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

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

[ X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003

[ ] 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 Incorporation or Organization)

(I.R.S. Employer Identification No.)

102 E. Drinker St., Dunmore, PA
(Address of Principal Executive Offices)

18512
(Zip Code)

Registrant's telephone number, including area code (570) 346-7667

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.25 par value
(Title of Class)

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

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

The aggregate market value of the voting and non-voting common stock of the registrant, held by non-affiliates was approximately $146,456,675 at June 30, 2003.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 5,352,835 shares of common stock as of March 10, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held May 19, 2004 are incorporated by reference into Part III of this report. Portions of the Registrant’s Annual Report to security holders for the Fiscal Year Ended December 31, 2003 are incorporated by reference into Part IV of this report.

FIRST NATIONAL COMMUNITY BANCORP, INC.

Part I.

Item 1 – Business

CORPORATE PROFILE

The Business of First National Community Bancorp, Inc.

THE COMPANY

First National Community Bancorp, Inc. (the “company”) is a Pennsylvania business, 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 objectives. The bank is a wholly-owned subsidiary of the company.

The company’s primary activity consists of owning and operating the bank, which provides 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.

THE BANK

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

The bank provides many commercial banking services to individuals and businesses, including a wide variety of deposit instruments including Image Checking and E-Statement. Consumer loans include both secured and unsecured installment loans, fixed and variable rate mortgages, home equity term loans and lines of credit and “Instant Money” overdraft protection loans. Additionally, the bank is also in the business of underwriting indirect auto loans which are originated through various auto dealers in northeastern Pennsylvania and dealer floor plan loans. MasterCard and VISA personal credit cards are available through the bank, as well as the FNCB Check Card which allows customers to access their checking account at any retail location that accepts VISA and serves the dual purpose of an ATM card. In the commercial lending field, the bank offers demand and term loans, either secured or unsecured, letters of credit, working capital loans, accounts receivable, inventory or equipment financing loans, and commercial mortgages. In addition, the bank offers MasterCard and VISA processing services to its commercial customers, as well as our Cash Management service which can be accessed with Auto Cash Manager which is personal computer based and FNCBusiness Online, which is Internet based. Both are menu driven products that allow our business customers to have direct access to their account information and the ability to perform internal and external transfers, 24 hours a day, 7 days a week, from their place of business. As a result of the bank’s partnership with INVEST, our customers are able to access alternative products such as mutual funds, annuities, stock and bond purchases, etc. directly from our INVEST representatives. The bank also offers customers the convenience of 24-hour banking, seven days a week, through FNCB Online via the Internet and its ATM network. Automated teller machines are available at the following locations:


Community Offices
Dunmore		Daleville
Scranton		Plains
Dickson City		Back Mountain
Fashion Mall		Clarks Green
Wilkes-Barre		Hanover Township
Pittston		Nanticoke
Kingston		Hazleton
Exeter		Route 315

Remote Locations
Petro Truck Stop, 98 Grove St., Dupont
Bill's Shursave Supermarket, Rt. 502, Daleville
Convenient Food Mart, 3021 N. Main Ave., Scranton
Kwik Joe's, 620 N. Blakely St., Dunmore, PA

Additionally, to further enhance 24-hour banking services, Telephone Banking (Account Link), Loan by Phone, and Mortgage Link are available to customers. These services provide consumers the ability to access account information, perform related account transfers, and apply for a loan through the use of a touch tone telephone.

As of December 31, 2003, industry concentrations exist within the following six industries. Loans and lines of credit to each of these industries were as follows:


Shopping Centers/Complexes		$39,633,000
Hotels		$27,488,000
Land Subdivision		$26,581,000
Automobile Dealers		$25,058,000
Restaurants		$24,820,000
Office Complexes/Units		$22,463,000

First lien mortgages on the real estate and a diverse group of borrowers, including carefully selected automobile dealers, provide security against undue risks in the portfolio.

COMPETITION

The bank is one of two financial institutions with principal offices in Dunmore. Primary competition in the Lackawanna County market comes from numerous commercial banks and savings and loan associations operating in the area. Our Luzerne County offices share many of the same competitors we face in Lackawanna County as well as several banks and savings and loans that are not in our Lackawanna County market. Deposit deregulation has intensified the competition for deposits among banks in recent years. Additional competition is derived from credit unions, finance companies, brokerage firms, insurance companies and retailers.

SUPERVISION AND REGULATION

The company is subject to certain annual reporting requirements regarding its business operations. As a registered financial holding company under the Bank Holding Company Act of 1956, as amended, the company is subject to the supervision and examination by the Federal Reserve Board.

The bank is subject to regulation and supervision by the Office of the Comptroller of the Currency, which includes regular examinations of the bank’s records and operations. As a member of the Federal Deposit Insurance Corporation (FDIC), the bank’s depositors’ accounts are insured up to $100,000 per depositor. To obtain this protection for its depositors, the bank pays an assessment and is subject to the regulations of the FDIC. The bank is also a member of the Federal Reserve System and as such is subject to the rules promulgated by the Federal Reserve Board.

Financial Services Modernization Legislation. — In November 1999, the Gramm-Leach-Bliley Act of 1999, or the GLB, was enacted. The GLB repeals provisions of the Glass-Steagall Act which restricted the affiliation of Federal Reserve member banks with firms “engaged principally” in specified securities activities, and which restricted officer, director or employee interlocks between a member bank and any company or person “primarily engaged” in specified securities activities.

In addition, the GLB also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers by revising and expanding the Bank Holding Company Act framework to permit a holding company to engage in a full range of financial activities through a new entity known as a “financial holding company.” “Financial activities” is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

The GLB also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a financial holding company. Financial activities include all activities permitted under new sections of the Bank Holding Company Act or permitted by regulation.

To the extent that the GLB permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. The GLB is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis and which unitary savings and loan holding companies already possess. Nevertheless, the GLB may have the result of increasing the amount of competition that First National Community Bancorp, Inc. faces from larger institutions and other types of companies offering financial products, many of which may have substantially more financial resources than First National Community Bancorp, Inc. has.

USA Patriot Act of 2001 — In October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington D.C. which occurred on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

IMLAFATA — As part of the USA Patriot Act, Congress adopted the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (IMLAFATA). IMLAFATA amended the Bank Secrecy Act and adopted certain additional measures that increase the obligation of financial institutions, including First National Community Bancorp, Inc., to identify their customers, watch for and report upon suspicious transactions, respond to requests for information by federal banking regulatory authorities and law enforcement agencies, and share information with other financial institutions. The Secretary of the Treasury has adopted several regulations to implement these provisions. First National Community Bancorp, Inc. is also barred from dealing with foreign “shell” banks. In addition, IMLAFATA expands the circumstances under which funds in a bank account may be forfeited. IMLAFATA also amended the BHC Act and the Bank Merger Act to require the federal banking regulatory authorities to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing an application to expand operations. First National Community Bancorp, Inc. has in place a Bank Secrecy Act compliance program.

Sarbanes-Oxley Act of 2002 — On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “Act”). The stated goals of the Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

The Act is the most far-reaching U.S. securities legislation enacted in decades. The Act generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934. Due to the SEC’s extensive role in implementing rules relating to many of the Act’s new requirements, the final scope of these requirements remains to be determined.

The Act includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC. The Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

The Act addresses, among other matters:

audit committees for all reporting companies;
certification of financial statements by the chief executive officer and the chief financial officer;
the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement;
a prohibition on insider trading during pension plan black out periods;
disclosure of off-balance sheet transactions;
a prohibition on personal loans to directors and officers; expedited filing requirements for Form 4‘s;
disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;
“real time” filing of periodic reports;
the formation of a public accounting oversight board;
auditor independence; and
various increased criminal penalties for violations of securities laws.

The Act contains provisions that were effective upon enactment on July 30, 2002 and provisions that will be phased in for up to one year after enactment. The SEC was delegated the task of enacting rules to implement various provisions with respect to, among other matters, disclosure in periodic filings pursuant to the Exchange Act.

Regulation W — Transactions between a bank and its “affiliates” are quantitatively and qualitatively restricted under the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember banks in the same manner and to the same extent as if they were members of the Federal Reserve System. The Federal Reserve Board has also recently issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with respect to affiliate transactions. Regulation W incorporates the exemption from the affiliate transaction rules but expands the exemption to cover the purchase of any type of loan or extension of credit from an affiliate. Affiliates of a bank include, among other entities, the bank’s holding company and companies that are under common control with the bank. First National Community Bancorp, Inc. is considered to be an affiliate of First National Community Bank. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:

to an amount equal to 10% of the bank's capital and surplus, in the case of covered transactions with any one affiliate; and
to an amount equal to 20% of the bank's capital and surplus, in the case of covered transactions with all affiliates.

In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:

a loan or extension of credit to an affiliate;
a purchase of, or an investment in, securities issued by an affiliate;
a purchase of assets from an affiliate, with some exceptions;
the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and
the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

In addition, under Regulation W:

a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and
with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by collateral with a market value ranging from 100% to 130%, depending on the type of collateral, of the amount of the loan or extension of credit.

Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat these subsidiaries as affiliates.

Concurrently with the adoption of Regulation W, the Federal Reserve Board has proposed a regulation which would further limit the amount of loans that could be purchased by a bank from an affiliate to not more than 100% of the bank’s capital and surplus.

EMPLOYEES

As of December 31, 2003 the bank employed 255 persons, including 55 part-time employees.

AVAILABLE INFORMATION

The company files reports, proxy and information statements and other information electronically with the Securities and Exchange Commission. You may read and copy any materials that the company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contain reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website site address is http://www.sec.gov. The company’s web site address is http://www.fncb.com. The company makes available free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Further, we will provide electronic or paper copies of the company’s filings free of charge upon request.

Item 2 - Properties

	Location	Ownership	Type of Use
1	102 East Drinker Street Dunmore, PA	Own	Main Office
2	419-421 Spruce Street Scranton, PA	Own	Scranton Branch
3	934 Main Avenue Dickson City, PA	Own	Dickson City Branch
4	277 Scranton/Carbondale Highway Scranton, PA	Lease	Fashion Mall Branch
5	23 West Market Street Wilkes-Barre, PA	Lease	Wilkes-Barre Branch
6	1700 N. Township Blvd. Pittston, PA	Lease	Pittston Plaza Branch
7	754 Wyoming Avenue Kingston, PA	Lease	Kingston Branch
8	1625 Wyoming Avenue Exeter, PA	Lease	Exeter Branch
9	Route 502 & 435 Daleville, PA	Lease	Daleville Branch
10	27 North River Road Plains, PA	Lease	Plains Branch
11	169 North Memorial Highway Shavertown, PA	Lease	Back Mountain Branch
12	269 E. Grove St. Clarks Green, PA	Own	Clarks Green Branch
13	734 Sans Souci Parkway Hanover Township, PA	Lease	Hanover Township Branch
14	194 South Market Street Nanticoke, PA	Own	Nanticoke Branch
15	200 S. Blakely Street Dunmore, PA	Lease	Administrative Center
16	330-352 West Broad Street Hazleton, PA	Own	Hazleton Branch
17	40 Highway 315 Pittston, PA	Own	Route 315 Branch
18	107-109 S. Blakely Street Dunmore, PA	Own	Parking Lot
19	114-116 S. Blakely Street Dunmore, PA	Own	Parking Lot
20	1708 Tripp Avenue Dunmore, PA	Own	Parking Lot

Item 3 — Legal Proceedings

Neither the company nor its subsidiaries are involved in any material pending legal proceedings, other than routine litigation incidental to the business nor does the company know of any proceedings contemplated by governmental authorities.

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

Not Applicable

Part II.

Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

INVESTOR INFORMATION

MARKET PRICES OF STOCK AND DIVIDENDS PAID

The company’s common stock is not actively traded. The principal market area for the company’s stock is northeastern Pennsylvania. First National Community Bancorp, Inc. is listed in the Over-The-Counter (OTC) Bulletin Board Stocks under the symbol “FNCB”. On March 10, 2004, there were approximately 1200 holders of record of the company’s common stock. Quarterly market highs and lows and dividends paid for each of the past two years are presented below. These prices represent actual transactions. The company expects that comparable cash dividends will be paid in the future.

	MARKET PRICE
	HIGH			LOW		DIVIDENDS PAID PER SHARE

QUARTER			20	03
First	$	27.80		$	19.30	$	.14
Second		32.00			27.00		.14
Third		28.00			25.50		.16
Fourth		29.50			25.50		.18

							$0.62
QUARTER			20	02
First	$	16.50		$	15.20	$	.125
Second		17.50			15.40		.125
Third		17.13			15.55		.135
Fourth		19.50			16.63		.165

							$0.550

* Share and per share information includes the retroactive effect of the 100% stock dividend paid January 31, 2003.

MARKET MAKERS


F.J. Morrissey 1700 Market Street Suite 1420 Philadelphia, PA 19103 (215) 563-8500			Ryan, Beck and Co. 220 South Orange Avenue Livingston, NJ 07039 (973) 597-6000

Monroe Securities 47 State Street Rochester, NY 14614 (716) 546-5560			RBC Dain Rauscher 1211 Avenue of the Americas 32nd Floor New York, NY 10036 (866) 835-1422

TRANSFER AGENT

Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-9982

Shareholder questions regarding stock ownership should be directed to the Investor Relations Department at Registrar and Transfer Company at 1-800-368-5948.

