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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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FORM 10-K



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|           |  |                                                                                     
|---------- |  | ------------------------------------------------------------------------------------
|(MARK ONE) |  |                                                                                     
|[X]        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

Commission File Number 000-30447



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

|                                                                              |  |                                                
|----------------------------------------------------------------------------- |  | -----------------------------------------------
|Washington
(State or other jurisdiction
of incorporation or organization)     |  | 91-1913479
(I.R.S. Employer Identification No.)
|                                                                             
|1307 East Main, Puyallup, Washington
(Address of principal executive offices) |  | 98372
(Zip Code)                               

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $1.00 per share

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 [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

|                                                                                                         |  |  |             | 
|-------------------------------------------------------------------------------------------------------- |  |  | ----------- | 
|Aggregate market value of voting stock held by non-affiliates of the registrant as of February 15, 2002: |  |  | $22,204,075 | 
|Number of shares of common stock outstanding as of February 15, 2002:                                    |  |  | 1,125,750   | 

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part II of this Report, to the extent not set forth
herein, is incorporated herein by reference from registrants 2001 Annual
Report distributed to shareholders, and attached as an exhibit under item 14.

The information required by Part III of this Report, to the extent not set
forth herein, is incorporated herein by reference from the registrants
definitive proxy statement relating to the annual meeting of stockholders to be
held in 2002, which definitive proxy statement shall be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year to which this Report relates.





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TABLE OF CONTENTS



|              |                                                                                              |  |  |  |  |  |  | 
|------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                            
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters               
|              | Item 6. Selected Financial Data                                                             
|              | Item 7. Management Discussion and Analysis of Financial Condition and Results of Operation  
|              | Item 7a. Quantitative and Qualitative Disclosure about Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                         
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                 
|              | Item 11. Executive Compensation                                                             
|              | Item 12. Ownership of Certain Beneficial Owners                                             
|              | Item 13. Certain Relationships and Related Transactions                                     
|PART IV      
|              | Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K 51               
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 13   



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Valley Community Bancshares, Inc.

FORWARD-LOOKING STATEMENTS

Except for historical financial information contained herein, certain matters
discussed in this Form 10-K of Valley Community Bancshares, Inc. constitute
forward-looking statements within the meaning of the Securities Exchange Act
of 1934, as amended. Forward-looking statements are subject to risks and
uncertainties that may cause actual future results to differ materially. Such
risks and uncertainties with respect to Valley Community Bancshares, Inc.,
Puyallup Valley Bank, and Valley Bank include, but are not limited to, those
related to the economic environment, particularly in the areas in which the
Company and the Banks operate, loan delinquency ratios, competitive products
and pricing, fiscal and monetary policies of the U.S. government, changes in
governmental regulations affecting financial institutions, including regulatory
fees and capital requirements, changes in prevailing interest rates,
acquisitions and the integration of acquired businesses, credit risk management
and asset/liability management, the financial and securities markets, and the
availability of and costs associated with sources of liquidity.




PART I




Item 1. Business

General

Valley Community Bancshares, Inc. (the Company) is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended. The
administrative offices of the Company are located at 1307 East Main Avenue,
Puyallup, Washington 98372, and its telephone number is (253) 848-2316.

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, Federal Deposit Insurance Corporation (the
FDIC) insured commercial bank, through a reorganization completed on July 1,
1998. The Company conducts its business primarily through Puyallup Valley Bank
and Valley Bank. Puyallup Valley Bank and Valley Bank are referred to as the
Banks in this discussion.

The principal sources of the Companys revenue are (i) interest and fees on
loans; (ii) deposit service charges; (iii) merchant credit and debit card
processing fees; (iv) interest on federal funds sold and deposits in banks
(funds loaned on a short-term basis to other banks); (v) interest on
investments (principally government securities); and (vi) origination fees on
mortgage loans brokered. The Banks 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 charted commercial bank that
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.

The organizers of Puyallup Valley Bank commenced formation efforts in 1972.
Puyallup Valley Bank was formally incorporated on January 9, 1973, under the
laws of the State of Washington after having received approval to organize from
the Division of Banks of the Washington Department of Financial Institutions
(the Division) and the FDIC, and commenced operations during October 1973.
Puyallup Valley Bank was organized with capital of $400,000 through the sale of
20,000 shares of Common Stock at a sales price of $20 per share.

Valley Bank

Valley Bank is a Washington State chartered, FDIC insured commercial bank that
commenced operations on January 11, 1999. Valley Bank was formally incorporated
December 3, 1998, under the laws of the State of Washington after having
received approval to organize from the Division and the FDIC. Valley Bank was
founded by a group of business and professional individuals in the King County
area as a commercial bank subsidiary of the Company to serve the needs of the
community in and around the city of Auburn. Valley Bank engages in a general
commercial banking business in the Auburn area of King County and offers
commercial banking services to small and medium-size businesses, professionals,
and retail customers in the Banks market area.

Valley Bank is a solely owned subsidiary of the Company with initial capital of
$4,025,000, the minimum amount required to capitalize a bank in the Auburn
community under federal and state law.

Market Area

The Companys principal market area is located in South King County and Eastern
Pierce County regions of Washington State. King County and Pierce County are
the two most populous counties in Washington State, with over 2,000,000
residents. The economy of the region is dependent upon aerospace, high
technology, foreign trade, and natural resources, including agriculture and
timber. The region has become more diversified over the past decade as a result
of the success of software companies such as Microsoft and the establishment of
numerous research and biotechnology firms. The regional economy generally has
experienced strong growth and stability in recent years. However, during the
fourth quarter of 2001 the regional economy has slowed significantly especially
in the aerospace and high technology sectors.

Eastern Pierce County, where Puyallup Valley Bank has six locations, is located
approximately 30 miles southeast of Seattle and 5 miles northeast of Tacoma,
the regions two largest cities. The area includes several residential and
agricultural communities including Puyallup, South Hill, Sumner, Edgewood,
Graham, Orting, and Summit/Fredrickson, and has a population in excess of
100,000 residents. This area is characterized as the Companys principal market
area.

