FNCB Bancorp (FNCB) 10-Q 2005 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2005

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _____________ to _____________

Commission File No.____________

First National Community Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania           23-2900790

(State or Other Jurisdiction of         (I.R.S. Employer

   Incorporation or Organization)         Identification Number)

102 E. Drinker St. Dunmore, PA18512

(Address of Principal Executive Offices)(Zip Code)

(570) 346-7667

(Registrant’s Telephone Number, Including Area Code)

_____________________________________

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ______

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

Common Stock, $1.25 par value

(Title of Class)

10,982,060 shares

(Outstanding at April 27, 2005)

FIRST NATIONAL COMMUNITY BANCORP, INC.
	INDEX
		Page No.

Part I - Financial Statements

Item 1.	Consolidated Financial Statements
	Consolidated Statements of Financial Condition
		March 31, 2005 (unaudited) and December 31, 2004				1
	Consolidated Statements of Income
		Three Months Ended March 31, 2005 (unaudited)
			and March 31, 2004 (unaudited)			2
	Consolidated Statements of Cash Flows
		Three Months Ended March 31, 2005 (unaudited)
			and March 31, 2004 (unaudited)		3-4
	Consolidated Statements of Changes in Stockholders’ Equity
		Three Months Ended March 31, 2005 (unaudited)				5
	Notes to Consolidated Financial Statements			6-7

Item 2.		Management's Discussion and Analysis of Financial Condition
	and Results of Operations		8-19

Item 3. Quantitative and Qualitative Disclosures about Market Risk 19

Item 4. Controls and Procedures 20

Part II - Other Information: 21

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits

Signatures 22

(ii)

FIRST NATIONAL COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)

	March 31,			Dec. 31,
		2005			2004
(UNAUDITED)			(AUDITED)

ASSETS

Cash and cash equivalents:

		Cash and due from banks	$	15,155		$	13,653
		Federal funds sold			1,775					1,700
	Total cash and cash equivalents			16,930				15,353
Interest-bearing balances with financial institutions					1,980				1,980

Securities:

	Available-for-sale, at fair value			219,069					222,282
	Held-to-maturity, at cost
		(fair value $1,523 on March 31, 2005 and
		$1,542 on December 31, 2004)					1,505					1,486
	Federal Reserve Bank and FHLB stock, at cost						7,951					8,063
Net loans				631,189					625,792
Bank premises and equipment						10,024					10,054
Other assets					24,083					22,481
	Total Assets		$912,731					$907,491

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Deposits:

	Demand – non-interest bearing	$  68,172			$  58,658
	Interest bearing demand		209,302			217,669
	Savings			77,357			86,993
	Time ($100,000 and over)		106,918				94,325
	Other time		215,702			214,068
	Total deposits		677,451			671,713
Borrowed funds			152,187			154,067
Other liabilities			6,599			5,988
	Total Liabilities	$836,237			$831,768

Shareholders' equity:

Common Stock, $1.25 par value,

	Authorized: 20,000,000 shares
	Issued and outstanding:
		10,975,843 shares at March 31, 2005 and
		10,898,942 shares at December 31, 2004	$		13,720	$		13,624
Additional Paid-in Capital					19,627			18,671
Retained Earnings					44,019			42,398
Accumulated Other Comprehensive Income (Loss)					(872)			1,030
	Total shareholders' equity			$  76,494			$  75,723
	Total Liabilities and Shareholders’ Equity			$912,731			$907,491

Note: The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See notes to financial statements

(1)

FIRST NATIONAL COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share amounts)

		Three Months Ended
March 31,			March 31,
	2005			2004

Interest Income:

Loans		$ 9,289					$ 7,630
Balances with banks					13					10
Investments				2,454					2,369
Federal Funds Sold						7				10
	Total interest income		11,763					10,019

Interest Expense:

Deposits		3,001	2,469
Borrowed Funds		1,724		1,580
	Total interest expense	4,725		4,049

Net Interest Income

	before Loan Loss Provision		7,038		5,970
Provision for credit losses				240			225
		Net interest income	6,798			5,745

Other Income:

Service charges			503				396
Other Income			392				321
Gain on sale of:
	Loans			89			296
	Securities			52			320
	Other Real Estate				0			26
	Total other income	1,036				1,359

Other expenses:

