinquencies
and non-accrual loans; trends in portfolio volume; results of internal and
independent external credit reviews; and current economic conditions.  An analysis of the adequacy of the allowance
is subject to quarterly review by the Board of Directors.  Based on this analysis, management considers
the allowance for credit losses to be adequate.

The allowance for
credit losses increased $11,000 in the first quarter of 2001.  The ratio of allowance for credit losses to
total loans decreased to 1.35% from 1.37% at December 31, 2000.  The dollar value change in the allowance
consisted of $145,000 of provision and by $134,000 in net charge offs of loans.

Investment securities
decreased by $184,000, or 0.7% during the first quarter to total
$27,221,000.  Securities have continued
to decease due to maturities or prepayments made on asset-backed
securities.  No additional securities
purchases were made in the quarter due to loan growth and maintaining funds in
short term investments.  Portfolio
balances are managed in conjunction with the remainder of the balance sheet and
support the lending and depository functions of the Bank.  Balances will increase and decrease to meet
liquidity demands.

Total deposits
increased $33,124,000, or 12.2% in the first quarter to $304,501,000.  Increased time deposits generated
$28,529,000 of the increase while non-interest bearing and savings and interest
bearing grew modestly.  Utilization of
federal funds purchased, or overnight borrowing, and other short term
borrowings were reduced, due to the increases realized in deposit products, by
$13,352,000.

Liquidity, Rate
Sensitivity and Market Risk

The Companys assets
and liabilities are managed to maximize long-term shareholder returns by
optimizing net interest income within the constraints of maintaining high
credit quality, conservative interest rate risk disciplines and prudent levels
of liquidity.  The Asset/Liability
Committee meets regularly to monitor the composition of the balance sheet, to
assess current and projected interest rate trends, and to formulate strategies
consistent with established objectives for liquidity, interest rate risk and
capital adequacy.

Liquidity management
involves the ability to meet cash flow requirements of customers who may be
either depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs.  Liquidity is generated from both internal
and external sources.  Internal sources
are those assets that can be converted to cash with little or no risk of
loss.  These include overnight
investments in federal funds sold and investment securities, particularly those
of shorter maturity, and are the principal source of asset liquidity.  At March 31, 2001, cash, deposits in banks,
Federal funds sold and securities available for sale totaled $54,787,000.  External sources refer to the ability to
attract new liabilities and capital. 
They include increasing savings and demand deposits, federal funds
purchased, and the issuance of capital and debt securities.  At March 31, 2001,  borrowing lines of credit totaled $41,183,000.  These credit facilities have being used
regularly as a source of funds and fluctuate generally in relation to increases
and decreases in loans and deposits balances. $649,000 was being borrowed
against these lines of credit in the form term advances as of March 31, 2001.

Management believes
the Bank's liquidity position at March 31, 2001, was adequate to meet its short
term funding requirements.

Interest rate
sensitivity is closely related to liquidity, as each is directly affected by
the maturity of assets and liabilities. 
The Companys net interest margin is affected by changes in the level of
market interest rates.  Managements
objectives are to monitor and control interest rate risk and ensure predictable
and consistent growth in net interest income.

Management considers
any asset or liability which matures, or is subject to repricing within one
year to be interest sensitive, although continual monitoring is performed for
other time intervals as well.  The
difference between interest sensitive assets and liabilities for a defined
period of time is known as the interest sensitivity "gap", and may be
either positive or negative.  If
positive, more assets reprice before liabilities.  If negative, the reverse is true.  Gap analysis provides a general measure of interest rate risk but
does not address complexities such as prepayment risk, interest rate floors and
ceilings imposed on financial instruments, interest rate dynamics and
customers response to interest rate changes. 
Currently the Banks' interest sensitivity gap is negative within one
year.  Assuming that general market
interest rate changes affected the repricing of assets and liabilities in equal
magnitudes, this indicates that the effects of rising interest rates on the
Company would be a decrease in the net interest margin, whereas falling
interest rates would cause a corresponding increase in the margin.