South King County, where Valley Bank has one location in Auburn, is centrally
located between Seattle and Tacoma and has a population of over 140,000
residents. The community is supported by light industry, aerospace, and forest
products industries. The Company considers the Auburn and Kent Valley a natural
area of expansion because of its close proximity to Eastern Pierce County.

Business Strategy

As a locally owned financial institution, the Company emphasizes local banking
needs. The Company seeks to achieve growth in order to establish and then
maintain a strong return on equity. The strategy to accomplish these goals is
to focus on small businesses that traditionally develop an exclusive
relationship with a single bank. The Banks also have the size to give personal
attention required by business people and significant credit expertise to help
these businesses meet their goals.

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The Banks offer to their customers a full range of deposit services that are
typically available in most banks and savings and loan associations, including
checking accounts, savings accounts, and other time deposits of various types,
ranging from money market accounts to longer-term certificates of deposit. One
major goal in developing the Banks product mix is to keep the product
offerings as simple as possible, both in terms of the number of products and
the features and benefits of the individual services. The transaction accounts
and time certificates are tailored to the principal market areas at rates
competitive in the area. In addition, retirement accounts such as IRAs
(Individual Retirement Accounts) are available. The FDIC, up to the maximum
amount, insures all deposit accounts. The Banks solicit these accounts from
small to medium-sized businesses in their respective primary trade areas, and
from individuals who live and/or work within these areas.

The Banks offer loans to their diverse markets and communities. The market
consists of south King County and east Pierce County in general and the areas
in and around Puyallup and Auburn in particular. Loans are provided to
creditworthy borrowers regardless of their race, color, national origin,
religion, sex, age, marital status, sexual orientation, disability, receipt of
public assistance, or any basis prohibited by law. The Banks intend to fulfill
this commitment while maintaining prudent credit practices. In the course of
fulfilling their obligation to meet the credit needs of the communities which
they serve, the Banks give consideration to each credit application regardless
of the fact that the applicant may reside in a low to moderate income
neighborhood, and without regard to the geographic location of the residence,
property, or business within their market areas.

The Banks provide innovative, quality, financial products that meet the banking
needs of their customers and communities. The loan programs and acceptance of
certain loans may vary from time to time, depending upon funds available and
regulations governing the banking industry. The Banks offer all basic types of
credit to their local communities, including commercial and consumer loans. The
types of loans within these categories are as follows:

Commercial Loans

Commercial loans are typically made to sole proprietorships, partnerships,
corporations, and other business entities, municipalities, and individuals,
where the loan is to be used primarily for business purposes. The types of
loans the Banks offer include:



| |  | Small Business Administration financing programs
|- |  | ------------------------------------------------
| 
| |  | operating and working capital loans             
| 
| |  | loans to finance capital purchases              
| 
| |  | commercial real estate loans                    
| 
| |  | business lines of credit                        
| 
| |  | term loans                                      
| 
| |  | loans to professionals                          
| 
| |  | letters of credit                               

Consumer Loans

Consumer loans are typically available to finance consumer purchases, such as
automobiles, household furnishings, boats, and education. Loans are available
on both a secured and an unsecured basis. The following types of consumer loans
are available:



| |  | automobiles and trucks                   
|- |  | -----------------------------------------
| 
| |  | boats and recreational vehicles          
| 
| |  | personal loans and lines of credit       
| 
| |  | home equity lines of credit              
| 
| |  | home improvement and rehabilitation loans
| 
| |  | credit card services                     
| 
| |  | consumer real estate loans               

Other types of credit programs, such as loans to nonprofit organizations,
public entities, for community development, and other governmental offered
programs, also are available.

The Banks offer traditional banking services, such as safe deposit boxes, wire
transfers, direct deposit of payroll and social security checks, automated
teller machines, and offers debit cards to checking account customers. In
addition, the Banks offer single-family residential loans from mortgage brokers
and other non-bank products such as mutual funds, annuities, and insurance.

Employees

At December 31, 2001, the Banks had 51 full-time and 18 part-time employees.
The Company does not have any employees. Management considers its relations
with employees to be satisfactory.

Competition

The geographic market area served by the Banks is highly competitive with
respect to both loans and deposits. The Banks compete principally with
commercial banks, savings and loan associations, credit unions, mortgage
companies, and other financial institutions. The major commercial bank
competitors are the regional banks (Columbia State Bank and Frontier Bank) and
national banks (Key Bank National Association, Bank of America National Trust
and Savings Association, U.S. Bank National Association and Wells Fargo Bank)
that have a branch or branches within the Banks primary trade areas.
Washington Mutual Savings Bank is another formidable competitor within the
Banks primary trade area. Among the advantages such larger banks have are
their ability to finance wide-ranging advertising campaigns and to allocate
their investment assets to geographic regions of higher yield and demand. Such
banks offer certain services which are not offered directly by the Banks (but
are offered indirectly through correspondent institutions); and, by virtue of
their greater total capitalization (legal lending limits to an individual
customer are based upon a percentage of a banks total shareholder equity
accounts), such banks have substantially higher lending limits than the Banks.

The Banks also compete with the financial markets for funds. For instance,
yields on corporate and government debt securities and other commercial paper
affect the ability of commercial banks to attract and hold deposits. Further,
commercial banks compete for available funds with money market instruments and
similar investment vehicles offered by institutions such as brokerage firms,
credit card companies, and retailers (e.g., Sears, Roebuck & Co.). In periods
of high interest rates, such money market funds have provided substantial
competition to banks for deposits, and it is anticipated that they may continue
to do so in the future.

In order to compete with the other financial institutions in their primary
trade areas, the Banks use, to the fullest extent possible, the flexibility
that is accorded by independent status. This includes an emphasis on
specialized services, local promotional activity, and personal contacts by the
Banks officers, directors and employees. The Banks also provide special
services and programs for individuals in their primary trade areas who are
employed in the business and professional fields.