	Salaries & benefits				2,257					2,106
	Occupancy & equipment						768						714
	Advertising expense						165						150
	Data processing expense						357						313
	Bank Shares Tax						143						122
	Other						833						773
		Total other expenses			4,523						4,178
Income before income taxes					3,311					2,926
Income tax expense							705						595
		NET INCOME		$ 2,606				$			2,331
Basic earnings per share			$			0.24			$			0.22
Diluted earnings per share			$			0.23			$			0.21

Weighted average number of

basic shares 10,932,594 10,689,612

Weighted average number of

diluted shares 11,262,807 11,124,932

See notes to financial statements

(2)

FIRST NATIONAL COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2005 AND 2004

(UNAUDITED)

March 31,			March 31,
	2005			2004
		(Dollars in thousands)

INCREASE (DECREASE) IN CASH EQUIVALENTS:

Cash Flows From Operating Activities:

	Interest Received	$ 11,909						$ 10,216
	Fees & Commissions Received						894						716
	Interest Paid			(4,572)						(4,001)
	Income Taxes Paid					(425)						(239)
	Cash Paid to Suppliers & Employees			(4,542)						(3,953)
Net Cash Provided by Operating Activities			$		3,264				$		2,739

Cash Flows from Investing Activities:

	Securities available for sale:
		Proceeds from Sales prior to maturity				2,626					10,397
		Proceeds from Calls prior to maturity				4,691					13,503
		Proceeds from Maturities				5,000									0
		Purchases		(12,090)						(38,373)
	Net (Increase)/Decrease in Interest-Bearing Bank Balances							0						693
	Net Decrease (Increase) in Loans to Customers				(5,548)								(637)
	Capital Expenditures						(291)					(367)
Net Cash Used by Investing Activities			$ (5,612)						$(14,784)

Cash Flows from Financing Activities:

	Net Increase (Decrease) in Demand Deposits, Money Market
		Demand, NOW Accounts, and Savings Accounts		$ (8,489)						$(13,287)
	Net Increase/(Decrease) in Certificates of Deposit				14,227									18,957
	Net Increase (Decrease) in Borrowed Funds					(1,880)									3,084
	Net Proceeds from Issuance of Common Stock
		Through Dividend Reinvestment							604								427
	Net Proceeds from Issuance of Common Stock –
		Stock Option Plans							448								366
	Dividends Paid							(985)								(856)
Net Cash Provided by Financing Activities			$				3,925						$ 8,691
Net Increase/(Decrease) in Cash and Cash Equivalents			$				1,577					$ (3,354)
Cash & Cash Equivalents at Beginning of Year			$ 15,353								$ 23,290
CASH & CASH EQUIVALENTS AT END OF PERIOD			$ 16,930								$ 19,936

(Continued)

(3)

		FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
	THREE MONTHS ENDED MARCH 31, 2005 AND 2004

(UNAUDITED)

2005		2004
	(Dollars in thousands)

RECONCILIATION OF NET INCOME TO NET CASH

PROVIDED BY OPERATING ACTIVITIES:

Net Income $ 2,606 $ 2,331

Adjustments to Reconcile Net Income to

Net Cash Provided by Operating Activities:

	Amortization (Accretion), Net			250					160
	Depreciation			321					283
	Stock Based Compensation – Stock Option Plans					0					45
	Provision for Probable Credit Losses			240					225
	Provision for Deferred Taxes				(58)					(64)
	Gain on Sale of Loans				(89)			(296)
	Gain on Sale of Investment Securities				(52)			(320)
	Gain on Sale of Other Real Estate					0				(26)
	Increase in Taxes Payable			164							34
	Decrease (Increase) in Interest Receivable		(104)								37
	Decrease in Interest Payable			153							48
	Increase in Prepaid Expenses and Other Assets		(460)					(273)
	Increase in Accrued Expenses and Other Liabilities			293					555
Total Adjustments		$    658					$    408

NET CASH PROVIDED BY OPERATING

ACTIVITIES $ 3,264 $ 2,739

See notes to financial statements

(4)