Interest Rate Gap Analysis
March 31, 2001

(dollars
  in thousands)
  Within 
  One Year
  After One
  But Within
  Five Years
  After
  Five Years
  TotalLoans
  $155,545
  $54,023
  $50,770
  $260,338Securities:Available for sale
  3,264
  10,405
  10,992
  24,661Held
  to maturity
  170
  100
  406
  676Interest bearing deposits with banks
  177
  - -
  - -
  177Federal funds sold
  12,860
  - -
  - -
  12,860Total
  Earning Assets
  $172,016
  $64,528
  $62,168
  $298,712Deposits:Savings, NOW and money market
  $102,061
  - -
  - -
  $102,061Time
  deposits
  146,618
  $6,537
  - -
  153,155Short-term borrowings
  649
  - -
  - -
  649Long-term debt
  708
  550
  - -
  1,258Total
  Interest Bearing Liabilities
  $250,036
  $7,087
  - -
  $257,123Net
  Interest Rate Sensitivity Gap
  ($78,020)
  $57,441
  $62,168
  $41,589The Companys market risk is impacted by changes in interest rates.  Other types of market risk, such as foreign
currency exchange rate risk and commodity price risk, do not arise in the
normal course of the Companys business.

The Company has market risk in the form of interest rate risk on its
financial assets.  In an effort to
understand the relative impact of this risk on the Companys current financial
situation, a processknown as a
rate shock is applied to the current financial assets.

Rate shock is a process wherein the characteristics of the financial
assets of the Company are reviewed in the event they are subjected to an
instantaneous and complete adjustment in the market rate of interest.  These results are modeled to determine the
effects on interest rate margin for the succeeding twelve months from the repricing
of variable rate assets and liabilities where applicable.  The level of impact on the various assets
and liabilities are also estimated for their sensitivity to pricing changes of
such a market interest rate change. 
According to this model and its assumptions, the change in net interest
margin in the event market interest rates were to immediately rise or fall by
100 basis points is estimated to be $321,000.

Capital

Consolidated capital of FCFG increased $1,414,000 during the first
quarter of 2001.  The net income for the
first quarter and its corresponding increase to retained earnings was the
primary component of this increase. 
Capital was also increased as the market value of securities available
for sale increased by $490,000 on an after-tax equivalent basis, a net decrease
in unearned KSOP shares, for which the Company provides a guarantee, of $45,000
and an exercise of stock options of $27,000 provided additional increases to
the Companys capital.  The only
reduction to capital came from the cash dividends distributed to shareholders
in the amount of $219,000.

There are regulatory constraints placed upon capital adequacy, and it is
necessary to maintain an appropriate ratio between capital and assets.  Regulations require banks and holding companies
to maintain a minimum "leverage" ratio (primary capital ratio) of
total assets.  For the most highly rated
holding companies this ratio must be at least 3%, and for others it must be 4
to 5%.  At March 31, 2001, the Company's
leverage ratio was 8.62%, compared to 8.96% at year-end 2000.  In addition, banks and holding companies are
required to meet minimum risk-based capital guidelines under which risk
percentages are assigned to various categories of assets and off-balance-sheet
items to calculate a risk-adjusted capital ratio.  Tier I capital generally consists of common stockholders' equity,
less goodwill, while total capital includes the allowance for possible credit
losses, subject to 1.25% limitation of risk-adjusted assets.  The rules require Tier I capital of 4% of
risk-adjusted assets and total capital of 8%. 
At March 31, 2001, the Tier I capital ratio was 8.99%, and total capital
was 10.12%.  At December 31, 2000 the
Tier I capital ratio was 9.24% and the total capital ratio was 10.39%.

Results of Operations

General

Net income for the three months ended March 31, 2001  was $1,071,000, compared to $1,139,000 for
the three months ended March 31, 2000.  
Net interest income for the three months ended March 31, 2001 decreased
$114,000, or 2.6% over the comparable period in 2000.

Interest income for the three months ended March 31, 2001 increased
$513,000 over the three months ended March 31, 2000.   Interest earned on loans increased $507,000 due to increased
volume of loans. The average rate on the loan portfolio remained at 10.42% as
compared same period of the prior year. 
Although the traditional loan portfolio has experienced pressures on the
average rate of the portfolio due to interest rate reductions and repricing as
well as competitive environment, the initiation of a small loan program in the
fourth quarter of 2000 has enabled average rates of returns on loans to remain
higher than would normally be the case. 
The average balance of such small loans amount to approximately1% of the
gross loan portfolio of the Company. 
Average loan balances remained 89.1% of average earning assets.  Investment income decreased $46,000 as a
result of both smaller balances, caused by maturities and principal payments on
amortizing securities, as well as a reduction to the average rate of return on
the portfolio, which declined 18 basis points from 6.30% to 6.12%.