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The Company anticipates bank competition will continue to change dramatically
over the next several years as the major regional and national banks continue
to consolidate. These larger financial institutions will continue the trend of
consolidating their branch systems and providing incentives to their customers
to use electronic banking instead of visiting branches. It is anticipated that
credit unions, because of their tax benefits, will also continue to show
growth.

Distribution of Assets, Liabilities and Stockholders Equity; Interest
Rates and Interest Differential

The section Average Balances and an Analysis of Average Rates Earned and Paid
and Analysis of Changes in Interest Income and Expensecontained in the
Management Discussion and Analysis of Financial Condition and Results of
Operation section of the 2001 Annual Report, which is listed as an exhibit
under Item 14, is incorporated herein by reference.

Investment Portfolio

The section Investment Portfolio contained in the Management Discussion and
Analysis of Financial Condition and Results of Operation section and the
section Note 2  Investment Securities contained in Notes to the Consolidated
Financial Statements in the 2001 Annual Report, which are both listed as an
exhibit under Item 14, is incorporated herein by reference.

Loan Portfolio

The sections Types of Loans and Maturities and Sensitivities of Loans to
Changes in Interest Rates contained in the Management Discussion and Analysis
of Financial Condition and Results of Operation and the section Note 3 
Loans contained in Notes to the Consolidated Financial Statements in the 2001
Annual Report, which are both listed as an exhibit under Item 14, is
incorporated herein by reference.

Risk Elements

The section Non-Performing Assets, Potential Problem Loans, and Loan
Concentrationscontained in the Management Discussion and Analysis of
Financial Condition and Results of Operation section of the 2001 Annual Report,
which is listed as an exhibit under Item 14, is incorporated herein by
reference.

The Company had no foreign loans outstanding during the years ended December
31, 2001, 2000, and 1999.

Summary of Loan Loss Experience

The sections Summary of Loan Loss Experience, Breakdown of Allowance for
Loans by Category, and Analysis of the Allowance for Loan Losses contained
in the Management Discussion and Analysis of Financial Condition and Results of
Operation section and the section Note 4  Allowance for Loan Losses
contained in Notes to the Consolidated Financial Statements in the 2001 Annual
Report, which are both listed as an exhibit under Item 14, is incorporated
herein by reference.

Return on Equity and Assets

The section Performance Ratios contained in Management Discussion and
Analysis of Financial Condition and Results of Operation in the 2001 Annual
Report, which is listed as an exhibit under Item 14, is incorporated herein by
reference.

Deposits

The section Deposits contained in the Management Discussion and Analysis of
Financial Condition and Results of Operation section and the section Note 6 
Deposits contained in Notes to the Consolidated Financial Statements in the
2001 Annual Report, which are both listed as an exhibit under Item 14, is
incorporated herein by reference.

Short-Term Borrowings

The section Note 7-Credit Arrangements contained in Notes to the
Consolidated Financial Statements in the 2001 Annual Report, which is listed as
an exhibit under Item 14, is incorporated herein by reference.

SUPERVISION AND REGULATION

The following generally refers to certain statutes and regulations affecting
the banking industry. These references provide brief summaries and therefore
are not complete and are qualified by the statutes and regulations referenced.
In addition, due to the numerous statutes and regulations that apply to and
regulate the operation of the banking industry, many are not referenced below.

The Company and the Banks are subject to extensive federal and Washington State
legislation, regulation, and supervision. These laws and regulations are
primarily intended to protect depositors and the FDIC rather than shareholders
of the Company. The laws and regulations affecting banks and bank holding
companies have changed significantly over recent years, and there is reason to
expect that similar changes will continue in the future. Any change in
applicable laws, regulations, or regulatory policies may have a material effect
on the business, operations, and prospects of the Company. The Company is
unable to predict the nature or the extent of the effects on its business and
earnings that any fiscal or monetary policies or new federal or state
legislation may have in the future.

The Company

The Company is a bank holding company by virtue of its ownership of the Banks,
and is registered as such with the Federal Reserve. The Company is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the BHCA),
which subjects the Company and the Banks to supervision and examination by the
Federal Reserve. Under the BHCA, the Company files with the Federal Reserve
annual reports of its operations and such additional information as the Federal
Reserve may require. The Federal Reserve Board may examine a bank holding
company and any of its subsidiaries and charge the company for the cost of such
an examination.

Source of Strength to the Banks.The Federal Reserve Board takes the position
that a bank holding company is required to serve as a source of financial and
managerial strength to its subsidiary banks and may not conduct its operations
in an unsafe or unsound manner. In addition, it is the Boards position that in
serving as a source of strength to its subsidiary banks, bank holding companies
should use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
companys failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Board to be an unsafe
and unsound banking practice or a violation of the Boards regulations or both.

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Federal Reserve Approval.Bank holding companies must obtain the Federal
Reserves approval before they: (1) acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, they would
own or control, directly or indirectly, more than 5 percent of the voting
shares of such bank; (2) merge or consolidate with another bank holding
company; and (3) acquire substantially all of the assets of any additional
banks.

Control of Nonbanks.With certain exceptions, the BHCA also prohibits bank
holding companies from acquiring direct or indirect ownership or control of
voting shares in any company other than a bank or a bank holding company unless
the Federal Reserve finds the companys business to be incidental to the
business of banking. When making this determination, the Federal Reserve in
part considers whether allowing a bank holding company to engage in those
activities would offer advantages to the public that would outweigh possible
adverse effects. Under the Gramm-Leach-Bliley Act of 1999, a bank holding
company that elects to be a Financial Holding Company may engage in specified
activities subject to certain limitations.

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (Economic
Growth Act) amended the BHCA to eliminate the requirement that a bank holding
company seek Federal Reserve approval before engaging de novo in permissible
nonbanking activities, if the holding company is well capitalized and meets
certain other criteria specified in the same statute. A bank holding company
meeting the specifications is now required only to notify the Federal Reserve
within ten business days after the activity has begun.