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For The Three Months Ended March 31, 2005
(In thousands, except share data)
(UNAUDITED)
									ACCUM- ULATED OTHER COMP-REHEN-SIVE INCOME/
				COMP-REHEN-SIVE	COMMON STOCK		ADD’L PAID-IN	RETAINED
				INCOME	SHARES	AMOUNT	CAPITAL	EARNINGS	(LOSS)	TOTAL
BALANCES, DECEMBER 31, 2004					10,898,942	$13,624	$18,671	$42,398	$1,030	$75,723
	Comprehensive Income:
		Net income for the period		2,606				2,606		2,606
		Other comprehensive income, net of tax:
			Unrealized loss on securities available-for-sale, net of deferred income tax benefit of $980	(1,954)
			Reclassification adjustment	52
		Total other comprehensive income, net of tax		(1,902)					(1,902)	(1,902)
	Comprehensive Income			704
	Issuance of Common Stock – Stock Option Plans				56,283	70	378			448
	Issuance of Common Stock through Dividend Reinvestment				20,618	26	578			604
	Cash dividends paid, $0.09 per share							(985)		(985)
BALANCES, MARCH 31, 2005					10,975,843	$13,720	$19,627	$44,019	$(872)	$76,494

See notes to financial statements

(5)

FIRST NATIONAL COMMUNITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)        The accounting and financial reporting policies of First National Community Bancorp, Inc. and its subsidiary conform to U.S. generally accepted accounting principles and to general practice within the banking industry. The consolidated statements include the accounts of First National Community Bancorp, Inc. and its wholly owned subsidiary, First National Community Bank (Bank) including its subsidiary, FNCB Realty, Inc. (collectively, Company). All material intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim financial statements are unaudited. In management’s opinion, the consolidated financial statements reflect a fair presentation of the consolidated financial position of First National Community Bancorp, Inc. and subsidiary, and the results of its operations and its cash flows for the interim periods presented, in conformity with U.S. generally accepted accounting principles. Also in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows at March 31, 2005 and for all periods presented have been made.

These interim financial statements should be read in conjunction with the audited financial statements and footnote disclosures in the Bank's Annual Report to Shareholders for the fiscal year ended December 31, 2004.

(2)        Basic earnings per share have been computed by dividing net income (the numerator) by the weighted average number of common shares (the denominator) for the period. Such shares amounted to 10,932,594 and 10,689,612 for the periods ending March 31, 2005 and 2004, respectively.

Diluted earnings per share have been computed by dividing net income (the numerator) by the weighted average number of common shares and options outstanding (the denominator) for the period. Such shares amounted to 11,262,807 and 11,124,932 for the periods ending March 31, 2005 and 2004, respectively.

(3)        During the first quarter of calendar 2003, the company adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, for stock-based employee compensation, effective as of January 1, 2003. Under the prospective method of adoption selected by the company, stock-based compensation cost will be recognized using the fair value method for all awards granted, modified or settled on or after that effective date.

(6)

There were no stock option awards granted during the first quarters of 2005 or 2004.

A summary of the status of the Corporation’s stock option plans is presented below:

	Three months ended March 31,
	2005		2004
	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Outstanding at the beginning of the period	360,200	$ 9.99	458,000	$ 8.89
Granted	0		0
Exercised	(56,283)	7.95	(46,000)	7.94
Forfeited	0		0
Outstanding at the end of the period	303,917	10.37	412,000	9.00
Options exercisable at March 31,	282,217	9.40	342,000	8.02
Weighted average fair value of options granted during the period		---		---

Information pertaining to options outstanding at March 31, 2005 is as follows:

Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$7.9925-$7.9925	22,217	0.4 years	$ 7.99	22,217	$ 7.99
$7.1375-$22.980	281,700	7.4 years	10.55	260,000	9.52
	303,917			282,217

(7)

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The consolidated financial information of First National Community Bancorp, Inc. (the “company”) provides a comparison of the performance of the company for the periods ended March 31, 2005 and 2004. The financial information presented should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this report.

Background

First National Community Bancorp, Inc. (the company) is a Pennsylvania Corporation, incorporated in 1997 and is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended. The company became an active bank holding company on July 1, 1998 when it assumed ownership of First National Community Bank (the bank). On November 2, 2000, the Federal Reserve Bank of Philadelphia approved the company’s application to change its status to a financial holding company as a complement to the company’s strategic objective. The bank is a wholly-owned subsidiary of the company.

The company’s primary activity consists of owning and operating the bank, which provides the customary retail and commercial banking services to individuals and businesses. The bank provides practically all of the company’s earnings as a result of its banking services. As of March 31, 2005, the company had 16 full-service branch banking offices in its principal market area in Lackawanna and Luzerne Counties, Pennsylvania. At March 31, 2005, the company had 230 full-time equivalent employees.