DIVIDEND CALENDAR

Dividends on the company’s common stock, if approved by the Board of Directors, are customarily paid on or about March 15, June 15, September 15 and December 15. Record dates for dividends are customarily on or about March 1, June 1, September 1, and December 1.

SHAREHOLDERS’ INQUIRIES

A copy of the company’s Annual Report for the year ended December 31, 2003 on Form 10-K, as required to be filed with the Securities and Exchange Commission, may be obtained free of charge by writing to:

Treasurer
First National Community Bancorp, Inc.
102 East Drinker Street
Dunmore, PA 18512

INTERNET ADDRESS
www.fncb.com

E-MAIL ADDRESS
fncb@fncb.com

Item 6 – Selected Financial Data

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except per share data)

	For the Years Ended December 31,

	2003		2002		2001		2000		1999

Total assets	$	816,303	$	735,327	$	676,307	$	583,852	$	540,363
Interest-bearing balances with financial institutions		2,673		3,368		3,161		3,359		2,874
Securities		211,353		205,492		194,109		152,316		146,528
Net loans		552,197		487,976		439,884		393,125		359,244
Total deposits		602,069		540,475		517,334		460,418		411,126
Stockholders' equity		68,738		62,843		51,786		46,684		37,055
Net interest income before provision for credit losses		23,295		22,060		19,233		19,021		17,643
Provision for credit losses		1,200		1,400		1,220		970		1,020
Other income		4,184		3,676		3,151		1,382		1,577
Other expenses		15,483		14,248		12,683		11,752		10,795
Income before income taxes		10,796		10,088		8,481		7,681		7,405
Provision for income taxes		2,159		2,063		1,701		1,661		1,756
Net income		8,637		8,025		6,780		6,020		5,649
Cash dividends paid	$	3,267	$	2,832	$	2,455	$	2,202	$	1,922
Per share data:
Net income - basic (1)	$	1.64	$	1.56	$	1.34	$	1.20	$	1.17
Net income - diluted (1)	$	1.57	$	1.50	$	1.31	$	1.20	$	1.17
Cash dividends (2)	$	0.62	$	0.55	$	0.49	$	0.44	$	0.40
Book value (1)(3)	$	13.06	$	12.21	$	10.23	$	9.33	$	7.70
Weighted average number of shares outstanding-basic (1)		5,264,489		5,148,126		5,061,996		5,004,490		4,814,556
Weighted average number of shares outstanding-diluted (1)		5,493,595		5,353,427		5,189,441		5,037,692		4,814,556

(1)

Earnings per share and book value per share are calculated based on the weighted average number of shares outstanding during each year, after giving retroactive effect to the 100% stock dividend paid January 31, 2003. Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed by dividing net income available to common shareholders, adjusted for any changes in income that would result from the assumed conversion of all potential dilutive common shares, by the sum of the weighted average number of common shares outstanding and the effect of all dilutive potential common shares outstanding for the period.

(2)

Cash dividends per share have been restated to reflect to retroactive effect of the 100% stock dividend paid January 31, 2003.

(3)

Reflects the effect of SFAS No. 115 in the amount of $2,635,000 in 2003, $4,838,000 in 2002, $536,000 in 2001, $880,000 in 2000 and $(4,252,000) in 1999.

Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,”and similar expressions are intended to identify such forward-looking statements.

The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation (a) the effects of future economic conditions on the Company and its customers; (b) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; (c) governmental monetary and fiscal policies, as well as legislative and regulatory changes; (d) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters; (e) the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks; (f) the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company’s market area and elsewhere, including institutions operating locally, regionally, nationally, and internationally, together with such competitors offering banking products and services by mail, telephone, computer, and the Internet; (g) technological changes; (h) acquisitions and integration of acquired businesses; (i) the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities; and (j) acts of war or terrorism. All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements.

The following financial review of First National Community Bancorp, Inc. is presented on a consolidated basis and is intended to provide a comparison of the financial performance of the company, including its wholly-owned subsidiary, First National Community Bank for the years ended December 31, 2003, 2002 and 2001. The information presented below should be read in conjunction with the company’s consolidated financial statements and accompanying notes appearing elsewhere in this report.

SUMMARY

Net Income was $8,637,000 in 2003 which was $612,000, or 8%, higher than the $8,025,000 earned in 2002. The $8,025,000 earned in 2002 was $1,245,000, or 18%, higher than the $6,780,000 earned in 2001. Basic earnings per share were $1.64, $1.56 and $1.34 in 2003, 2002 and 2001. The weighted average number of shares outstanding in 2003 was 5,264,489 while the weighted average number of shares in 2002 and 2001 were 5,148,126 and 5,061,996.

The increase reported in 2003 over the 2002 earnings was due primarily to the $1.2 million improvement in net interest income before providing for credit losses. Total other income also improved $508,000 in comparison to the prior year as service charges and fees improved $359,000, or 14%, and gains from the sale of loans, securities and other real estate increased $149,000. The provision for credit losses was $200,000 lower than the 2002 level, also contributing to the improved earnings. These increases were offset partially by a $1.2 million increase in total expenses and $96,000 of additional book tax expense.

The earnings improvement recognized in 2002 as compared to 2001 includes a $2.8 million, or 15%, increase in net interest income before the provision for credit losses, a $359,000, or 17%, increase in fee income and a $166,000 increase in net gains from the sale of assets. Growth also contributed to a $1.6 million, or 12%, increase in operating expenses, a $180,000 increase in the credit loss provision and a $362,000 increase in federal income tax expense.

Return on assets for the years ended December 31, 2003, 2002 and 2001 was 1.11%, 1.12% and 1.05%. Return on equity was 13.15% in 2003, 13.96% in 2002 and 13.50% in 2001.

NET INTEREST INCOME

Net interest income, the difference between interest income and fees on earning assets and interest expense on deposits and borrowed funds, is the largest component of the company’s operating income and as such is the primary determinant of profitability. Changes in net interest income occur due to fluctuations in the balances and/or mixes of interest-earning assets and interest-bearing liabilities, and changes in their corresponding interest yields and costs. Before providing for future credit losses, net interest income increased $1,235,000 in 2003 due to growth in loans and securities combined with the positive effect of repricing on interest sensitive assets and liabilities. Changes in non-performing assets, together with interest lost and recovered on those assets, also impact comparisons of net interest income. In the following schedules, net interest income is analyzed on a tax-equivalent basis, thereby increasing interest income on certain tax-exempt loans and investments by the amount of federal income tax savings realized. In this manner, the true economic impact on earnings from various assets and liabilities can be more accurately compared.

During 2003, tax-equivalent net interest income increased $1,250,000, or 5%, over the 2002 level. Significant loan growth had a major impact on the improved earnings. Effective asset-liability management techniques also contributed to the earnings improvement as sound pricing policies limited compression in the net interest margin during a year which saw interest rates reach decade old lows.

Average loans increased $49 million, or 11%, over the 2002 level, but earnings on the portfolio decreased $786,000 as rates earned on variable rate assets declined and new growth was added at historically low levels. Commercial loan balances increased by $41 million, or 12%, but earnings on these assets decreased $82,000 due to repricing and new growth rates. Average consumer loans increased $7.5 million in 2003 due primarily to growth in home equity loans and an increase in the indirect auto portfolio. Falling interest rates also had a significant impact on consumer loan income as earnings from the portfolio was $704,000 lower than the year before. Overall, the yield earned on total loans declined eighty-one basis points in 2003 which resulted in $786,000 less earnings on $49 million more loans.

Total securities were $10 million higher than the 2002 average balance. Falling interest rates also had a negative impact on the securities portfolio as the low rates of 2003 lead to record mortgage-refinancing activity, resulting in an acceleration of principal prepayments on securities. As these monies are reinvested at current rates, earnings compression occurs. During 2003, the yield earned on average securities was eighty-five basis points lower than in 2002, contributing to the $1.2 million reduction in interest income. Money market assets were also impacted by falling rates combined with a planned reduction in this lowest yielding asset. A $4 million decrease in average money market assets and a fifty-seven basis point drop in the rate earned on these assets lead to a $140,000 decrease in interest income.

Average interest-bearing deposits increased $25 million in 2003 due primarily to growth in lower costing demand and savings balances. Interest rate reductions had a positive impact on the company’s earnings in this area as the eighty-five basis point decrease in the cost of deposits resulted in a $3.5 million reduction in interest expense. Borrowed funds and other interest-bearing liabilities were $15 million higher on average than last year, but a fifty basis point reduction in the cost of these funds limited the increased expense to $151,000.

As a result of the growth of the balance sheet combined with a reduction in the yields earned and paid, the company’s net interest margin decreased nine basis points from the 3.53% reported in 2002 to 3.44%. Another factor affecting the company’s net interest margin are investment leveraging transactions which match assets with liabilities at various points in the interest rate cycles. These transactions provided over $700,000 of net interest income in 2003, but the interest spread of seventy-nine basis points had a negative impact on the company’s net interest margin. Exclusive of these transactions, the 2003 margin would have been 3.82% which is twelve basis points lower than the comparable 3.94% recorded in 2002.

In 2002, tax-equivalent net interest income improved $2,977,000, or 14%, over the prior period. Growth in loans and securities contributed to increased earnings while deposit liabilities repriced downward.

Average loans increased $43 million, or 10%, in 2002, but a decrease in the average yield earned resulted in a $1.7 million reduction in interest income. Commercial loan balances increased $52 million on average, but earnings decreased $362,000 as the continued low rate environment reduced the yield earned. Residential mortgage loan balances decreased $10 million on average as most new loans were sold upon origination. Earnings on mortgage loans were $828,000 lower than in 2001 due to the reduced balances and lower interest rates. Other consumer loan balances increased $1 million in 2002, but earnings decreased $461,000 due to the lower yields earned.

Average securities increased $24 million during the year, but the improvement in earnings was limited to $138,000 due to the seventy-three basis point reduction in the average yield earned. Money market assets were $2 million lower this year, resulting in a $340,000 decrease in earnings.

Average interest-bearing deposits increased $32 million, or 7%, in 2002. Low cost savings and demand balances increased $21 million during the year, but the reduction in rates lead to a $951,000 decrease in the cost of these deposits. Certificates of deposit grew $11 million on average, but repricing resulted in a $5 million decrease in the interest expense. Borrowed funds and other interest-bearing liabilities increased $24 million, resulting in an additional $1 million of interest expense.

Growth of the balance sheet combined with a twenty-seven basis point improvement in the net interest income spread contributed to an improvement in the net interest margin from the 3.42% reported in 2001 to 3.53%. Investment leveraging transactions continued to add to the profitability of the company in 2002, contributing $1 million to pre-tax income at an average spread of 101 basis points. Exclusive of these transactions, the 2002 net interest margin would have improved twenty-six basis points to 3.94%.

Yield Analysis
(dollars in thousands-taxable equivalent basis)(1)

	2003							2002							2001

	Average Balance			Interest Income/ Expense		Average Interest Rate		Average Balance			Interest Income/ Expense		Average Interest Rate		Average Balance			Interest Income/ Expense		Average Interest Rate

ASSETS:
Earning Assets:(2)
Commercial loans-taxable	$	371,296		$	21,869		5.89%	$	329,175		$	21,810		6.63%	$	281,930		$	22,293		7.91%
Commercial loans-tax free		18,412			1,384		7.52%		19,250			1,525		7.92%		14,434			1,404		9.73%
Mortgage loans		20,869			1,435		6.88%		22,307			1,742		7.81%		32,524			2,570		7.90%
Installment loans		100,287			6,521		6.50%		91,296			6,918		7.58%		90,331			7,379		8.17%

Total Loans		510,864			31,209		6.11%		462,028			31,995		6.92%		419,219			33,646		8.03%

Securities-taxable		161,089			6,989		4.34%		153,831			8,383		5.45%		134,503			8,567		6.37%
Securities-tax free		55,234			4,322		7.83%		52,119			4,141		7.95%		47,492			3,819		8.04%

Total Securities		216,323			11,311		5.23%		205,950			12,524		6.08%		181,995			12,386		6.81%

Interest-bearing deposits with banks		3,285			82		2.50%		3,380			138		4.08%		3,494			228		6.53%
Federal funds sold		3,528			43		1.22%		7,659			127		1.66%		9,517			377		3.96%

Total Money Market Assets		6,813			125		1.83%		11,039			265		2.40%		13,011			605		4.65%

Total Earning Assets		734,000			42,645		5.81%		679,017			44,784		6.60%		614,225			46,637		7.59%
Non-earning assets		48,542							43,898							35,349
Allowance for credit losses		(6,625	)						(5,995	)						(5,284	)

Total Assets	$	775,917						$	716,920						$	644,290

LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	116,196		$	1,097		0.94%	$	104,968		$	1,750		1.67%	$	93,583		$	2,549		2.72%
Savings deposits		66,974			599		0.89%		56,878			799		1.40%		46,892			951		2.03%
Time deposits over $100,000		95,090			2,199		2.31%		93,501			2,750		2.94%		86,540			4,474		5.17%
Other time deposits		226,592			7,278		3.21%		224,820			9,414		4.19%		220,940			12,594		5.70%

Total Interest-Bearing Deposits		504,852			11,173		2.21%		480,167			14,713		3.06%		447,955			20,568		4.59%
Borrowed funds and other Interest-bearing liabilities		131,616			6,237		4.74%		116,220			6,086		5.24%		91,793			5,061		5.51%

Total Interest-Bearing Liabilities		636,468			17,410		2.74%		596,387			20,799		3.49%		539,748			25,629		4.75%
Demand deposits		68,273							57,926							48,104
Other liabilities		5,763							5,382							6,503
Stockholders' equity		65,413							57,225							49,935

Total Liabilities and
Stockholders' Equity	$	775,917						$	716,920						$	644,290

Net Interest Income Spread				$	25,235		3.07%				$	23,985		3.11%				$	21,008		2.84%

Net Interest Margin							3.44%							3.53%							3.42%

(1)

In this schedule and other schedules presented on a tax-equivalent basis, income that is exempt from federal income taxes, i.e. interest on state and municipal securities, has been adjusted to a tax-equivalent basis using a 34% federal income tax rate.