Control Transactions.The Change in Bank Control Act of 1978, as amended,
requires a person or group of persons acquiring control of a bank holding
company to provide the FRB with at least 60 days prior written notice of the
proposed acquisition. Following receipt of this notice, the Federal Reserve has
60 days to issue a notice disapproving the proposed acquisition, but the
Federal Reserve may extend this time period for up to another 30 days. An
acquisition may be completed before the disapproval period expires if the
Federal Reserve issues written notice of its intent not to disapprove the
action. Under a rebuttable presumption established by the Federal Reserve, the
acquisition of 10 percent or more of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended (Exchange Act) would, under the
circumstances set forth in the presumption, constitute the acquisition of
control. In addition, any company would be required to obtain the approval of
the Federal Reserve under the BHCA before acquiring 25 percent (5 percent if
the company is a bank holding company) or more of the outstanding shares of
the Company, or otherwise obtain control over the Company.

Affiliate Transactions.The Company and the Banks are deemed affiliates within
the meaning of the Federal Reserve Act, and transactions between affiliates are
subject to certain restrictions. Generally, Sections 23A and 23B of the Federal
Reserve Act: (1) limit the extent to which the financial institution or its
subsidiaries may engage in covered transactions with an affiliate, as
defined, to an amount equal to 10 percent of such institutions capital and
surplus and an aggregate limit on all such transactions with all affiliates to
an amount equal to 20 percent of such capital and surplus, and (2) require all
transactions with an affiliate, whether or not covered transactions, to be on
terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to nonaffiliates. The term covered transaction
includes the making of loans, purchase of assets, issuance of a guarantee, and
other similar type of transactions. However, the limitations imposed by section
23A and 23B generally do not apply to transactions solely between the Banks.

Management Regulation.Federal law: (1) sets forth the circumstances under
which officers or directors of a financial institution may be removed by the
institutions federal supervisory agency; (2) places restraints on lending by
an institution to its executive officers, directors, principal stockholders,
and their related interests; and (3) prohibits management personnel from
serving as a director or in other management positions of another financial
institution whose assets exceed a specified amount or which has an office
within a specified geographic area.

Tie-in Limitations.The Company and the Banks are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, sale or
lease of property, or furnishing of services. For example, with certain
exceptions, neither the Company nor the Banks may condition an extension of
credit on either (1) a requirement that the customer obtain additional services
provided by it or (2) an agreement by the customer to refrain from obtaining
other services from a competitor. Effective April 1997, the Federal Reserve has
adopted significant amendments to its anti-tying rules that: (1) remove Federal
Reserveimposed anti-tying restrictions on bank holding companies and their
non-bank subsidiaries; (2) create exemptions from the statutory restriction on
bank tying arrangements to allow banks greater flexibility to package products
with their affiliates; and (3) establish a safe harbor from the tying
restrictions for certain foreign transactions.

Banking Subsidiaries

Applicable federal and state statutes and regulations governing a banks
operations relate, among other matters, to capital requirements, required
reserves against deposits, investments, loans, legal lending limits, certain
interest rates payable, mergers and consolidations, borrowings, issuance of
securities, payment of dividends (see below), establishment of branches, and
dealings with affiliated persons. The FDIC has authority to prohibit banks
under their supervision from engaging in what they consider to be an unsafe and
unsound practice in conducting their business.

The Banks are state-chartered commercial banks subject to extensive regulation
and supervision by the Washington Department of Financial Institutions Division
of Banks (DFI). The Banks are also subject to regulation and examination by
the FDIC, which insures their respective deposits to the maximum extent
permitted by law. The federal laws that apply to the Banks regulate, among
other things, the scope of their business, their investments, their reserves
against deposits, the timing of the availability of deposited funds, and the
nature and amount of and collateral for loans. The laws and regulations
governing the Banks generally have been promulgated to protect depositors and
not to protect stockholders of such institutions or their holding companies.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
requires federal banking regulators to adopt regulations or guidelines in a
number of areas to ensure bank safety and soundness, including: internal
controls; credit underwriting; asset growth; management compensation; ratios of
classified assets to capital; and earnings. FDICIA also contains provisions
which are intended to change independent auditing requirements; restrict the
activities of state-chartered insured banks; amend various consumer banking
laws; limit the ability of undercapitalized banks to borrow from the Federal
Reserves discount window; and require regulators to perform periodic on-site
bank examinations and set standards for real estate lending.

Loans to One Borrower.Each of the Banks is subject to limitations on the
aggregate amount of loans that it can make to any one borrower, including
related entities. Applicable regulations generally limit loans to one borrower
to 20 percent of unimpaired capital. Each of the Banks is in compliance with
applicable loans-to-one-borrower requirements.

FDIC Insurance.Generally, the FDIC, for up to a maximum amount of $100,000,
insures customer deposit accounts in banks. The FDIC has adopted a risk-based
insurance assessment system under which depository institutions contribute
funds to the BIF and/or the SAIF, as applicable, based on their risk
classification.

In September of 1996, the Deposit Insurance Funds Act of 1996 (Funds Act) was
enacted. The Funds Act provided, among other things, for the recapitalization
of the SAIF through a special assessment on all depository institutions that
hold SAIF insured deposits. The one-time assessment was designed to place the
SAIF at its 1.25 reserve ratio goal.

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The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law. The
insurance may be terminated permanently, if the institution has no tangible
capital. If deposit insurance is terminated, the accounts at the institution at
the time of the termination, less subsequent withdrawals, will continue to be
insured for a period of six months to two years, as determined by the FDIC.

Capital Adequacy Requirements.The Federal Reserve and the FDIC (collectively,
the Agencies) 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 percent, of which at least 4
percent 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 percent of unrealized gain of equity
securities, and general reserves for loan and lease losses up to 1.25 percent
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 percent, 20
percent, 50 percent, or 100 percent. Most loans are assigned to the 100 percent
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans (both
carry a 50 percent rating). Most investment securities are assigned to the 20
percent category, except for municipal or state revenue bonds (which have a 50
percent rating) and direct obligations of or obligations guaranteed by the
United States Treasury or United States Government Agencies (which have a 0
percent 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 percent, 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 percent 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.