The bank was established as a national banking association in 1910 as "The First National Bank of Dunmore." Based upon shareholder approval received at a Special Shareholders' Meeting held October 27, 1987, the bank changed its name to "First National Community Bank" effective March 1, 1988. The bank's operations are conducted from offices located in Lackawanna and Luzerne Counties, Pennsylvania:

Office	Date Opened
Main	October 1910
Scranton	September 1980
Dickson City	December 1984
Fashion Mall	July 1988
Wilkes-Barre	July 1993
Pittston Plaza	April 1995
Kingston	August 1996
Exeter	November 1998
Daleville	April 2000
Plains	June 2000
Back Mountain	October 2000
Clarks Green	October 2001
Hanover Township	January 2002
Nanticoke	April 2002
Hazleton	October 2003
Route 315	February 2004

(8)

The bank provides the usual commercial banking services to individuals and businesses, including a wide variety of loan, deposit instruments and investment options. As a result of the bank’s partnership with INVEST, our customers are able to access alternative products such as mutual funds, bonds, equities and annuities directly from the INVEST representatives.

During 1996, FNCB Realty Inc. was formed as a wholly owned subsidiary of the Bank to manage, operate and liquidate properties acquired through foreclosure.

Summary:

Net income for the three months ended March 31, 2005 amounted to $2,606,000, an increase of $275,000 or 12% compared to the same period of the previous year. This increase can be attributed to the $1,053,000 improvement in net interest income. Other income decreased $323,000 due to a reduced level of asset sales. Other expenses increased $345,000, or 8%, over the same period of last year due primarily to an increase in Salaries & Benefits of $151,000.

RESULTS OF OPERATIONS

Net Interest Income:

The Company’s primary source of revenue is net interest income which totaled $7,038,000 and $5,970,000 (before the provision for credit losses) during the first three months of 2005 and 2004, respectively. The year to date net interest margin (tax equivalent) increased sixteen basis points to 3.48% in 2005 compared to 2004 comprised of a twenty-eight basis point increase in the yield earned on earning assets and a seven basis point increase in the cost of interest-bearing liabilities. Excluding investment leveraging transactions, the 2005 margin would be 3.65% which is twenty-one basis points higher than the 3.44% recorded during the first three months of last year.

Earning assets increased $5 million to $872 million during the first three months of 2005 and total 95.5% of total assets, equivalent to the year-end level.

(9)

Yield/Cost Analysis

The following tables set forth certain information relating to the Company’s Statement of Financial Condition and reflect the weighted average yield on assets and weighted average costs of liabilities for the periods indicated. Such yields and costs are derived by dividing the annualized income or expense by the weighted average balance of assets or liabilities, respectively, for the periods shown:

	Three-months ended March 31,
				2005
Average					Yield/
Balance			Interest		Cost
		(Dollars in thousands)

Assets:

Interest-earning assets:

	Loans (taxable)		$604,316					$ 8,945						5.93%
	Loans (tax-free) (1)					30,121					344		6.92
	Investment securities (taxable)				174,579					1,789			4.10
	Investment securities (tax-free)(1)					54,017					665		7.46
	Time deposits with banks and
		federal funds sold					3,234					20	2.55
Total interest-earning assets					866,267				11,763				5.68%
Non-interest earning assets						45,155
		Total Assets		$911,422

Liabilities and Shareholders' Equity:

	Interest-bearing liabilities:
	Deposits		$608,181			$ 3,001		2.00%
	Borrowed funds				157,250		1,724	4.39
Total interest-bearing liabilities					765,431		4,725	2.49%
Other liabilities and shareholders' equity					145,991
		Total Liabilities and Shareholders' Equity		$911,422

Net interest income/rate spread $ 7,038 3.19%

Net yield on average interest-

earning assets 3.48%

Interest-earning assets as a

percentage of interest-

bearing liabilities 113%

(1)        Yields on tax-exempt loans and investment securities have been computed on a tax equivalent basis.