(2)

Excludes non-performing loans.

RATE VOLUME ANALYSIS

The most significant impact on net income between periods is derived from the interaction of changes in the volume and rates earned or paid on interest-earning assets and interest-bearing liabilities. The volume of earning dollars in loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in net interest income between periods. Components of interest income and interest expense are presented on a tax-equivalent basis using the statutory federal income tax rate of 34%.

The following table shows the effect of changes in volume and interest rates on net interest income. The variance in interest income or expense due to the combination of rate and volume has been allocated proportionately.

Rate/Volume Variance Report(1)
(dollars in thousands-taxable equivalent basis)

	2003 vs 2002									2002 vs 2001

				Increase(Decrease)									Increase(Decrease)

	Total Change			Due to Volume			Due to Rate			Total Change			Due to Volume			Due to Rate

Interest Income:
Commercial loans-taxable	$	59		$	2,803		$	(2,744	)	$	(483	)	$	3,769		$	(4,252	)
Commercial loans-tax free		(141	)		(66	)		(75	)		121			469			(348	)
Mortgage loans		(307	)		(112	)		(195	)		(828	)		(807	)		(21	)
Installment loans		(397	)		596			(993	)		(461	)		61			(522	)

Total Loans		(786	)		3,221			(4,007	)		(1,651	)		3,492			(5,143	)

Securities-taxable		(1,394	)		392			(1,786	)		(184	)		1,234			(1,418	)
Securities-tax free		181			247			(66	)		322			372			(50	)

Total Securities		(1,213	)		639			(1,852	)		138			1,606			(1,468	)

Interest-bearing deposits with banks		(56	)		(4	)		(52	)		(90	)		(8	)		(82	)
Federal funds sold		(84	)		(68	)		(16	)		(250	)		(74	)		(176	)

Total Money Market Assets		(140	)		(72	)		(68	)		(340	)		(82	)		(258	)

Total Interest Income		(2,139	)		3,788			(5,927	)		(1,853	)		5,016			(6,869	)

Interest Expense:
Interest-bearing demand deposits		(653	)		182			(835	)		(799	)		277			(1,076	)
Savings deposits		(200	)		137			(337	)		(152	)		200			(352	)
Time deposits over $100,000		(551	)		47			(598	)		(1,724	)		360			(2,084	)
Other time deposits		(2,136	)		79			(2,215	)		(3,180	)		221			(3,401	)

Total Interest-Bearing Deposits		(3,540	)		445			(3,985	)		(5,855	)		1,058			(6,913	)
Borrowed funds and other
interest-bearing liabilities		151			806			(655	)		1,025			1,347			(322	)

Total Interest Expense		(3,389	)		1,251			(4,640	)		(4,830	)		2,405			(7,235	)

Net Interest Income	$	1,250		$	2,537		$	(1,287	)	$	2,977		$	2,611		$	366

(1)

Changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to changes due to volume and changes due to rate.

CURRENT YEAR

In 2003, tax-equivalent net interest income was $1,250,000 higher than the 2002 total. Growth of the balance sheet added $2.5 million to earnings in 2003 as the $3.8 million of income earned on new loans and securities more than offset the $1.3 million cost of new deposits and borrowings. Loan growth added $3.2 million of income while new securities and money market assets provided an additional $567,000. Interest expense increased $445,000 due to deposit growth while the additional borrowed funds cost $806,000. Repricing and growth at historically low levels had a negative impact on earnings in 2003. The reduced yield on loans resulted in a $4 million decrease due to rate while income from investment securities and money market assets decreased $1.9 million from the 2002 level. Interest expense was also impacted by falling rates but to a lesser extent as rate reductions on lower costing demand and savings balances were limited. Interest on deposits decreased $4.0 million in 2003 and the cost of borrowed funds decreased $655,000 due to the lower cost of newly originated borrowings.

PRIOR YEAR

In 2002, tax-equivalent net interest income increased $3 million over the prior year. Balance sheet growth added $2.6 million as the $5 million of income earned on new loans and securities exceeded the $2.4 million cost of new deposits and borrowings. Repricing also provided $366,000 of additional earnings as the continued low rate environment of 2002 provided the opportunity for interest-bearing liabilities to reset to current levels. Interest income was also negatively impacted by the repricing, but to a lesser extent than interest expense.

Loan growth added $3.5 million to interest income, due to the $4.2 million increase from commercial loans. This increase was offset by the $5.1 million decrease in earnings caused by the repricing of variable rate loans and growth at lower than historical levels. New investment securities provided $1.6 million of additional income less the $1.5 million decrease due to repricing. Income from money market assets decreased $82,000 due to balances and $258,000 due to repricing.

New deposits added $1.1 million of interest expense, but repricing reduced this cost by $6.9 million. An increase in borrowed funds cost $1.3 million but repricing and new low-cost borrowings lead to a $322,000 decrease in this area of funding.

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 conditions. Consideration is also given to examinations performed by regulatory authorities and the company’s independent auditors. The provision for credit losses was $1,200,000 in 2003, $1,400,000 in 2002, and $1,220,000 in 2001. The ratio of the loan loss reserve to total loans was 1.18% at December 31, 2003 and 1.24% at December 31, 2002.

OTHER INCOME


Other Income	2003		2002		2001

	(in thousands)
Service charges	$	1,575	$	1,371	$	1,059
Net gain on the sale of securities		657		366		604
Net gain on the sale of loans		555		339		298
Net gain on the sale of other real estate		96		454		91
Other		1,301		1,146		1,099

Total Other Income	$	4,184	$	3,676	$	3,151

The company’s other income category can be separated into three distinct sub-categories; service charges make up the core component of this area of earnings while net gains (losses) from the sale of assets and other fee income comprise the balance.

During 2003, other income increased $508,000, or 14%, over the prior year. Service charges on deposits improved by $204,000, or 15%, due primarily to an increase in assessable accounts as well as revisions to the fee schedule. Other fee income improved $155,000 in 2003 comprised of an $89,000 increase in letter of credit fees, a $35,000 increase in merchant credit card processing and a $31,000 net increase in all other fees. Gains from asset sales totaled $1.3 million in 2003 which was $149,000 higher than the 2002 total. Investment securities were sold to restructure the portfolio while long-term, fixed-rate residential mortgage loans were sold to minimize interest rate risk.

In 2002, service charges on deposits improved $312,000, or 30%, due to the growth of the assessable deposit base. Net gains from the sale of other real estate increased $363,000 in 2002 as several of these non-earning assets were disposed of profitably. The decrease recorded in net gains on the sale of securities can be attributed to less activity and the portfolio management performed in the fourth quarter of 2001. The company also continued to shed interest-rate risk by selling over $32 million of the low rate residential mortgage loans that were originated during this low rate environment. A net gain of $339,000 was recognized on these sales.

OTHER EXPENSES


Other Expenses	2003		2002		2001

	(in thousands)
Salary expense	$	6,061	$	5,569	$	4,985
Employee benefit expense		1,580		1,421		1,171
Occupancy expense		1,471		1,388		1,178
Equipment expense		1,193		1,161		987
Directors fees		464		372		376
Advertising expense		575		604		491
Data processing expense		1,116		941		925
Other operating expenses		3,023		2,792		2,570

Total Other Expenses	$	15,483	$	14,248	$	12,683

In 2003, total other expenses increased $1.2 million, or 9%, from the 2002 level. Employee costs increased $651,000, or 53% of the total while occupancy and equipment costs rose $115,000. All other expenses increased $469,000, or 38% of the total increase. The company’s overhead ratio was 2.00% in 2003 compared to 1.99% in 2002.

Salary and benefit costs comprise approximately one-half of the company’s non-interest expense. Salaries increased $492,000 in 2003, including a $182,000 expense for stock options which reflects the early adoption of SFAS No. 148 “Accounting for Stock Based Compensation”. Please refer to Note 12 to the financial statements for a complete disclosure of stock-based compensation. Exclusive of stock-based compensation, salaries increased $310,000, or 6%, due to merit increases and the additional costs associated with expansion. At December 31, 2003, the company had 227 full-time equivalent employees on staff compared to the 210 reported on December 31, 2002.

Occupancy and equipment costs increased 6% and 3%, respectively, due primarily to costs associated with a new community office. All other operating expenses increased $469,000, or 10%. Much of the increase was attributed to rising data processing costs and expenses associated with a new office.

During 2002, total other expenses increased $1,565,000, or 12%, over the prior year. Employee costs rose $834,000 which was over 50% of the increase. Occupancy and equipment costs rose $384,000 and all other expenses increased $347,000, or 8%. The company’s overhead ratio, which measures non-interest expense as a percentage of average assets, was 1.99% in 2002 compared to 1.97% in 2001.

Salary and benefit costs comprised 49% of the company’s total other expenses in 2002. Salaries increased $584,000, or 12% which includes $248,000 attributed to new community offices opened in 2002 and 2001. The $250,000 increase in benefit costs also includes $45,000 due to the new offices as well as increases due to rising health insurance costs, payroll related benefits and a $45,000 increased contribution to the employees’ profit sharing plan. At December 31, 2002, the company had 210 full-time equivalent employees on staff, a 5% increase over the 201 reported in 2001.

Occupancy expenses increased $210,000 in 2002 due to the $166,000 of expenses associated with the new offices. Equipment costs rose $174,000, also due to the branch expansion. All other operating expenses rose $347,000, or 8%, due to increased advertising expenses and costs associated with the new offices.

PROVISION FOR INCOME TAXES

During 2003, federal income tax expense increased $96,000 over the 2002 total. The increased expense at the statutory rate due to the earnings improvement was $241,000 but this was reduced by benefits received from tax-exempt income, a reduction in non-deductible interest expense and an increased benefit from other deferred tax items. The company’s effective tax rate was 20.0% in 2003 compared to 20.5% last year.

Federal income tax expense increased $362,000 compared to the prior period. The $1.6 million improvement in income before tax resulted in a $545,000 increase in the book tax provision. Benefits received from tax-exempt income had a $100,000 positive effect compared to last year while other deferred tax items decreased book income tax by $95,000. The company’s effective tax rate was 20.5% in 2002 and 20.1% in 2001.

FINANCIAL CONDITION

Total assets increased $81 million, or 11%, in 2003 compared to the $59 million, or 9%, increase recorded last year. Liquidity generated from $62 million of new deposits, $14 million of new borrowings and $6 million of capital growth provided funding for $64 million of net loan growth and a $6 million increase in the securities portfolio.

SECURITIES

The primary objectives in managing the company’s securities portfolio are to maintain the necessary flexibility to meet liquidity and asset and liability management needs and to provide a stable source of interest income. Please refer to Note 3 for a complete disclosure of securities.

Total securities increased $6 million in 2003. The continued low rate environment resulted in $80 million of principal being returned in the form of calls or prepayments while an additional $51 million of bonds were sold prior to maturity. In order to fulfill the objective of the securities portfolio and to remain fully invested, over $141 million of new purchases were added during 2003.

New purchases included $30 million of securities which were funded with structured borrowings, thereby providing a favorable spread between the rate earned on the securities and the cost of the borrowings. As of December 31, 2003, the company had $88 million of these leveraged transactions outstanding. Management remains committed to strategies which limit purchases to those that are virtually free of credit risk and will help to meet the objectives of the company’s investment and asset/liability management policies. Other security purchases include bonds which will provide book income at current market rates with minimal extension risk in order to reduce the risk of rising rates. Investment sales were executed to shed the portfolio of high-risk bonds, low earning bonds and bonds which had been reduced in size by principal prepayments to below portfolio parameters.

The following table sets forth the carrying value of securities at the dates indicated:

	December 31,

	2003		2002		2001

	(in thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	17,771	$	13,029	$	10,453
Obligations of state and political subdivisions		61,539		57,864		51,757
Mortgage-backed securities		110,278		127,424		125,240
Corporate debt securities		13,021		425		1,212
Equity securities		8,744		6,750		5,447

Total	$	211,353	$	205,492	$	194,109

The following table sets forth the maturities of securities at December 31, 2003 (in thousands) and the weighted average yields of such securities calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent adjustments, using a 34% rate, have been made in calculating yields on obligations of state and political subdivisions.