Prompt Corrective Action.Regulations adopted by the Agencies as required by
FDICIA impose even more stringent capital requirements. The FDIC and other
Agencies must take certain prompt corrective action when a bank fails to meet
capital requirements. The regulations establish and define five capital levels:
(1) well-capitalized, (2) adequately capitalized, (3) undercapitalized,
(4) significantly undercapitalized and (5) critically undercapitalized. To
qualify as well-capitalized, an institution must maintain at least 10 percent
total risk-based capital, 6 percent Tier 1 risk-based capital, and a leverage
ratio of no less than 5 percent. Increasingly severe restrictions are imposed
on the payment of dividends and management fees, asset growth and other aspects
of the operations of institutions that fall below the category of being
adequately capitalized (which requires at least 8 percent total risk-based
capital, 4 percent Tier 1 risk-based capital, and a leverage ratio of at least
4 percent). Undercapitalized institutions are required to develop and implement
capital plans acceptable to the appropriate federal regulatory agency. Such
plans must require that any company that controls the undercapitalized
institution must provide certain guarantees that the institution will comply
with the plan until it is adequately capitalized. As of the date of this Form
10-K, neither the Company nor their respective subsidiaries were subject to any
regulatory order, agreement, or directive to meet and maintain a specific
capital level for any capital measure.

Restrictions on Dividends.Dividends paid to the Company by Puyallup Valley
Bank are the material source of the Companys cash flow. Various federal and
state statutory provisions limit the amount of dividends banking subsidiaries
are permitted to pay to their holding companies without regulatory approval.
Federal Reserve policy further limits the circumstances under which bank
holding companies may declare dividends. For example, a bank holding company
should not continue its existing rate of cash dividends on its common stock
unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality, and overall financial condition.

If, in the opinion of the applicable federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), the agency may require,
after notice and hearing, that such institution cease and desist from such
practice. In addition, the Federal Reserve and the FDIC have issued policy
statements, which provide that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings.

Under Washington law, the Banks may not declare or pay a cash dividend on their
capital stock if it would cause their net worth to be reduced below (1) the
amounts required for liquidation accounts or (2) the net worth requirements, if
any, imposed by the Director of DFI. Dividends on the Banks capital stock may
not be paid in an aggregate amount greater than the aggregate retained earnings
of the Bank, without the approval of DFI.

Federal Reserve System.The Federal Reserve requires all depository
institutions to maintain reserves against their transaction accounts (primarily
checking accounts) and non-personal time deposits. Currently, reserves of 3
percent must be maintained against total transaction accounts of $49.8 million
or less (after a $4.2 million exemption), and an initial reserve of 10 percent
(subject to adjustment by the Federal Reserve to a level between 8 percent and
14 percent) must be maintained against that portion of total transaction
accounts in excess of such amount. Both of the Banks are in compliance with
applicable requirements.

The balances maintained to meet the reserve requirements imposed by the Federal
Reserve may be used to satisfy applicable liquidity requirements. Because
required reserves must be maintained in the form of vault cash or a
non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the earning assets of the Company and its
banking subsidiaries.

Regulatory Developments

Congress has enacted significant federal banking legislation in recent years.
Included in this legislation have been the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (FIRREA) and the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA). FIRREA, among other
things, (i) created two deposit insurance funds administered by the FDIC, the
Bank Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF), (ii) permitted commercial banks that meet certain housing-related
asset requirements to secure advances and other financial services from local
FHLBs, (iii) restructured the federal regulatory agencies for savings
associations, and (iv) enhanced the regulators enforcement powers over
financial institutions and their affiliates.

5



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##### Table of Contents



FDICIA went substantially farther than FIRREA in establishing a more rigorous
regulatory environment. Under FDICIA, regulatory authorities are required to
enact a number of new regulations, substantially all of which are now
effective. These regulations include among other things, (i) a new method for
calculating deposit insurance premiums based on risk,(ii) restrictions on
acceptance of brokered deposits except by well-capitalized institutions, (iii)
additional limitations on loans to executive officers and directors of banks,
(iv) the employment of interest rate risk in the calculation of risk-based
capital, (v) safety and soundness standards that take into consideration, among
other things, management, operations, asset quality, earnings, and
compensation, (vi) a five-tiered rating system from well-capitalized to
critically undercapitalized, along with the prompt corrective action the
agencies may take depending on the category, and (vii) new disclosure and
advertising requirements with respect to interest paid on savings accounts.

FDICIA and regulations adopted by the FDIC impose additional requirements for
annual independent audits and reporting when a bank begins a fiscal year with
assets of $500 million or more. Such banks, or their holding companies, are
also required to establish audit committees consisting of directors who are
independent of management.

Interstate Banking and Branching:The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (Interstate Act) generally permits
nationwide interstate banking and branching by relaxing federal law
restrictions on interstate banking and providing general authorization for
interstate branching. Subject to certain state laws, such as age and
contingency laws, the Interstate Act allows adequately capitalized and
adequately managed bank holding companies to purchase the assets of
out-of-state banks. Additionally, since June 1, 1997, the Interstate Act
permits interstate bank mergers, subject to these state laws, unless the home
state of either merging bank has opted-out of these provisions by enacting
opt-out legislation. The Interstate Act does allow states to impose certain
conditions on interstate bank mergers within their borders; for example, states
may require that the in-state merging bank exist for up to five years before
the interstate merger. Under the Interstate Act, states may also opt-in to de
novo branching, allowing out-of-state banks to establish de novo branches
within the state.

In 1996, Washington enacted opting-in legislation authorizing interstate
mergers pursuant to the Interstate Act. Accordingly, as of June 6, 1996, an
out-of-state bank holding company may now acquire more than 5 percent of the
voting shares of a Washington-based bank, regardless of reciprocity, provided
such bank or its predecessor has been doing business for at least five years
prior to the acquisition. Further, an out-of-state bank may engage in banking
in Washington if the requirements of Washingtons interstate banking statute
are met, and the bank either (1) was lawfully engaged in banking in Washington
on June 6, 1996, (2) resulted from an interstate combination pursuant to
Washington law, (3) resulted from a relocation of a head office of a state bank
or a main office of a national bank pursuant to federal law, or (4) resulted
from the establishment of a savings bank branch in compliance with applicable
Washington law. Additionally, the Director of the Division may approve
interstate combinations if the basis for such approval does not discriminate
against out-of-state banks, out-of-state holding companies, or their
subsidiaries.