(10)

	Three Months ended March 31,
				2004
Average					Yield/
Balance			Interest			Cost
		(Dollars in thousands)

Assets:

Interest-earning assets:

	Loans (taxable)		$555,450					$ 7,356						5.46%
	Loans (tax-free) (1)					22,612					274		7.27
	Investment securities (taxable)				154,719					1,652			4.27
	Investment securities (tax-free) (1)					56,363					717		7.71
	Time deposits with banks and
		federal funds sold					6,336					20		1.25
Total interest-earning assets					775,480				10,019				5.40%
Non-interest earning assets						42,851
		Total Assets		$818,331

Liabilities and Shareholders' Equity:

Interest-bearing liabilities:

	Deposits		$526,306			$ 2,469		1.89%
	Borrowed funds				141,436		1,580	4.42
Total interest-bearing liabilities					667,742		4,049	2.42%
Other liabilities and shareholders' equity					150,589
		Total Liabilities and Shareholders' Equity		$818,331

Net interest income/rate spread $ 5,970 2.98%

Net yield on average interest-

earning assets 3.32%

Interest-earning assets as a

percentage of interest-

bearing liabilities 116%

(1)        Yields on tax-exempt loans and investment securities have been computed on a tax equivalent basis.

(11)

Rate Volume Analysis

The table below sets forth certain information regarding the changes in the components of net interest income for the periods indicated. For each category of interest earning asset and interest bearing liability, information is provided on changes attributed to: (1) changes in rate (change in rate multiplied by current volume); (2) changes in volume (change in volume multiplied by old rate); (3) the total. The net change attributable to the combined impact of volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

	Period Ended March 31,
				(Dollars in thousands)
									2005 vs 2004
			Increase (Decrease)
							Due to
		Rate								Volume							Total
Loans (taxable)					$704							$ 886						$1,590
Loans (tax-free)						(17)									86							69
Investment securities (taxable)						(75)							212							137
Investment securities (tax-free)						(22)								(30)							(52)
Time deposits with banks and federal funds sold								7								(6)							1
Total interest income					$597						$1,148								$1,745

Deposits	$147		$		384	$		531
Borrowed funds		(32)		177			145
Total interest expense	$115		$		561	$		676
Net change in net interest income	$482		$		587	$1,069

	Period Ended March 31,
					(Dollars in thousands)
								2004 vs 2003
				Increase (Decrease)
								Due to
			Rate						Volume						Total
Loans (taxable)		$(1,072)								$1,100							$			28
Loans (tax-free)							(8)					52								44
Investment securities (taxable)					(230)									2				(228)
Investment securities (tax-free)						(16)					19										3
Time deposits with banks and federal funds sold							(9)						(9)						(18)
Total interest income		$(1,335)								$1,164						$(171)

Deposits	$	(625)	$		21	$(604)
Borrowed funds		(196)		242					46
Total interest expense	$	(821)	$	263			$(558)
Net change in net interest income	$	(514)	$	901				$ 387

(12)

Other Income and Expenses:

Other income in the first three months of 2005 decreased $323,000 in comparison to the same period of 2004. Service charges and fees increased $178,000, or 25%, over the prior period. Income from service charges increased $107,000, or 27%, in comparison to the same period of last year while other fee income increased $71,000, or 22%. A larger deposit base and new fee based services contributed to the increase. Net gains from the sale of assets decreased $501,000 from last year.

Other expenses increased $345,000 or 8% for the period ended March 31, 2005 compared to the same period of the previous year. Salaries and Benefits costs added $151,000, or 7% in comparison to the first three months of 2004. Occupancy and equipment costs rose 8%, advertising costs rose 10%, data processing costs rose 14%, bank shares tax expense rose 17% and other operating expenses increased $60,000, or 8%.

Other Comprehensive Income:

The Company’s other comprehensive income includes unrealized holding gains (losses) on securities which it has classified as available-for-sale in accordance with FASB 115, “Accounting for Certain Investments in Debt and Equity Securities.”

Provision for Income Taxes:

The provision for income taxes is calculated based on annualized taxable income. The provision for income taxes differs from the amount of income tax determined applying the applicable U.S. statutory federal income tax rate to pre-tax income from continuing operations as a result of the following differences:

		2005	2004
Provision at statutory rate	$1,128			$ 997

Add (Deduct):

Tax effect of non-taxable interest income		(361)					(356)
Non-deductible interest expense				36					27
Tax benefit from stock options exercised			(89)							0
Deferred tax benefits			(15)					(79)
Other items, net					6					6
Income tax expense	$   705					$  595

(13)

Securities:

Carrying amounts and approximate fair value of investment securities are summarized as follows:

March 31, 2005 December 31, 2004

Carrying Fair Carrying Fair

Amount Value Amount Value

(Dollars in thousands)

U.S. Treasury securities and

obligations of U.S.

government agencies $26,405 $26,405 $ 31,770 $ 31,770

Obligations of state &

	political subdivisions			58,213			58,231			55,955			56,011
Mortgage-backed securities			116,033			116,033			117,050			117,050
Corporate debt securities				18,923			18,923			18,983			18,983
Equity securities and mutual funds				1,000			1,000			10			10
Total		$220,574			$220,592			$223,768			$223,824