	Within One Year			2 - 5 Years			6 - 10 Years			Over 10 Years			Mortgage- Backed Securities			No Fixed Maturity			Total

U.S. Treasury securities	$	500		$	508		$	0		$	0		$	0		$	0		$	1,008
Yield		2.03	%		1.86	%														1.94%
Obligations of U.S. government
agencies					5,205			10,396			1,023									16,624
Yield					3.33	%		3.55	%		4.91	%								3.57%
Obligations of state and political
subdivisions (1)					1,464			3,817			52,661									57,942
Yield					6.82	%		6.94	%		7.52	%								7.47%
Corporate debt securities								1,621			11,500									13,121
Yield								4.83	%		2.78	%								3.03%
Mortgage-backed securities														109,922						109,922
Yield														4.91	%					4.91%
Equity securities (2)																	8,744			8,744
Yield																	1.19	%		1.19%

Total maturities	$	500		$	7,177		$	15,834		$	65,184		$	109,922		$	8,744		$	207,361

Weighted yield		2.03	%		3.94	%		4.50	%		6.64	%		4.91	%		1.19	%		5.24%

(1)Yields on state and municipal securities have been adjusted to a tax-equivalent basis using a 34% federal income tax rate.

(2) Yield presented represents 2003 actual return.

LOANS

Total loans increased $65 million, or 13%, in 2003. Real estate loans increased $43 million comprised of a $28 million increase in commercial mortgages, an $8 million increase in other loans secured by real estate, a $4 million increase in home equity loans and a $3 million increase in residential mortgage loans. The increase in residential mortgage loans is net of the sale of over $34 million of loan balances in 2003 to reduce the company's interest rate risk exposure and to create liquidity for future loan fundings. Commercial loans increased $17 million while the $2 million increase in other loans represents loans to state and municipal entities.

Details regarding the loan portfolio for each of the last five years ending December 31 are as follows:

Loans Outstanding (in thousands)
	2003			2002			2001			2000			1999

Commercial and Financial	$	132,319		$	115,651		$	94,360		$	79,483		$	61,337
Real Estate		337,423			294,864			274,255			246,061			230,029
Installment		66,981			63,258			62,786			62,504			65,075
Other		22,052			20,343			14,077			10,327			7,517

Total Loans Gross		558,775			494,116			445,478			398,375			363,958
Allowance for Credit Losses		(6,578	)		(6,140	)		(5,594	)		(5,250	)		(4,714	)

Net Loans	$	552,197		$	487,976		$	439,884		$	393,125		$	359,244

The following schedule shows the repricing distribution of loans outstanding as of December 31, 2003. Also provided are these amounts classified according to sensitivity to changes in interest rates.

Loans Outstanding - Repricing Distribution (in thousands)
	Within One Year		One to Five Years		Over Five Years		Total

Commercial and Financial	$	113,595	$	16,869	$	1,855	$	132,319
Real Estate		209,208		73,934		54,281		337,423
Installment		2,769		60,789		3,423		66,981
Other		7,151		6,887		8,014		22,052

Total	$	332,723	$	158,479	$	67,573	$	558,775

Loans with predetermined interest rates	$	6,896	$	86,329	$	57,413	$	150,638
Loans with floating rates		325,827		72,150		10,160		408,137

Total	$	332,723	$	158,479	$	67,573	$	558,775

ASSET QUALITY

The company manages credit risk through the application of policies and procedures designed to foster sound underwriting and credit monitoring practices, although, as is the case with any financial institution, a certain degree of credit risk is dependent in part on local and general economic conditions that are beyond the company’s control.

The company’s risk management committee meets quarterly or more often as required and makes recommendations to the board of directors regarding provisions for credit losses. The committee reviews individual problem credits and ensures that ample reserves are established considering both general allowances and specific allocations.

The following schedule reflects various non-performing categories as of December 31 for each of the last five years:

	2003		2002		2001		2000		1999

	(in thousands)
Nonaccrual:
Impaired	$	0	$	0	$	0	$	0	$	0
Other		844		37		343		645		288
Loans past due 90 days or more and still accruing		622		299		426		224		498
Other Real Estate Owned		0		0		50		0		0

Total Non-Performing Assets	$	1,466	$	336	$	819	$	869	$	786

During 2003, total non-performing assets increased $1.1 million due to an $807,000 increase in nonaccrual loans and a $323,000 increase in loans past due over ninety days. Management believes that of the loans currently carried as nonaccrual, loss potential only exists on $444,000 of the balances and that the majority is secured by collateral, resulting in minimal exposure. Any loss realized on these loans and past due loans would be limited to any collateral deficiency upon disposition. The balance of other real estate owned on December 31, 2003 was $0.

In 2002, total non-performing assets decreased $483,000. Nonaccrual loans decreased $306,000 as $223,000 of the balances carried at December 31, 2001 were charged off and $80,000 were paid in full. Loans past due over 90 days decreased $127,000 in 2002, while the $50,000 carried as other real estate owned at December 31, 2001 was recovered in full during 2002.

On December 31, 2003, the company’s ratio of nonaccrual loans to total loans was .15% compared to the .01% reported in 2002. We continue to rank well ahead of peer banks in measurements of delinquency. The company continues to acknowledge the weakness in local real estate markets, emphasizing strict underwriting standards to minimize the negative impact of the current environment.

ALLOWANCE FOR CREDIT LOSSES

The following table presents an allocation of the allowance for credit losses as of the end of each of the last five years:

Loan Loss Reserve Allocation (in thousands)
	12/31/03					12/31/02					12/31/01					12/31/00					12/31/99

	Amount		Percentage of Loans in Each Category to Total Loans			Amount		Percentage of Loans in Each Category to Total Loans			Amount		Percentage of Loans in Each Category to Total Loans			Amount		Percentage of Loans in Each Category to Total Loans			Amount		Percentage of Loans in Each Category to Total Loans

Commercial and Financial	$	4,449		76	%	$	4,154		76	%	$	1,577		72	%	$	2,483		67	%	$	2,917		61	%
Real Estate		53		4	%		44		5	%		138		7	%		190		12	%		89		13	%
Installment		259		20	%		210		19	%		183		21	%		98		21	%		94		26	%
Unallocated		1,817		--			1,732		--			3,696		--			2,479		--			1,614		--

	$	6,578		100	%	$	6,140		100	%	$	5,594		100	%	$	5,250		100	%	$	4,714		100	%

The following schedule presents an analysis of the allowance for credit losses for each of the last five years (in thousands):

	2003			2002			2001			2000			1999
	Years Ended December 31

Balance, January 1	$	6,140		$	5,594		$	5,250		$	4,714		$	4,283
Charge-Offs:
Commercial and Financial		314			256			233			70			123
Real Estate		109			455			474			268			462
Installment		579			307			360			355			271

Total Charge-Offs		1,002			1,018			1,067			693			856

Recoveries on Charged-Off Loans:
Commercial and Financial		13			2			6			10			23
Real Estate		7			10			20			122			154
Installment		220			152			165			127			90

Total Recoveries		240			164			191			259			267

Net Charge-Offs		762			854			876			434			589

Provision for Credit Losses		1,200			1,400			1,220			970			1,020

Balance, December 31	$	6,578		$	6,140		$	5,594		$	5,250		$	4,714

Net Charge-Offs during the period as
a percentage of average loans
outstanding during the period		.15	%		.18	%		.21	%		.11	%		.17	%
Allowance for credit losses as a
percentage of net loans
outstanding at end of period		1.18	%		1.24	%		1.26	%		1.32	%		1.30	%

Net charge-offs decreased in 2003 to ..15% of average loans. The commercial and mortgage loan charge-off’s include writedowns on credits incurred in the normal course of business. The installment charge-off’s include $438,000 of indirect auto loans of which $210,000 was recovered through sales in 2003. In 2003, $9,000 of balances carried as nonaccrual on December 31, 2002 were charged-off. There were no charge-off’s incurred on any loans carried as nonaccrual on December 31, 2003.

DEPOSITS

The primary source of funds to support the company’s growth is its deposit base, and emphasis has been placed on accumulating new deposits while making every effort to retain current relationships. Total deposits increased $62 million in 2003 comprised of $76 million in low-cost savings and demand accounts and a $14 million reduction in time deposit balances.

The average daily amount of deposits and rates paid on such deposits is summarized for the periods indicated in the following table:

	Year Ended December 31,

	2003				2002				2001

	Amount		Rate		Amount		Rate		Amount		Rate

	(dollars in thousands)
Noninterest bearing demand deposits	$	68,273			$	57,926			$	48,104
Interest-bearing demand deposits		116,196		0.94%		104,968		1.67%		93,583		2.72%
Savings deposits		66,974		0.89%		56,878		1.41%		46,892		2.03%
Time deposits		321,682		2.95%		318,321		3.82%		307,480		5.55%

Total	$	573,125			$	538,093			$	496,059

Maturities of time certificates of deposit of $100,000 or more outstanding at December 31, 2003, 2002 and 2001 are summarized as follows:

	December 31, 2003		December 31, 2002		December 31, 2001

	(in thousands)
3 months or less	$	41,316	$	39,179	$	51,605
Over 3 through 6 months		13,933		13,323		14,142
Over 6 through 12 months		20,199		15,026		11,061
Over 12 months		15,927		15,460		10,032

Total	$	91,375	$	82,988	$	86,840

CAPITAL

A strong capital base is essential to the continued growth and profitability of the company and is therefore 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 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.

The following schedules present information regarding the company’s risk-based capital at December 31, 2003, 2002 and 2001 and selected other capital ratios.

CAPITAL ANALYSIS
(in thousands)
	December 31,

	2003		2002		2001

Tier I Capital:
Shareholders' equity	$	66,103	$	58,005	$	51,250

Total Tier I Capital	$	66,103	$	58,005	$	51,250

Tier II Capital:
Allowable portion of allowance for
credit losses	$	6,578	$	6,140	$	5,594

Total Risk-Based Capital	$	72,681	$	64,145	$	56,844

Total Risk-Weighted Assets	$	633,762	$	549,300	$	505,946

CAPITAL RATIOS
	Regulatory Minimum	2003			2002			2001

Total Risk-Based Capital	8.00%		11	.47%		11	.68%		11	.24%
Tier I Risk-Based Capital	4.00%		10	.43%		10	.56%		10	.13%
Tier I Leverage Ratio	4.00%		8	.52%		8	.09%		7	.56%
Return on Assets	N/A		1	.11%		1	.12%		1	.05%
Return on Equity*	N/A		13	.15%		13	.96%		13	.50%
Equity to Assets Ratio*	N/A		8	.42%		8	.55%		7	.66%
Dividend Payout Ratio	N/A		37	.83%		35	.29%		36	.21%

* Includes the effect of SFAS 115 in the amount of $2,635,000 in 2003, $4,838,000 in 2002 and $536,000 in 2001.

During 1999, the company implemented a Dividend Reinvestment Plan which has resulted in an influx to capital of $5.3 million to date. The company also adopted stock option plans for directors and senior officers. New capital generated from the exercise of stock options is $1.4 million at December 31, 2003. In November 2002, the company declared a 100% stock dividend which was paid January 31, 2003. As a result of this stock dividend, 2,603,838 new shares were issued on the payable date.

In 2003, regulatory capital increased $8.1 million comprised of a $5.4 million increase in retained earnings after paying cash dividends of $3.3 million, a $1.6 million increase due to the company’s dividend reinvestment plan and a $1.1 million increase due to the issuance of shares from the company’s stock option plans. As of December 31, 2003, there were 14,170,180 shares of stock available for future sale or stock dividends. The number of shareholders of record at December 31, 2003 was 1,176. Quarterly market highs and lows, dividends paid and known market makers are highlighted in the Investor Information section of this Annual Report. Refer to Note 13 to the financial statements for further discussion of capital requirements and dividend limitations.

ECONOMIC CONDITIONS AND FORWARD OUTLOOK

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.

While we are optimistic about the prospect of continued growth and earnings improvement, any forward-looking statements by their nature are subject to assumptions, risks and uncertainties. Actual results could vary from those implied for a variety of reasons including:

o A change in interest rates which is more immediate or more significant than anticipated.

o The demand for new loans and the ability of borrowers to repay outstanding debt.

o The timing of expansion plans could be altered by forces beyond our control such as weather or regulatory approvals.

o Our ability to continue to attract new deposits from our marketplace to meet the daily liquidity needs of the company.

As of this writing, the company was not aware of any pronouncements or legislation other than those previously discussed that could have a material impact on the results of operations.

Item 7A – Quantitative and Qualitative Disclosures About Market Risk

ASSET AND LIABILITY MANAGEMENT

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. The company manages these objectives through its Senior Management and Asset and Liability Management Committees (ALCO). 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 company’s earnings sensitivity to changes in these rates.

INTEREST RATE SENSITIVITY

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. Interest rate risk arises from mismatches in the repricing of assets and liabilities within a given time period. Gap analysis is an approach used to quantify these differences. A positive gap results when the amount of interest-sensitive assets exceeds that of interest-sensitive liabilities within a given time period. A negative gap results when the amount of interest-sensitive liabilities exceeds that of interest-sensitive assets.