The Agencies recently adopted regulations under which banks are prohibited from
using their interstate branches primarily for deposit production. The Agencies
have accordingly implemented a loan-to-deposit ratio screen to ensure
compliance with this prohibition.

Further effects on the Company and the Banks may result from the Riegle
Community Development and Regulatory Improvement Act of 1994 (the Community
Development Act). The Community Development Act (i) establishes and funds
institutions that are focused on investing in economically distressed areas,
and (ii) streamlines the procedures for certain transactions by financial
institutions with federal banking agencies.

Among other things, the Community Development Act requires the federal banking
agencies to (i) consider the burdens that are imposed on financial institutions
when new regulations are issued or new compliance burdens are created, and (ii)
coordinate their examinations of financial institutions when more than one
agency is involved. The Community Development Act also streamlines the
procedures for forming certain one-bank holding companies and engaging in
authorized non-banking activities.

Various regulatory relief provisions were also enacted by recent legislation.
The new legislation includes, among other things, changes to (i) the Truth in
Lending Act and the Real Estate Settlement Procedures Act to coordinate and
simplify the two laws disclosure requirements, (ii) eliminate civil liability
for violations of the Truth in Savings Act after five years, (iii) streamline
the application process for a number of bank holding company and bank
applications, (iv) establish a privilege from discovery in any civil or
administrative proceeding or bank examination for any fair lending self-trust
results conducted by, or on behalf of, a financial institution in certain
circumstances, (v) repeal the FDICIA requirement that independent public
accountants attest to compliance with designated safety and soundness
regulations, (vi) impose a continuous regulatory review of regulations to
identify and eliminate outdated and unnecessary rules, and (vii) various other
miscellaneous provisions to reduce regulatory burdens.

In 1999, the Gramm-Leach-Bliley Act was enacted, which: (1) repealed historical
restrictions on preventing banks from affiliating with securities firms, (2)
broadens the activities that may be conducted by national banks and banking
subsidiaries of holding companies, and (3) provides an enhanced framework for
protecting the privacy of consumers information. In addition, bank holding
companies may be owned, controlled, or acquired by any company engaged in
financially related activities, as long as such company meets regulatory
requirements.

Regulatory Enforcement Authority

The enforcement powers available to federal banking regulators are substantial
and include, among other things, the ability to assess civil monetary
penalties, to issue cease-and-desist or removal orders, and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, enforcement actions must be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions, or inactions, may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities. Applicable
law also requires public disclosure of final enforcement actions by the federal
banking agencies.

NATIONAL MONETARY POLICIES

In addition to being affected by general economic conditions, the earnings and
growth of the Banks are affected by the policies of regulatory authorities,
including the Board of Governors of the Federal Reserve System. An important
function of the Federal Reserve System is to regulate the money supply, credit
conditions, and interest rates. Among the instruments used to implement these
objectives are open market operations in U.S. Government securities, changes in
reserve requirements against bank deposits, and the Federal Reserve Discount
Rate, which is the rate charged member banks to borrow from the Federal Reserve
Bank. These instruments are used in varying combinations to influence overall
growth and distribution of credit, bank loans, investments, and deposits, and
their use may also affect interest rates charged on loans or paid on deposits.

The monetary policies of the Federal Reserve Board have had a significant
effect on the operating results of commercial banks in the past and are
expected to do so in the future. Also important in terms of effect on banks are
controls on interest rates paid by banks on deposits and types of deposits that
may be offered by banks. The Depository Institutions Deregulation Committee,
created by Congress in 1980, phased out ceilings on the rate of interest that
may be paid on deposits by commercial banks and savings and loan associations,
with the result that the differentials between the maximum rates banks and
savings and loans can pay on deposit accounts have

6



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##### Table of Contents



been eliminated. The effect of deregulation of deposit interest rates has been to increase banks cost of
funds and to make banks more sensitive to fluctuations in market rates.

Item 2. Properties

The section Note 5  Premises and Equipments contained in Notes to the
Consolidated Financial Statements in the 2001 Annual Report, which is listed as
an exhibit under Item 14, is incorporated herein by reference.

Item 3. Legal Proceedings

The section Note 10  Commitments and Contingent Liabilities (c) Legal
Proceedings contained in Notes to the Consolidated Financial Statements in the
2001 Annual Report, which is listed as an exhibit under Item 14, is
incorporated herein by reference.

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

None

7



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##### Table of Contents






PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters

The section Market Price of and Dividends on Common Equity and Related
Stockholder Matters in the 2001 Annual Report, which is listed as an exhibit
under Item 14, is incorporated herein by reference.




Item 6. Selected Financial Data

The section Selected Financial Data in the 2001 Annual Report, which is
listed as an exhibit under Item 14, is incorporated herein by reference.




Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operation

The section Management Discussion and Analysis of Financial Condition and
Results of Operationin the 2001 Annual Report, which is listed as an exhibit
under Item 14, is incorporated herein by reference.




Item 7a. Quantitative and Qualitative Disclosure about Market Risk

The section Quantitative and Qualitative Disclosure about Market Risk
contained in Management Discussion and Analysis of Financial Condition and
Results of Operation in the 2001 Annual Report, which is listed as an exhibit
under Item 14, is incorporated herein by reference.




Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements contained in the 2001 Annual Report,
which is listed as an exhibit under Item 14, is incorporated herein by
reference.




Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

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##### Table of Contents






PART III




Item 10. Directors and Executive Officers of the Registrant

For information about Valley Community Bancshares directors and executive
officers, see the discussion under Election of Directors and Compliance
With Section 16(a) of the Exchange Act, in the definitive Proxy Statement for
Valley Community Bancshares Annual Meeting of Shareholders to be held on April
26, 2001, filed with the Securities and Exchange Commission (the Proxy
Statement), incorporated herein by reference.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information about the executive officers
of the Company.

|                   |  |     |    |                           |  |                                                   |  |                                 |  | 
|------------------ |  | --- | -- | ------------------------- |  | ------------------------------------------------- |  | ------------------------------- |  | 
|                   |  |     |    |                           |  |                                                   |  | Has Served as Executive officer
|Name               |  | Age |    | Position with the Company |  | of the Company Since                             
|                   |  |     |    |                           |  |                                                  
|David H. Brown     |  |     | 56 |                           |  | Director, President and CEO                       |  | 1989                            | 
|Joseph E. Riordan  |  |     | 48 |                           |  | Executive Vice President and CFO                  |  | 1997                            | 
|Roy W. Thompson    |  |     | 59 |                           |  | Executive Vice President and Credit Administrator |  | 1989                            | 
|Richard D. Pickett |  |     | 52 |                           |  | President and CEO of Valley Bank                  |  | 1999                            | 

The principal occupation or business and experience of the Executive Officers
of the Company for the past five years is set forth below. All officers are
elected by the Board of Directors and serve at the pleasure of the Board for an
unspecified term.

DAVID H. BROWNhas been the President and Chief Executive Officer of the
Company since its formation and the President and Chief Executive Officer of
Puyallup Valley Bank since 1989. Prior to joining Puyallup Valley Bank, Mr.
Brown was an executive officer with Seafirst Bank for twenty years, beginning
as a Management Trainee and concluding his tenure at Seafirst as Manager of
Southwest Corporate Banking. Mr. Brown is a graduate of Pacific Coast Banking
School and holds a BA from Washington State University.

JOSEPH E. RIORDANhas been Senior Vice President and Chief Financial Officer of
the Company since its formation and Senior Vice President and Chief Financial
Officer of Puyallup Valley Bank since 1997. In January 2001, Mr. Riordan was
named Executive Vice President of the Company and Puyallup Valley Bank. Prior
to joining the Company and Puyallup Valley Bank, Mr. Riordan was Vice President
of Finance InterWest Bancorp, Inc. From 1985 through 1996, Mr. Riordan was Vice
President and Secretary-Treasurer of Central Bancorporation. Mr. Riordans
career in the banking industry spans over twenty years. Mr. Riordan is a
Certified Public Accountant, a Certified Management Accountant, and holds a BA
in Business Administration from Central Washington University. Mr. Riordan is
the Executive Vice President and Chief Financial Officer of Valley Bank.

ROY W. THOMPSONhas been Senior Vice President of the Company since its
formation and Senior Vice President and Credit Administrator of Puyallup Valley
Bank since 1989. In January 2001, Mr. Thompson was named Executive Vice
President of the Company and Puyallup Valley Bank. Prior to joining Puyallup
Valley Bank, Mr. Thompson was Vice President and Account Officer of U.S. Bank
of Washington in Private Banking. From 1983 through 1988, Mr. Thompson was Vice
President and Credit Administrator of Seattle-First National Bank. Mr.
Thompsons career in the banking industry spans over twenty years. Mr. Thompson
is a graduate of Pacific Coast Banking School, holds an MBA in Finance from the
United States International University and a BS in Business from the University
of Southern California. Mr. Thompson is the Executive Vice President and Credit
Administrator of Valley Bank.

RICHARD D. PICKETTis President and CEO of Valley Bank. Prior to joining Valley
Bank, Mr. Pickett was an officer with Seafirst Bank for over twenty-five years,
beginning as a Management Trainee and concluding his tenure at Seafirst as
Commercial Banking Team Leader. Mr. Pickett is a graduate of Pacific Coast
Banking School, the University of Southern California Executive Leadership
School, and holds a BA from Washington State University.




Item 11. Executive Compensation

The information contained under the section captioned Executive Compensation
in the definitive Proxy Statement for Valley Community Bancshares Annual
Meeting of Shareholders is incorporated herein by reference.




Item 12. Ownership of Certain Beneficial Owners

The information contained under the section captioned Security Ownership of
Certain Beneficial Owners and Management in the definitive Proxy Statement for
Valley Community Bancshares Annual Meeting of Shareholders is incorporated
herein by reference.




Item 13. Certain Relationships and Related Transactions

The information contained under the section captioned Interest of Management
in Certain Transactions in the definitive Proxy Statement for Valley Community
Bancshares Annual Meeting of Shareholders is incorporated herein by reference.

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##### Table of Contents






PART IV




Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K

The following exhibits are either filed herewith or have been previously filed
with the Securities and Exchange Commission and are filed herewith by
incorporation by reference:

(A)  (1) Consolidated Financial Statements



| | (i)   |  | Independent Auditors Report                                                                                       
| | ----- |  | -------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | Consolidated Balance Sheet as of December 31, 2001, and 2000                                                       
|
| | (iii) |  | Consolidated Statement of Income for Years Ended December 31, 2001, 2000, and 1999                                 
|
| | (iv)  |  | Consolidated Statement of Changes in Stockholders Equity for Years Ended December 31, 2001, 2000, and 1999        
|
| | (v)   |  | Consolidated Statement of Cash Flows for the Years Ended December 31,
2001, 2000, and 1999                         
|
| | (vi)  |  | Notes to Consolidated Financial Statements                                                                         
|
| | (2)   |  | All required financial statement schedules are included in the Notes
to Consolidated Financial Statements.         
|
| |       |  | Consolidated Financial Statements and Notes to Consolidated Financial
Statements are included in Exhibit 13 herein.