The following summarizes the amortized cost, approximate fair value, gross unrealized holding gains, and gross unrealized holding losses at March 31, 2005 of the Company’s Investment Securities classified as available-for-sale:

March 31, 2005

	Gross	Gross
	Unrealized	Unrealized
Amortized	Holding	Holding	Fair
Cost	Gains	Losses	Value

(Dollars in thousands)

U.S. Treasury securities and

obligations of U.S.

government agencies: $26,884 $ 0 $ 479 $26,405

Obligations of state and

	political subdivisions:			54,559			2,359						210				56,708
Mortgage-backed securities:			118,802						66			2,835				116,033
Corporate debt securities:				19,134				98					309				18,923
Equity securities and mutual funds:					1,010					0				10				1,000
Total		$220,389				$2,523					$3,843				$219,069

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The following summarizes the amortized cost, approximate fair value, gross unrealized holding gains, and gross unrealized holding losses at March 31, 2005 of the Company’s Investment Securities classified as held-to-maturity:

March 31, 2005

	Gross	Gross
	Unrealized	Unrealized
Amortized	Holding	Holding	Fair
Cost	Gains	Losses	Value

(Dollars in thousands)

Obligations of state and

	political subdivisions:	$ 1,504	$ 19	$	0	$ 1,523
Total		$ 1,504	$ 19	$	0	$ 1,523

The following table shows the amortized cost and approximate fair value of the company’s debt securities at March 31, 2005 using contractual maturities. Expected maturities will differ from contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Available- for sale						Held-to-maturity
Amortized				Fair	Amortized					Fair
	Cost		Value				Cost		Value
	(Dollars in Thousands)					(Dollars in Thousands)

Amounts maturing in:

One year or less $ 0 $ 0 $ 0 $ 0

After one year through

five years 7,462 7,299 0 0

After five years through

	ten years			23,566			23,414			0				0
After ten years				69,549			71,323		1,504				1,523
Mortgage-backed securities			118,802			116,033					0			0
Total		$219,379			$218,069			$1,504				$1,523

Gross proceeds from the sale of investment securities for the periods ended March 31, 2005 and 2004 were $2,625,593 and $10,397,201 respectively with the gross realized gains being $57,838 and $322,653 respectively, and gross realized losses being $5,413 and $2,567, respectively.

At March 31, 2005 and 2004, investment securities with a carrying amount of $142,298,403 and $61,565,140 respectively, were pledged as collateral to secure public deposits and for other purposes.

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Loans:

The following table sets forth detailed information concerning the composition of the company’s loan portfolio as of the dates specified:

     March 31, 2005                       December 31, 2004

Amount		%	Amount	%
	(Dollars in thousands)

Real estate loans, secured by residential

properties $ 98,679 15.5 $ 93,888 14.8

Real estate loans, secured by nonfarm,

	nonresidential properties	312,786	49.0	308,904	48.8
Commercial & industrial loans		128,381	20.1	130,937	20.7

Loans to individuals for household,

	family and other personal expenditures		68,371			10.7				69,027			10.9
Loans to state and political subdivisions			30,157				4.7			29,774				4.7
All other loans, including overdrafts			126				0.0			362				0.1
Total Gross Loans		$ 638,500			100.0				$ 632,892			100.0
Less: Allow. for Credit Losses				(7,311)							(7,100)
Net Loans		$ 631,189						$ 625,792

The following table sets forth certain information with respect to the company’s allowance for credit losses and charge-offs:

Three months					Year to date
		Ended					Ended
	March 31,					Dec. 31,
			2005					2004
				(Dollars in thousands)

Balance, January 1	$ 7,100				$ 6,578
Recoveries Credited				73				250
Losses Charged		(102)				(1,128)
Provision for Credit Losses			240				1,400
Balance at End of Period	$ 7,311				$ 7,100

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The following table presents information about the company’s non-performing assets for the periods indicated:

March 31, 2005		Dec 31, 2004
	(Dollars in thousands)

Nonaccrual loans

Impaired	$		0	$		0
Other		292			303

Loans past due 90 days or more

	and still accruing		640			539
Total non-performing loans			932			842
Other Real Estate Owned				0			0
Total non-performing assets		$932			$842