While gap analysis is a general indicator of the potential effect that changing interest rates may have on net interest income, the gap report has some limitations and does not present a complete picture of interest rate sensitivity. First, changes in the general level of interest rates do not affect all categories of assets and liabilities equally or simultaneously. Second, assumptions must be made to construct a gap table. For example, non-maturity deposits are assigned a repricing interval based on internal assumptions. Management can influence the actual repricing of these deposits independent of the gap assumption. Third, the gap table represents a one-day position and cannot incorporate a changing mix of assets and liabilities over time as interest rates change.

Because of the limitations of the gap reports, the company 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.

The company’s interest sensitivity at December 31, 2003 was essentially neutral within reasonable ranges; for example, an interest rate fluctuation of up or down 200 basis points would not be expected to have a significant impact on net interest income.

INTEREST RATE GAP

The following schedule illustrates the company’s interest rate gap position as of December 31, 2003 which measures sensitivity to interest rate fluctuations for certain interest sensitivity periods.

Interest Rate Sensitivity Analysis as of December 31, 2003 (in thousands)
	Rate Sensitive

	1 to 90 Days			91 to 180 Days			181 to 365 Days			1 to 5 Years		Beyond 5 Years		Not Rate Sensitive			Total

Commercial loans	$	302,305		$	4,668		$	13,148		$	80,682	$	24,810	$	0		$	425,613
Mortgage loans		1,741			835			3,118			9,258		9,307		0			24,259
Installment loans		20,939			6,009			12,291			61,224		8,440		0			108,903

Total Loans		324,985			11,512			28,557			151,164		42,557		0			558,775

Securities-taxable		8,599			8,146			14,055			88,402		26,748		8,744			154,694
Securities-tax free		1,671			935			0			24,413		29,640		0			56,659

Total Securities		10,270			9,081			14,055			112,815		56,388		8,744			211,353

Interest-bearing deposits with banks		990			198			1,485			0		0		0			2,673
Federal funds sold		0			0			0			0		0		0			0

Total Money Market Assets		990			198			1,485			0		0		0			2,673

Total Earning Assets		336,245			20,791			44,097			263,979		98,945		8,744			772,801
Non-earning assets		0			0			0			0		0		50,080			50,080
Allowance for credit losses		0			0			0			0		0		(6,578	)		(6,578	)

Total Assets	$	336,245		$	20,791		$	44,097		$	263,979	$	98,945	$	52,246		$	816,303

Interest-bearing demand deposits	$	138,021		$	0		$	0		$	0	$	0	$	0		$	138,021
Savings deposits		87,137			561			798			0		0		0			88,496
Time deposits $100,000 and over		41,316			13,933			20,199			14,679		1,248		0			91,375
Other time deposits		49,700			33,594			48,173			73,419		5,373		0			210,259

Total Interest-Bearing Deposits		316,174			48,088			69,170			88,098		6,621		0			528,151

Borrowed funds and other
Interest-bearing liabilities		21,679			5,373			4,415			38,619		70,335		0			140,421

Total Interest-Bearing Liabilities		337,853			53,461			73,585			126,717		76,956		0			668,572
Demand deposits		0			0			0			0		0		73,918			73,918
Other liabilities		0			0			0			0		0		5,075			5,075
Stockholders' equity		0			0			0			0		0		68,738			68,738

Total Liabilities and Stockholders' Equity	$	337,853		$	53,461		$	73,585		$	126,717	$	76,956	$	147,731		$	816,303

Interest Rate Sensitivity gap	$	(1,608	)	$	(32,670	)	$	(29,488	)	$	137,262	$	21,989	$	(95,485	)

Cumulative gap	$	(1,608	)	$	(34,278	)	$	(63,766	)	$	73,496	$	95,485

EARNINGS AT RISK AND ECOMONIC VALUE AT RISK SIMULATIONS

The company recognizes that more sophisticated tools exist for measuring the interest rate risk in the balance sheet beyond static gap analysis. Although it will continue to measure its static gap position, the company utilizes additional modeling for identifying and measuring the interest rate risk in the overall balance sheet. The ALCO is responsible for focusing on “earnings at risk” and “economic value at risk”, and how both relate to the risk-based capital position when analyzing the interest rate risk.

EARNINGS AT RISK

Earnings at risk simulation measures the change in net interest income and net income should interest rates rise and fall. The simulation recognizes that not all assets and liabilities reprice equally and simultaneously with market rates (i.e., savings rate). The ALCO looks at “earnings at risk” to determine income changes from a base case scenario under an increase and decrease of 200 basis points in the interest rate simulation model.

ECONOMIC VALUE AT RISK

Earnings at risk simulation measures the short-term risk in the balance sheet. Economic value (or portfolio equity) at risk measures the long-term risk by finding the net present value of the future cash flows from the company’s existing assets and liabilities. The ALCO examines this ratio monthly utilizing a rate shock of +200 basis points in the interest rate simulation model. The ALCO recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio.

The following table illustrates the simulated impact of a 200 basis point upward or downward movement in interest rates on net interest income, and the change in economic value. This analysis assumed that interest-earning asset and interest-bearing liability levels at December 31, 2003 remained constant. The impact of the rate movements were developed by simulating the effect of rates changing over a twelve-month period from the December 31, 2003 levels.


	RATES + 200		RATES - 200
Earnings at risk:
Percent change in net interest income		3.69%		(.47)%
Economic value at risk:
Percent change in economic value of equity		(23.97)%		6.00%

Economic value has the most meaning when viewed within the context of risk-based capital. Therefore, the economic value may change beyond the company’s policy guideline for a short period of time as long as the risk-based capital ratio is greater than 10%.

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 company’s credit customers and the withdrawal and maturity requirements of its deposit customers, as well as to meet other financial commitments. Cash and cash equivalents (cash and due from banks and federal funds sold) are the company’s most liquid assets. At December 31, 2003 cash and cash equivalents totaled $23.3 million, compared to the December 31, 2002 level of $15.5 million. Financing activities provided $74.4 million and operating activities provided $10.1 million of cash and cash equivalents during the year while investing activities utilized $76.7 million. The cash flows provided by financing activities includes increases in deposits and borrowed funds while the funds provided by operating activities pertains to interest payments received on loans and investments. The cash used in investing activities consists of loan proceeds and security purchases.

Core deposits, which represent the company’s primary source of liquidity, averaged $478 million in 2003, an increase of $33 million, or 7%, from the $445 million average in 2002. This increase in average core deposits was supplemented with a $2 million increase in average jumbo certificates and a $15 million increase in average borrowed funds and other interest-bearing liabilities.

The company has other potential sources of liquidity, including repurchase agreements. Additionally, the company can borrow on credit lines established at several correspondent banks and at the Federal Home Loan Bank of Pittsburgh. The Federal Reserve Discount Window also provides a funding source of last resort.

Item 8 — Financial Statements and Supplementary Data

The information required in Part II, Item 8 is incorporated by reference from the Company’s Annual Report to security holders for the fiscal year ended December 31, 2003.


Balance Sheet			Exhibit A
Statement of Income			Exhibit B
Statement of Cash Flows			Exhibit C
Statement of Changes in Equity			Exhibit D
Notes to Consolidated Financial Statements
Independent Auditor’s Report			Exhibit E

Additional references are made in Part IV, Item 16 of this Form 10-K.

Item 9- Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Not Applicable

Item 9A – Controls and Procedures

Within 90 days prior to the date of this Form 10-K, First National Community Bancorp, Inc. carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, First National Community Bancorp Inc.‘s disclosure controls and procedures are effective in timely alerting them to material information relating to First National Community Bancorp, Inc. (including its consolidated subsidiaries) required to be included in our periodic SEC filings. There have been no significant changes in First National Community Bancorp, Inc.‘s internal controls or, to its knowledge, in other factors that could significantly affect internal controls subsequent to the date First National Community Bancorp, Inc. carried out its evaluation. See the certifications by the Company’s Chief Executive Officer and Chief Financial Officer filed as Exhibits 31.1 and 31.2 to this report.

The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

FIRST NATIONAL COMMUNITY BANCORP, INC.

Part III.

Item 10 - Directors and Executive Officers of the Registrant

Information regarding directors, nominees, principal officers, audit committees and audit committee financial experts required by this item is set forth under the captions “Information as to Nominees and Directors”, “Principal Officers of the Company”, “Principal Officers of the Bank”, “Audit Committee Financial Expert” and “Audit Committee” in the Proxy Statement filed for the annual meeting of shareholders to be held on May 19, 2004 and is incorporated herein by reference.

The Corporation’s Code of Ethics for Senior Financial Officers is filed with this report as Exhibit 99–P.

Item 11 — Executive Compensation

The information required by this item is set forth under the captions “Executive Compensation”, “Option Grants in 2003”, “Compensation of Direcors”, “Employment Agreement”, “Compensation Report of the Board of Directors”, and “Stock Performance Graph and Table” in the Proxy Statement filed for the annual meeting of shareholders to be held on May 19, 2004 and is incorporated herein by reference.

Item 12- Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item regarding security ownership of beneficial owners and management is set forth under the captions “Beneficial Ownership by Directors, Principal Officers and Nominees ” in the Proxy Statement filed for the annual meeting of shareholders to be held on May 19, 2004 and is incorporated herein by reference.

Information regarding the Company’s compensation plans under which equity securities of the registrant are authorized for issuance as of December 31, 2003 is set forth under the caption “Equity Compensation Plan Information” in the Proxy Statement filed for the annual meeting of shareholders to be held on May 19, 2004 and is incorporated herein by reference.

Item 13 — Certain Relationships and Related Transactions

The information required by this item is set forth under the caption “Certain Relationships and Related Transactions” in the Proxy Statement filed for the annual meeting of shareholders to be held on May 19, 2004 and is incorporated herein by reference.

Item 14 – Principal Accountant Fees and Services

The information required by this item is set forth under the caption “Independent Auditors” in the Proxy Statement filed for the annual meeting of shareholders to be held on May 19, 2004 and is incorporated herein by reference.

Part IV.

Item 15 — Exhibits, Financial Statement Schedules and Reports on Form 8-K

The information required in Item 15 is incorporated by reference from the Company’s Annual Report to security holders for the fiscal year ended December 31, 2003.

EXHIBIT A — Balance Sheet — December 31, 2003 and 2002

EXHIBIT B - Statement of Income - December 31, 2003, 2002 and 2001

EXHIBIT C — Statement of Cash Flows — December 31, 2003, 2002 and 2001

EXHIBIT D — Statement of Changes in Stockholders’ Equity — December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements


	1		Summary of Significant Accounting Policies
	2		Restricted Cash Balances
	3		Investment Securities —December 31, 2003 and 2002
	4		Loans and Changes in Allowance for Loan Loss - December 31, 2003 and 2002
	5		Bank Premises and Equipment - December 31, 2003 and 2002
	6		Deposits
	7		Borrowed Funds - December 31, 2003 and 2002
	8		Benefit Plans
	9		Income Taxes - December 31, 2003, 2002 and 2001
	10		Related Party Transactions
	11		Commitments
	12		Stock Option Plans
	13		Regulatory Matters - December 31, 2003 and 2002
	14		Disclosures about Fair Value of Financial Instruments - December 31, 2003 and 2002
	15		Condensed Financial Information - Parent Company Only
	16		Selected Quarterly Financial Data — 2003 and 2002

EXHIBIT E — Independent Auditor’s Report

The following reports on Form 8-K were filed during the last quarter of the period covered by this report:

Form 8-K filed 10/23/03 Regarding Third Quarter Earnings

Form 8-K filed 11/28/03 Regarding Fourth Quarter Dividend

EXHIBIT 31.1 – Certification of Chief Executive Officer

EXHIBIT 31.2 – Certification of Chief Financial Officer

EXHIBIT 32.1 – Section 1350 Certification –Chief Executive Officer

EXHIBIT 32.2 – Section 1350 Certification –Chief Financial Officer

EXHIBIT 99.P – Code of Ethics

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:

Registrant: FIRST NATIONAL COMMUNITY BANCORP, INC.