(B)  Reports on Form 8-K:

The Company filed a Report on Form 8-K on October 17, 2001 reporting on Item 5
that on October 17, 2001, the Board of Directors of the Company adopted a plan
to repurchase up to $1,000,000 worth of its common shares.

|    |  |  |      |  |  |                                                                                              
|--- |  |  | ---- |  |  | ---------------------------------------------------------------------------------------------
|(C) |  |  | 3.1  |  |  | Articles of Incorporation of the Company *                                                   
|    |  |  | 3.2  |  |  | Bylaws of the Company *                                                                      
|    |  |  | 10.1 |  |  | Severance agreement for Mr. Brown *                                                          
|    |  |  | 10.2 |  |  | Severance agreement for Mr. Thompson *                                                       
|    |  |  | 10.3 |  |  | Severance agreement for Mr. Riordan *                                                        
|    |  |  | 10.4 |  |  | Severance agreement for Mr. Pickett *                                                        
|    |  |  | 10.5 |  |  | Deferred Compensation Agreement for Mr. Brown *                                              
|    |  |  | 10.6 |  |  | Deferred Compensation Agreement for Mr. Thompson #                                           
|    |  |  | 10.7 |  |  | 1998 Stock Option Plan *                                                                     
|    |  |  | 10.8 |  |  | 401(k) Defined Contribution Plan and Noncontributory Profit Sharing Plan Adoption Agreement *
|    |  |  | 13   |  |  | 2001 Annual Report to Shareholders                                                           
|    |  |  | 21   |  |  | Subsidiaries of the Company *                                                                
|    |  |  | 24   |  |  | Power of Attorney is set forth on the signature page of this Registration Statement          



---

|* |  | Incorporated by reference to the Exhibits set forth on Registrants
Amended Registration Statement on Form 10 filed with the Securities and
Exchange Commission on September 6, 2000.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| 
| 
| 
|# |  | Incorporated by reference to the Exhibits set forth on Registrants 2000
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 27, 2001.             

10



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on the 8th day of March
2002.

| |                                                      |                   
| | ---------------------------------------------------- | ------------------
| | VALLEY COMMUNITY BANCSHARES, INC.
(Registrant)      
|
| | By:                                                  | /s/ DAVID H. BROWN
| |                                                     
| | David H. Brown
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf by the
registrant and in the capacities indicated, on the 8th day of March 2002.

| |                                                      |                   
| | ---------------------------------------------------- | ------------------
| | Principal Executive Officer                         
|
| | By:                                                  | /s/ DAVID H. BROWN
| |                                                     
| | David H. Brown
President and Chief Executive Officer

| |                                                                        |                      
| | ---------------------------------------------------------------------- | ---------------------
| | Principal Financial Officer                                           
|
| | By:                                                                    | /s/ JOSEPH E. RIORDAN
| |                                                                       
| | Joseph E. Riordan
Executive Vice President and
Chief Financial Officer

David H. Brown, pursuant to a power of attorney, which is being filed with this
Form 10-K, has signed this report on March 8, 2002 as attorney in fact for the
following directors who constitute a majority of the Board.

Thomas R. Absher
Warren D. Hunt
A. Eugene Hammermaster
William E. Fitchitt
David K. Hamry
Steven M. Harris
Roger L. Knutson
Thomas M. Pasquier

| |  |                                                                  
| |  | -----------------------------------------------------------------
| |  | /s/  DAVID H. BROWN
David H. Brown
Attorney-in-fact
March 8, 2002
| |  |                                                                  

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##### Table of Contents



POWER OF ATTORNEY

We, the undersigned directors of Valley Community Bancshares, Inc., do
hereby severally constitute and appoint David H. Brown our true and lawful
attorney and agent to execute on our names in our capacities as directors and
to file the Form 10-K and any amendments thereto on behalf of Valley Community
Bancshares, Inc. to enable Valley Community Bancshares, Inc. to comply with the
rules, regulations and requirements of the Securities and Exchange Commission.

|                                                   |  |                        |  |                  
|-------------------------------------------------- |  | ---------------------- |  | -----------------
|/s/ Warren D. Hunt

Warren D. Hunt                 |  | Chairman of the Board  |  | February 20, 2002
|                                                  
|/s/ David H. Brown

David H. Brown                 |  | Director/President/CEO |  | February 20, 2002
|                                                  
|/s/ Thomas R. Absher

Thomas R. Absher             |  | Director               |  | February 20, 2002
|                                                  
|/s/ A. Eugene Hammermaster

A. Eugene Hammermaster |  | Director               |  | February 20, 2002
|                                                  
|/s/ William E. Fitchitt

William E. Fitchitt       |  | Director               |  | February 26, 2002
|                                                  
|/s/ David K. Hamry

David K. Hamry                 |  | Director               |  | February 20, 2002
|                                                  
|/s/ Steven M. Harris

Steven M. Harris             |  | Director               |  | February 26, 2002
|                                                  
|/s/ Roger L. Knutson

Roger L. Knutson             |  | Director               |  | February 20, 2002
|                                                  
|/s/ Thomas M. Pasquier

Thomas M. Pasquierj        |  | Director               |  | February 20, 2002

12



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                              
|------- |  | ---------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                              
|No.     |  | Description                                                                                  
|        |  |                                                                                              
|3.1     |  | Articles of Incorporation of the Company *                                                   
|3.2     |  | Bylaws of the Company *                                                                      
|10.1    |  | Severance agreement for Mr. Brown *                                                          
|10.2    |  | Severance agreement for Mr. Thompson *                                                       
|10.3    |  | Severance agreement for Mr. Riordan *                                                        
|10.4    |  | Severance agreement for Mr. Pickett *                                                        
|10.5    |  | Deferred Compensation Agreement for Mr. Brown *                                              
|10.6    |  | Deferred Compensation Agreement for Mr. Thompson #                                           
|10.7    |  | 1998 Stock Option Plan *                                                                     
|10.8    |  | 401(k) Defined Contribution Plan and Noncontributory Profit Sharing Plan Adoption Agreement *
|13      |  | 2001 Annual Report to Shareholders                                                           
|21      |  | Subsidiaries of the Company *                                                                
|24      |  | Power of Attorney is set forth on the signature page of this Registration Statement          



---

|* |  | Incorporated by reference to the Exhibits set forth on Registrants
Amended Registration Statement on Form 10 filed with the Securities and
Exchange Commission on September 6, 2000.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| 
| 
| 
|# |  | Incorporated by reference to the Exhibits set forth on Registrants 2000
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 27, 2001.             

13