Total interest expense for the three months ended March 31, 2001
increased over the comparable period of the prior year by $627,000, or
28.4%.  An increase in average interest
bearing liabilities of 11.9% increased interest expense by $276,000.  A 64 basis point increase in the aggregate
cost of funds from 4.04% to 4.68% resulted in an additional increase to interest
expense of $351,000.

Net interest margin, defined as net interest income as a percentage of
average earning assets, decreased by 66 basis points from 6.66% to 6.00% in the
first quarters of 2001 compared to 2000.

The yield and cost of funds for earning assets and interest bearing
liabilities were as follows as of and for the three months ended March 31
(dollars in thousands):

2001
  
  
  2000Average
  Balance
  Interest Income (Expense)
  Average
  Rates
  Average
  Balance
  Interest
  Income (Expense)
  Average
  RatesEarning Assets:Loans (Interest and fees)
  $260,913
  $6,702
  10.42%
  $239,094
  $6,195
  10.42%Federal funds sold
  4,946
  56
  4.59%
  250
  4
  6.44%Investment securities
  27,038
  408
  6.12%
  28,978
  454
  6.30%Total earning assets        and interest income
  $292,897
  $7,166
  9.92%
  $268,322
  $6,653
  9.97%Interest bearing liabilities:Deposits:Savings, NOW, and           Money Market Deposits
  $99,113
  $(570)
  2.33%
  $104,148
  $(631)
  2.44%Time deposits
  143,157
  (2,207)
  6.25%
  96,858
  (1,280)
  5.32%Total interest bearing deposits
  $242,270
  $(2,777)
  4.65%
  $201,006
  $(1,911)
  3.82%Other borrowings
  3,414
  (57)
  6.77%
  18,603
  (296)
  6.40%Total
  interest bearing liabilities             and interest expense
  $245,684
  $(2,834)
  4.68%
  $219,609
  $(2,207)
  4.04%Net interest income
  
  $4,332
  
  
  $4,446Net interest margin as a percent
  percentage           of average earning assets:
  
  
  6.00%
  
  
  6.66%

An analysis of the change in net interest income is as follows for the
three months ended March 30 (dollars in thousands):

2001 compared
  to 2000
  Increase (decrease) due toVolume
  Rate
  NetInterest earned on:Loans
  $509
  $(2)
  $507Federal funds sold and deposits in banks
  53
  (1)
  52Investment securities
  (32)
  (14)
  (46)Total interest income
  530
  (17)
  513Interest paid on:Savings, NOW and MMA
  (32)
  (29)
  (61)Time deposits
  677
  250
  927Other borrowings
  (255)
  16
  (239)Total Interest expense
  390
  237
  627Net interest income
  $140
  $(254)
  $(114)

The change in
interest due to both rate and volume has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the
change in each.

Non-interest
income for the quarter ended March 31, 2001 was $215,000, or 16.8% greater than
the same period for 2000.  The primary
increase in non-interest income was in origination fees on mortgage loans sold,
where decreasing market interest rates created an environment conducive to
increased activity and resulted in an increase of $191,000 over the prior
year.  Debit card income also increased
$16,000 over the prior year as the program continues to grow in utilization.

Non-interest
expenses for the first quarter of 2001 increased by $303,000, or 7.9% over the
first quarter of 2000.  Salaries and
employee benefits increased by $70,000, or 3.3%.  Other expense increased by $223,000, or 19.7% from the prior
year.  The primary reason for this
increase is in advertising and public relations, where an $113,000 more has
been spent in 2001 as compared to 2000 in support of the opening of three new
branches.  State and local business and
occupation taxes, which are based on gross revenue, have increased by $65,000
over previous year as gross income have increased.  Office supplies have also realized an increase of $44,000 partly
due to stocking the new branches.

First Community Financial Group, Inc.

PART II - OTHER INFORMATION

Item
6Exhibits and Reports on Form 8-K

(a)  Exhibits
  None(b)  Reports on Form 8-K
  None

First Community Financial Group,
Inc.

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 GROUP, INC(Registrant)Date: May 15, 2001
  By:
  /s/ Ken F. ParsonsKen F. ParsonsPresident, Chief
  Executive OfficerBy:
  /s/ James F.
  ArnesonJames F. ArnesonExecutive Vice
  President,Chief Financial
  Officer(Principal
  Accounting Officer)