	/s/ J. David Lombardi

	J. David Lombardi, President and Chief Executive Officer

	/s/ William Lance

	William Lance, Treasurer Principal Financial Officer and Principal Accounting Officer

	/s/ Linda D'Amario

	Linda D'Amario Comptroller

DATE: March 10, 2004

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Directors:

/s/ Michael G. Cestone	March 10, 2004	/s/ Louis A. DeNaples	March 10, 2004

Michael G. Cestone	Date	Louis A. DeNaples	Date

/s/ Michael J. Cestone, Jr.	March 10, 2004	/s/ Joseph J. Gentile	March 10, 2004

Michael J. Cestone, Jr.	Date	Joseph J. Gentile	Date

/s/ Joseph Coccia	March 10, 2004	/s/ Joseph O. Haggerty	March 10, 2004

Joseph Coccia	Date	Joseph O. Haggerty	Date

/s/ William P. Conaboy	March 10, 2004	/s/ J. David Lombardi	March 10, 2004

William P. Conaboy	Date	J. David Lombardi	Date

/s/ Michael T. Conahan	March 10, 2004	/s/ John P. Moses	March 10, 2004

Michael T. Conahan	Date	John P. Moses	Date

/s/ Dominick L. DeNaples	March 10, 2004	/s/ John R. Thomas	March 10, 2004

Dominick L. DeNaples	Date	John R. Thomas	Date

Exhibit A – Balance Sheet

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

December 31, (in thousands, except share data)	2003		2002

ASSETS
Cash and cash equivalents	$	23,290	$	15,498
Interest-bearing balances with financial institutions		2,673		3,368
Securities:
Available-for-sale, at fair value		201,204		197,405
Held-to-maturity, at cost (fair value $1,442 and $1,306)		1,415		1,347
Federal Reserve Bank and FHLB stock, at cost		8,734		6,740
Net loans		552,197		487,976
Bank premises and equipment		8,758		7,102
Accrued interest receivable		3,458		3,308
Other assets		14,574		12,583

TOTAL ASSETS	$	816,303	$	735,327

LIABILITIES
Deposits:
Demand	$	73,918	$	60,598
Interest-bearing demand		138,021		105,142
Savings		88,496		58,850
Time ($100,000 and over)		91,375		82,988
Other time		210,259		232,897

Total deposits		602,069		540,475
Borrowed funds		140,421		126,908
Accrued interest payable		2,031		2,376
Other liabilities		3,044		2,725

Total liabilities	$	747,565	$	672,484

STOCKHOLDERS' EQUITY
Common Stock ($1.25 par)
Authorized: 20,000,000 shares
Issued and outstanding: 5,331,835 shares in 2003 and
5,207,676 shares in 2002	$	6,665	$	6,510
Additional paid-in capital		15,638		13,065
Retained earnings		43,800		38,430
Accumulated other comprehensive income (loss)		2,635		4,838

Total stockholders' equity		68,738		62,843

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	816,303	$	735,327

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Exhibit B – Statements of Income

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31, (in thousands, except per share data)	2003		2002		2001

INTEREST INCOME
Interest and fees on loans	$	30,738	$	31,477	$	33,169

Interest and dividends on securities:
U.S. Treasury and government agencies		6,534		8,043		8,021
State and political subdivisions		2,853		2,734		2,521
Other securities		455		340		546

Total interest and dividends on securities		9,842		11,117		11,088

Interest on balances with financial institutions		82		138		228
Interest on federal funds sold		43		127		377

TOTAL INTEREST INCOME		40,705		42,859		44,862

INTEREST EXPENSE
Interest-bearing demand		1,097		1,750		2,549
Savings		599		799		951
Time ($100,000 and over)		2,199		2,750		4,474
Other time		7,278		9,414		12,594
Interest on borrowed funds		6,237		6,086		5,061

TOTAL INTEREST EXPENSE		17,410		20,799		25,629

Net interest income before provision for credit losses		23,295		22,060		19,233
Provision for credit losses		1,200		1,400		1,220

NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES		22,095		20,660		18,013

OTHER INCOME
Service charges		1,575		1,371		1,059
Net gain/(loss) on the sale of securities		657		366		604
Net gain/(loss) on the sale of loans		555		339		298
Net gain on the sale of other real estate		96		454		91
Other		1,301		1,146		1,099

TOTAL OTHER INCOME		4,184		3,676		3,151

OTHER EXPENSES
Salaries and employee benefits		7,641		6,990		6,156
Occupancy expense		1,471		1,388		1,178
Equipment expense		1,193		1,161		987
Directors Fees		464		372		376
Advertising expense		575		604		491
Data processing expense		1,116		941		925
Other operating expenses		3,023		2,792		2,570

TOTAL OTHER EXPENSES		15,483		14,248		12,683

INCOME BEFORE INCOME TAXES		10,796		10,088		8,481
Provision for income taxes		2,159		2,063		1,701

NET INCOME	$	8,637	$	8,025	$	6,780

EARNINGS PER SHARE:
Basic	$	1.64	$	1.56	$	1.34

Diluted	$	1.57	$	1.50	$	1.31

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Exhibit C – Statements of Cash Flows

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, (in thousands)	2003			2002			2001

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received	$	41,847		$	44,085		$	45,456
Fees and commissions received		2,876			2,517			2,158
Interest paid		(17,755	)		(21,987	)		(26,391	)
Cash paid to suppliers and employees		(14,152	)		(13,253	)		(11,710	)
Income taxes paid		(2,759	)		(2,579	)		(2,112	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		10,057			8,783			7,401

CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities		500			1,000			500
Proceeds from sales prior to maturity		51,282			40,088			48,827
Proceeds from calls prior to maturity		80,258			46,916			38,306
Purchases		(141,876	)		(94,313	)		(130,384	)
Securities held to maturity:
Proceeds from calls prior to maturity		0			643			548
Net (increase)/decrease in interest-bearing bank balances		695			(207	)		198
Purchase of life insurance		0			0			(6,500	)
Net increase in loans to customers		(64,771	)		(48,649	)		(47,640	)
Capital expenditures		(2,740	)		(1,584	)		(1,692	)

NET CASH USED IN INVESTING ACTIVITIES		(76,652	)		(56,106	)		(97,837	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, money market demand,
NOW accounts, and savings accounts		75,846			20,191			33,545
Net increase/(decrease) in certificates of deposit		(14,252	)		2,950			23,371
Net increase in borrowed funds		13,513			25,298			30,702
Proceeds from issuance of common stock net of stock issuance costs		1,565			1,238			1,004
Proceeds from issuance of common stock - Stock Option Plans		982			324			117
Cash dividends paid		(3,267	)		(2,832	)		(2,455	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		74,387			47,169			86,284

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS		7,792			(154	)		(4,152	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		15,498			15,652			19,804

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	23,290		$	15,498		$	15,652


RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income	$	8,637		$	8,025		$	6,780

Adjustments to reconcile net income to net cash
Provided by operating activities:
Amortization and accretion, net		1,293			1,169			492
Depreciation and amortization		1,085			1,082			997
Stock based compensation - stock option plans		181			0			0
Provision for credit losses		1,200			1,400			1,220
Provision for deferred taxes		(323	)		(528	)		(393	)
Gain on sale of securities		(657	)		(366	)		(604	)
Gain on sale of loans		(555	)		(339	)		(298	)
Gain on sale of other real estate		(96	)		(454	)		(91	)
Decrease in interest payable		(345	)		(1,189	)		(762	)
Increase in accrued expenses and other liabilities		632			399			498
Increase in prepaid expenses and other assets		(845	)		(473	)		(540	)
Decrease (increase) in interest receivable		(150	)		57			102

Total adjustments		1,420			758			621

NET CASH PROVIDED BY OPERATING ACTIVITIES	$	10,057		$	8,783		$	7,401

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Exhibit D – Statements of Changes in Stockholders’ Equity

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2003, 2002 and 2001 (in thousands, except share data)

	COMP- REHEN- SIVE INCOME				STOCK AMOUNT		ADD'L PAID-IN CAPITAL		RETAINED EARNINGS			ACCUMULATED OTHER COMP- REHENSIVE INCOME/ (LOSS)			TOTAL

BALANCES, DECEMBER 31, 2000				5,033,744		$6,292	$	10,491	$	29,021			$ 880			$46,684
Comprehensive Income:
Net income for the year		$6,780								6,780						6,780
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale, net of deferred income
tax benefit of $177		(948	)
Reclassification adjustment for gain or
loss included in income		604

Total other comp. gain, net of tax		(344	)										(344	)		(344	)

Comprehensive Income	$	6,436

Cash dividends paid, $0.49 per share										(2,455	)					(2,455	)
Proceeds from issuance of Common Stock-
Stock option plans				8,200		10		112		(5	)					117
Proceeds from issuance of Common Stock
through dividend reinvestment				65,650		82		963		(41	)					1,004

BALANCES, DECEMBER 31, 2001				5,107,594	$	6,384	$	11,566	$	33,300		$	536		$	51,786
Comprehensive Income:
Net income for the year	$	8,025								8,025						8,025
Other comprehensive income, net of tax:
Unrealized gain on securities
available-for-sale, net of deferred
income taxes of $2,216		3,936
Reclassification adjustment for gain or
loss included in income		366

Total other comp. gain, net of tax		4,302											4,302			4,302

Comprehensive Income	$	12,327

Cash dividends paid, $0.55 per share										(2,832	)					(2,832	)
Proceeds from issuance of Common Stock-
Stock option plans				22,000		28		310		(14	)					324
Proceeds from issuance of Common Stock
through dividend reinvestment				78,082		98		1,189		(49	)					1,238

BALANCES, DECEMBER 31, 2002				5,207,676	$	6,510	$	13,065	$	38,430		$	4,838		$	62,843
Comprehensive Income:
Net income for the year	$	8,637								8,637						8,637
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale, net of deferred
income tax benefit of $1,135		(2,860	)
Reclassification adjustment for gain or
loss included in income		657

Total other comp. gain, net of tax		(2,203	)										(2,203	)		(2,203	)

Comprehensive Income	$	6,434

Cash dividends paid, $0.62 per share										(3,267	)					(3,267	)
Stock based compensation - Stock Option Plans								181								181
Proceeds from issuance of Common Stock-
Stock option plans				64,800		81		901								982
Proceeds from issuance of Common Stock through dividend
reinvestment				59,359		74		1,491								1,565

BALANCES, DECEMBER 31, 2003				5,331,835	$	6,665	$	15,638	$	43,800		$	2,635		$	68,738

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Notes to Consolidated Financial Statements:

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accounting and reporting policies that affect the more significant elements of First National Community Bancorp, Inc.‘s (the “company”) financial statements are summarized below. They have been followed on a consistent basis and are in accordance with generally accepted accounting principles and conform to general practice within the banking industry.

NATURE OF OPERATIONS

The company is a registered financial holding company, incorporated under the laws of the state of Pennsylvania. It is the parent company of First National Community Bank (the “bank”) and it’s wholly owned subsidiary FNCB Realty, Inc.

The bank provides a variety of financial services to individuals and corporate customers through its sixteen banking locations located in northeastern Pennsylvania. It provides a full range of commercial banking services which includes commercial, residential and consumer lending. Additionally, the bank provides to it’s customers a variety of deposit products, including demand checking and interest-bearing deposit accounts.

FNCB Realty, Inc.‘s operating activities include the acquisition, holding, and disposition of certain real estate acquired in satisfaction of loan commitments owed by third party debtors to the bank.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of First National Community Bancorp, Inc., the bank and its wholly owned subsidiary FNCB Realty, Inc.

USE OF ESTIMATES

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

SECURITIES

Debt securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried at cost, adjusted for amortization of premium and accretion of discounts using methods approximating the interest method. Other marketable securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses on securities available-for-sale are recognized as direct increases or decreases in stockholders’ equity. Cost of securities sold is recognized using the specific identification method.

Investments in the Federal Reserve Bank and FHLB stock are carried at cost due to restrictions on their sale due to regulatory requirements.

LOANS

Loans are stated at face value, net of unamortized loan fees and costs and the allowance for credit losses. Interest on all loans is recognized on the accrual basis, based upon the principal amount outstanding.

Loans are placed on nonaccrual when a loan is specifically determined to be impaired or when management believes that the collection of interest or principal is doubtful. This is 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 the interest accrual is discontinued, interest credited to income in the current year is reversed and the accrual of income from 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.

LOAN IMPAIRMENT

The Bank applies the provisions of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures, in it’s evaluation of the loan portfolio. SFAS 114 requires that certain impaired loans be measured based on the present value of expected future cash flows, net of disposal costs, discounted at the loan’s original effective interest rate. As a practical expedient, impairment may be measured based on the loan’s observable market price or the fair value of the collateral, net of disposal costs, if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Amounts are charged off after giving due consideration to such factors as the customer’s financial condition, underlying collateral and guarantees, and general and industry economic conditions. Changes in the allowance relating to impaired loans are charged or credited to the provision for credit losses.

LOAN FEES

Loan origination and commitment fees, as well as certain direct loan origination costs are deferred and the net amount is amortized as an adjustment of the related loan’s yield. The bank is generally amortizing these amounts over the life of the related loans except for residential mortgage loans, where the timing and amount of prepayments can be reasonably estimated. For these mortgage loans, the net deferred fees are amortized over an estimated average life of 7.5 years. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

OTHER REAL ESTATE (ORE)

Real estate acquired in satisfaction of a loan and in-substance foreclosures are reported in other assets. In-substance foreclosures are properties in which the borrower has little or no equity in collateral, where repayment of the loan is expected only from the operation or sale of the collateral, and the borrower either effectively abandons control of the property or the borrower has retained control of the property but his ability to rebuild equity based on current financial conditions is considered doubtful. Properties acquired by foreclosure or deed in lieu of foreclosure and properties classified as in-substance foreclosures are transferred to ORE and recorded at the lower of cost or fair value (less estimated selling cost for disposal of real estate) at the date actually or constructively received. Costs associated with the repair or improvement of the real estate are capitalized when such costs significantly increase the value of the asset, otherwise, such costs are expensed. An allowance for losses on ORE is maintained for subsequent valuation adjustments on a specific property basis.