March 31, 2005 Dec 31, 2004

Non-performing loans as a

percentage of gross loans 0.1% 0.1%

Non-performing assets as a

percentage of total assets 0.1% 0.1%

Non-performing assets are comprised of non-accrual loans and loans past due 90 days or more and still accruing, and other real estate owned. Loans are placed in nonaccrual status when management believes that the collection of interest or principal is doubtful, or generally when a default of interest or principal has existed for 90 days or more, unless such loan is fully secured and in the process of collection. When interest accrual is discontinued, interest credited to income in the current year is reversed and interest accrued in prior years is charged against the allowance for credit losses. Any payments received are applied, first to the outstanding loan amounts, then to the recovery of any charged-off loan amounts. Any excess is treated as a recovery of lost interest. Nonaccrual loans are comprised of five credits which are adequately secured by mortgages or UCC’s on the property. Any loss recognized on these loans is expected to be minimal.

Provision for Credit Losses:

The provision for credit losses varies from year to year based on management's evaluation of the adequacy of the allowance for credit losses in relation to the risks inherent in the loan portfolio. In its evaluation, management considers credit quality, changes in loan volume, composition of the loan portfolio, past experience, delinquency trends, and the economic condition. Consideration is also given to examinations performed by regulatory authorities and the Company’s independent accountants. A monthly provision of $80,000 was credited to the allowance during the first three months of 2005. A monthly provision of $75,000 was credited to the allowance during the first three months of 2004. The ratio of the loan loss reserve to total loans at March 31, 2005 and 2004 was 1.15% and 1.21%, respectively.

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Asset/Liability Management, Interest Rate Sensitivity and Inflation

The major objectives of the company’s asset and liability management are to (1) manage exposure to changes in the interest rate environment to achieve a neutral interest sensitivity position within reasonable ranges, (2) ensure adequate liquidity and funding, (3) maintain a strong capital base, and (4) maximize net interest income opportunities. First National Community Bank manages these objectives through its Senior Management and Asset and Liability Management Committees. Members of the committees meet regularly to develop balance sheet strategies affecting the future level of net interest income, liquidity and capital. Items that are considered in asset and liability management include balance sheet forecasts, the economic environment, the anticipated direction of interest rates and the Bank’s earnings sensitivity to changes in these rates.

The company analyzes its interest sensitivity position to manage the risk associated with interest rate movements through the use of gap analysis and simulation modeling. Because of the limitations of the gap reports, the bank uses simulation modeling to project future net interest income streams incorporating the current “gap” position, the forecasted balance sheet mix, and the anticipated spread relationships between market rates and bank products under a variety of interest rate scenarios.

Economic conditions affect financial institutions, as they do other businesses, in a number of ways. Rising inflation affects all businesses through increased operating costs but affects banks primarily through the manner in which they manage their interest sensitive assets and liabilities in a rising rate environment. Economic recession can also have a material effect on financial institutions as the assets and liabilities affected by a decrease in interest rates must be managed in a way that will maximize the largest component of a bank’s income, that being net interest income. Recessionary periods may also tend to decrease borrowing needs and increase the uncertainty inherent in the borrowers’ ability to pay previously advanced loans. Additionally, reinvestment of investment portfolio maturities can pose a problem as attractive rates are not as available. Management closely monitors the interest rate risk of the balance sheet and the credit risk inherent in the loan portfolio in order to minimize the effects of fluctuations caused by changes in general economic conditions.

Liquidity

The term liquidity refers to the ability of the company to generate sufficient amounts of cash to meet its cash-flow needs. Liquidity is required to fulfill the borrowing needs of the bank's credit customers and the withdrawal and maturity requirements of its deposit customers, as well as to meet other financial commitments.

The short-term liquidity position of the company is strong as evidenced by $16,930,000 in cash and cash equivalents and $1,980,000 in interest-bearing balances with banks maturing within one year. A secondary source of liquidity is provided by the investment portfolio with $24 million or 10% of the portfolio maturing expected to provide cash flow within one year through maturities, projected calls or principal reductions.

The company has relied primarily on its retail deposits as a source of funds. The bank is primarily a seller of Federal funds to invest excess cash; however, the bank can also borrow in the Federal Funds market to meet temporary liquidity needs. Other sources of potential liquidity include repurchase agreements, Federal Home Loan Bank advances and the Federal Reserve Discount Window.