BANK PREMISES AND EQUIPMENT

Bank premises and equipment are stated at cost less accumulated depreciation. Routine maintenance and repair expenditures are expensed as incurred while significant expenditures are capitalized. Depreciation expense is determined on the straight-line method over the following ranges of useful lives:


Buildings and improvements		10 to 40 years
Furniture, fixtures and equipment		3 to 15 years
Leasehold improvements		5 to 30 years

ADVERTISING COSTS

Advertising costs are charged to operations in the year incurred and totaled $575,000, $604,000 and $491,000 in 2003, 2002 and 2001, respectively.

INCOME TAXES

Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

The company and its subsidiaries file a consolidated Federal income tax return. Under tax sharing agreements, each subsidiary provides for and settles income taxes with the company as if they would have filed on a separate return basis.

CASH EQUIVALENTS

For purposes of reporting cash flows, cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods.

NET INCOME PER SHARE

Basic earnings per share have been computed by dividing net income (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. Such shares amounted to 5,264,489 in 2003, 5,148,126 in 2002 and 5,061,996 in 2001.

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 5,493,595 in 2003, 5,353,427 in 2002 and 5,189,441 in 2001.

All share and per share information has been adjusted to reflect the retroactive effect of the 100% stock dividend paid on January 31, 2003.

STOCK-BASED COMPENSATION

As of January 1, 2003 the Company adopted SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment to SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company has elected to apply the prospective method as permitted by SFAS No. 148. Accordingly all options granted on and after January 1, 2003 are charged against income at their fair value. Those issued prior to adoption are accounted for on the intrinsic method in accordance with Accounting Principles Board Opinion (APB) No. 25. Refer to the table in Note 12 to the financial statements illustrating the effect on the earnings for the three years presented.

BANK OWNED LIFE INSURANCE

Bank owned life insurance policies (BOLI) are carried at the cash surrender value of the underlying policies. Income on the investments in the policies, net of insurance costs, is recorded as non-interest income.

SEGMENT REPORTING

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires that public companies report certain information about operating segments in complete sets of financial statements of the company and in condensed financial statements of interim periods issued to shareholders. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. SFAS No. 131 applies to fiscal years beginning after December 15, 1997.

First National Community Bancorp, Inc. is a one bank holding company operating primarily in northeastern Pennsylvania. The primary purpose of the company is the delivery of financial services within its market by means of a branch network located in Lackawanna and Luzerne counties. Each of the company’s entities are part of the same reporting segment, whose operating results are regularly reviewed by management. Therefore, consolidated financial statements, as presented, fairly reflect the operating results of the financial services segment of our business.

NEW FINANCIAL ACCOUNTING STANDARDS

The FASB has also issued in 2002 its Statement No. 147, Acquisitions of Certain Financial Institutions. The provisions of this Statement that relate to the application of the purchase method of accounting apply to all acquisitions of financial institutions, except transactions between two or more mutual enterprises. The provisions of this Statement that relate to the application of Statement 144 apply to certain long-term customer-relationship intangible assets recognized in the acquisition of a financial institution, including those acquired in transactions between mutual enterprises. The effective date was October 1, 2002. As noted above, the company has not completed any business combinations, including acquisitions of less-than whole financial institutions and accordingly Management cannot currently assess the effect future adoption of this Statement will have.

In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantor’s Accounting and Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value and applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes related to an underlying asset, liability or equity security of the guaranteed party. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified subsequent to December 31, 2002. FIN 45 also expands the disclosure to be made by guarantors, effective as of December 31, 2002, to include the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor’s obligation under the guarantee. Guarantees for standby letters of credit entered into by the Company are disclosed in Note 11. The Company does not expect the requirements of FIN 45 to have a material impact on its results of operations, financial position or liquidity.

2. RESTRICTED CASH BALANCES:

The bank is required to maintain certain average reserve balances as established by the Federal Reserve Bank. The amount of those reserve balances for the reserve computation period which included December 31, 2003 was $75,000, which amount was satisfied through the restriction of vault cash.

In addition, the bank maintains compensating balances at correspondent banks, most of which are not required, but are used to offset specific charges for services. At December 31, 2003, the amount of these balances was $1,175,000.

3. SECURITIES:

Securities have been classified in the consolidated financial statements according to management’s intent. The carrying amount of securities and their approximate fair values (in thousands) at December 31 follow:

Available-for-sale Securities:

December 31, 2003	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Net Carrying Value

U.S. Treasury securities and
obligations of U.S. government
agencies	$	17,632	$	186	$	47	$	17,771
Obligations of state and political
subdivisions		56,527		3,631		34		60,124
Mortgage-backed securities		109,922		1,212		856		110,278
Corporate debt securities		13,121		4		104		13,021
Equity securities		10		0		0		10

Total	$	197,212	$	5,033	$	1,041	$	201,204


December 31, 2002
U.S. Treasury securities and
obligations of U.S. government
agencies	$	12,639	$	390	$	0	$	13,029
Obligations of state and political
subdivisions		53,769		2,760		12		56,517
Mortgage-backed securities		123,156		4,299		31		127,424
Corporate debt securities		500		0		75		425
Equity securities		10		0		0		10

Total	$	190,074	$	7,449	$	118	$	197,405

Held-to-maturity Securities:

December 31, 2003	Net Carrying Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value

Obligations of state and political
subdivisions	$	1,415	$	27	$	0	$	1,442

Total	$	1,415	$	27	$	0	$	1,442

December 31, 2002	Net Carrying Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value

Obligations of state and political
subdivisions	$	1,347	$	0	$	41	$	1,306

Total	$	1,347	$	0	$	41	$	1,306

The following table shows the amortized cost and approximate fair value of the company’s debt securities (in thousands) at December 31, 2003 using contracted 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 Cost		Net Carrying Value		Net Carrying Value		Fair Value

Amounts maturing in:
One Year or Less	$	500	$	503	$	0	$	0
One Year through Five Years		7,177		7,366		0		0
After Five Years through Ten Years		15,834		15,956		0		0
After Ten Years		63,769		67,091		1,415		1,442
Mortgage-backed Securities		109,922		110,278		0		0

Total	$	197,202	$	201,194	$	1,415	$	1,442

Gross proceeds from the sale of securities for the years ended December 31, 2003, 2002, and 2001 were $51,282,000, $40,088,000, and $48,827,000, respectively with the gross realized gains being $999,000, $405,000, and $796,000, respectively, and gross realized losses being $342,000, $39,000, and $192,000, respectively.

At December 31, 2003 and 2002, securities with a carrying amount of $76,692,000 and $93,615,000, respectively, were pledged as collateral to secure public deposits and for other purposes.

4. LOANS:

Major classifications of loans are summarized as follows:

	(in thousands)

	2003			2002

Real estate loans, secured by residential properties	$	93,055		$	78,575
Real estate loans, secured by nonfarm, nonresidential properties		244,368			216,289
Commercial and industrial loans		132,319			115,651
Loans to individuals for household, family and other personal expenditures		66,981			63,258
Loans to state and political subdivisions		21,734			20,256
All other loans, including overdrafts		318			87

Gross loans		558,775			494,116
Less: Allowance for credit losses		(6,578	)		(6,140	)

Net loans	$	552,197		$	487,976

Changes in the allowance for credit losses were as follows:

	(in thousands)
	2003		2002		2001

Balance, beginning of year	$	6,140	$	5,594	$	5,250
Recoveries credited to allowance		240		164		191
Provision for credit losses		1,200		1,400		1,220

TOTAL		7,580		7,158		6,661
Losses charged to allowance		1,002		1,018		1,067

Balance, end of year	$	6,578	$	6,140	$	5,594

Information concerning the bank’s recorded investment in nonaccrual and restructured loans is as follows:

	(in thousands)
	2003		2002

Nonaccrual loans
Impaired	$	0	$	0
Other		844		37
Restructured loans		0		0

Total	$	844	$	37

The interest income that would have been earned in 2003, 2002 and 2001 on nonaccrual and restructured loans outstanding at December 31, 2003, 2002 and 2001 in accordance with their original terms approximated $65,000, $4,000 and $43,000. The interest income actually realized on such loans in 2003, 2002 and 2001 approximated $15,000, $0 and $6,000. As of December 31, 2003, there were no outstanding commitments to lend additional funds to borrowers of impaired, restructured or nonaccrual loans.

5. BANK PREMISES AND EQUIPMENT:

Bank premises and equipment are summarized as follows:

	(in thousands)
	2003		2002

Land	$	1,386	$	1,286
Buildings		4,585		2,989
Furniture, fixtures and equipment		6,380		5,932
Leasehold improvements		3,183		3,358

Total		15,534		13,565
Less accumulated depreciation		6,776		6,463

Net	$	8,758	$	7,102

6. DEPOSITS:

At December 31, 2003 time deposits including certificates of deposit and Individual Retirement Accounts have the scheduled maturities as follows:

	(in thousands)
	Time Deposits $100,000 and Over		Other Time Deposits		Total

2004	$	75,448	$	131,466	$	206,914
2005		6,393		34,459		40,852
2006		2,173		14,956		17,129
2007		5,300		16,796		22,096
2008 and Thereafter		2,061		12,582		14,643

Total	$	91,375	$	210,259	$	301,634

7. BORROWED FUNDS:

Borrowed funds at December 31, 2003 and 2002 include the following (in thousands):

	2003		2002


Treasury Tax and Loan Demand Note	$	324	$	1,040
Federal Funds Purchased		0		11,985
Borrowings under Lines of Credit		140,097		113,883

Total	$	140,421	$	126,908

Federal funds purchased represent primarily overnight borrowings providing for the short-term funding requirements of the company’s banking subsidiary and generally mature within one business day of the transaction. During 2003, the average outstanding balance on these credit lines amounted to $3,504,000 and the average rate paid in 2003 was 1.35%.

The following table presents Federal Home Loan Bank of Pittsburgh (“FHLB of Pittsburgh”) advances at their maturity dates (in thousands):

	December 31, 2003
	Amount		Weighted Average Interest Rate

Within one year	$	6,405		5	.08%
After one year but within two years		8,742		4	.73
After two years but within three years		22,072		2	.24
After three years but within four years		3,462		4	.71
After four years but within five years		27,250		4	.86
After five years		72,166		4	.96

	$	140,097		4	.50%

The FHLB of Pittsburgh advances include $5 million which are immediately adjustable, $11 million which reset quarterly and $124 million with fixed rates. All advances are collateralized either under a blanket pledge agreement by one to four family mortgage loans or with mortgage-backed securities. In addition, the company is required to purchase stock based upon the amount of advances outstanding.

At December 31, 2003, the company had available from the FHLB of Pittsburgh an open line of credit for $76,331,000 which expires on December 15, 2004. The line of credit may bear interest at either a fixed rate or a variable rate, such rate being set at the time of the funding request. In addition, at December 31, 2003, the company had available overnight repricing lines of credit with other correspondent banks totaling $25,000,000. At December 31, 2003 and 2002, the company had $0 and $11,985,000 outstanding with correspondent banks.

The maximum amount of borrowings outstanding at any month end during the years ended December 31, 2003 and 2002 were $160,368,000 and $129,941,000, respectively.

8. BENEFIT PLANS:

The bank has a defined contribution profit sharing plan which covers all eligible employees. The bank’s contribution to the plan is determined at management’s discretion at the end of each year and funded. Contributions to the plan in 2003, 2002 and 2001 amounted to $420,000, $375,000, and $330,000, respectively.

The bank has an unfunded non-qualified deferred compensation plan covering all eligible bank officers and directors as defined by the plan. This plan permits eligible participants to elect to defer a portion of their compensation. At December 31, 2003, elective deferred compensation amounting to $1,586,000 plus $850,000 in accrued interest has been included in other liabilities in the accompanying balance sheet.

9. INCOME TAXES:

The provision for income taxes included in the statement of income is comprised of the following components (in thousands):


	2003			2002			2001

Current	$	2,482		$	2,591		$	2,094
Deferred		(323	)		(528	)		(393	)

Total	$	2,159		$	2,063		$	1,701

Deferred tax assets (liabilities) are comprised of the following at December 31 (in thousands):


	2003			2002

Allowance for Credit Losses	$	2,236		$	2,088
Deferred Compensation		828			661
Stock Based Compensation		62			0

Gross Deferred Tax Asset		3,126			2,749

Unrealized Holding Gains on Securities
Available-for-Sale	$	(1,357	)	$	(2,493	)
Deferred Loan Origination Fees		(230	)		(150	)
Depreciation		(253	)		(167	)

Gross Deferred Tax Liability	$	(1,840	)	$	(2,810	)

Deferred Tax Asset Valuation Allowance		(140	)		(251	)

Net Deferred Tax Assets/(Liabilities)	$	1,146		$	(312	)

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 (in thousands):


	2003			2002			2001

Provision at Statutory Tax Rates	$	3,671		$	3,430		$	2,885
Add (Deduct):
Tax Effects of Non-Taxable Interest Income		(1,280	)		(1,272	)		(1,172	)
Non-Deductible Interest Expense		115			145			173
Other Items Net		(347	)		(240	)		(185	)

Provision for Income Taxes	$	2,159		$	2,063		$	1,701

The net change in the valuation allowance for deferred tax asset was a decrease of $111,000 in 2003 and $100,000 in 2002. The changes relate to a decrease in the provision for income taxes to which this valuation relates.

10. RELATED PARTY TRANSACTIONS:

At December 31, 2003 and 2002, certain officers and directors and/or their affiliates were indebted to the bank in the aggregate amounts of $25,147,000 and $21,959,000. Such indebtedness was incurred in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with other persons. During 2003, $42,899,000 of new loans were made and repayments totaled $39,711,000. The bank was also committed under standby letters of credit as described in Note 11.

Deposits from certain officers and directors and/or their affiliates held by the bank at December 31, 2003 and 2002 amounted to $51,171,000 and $57,870,000.

11. COMMITMENTS:

(a) Leases:

At December 31, 2003, the company was obligated under certain noncancelable operating leases with initial or remaining terms of one year or more. Minimum future obligations under noncancelable operating leases in effect at December 31, 2003 are as follows (in thousands):


	FACILITIES		EQUIPMENT

2004	$	410	$	107
2005		413		52
2006		257		25
2007		247		20
2008 and thereafter		375		9

Total	$	1,702	$	213

Total rental expense under operating leases amounted to $490,000 in 2003, $492,000 in 2002, and $439,000 in 2001.

(b) Financial Instruments with Off-Balance Sheet Risk:

The bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. Such financial instruments include commitments to extend credit and standby letters of credit which involve varying degrees of credit, interest rate or liquidity risk in excess of the amount recognized in the balance sheet. The bank’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

Financial instruments whose contract amounts represent credit risk at December 31 are as follows (in thousands):


	2003		2002

Commitments to extend credit	$	103,987	$	92,284
Standby letters of credit		35,668		22,639

Commitments to extend credit are agreements to lend to customers in accordance with contractual provisions. These commitments usually are for specific periods or contain termination clauses and may require the payment of a fee. The total amounts of unused commitments do not necessarily represent future cash requirements, in that commitments often expire without being drawn upon.

Letters of credit and financial guarantees are agreements whereby the company guarantees the performance of a customer to a third party. Collateral may be required to support letters of credit in accordance with management’s evaluation of the creditworthiness of each customer. The credit exposure assumed in issuing letters of credit is essentially equal to that in other lending activities.

Outstanding commitments to extend credit and standby letters of credit issued to or on behalf of related parties amounted to $10,824,000 and $11,686,000 and $362,000 and $362,000 at December 31, 2003 and 2002, respectively.

Cash Concentrations: The bank maintains cash balances at several correspondent banks. The aggregate cash balances represent due from bank accounts in excess of the limit covered by the Federal Deposit Insurance Corporation amounting to $944,000 and $456,000 as of December 31, 2003 and 2002, respectively.

Loan Concentrations: At December 31, 2003, 39% of the bank’s commercial loan portfolio was concentrated in loans in the following six industries. Substantially all of these loans are secured by first mortgages on commercial properties. Floor plan loans to automobile dealers are secured by a first lien security interest in the vehicle inventories of the dealer.


	In thousands		%

Shopping Centers/Complexes	$	39,633		9	.3%
Hotels		27,488		6	.5
Land Subdivision		26,581		6	.2
Automobile Dealers		25,058		5	.9
Restaurants		24,820		5	.8
Office Complexes/Units		22,463		5	.3

(d) Other:

The company is also a party to routine litigation involving various aspects of its business, none of which, in the opinion of management and its legal counsel, is expected to have a material adverse impact on the consolidated financial condition, results of operations or liquidity of the company.

12. STOCK OPTION PLANS:

On August 30, 2000, the Corporation’s board of directors adopted an Employee Stock Incentive Plan in which options may be granted to key officers and other employees of the Corporation. The aggregate number of shares which may be issued upon exercise of the options under the plan cannot exceed 400,000 shares. Options and rights granted under the plan may be exercised six months after the date the options are awarded and expire ten years after the award date.

The board of directors also adopted on August 30, 2000, the Independent Directors Stock Option Plan for members of the corporation’s board of directors who are not officers or employees of the corporation or its subsidiaries. The aggregate number of shares issuable under the plan cannot exceed 200,000 shares and are exercisable six months from the date the awards are granted for a period of three years.

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.

Prior to 2003, the Company measured stock compensation cost using the intrinsic value method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation cost was recognized for stock option awards granted in 2002, 2001 and 2000. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to awards made in 2003, 2002 and 2001 consistent with the provisions of SFAS No. 123.

	Year Ended December 31,
	2003			2002			2001

Net income, as reported	$	8,637		$	8,025		$	6,780

Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects		120			0			0

Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects		(120	)		(149	)		(176	)

Pro forma net income	$	8,637		$	7,876		$	6,604

Basic Earnings per share:
As reported	$	1.64		$	1.56		$	1.34
Pro forma	$	1.64		$	1.53		$	1.30

Diluted Earnings per share:
As reported	$	1.57		$	1.50		$	1.31
Pro forma	$	1.57		$	1.47		$	1.27

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model average assumptions:

	Year Ended December 31,
	2003	2002	2001

Dividend yield	2.18%	2.93%	2.97%
Expected life	10 years	5.98 years	6.17 years
Expected volatility	21.8%	20%	20%
Risk-free interest rate	.96%	1.70%	3.39%

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

	2003						2002						2001

	Shares			Weighted Average Exercise Price			Shares			Weighted Average Exercise Price			Shares			Weighted Average Exercise Price

Outstanding at the
beginning of the year		258,800		$	15	.806		179,800		$	15	.582		98,000		$	14	.275
Granted		35,000			27	.520		103,000			15	.985		94,000			16	.775
Exercised		(64,800	)		15	.161		(22,000	)		14	.730		(8,200	)		14	.275
Forfeited		0			0			(2,000	)		16	.775		(4,000	)		14	.275

Outstanding at the end of
the year		229,000		$	17	.779		258,800		$	15	.806		179,800		$	15	.582

Options exercisable at
year end		194,000		$	16	.021		155,800		$	15	.687		85,800		$	14	.275

Weighted average fair
value of options granted
during the year					$	5.19					$	2.19					$	2.83

Information pertaining to options outstanding at December 31, 2003 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

$15.985-$16.775		58,000	1.2 years	$	16	.366		58,000	$	16	.366
$14.275-$27.520		171,000	8.3 years		18	.258		136,000		15	.875

		229,000						194,000

13. REGULATORY MATTERS:

The bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the bank must meet specific capital guidelines that involve quantitative measures of the bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003, that the bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2003, the most recent notification from the Office of the Comptroller of the Currency categorized the bank as “Well Capitalized” under the regulatory framework for prompt corrective action. To be categorized as “Well Capitalized” the bank must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

(in thousands)
	Actual					For Capital Adequacy Purposes:					To Be Well Capitalized Under Prompt Corrective Action Provisions:

	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of December 31, 2003:
Total Capital	$	72,681		11	.47%		>$50,701		>8.0	%		>$63,376		>10.0	%
(to Risk Weighted Assets)
Tier I Capital	$	66,103		10	.43%		>$25,350		>4.0	%		>$38,026		>6.0	%
(to Risk Weighted Assets)
Tier I Capital	$	66,103		8	.52%		>$31,037		>4.0	%		>$38,797		>5.0	%
(to Average Assets)

As of December 31, 2002:
Total Capital	$	64,145		11	.68%		>$43,944		>8.0	%		>$54,930		>10.0	%
(to Risk Weighted Assets)
Tier I Capital	$	58,005		10	.56%		>$21,972		>4.0	%		>$32,958		>6.0	%
(to Risk Weighted Assets)
Tier I Capital	$	58,005		8	.09%		>$28,678		>4.0	%		>$35,847		>5.0	%
(to Average Assets)

Banking regulations also limit the amount of dividends that may be paid without prior approval of the bank’s regulatory agency. Retained earnings against which dividends may be paid without prior approval of the federal banking regulators amounted to $18,154,000 at December 31, 2003, subject to the minimum capital ratio requirements noted above.

14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 Disclosures about Fair Value of Financial Instruments, (SFAS 107) requires annual disclosure of estimated fair value of on-and off-balance sheet financial instruments.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and short-term investments:

Cash and short-term investments include cash on hand, amounts due from banks, and federal funds sold. For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Interest-bearing balances with financial institutions:

The fair value of these financial instruments is estimated using rates currently available for investments of similar maturities.

Securities:

For securities held for investment purposes, the fair values have been individually determined based on currently quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans:

The fair value of loans has been estimated by discounting the future cash flows using the current rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits:

The fair value of demand deposits, savings deposits, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Borrowed funds:

Rates currently available to the bank for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Commitments to extend credit and standby letters of credit:

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

The estimated fair values of the bank’s financial instruments (in thousands) are as follows:

	December 31, 2003

	Carrying Value		Fair Value

FINANCIAL ASSETS
Cash and short term investments	$	23,290	$	23,290
Interest-bearing balances with financial institutions		2,673		2,672
Securities		211,353		211,380
Gross Loans		558,775		565,310
FINANCIAL LIABILITIES
Deposits	$	602,069	$	603,976
Borrowed funds		140,421		148,910
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Commitments to extend credit and standby letters
of credit	$	0	$	280

	December 31, 2002

	Carrying Value		Fair Value

FINANCIAL ASSETS
Cash and short term investments	$	15,498	$	15,498
Interest-bearing balances with financial institutions		3,368		3,377
Securities		205,492		205,451
Gross Loans		494,116		503,329
FINANCIAL LIABILITIES
Deposits	$	540,475	$	544,618
Borrowed funds		126,908		135,617
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Commitments to extend credit and standby letters
of credit	$	0	$	158

15. CONDENSED FINANCIAL INFORMATION – PARENT COMPANY ONLY:

Condensed parent company only financial information is as follows (in thousands):

Condensed Balance Sheet December 31,	2003		2002

Assets:
Cash	$	243	$	182
Investment in Subsidiary (equity method)		68,495		62,656
Other assets		0		5

Total Assets	$	68,738	$	62,843

Liabilities and Stockholders' Equity:
Stockholders' equity	$	68,738	$	62,843

Condensed Statement of Income for the years ending December 31, 2003, 2002 and 2001	2003		2002		2001

Income:
Dividends from Subsidiary	$	800	$	1,125	$	1,375
Equity in Undistributed Income of Subsidiary		7,861		6,926		5,445

Total Income	$	8,661	$	8,051	$	6,820

Expenses		24		26		40

Net Income	$	8,637	$	8,025	$	6,780

Condensed Statement of Cash Flows for the years ending December 31, 2003, 2002 and 2001	2003			2002			2001

Cash Flows from Operating Activities:
Net income	$	8,637		$	8,025		$	6,780
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiary		(7,861	)		(6,926	)		(5,445	)
Decrease in other assets		5			31			12

Net Cash Provided by Operating Activities	$	781		$	1,130		$	1,347

Cash Flows from Financing Activities:
Cash dividends	$	(3,267	)	$	(2,832	)	$	(2,455	)
Proceeds from issuance of common stock net of stock issuance costs		2,547			1,562			1,121

Net Cash Used in Financing Activities	$	(720	)	$	(1,270	)	$	(1,334	)

Increase (decrease) in Cash	$	61		$	(140	)	$	13
Cash at Beginning of Year		182			322			309

Cash at End of Year	$	243		$	182		$	322

Non-cash investing and financing activities:

In 1999, the company adopted a dividend reinvestment plan. Shares of stock issued in 2003, 2002 and 2001 were 59,359 shares, 78,082 shares and 65,650 shares, respectively, in lieu of paying cash dividends of $1,565,000 in 2003, $1,238,000 in 2002 and $1,004,000 in 2001.

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

In thousands, except per share amounts

	Quarter Ending

	March 31,		June 30,		September 30,		December 31,

2003
Interest income	$	10,191	$	10,163	$	10,150	$	10,201
Interest expense		4,608		4,466		4,213		4,123

Net interest income		5,583		5,697		5,937		6,078
Provision for credit losses		325		325		225		325
Other income		1,188		1,217		840		939
Other expenses		3,625		3,665		3,918		4,275
Provision for income taxes		586		618		515		440

Net income	$	2,235	$	2,306	$	2,119	$	1,977

Earnings per share:
Basic	$	0.43	$	0.44	$	0.40	$	0.37

Diluted	$	0.41	$	0.42	$	0.39	$	0.35


2002
Interest income	$	10,685	$	10,941	$	10,855	$	10,378
Interest expense		5,461		5,323		5,160		4,855

Net interest income		5,224		5,618		5,695		5,523
Provision for credit losses		325		325		325		425
Other income		1,114		696		805		1,061
Other expenses		3,455		3,450		3,548		3,795
Provision for income taxes		550		525		550		438

Net income	$	2,008	$	2,014	$	2,077	$	1,926

Earnings per share:
Basic	$	0.39	$	0.39	$	0.41	$	0.37

Diluted	$	0.38	$	0.38	$	0.38	$	0.36

Exhibit E – Independent Auditors’ Report

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of First National Community Bancorp, Inc.

We have audited the accompanying consolidated statements of financial condition of First National Community Bancorp, Inc. and Subsidiaries (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits, in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of First National Community Bancorp, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

Demetrius & Company, L.L.C.

Wayne, New Jersey January 22, 2004