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Capital Management

A strong capital base is essential to the continued growth and profitability of the company and in that regard the maintenance of appropriate levels of capital is a management priority. The company’s principal capital planning goals are to provide an adequate return to shareholders while retaining a sufficient base from which to provide for future growth, while at the same time complying with all regulatory standards. As more fully described in Note 13 to the year end audited financial statements, regulatory authorities have prescribed specified minimum capital ratios as guidelines for determining capital adequacy to help insure the safety and soundness of financial institutions.

Total stockholders' equity increased $771,000 or 1% during the first three months of 2005 comprised of an increase in retained earnings in the amount of $1,621,000 after paying cash dividends, $1,052,000 from stock issued through Dividend Reinvestment and Stock Option Plans offset by a $1,902,000 decrease in other comprehensive income. During the same period of 2004, total stockholders' equity increased $3,195,000, or 5%, comprised of an increase in retained earnings of $1,475,000, after paying cash dividends and $793,000 from stock issued through Dividend Reinvestment and a $927,000 increase in other comprehensive income. The total dividend payout during the first three months of 2005 and 2004 represents $.09 per share and $.08 per share, respectively. Excluding the impact due to securities valuation, increases in core equity amounted to $2,673,000 and $2,268,000, respectively.

The Board of Governors of the Federal Reserve System and other various regulatory agencies have specified guidelines for purposes of evaluating a bank's capital adequacy. Currently, banks must maintain a leverage ratio of core capital to total assets at a prescribed level, namely 3%. In addition, bank regulators have issued risk-based capital guidelines. Under such guidelines, minimum ratios of core capital and total qualifying capital as a percentage of risk-weighted assets and certain off-balance sheet items of 4% and 8% are required. As of March 31, 2005, First National Community Bank met all capital requirements with a leverage ratio of 8.42% and core capital and total risk-based capital ratios of 10.44% and 11.43%, respectively.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in the Company’s exposure to market risk during the first three months of 2005. For discussion of the Company’s exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosure about Market Risk, contained in the Company’s Annual Report incorporated by reference in Form 10-K for the year ended December 31, 2004.

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ITEM 4. – CONTROLS AND PROCEDURES

The company carried out an evaluation, under the supervision and with the participation of the company’s management, including the company’s Chief Executive Officer along with the company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a – 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the company’s Chief Executive Officer along with the company’s Chief Financial Officer concluded that the company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the company (including its consolidated subsidiaries) required to be included in the company’s periodic SEC filings.

The management of First National Community Bancorp, Inc. (the “Company”) is responsible for (1) the preparation of the accompanying financial statements; (2) establishing and maintaining internal controls over financial reporting; and (3) the assessment of the effectiveness of internal control over financial reporting. The Securities and Exchange Commission defines effective internal control over financial reporting as a process designed under the supervision of the company’s principal executive officer and principal financial officer, and implemented in conjunction with management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

The company’s internal control over financial reporting is supported by written policies and procedures. All internal control systems, no matter how well designed, have inherent limitations and provide only reasonable assurance that the objectives of the control system are met. Therefore, no evaluation of controls can provide absolute assurance that all control issues and misstatements due to error or fraud, if any, within the company have been detected. Additionally, any system of controls is subject to the risk that controls may become inadequate due to changes in conditions or that compliance with policies or procedures may deteriorate.

As of March 31, 2005, management of the company conducted an assessment of the effectiveness of the company’s internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that the company’s internal control over financial reporting was effective as of March 31, 2005.

There were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are, reasonably likely to materially affect, the company’s internal controls over financial reporting.

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Part II Other Information

Item 1 - Legal Proceeding

The Bank is not involved in any material pending legal proceedings,

other than routine litigation incidental to the business.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3 - Defaults upon Senior Securities

None

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

None

Item 5 - Other Information

None

Item 6 - Exhibits

Exhibit 31.1	Certification of Principal Executive Officer
	Pursuant to Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2	Certification of Principal Financial Officer
	Pursuant to Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1	Certification of Principal Executive Officer
	Pursuant to Section 906 of the Sarbanes-Oxley Act
Exhibit 32.2	Certification of Principal Financial Officer
	Pursuant to Section 906 of the Sarbanes-Oxley Act

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant: FIRST NATIONAL COMMUNITY BANCORP, INC

Date:	May 9, 2005	/s/ J. David Lombardi
		J. David Lombardi, President/
		Chief Executive Officer

Date:	May 9, 2005	/s/ William Lance
		William Lance, Treasurer/
		Principal Financial Officer

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