<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from to
------------------ --------------------
Commission file number: 0-11671
FIRST CENTURY BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
West Virginia 55-0628089
------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Federal Street, Bluefield, WV 24701
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 325-8181
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's $1.25 par value common
stock, as of October 11, 1999, was 2,000,000 shares.
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
INDEX
Page
PART I. FINANCIAL INFORMATION
Financial Statements
Consolidated Statements of Financial Condition.............. 3
Consolidated Statements of Income and Comprehensive Income.. 4
Consolidated Statements of Cash Flows....................... 5
Consolidated Statements of Changes in Stockholders' Equity.. 6
Notes to Consolidated Financial Statements..................... 6 - 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10 - 11
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K............................... 11
SIGNATURES....................................................... 11
The total number of pages of the Form 10-Q Quarterly Report is eleven (11)
pages.
2
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
ASSETS (Unaudited) (Audited)
----------------- -----------------
<S> <C> <C>
Cash and due from banks $ 15,316 $ 10,473
Interest-bearing balances with banks 5,012 3,275
Securities available for sale: (cost approximated $73,579 at
September 30, 1999, and $45,493 at December 31, 1998) 72,783 45,951
Securities held to maturity: (market value approximated $10,218 at
September 30, 1999 and $14,086 at December 31, 1998) 10,362 13,957
Federal Home Loan Bank and Federal Reserve Bank Stock 1,132 1,028
Federal funds sold 8,000 4,000
Loans 242,375 202,214
Less allowance for loan losses 3,030 2,533
-------- --------
Net loans 239,345 199,681
Premises and equipment 10,740 9,199
Real estate owned other than bank premises 849 678
Other assets 5,741 4,650
Goodwill and other intangible assets 6,186 1,687
-------- --------
TOTAL ASSETS $375,466 $294,579
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 36,055 $ 27,847
Interest-bearing 288,535 223,881
-------- --------
Total deposits 324,590 251,728
Federal funds purchased and securities sold under
agreements to repurchase 15,246 12,612
Demand notes to U. S. Treasury and other
liabilities for borrowed money 4,364 434
Other liabilities 2,289 1,302
-------- --------
TOTAL LIABILITIES 346,489 266,076
-------- --------
STOCKHOLDERS' EQUITY
Common stock - par value per share $1.25
Shares authorized: 10,000,000
Shares issued and outstanding: 2,000,000 2,500 2,500
Paid-in capital 785 785
Retained earnings 26,240 24,924
Accumulated other comprehensive income (548) 294
-------- --------
TOTAL STOCKHOLDERS' EQUITY 28,977 28,503
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $375,466 $294,579
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(Dollars in thousands, except per share data)
INTEREST INCOME 1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 5,360 $ 4,814 $ 14,372 $ 14,082
Interest on balances with banks 64 76 196 138
Interest and dividends from securities
available for sale:
Taxable 1,109 665 2,753 1,890
Interest and dividends from securities
held to maturity:
Taxable 19 90 139 328
Tax-exempt 102 93 287 252
Interest on federal funds sold 90 115 285 285
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 6,744 5,853 18,032 16,975
INTEREST EXPENSE
Interest on time certificates of
$100,000 or more 405 335 1,050 936
Interest on other deposits 2,491 2,084 6,553 5,975
Interest on federal funds purchased and
securities sold under agreements to
repurchase 127 167 387 455
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money 21 21 47 60
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 3,044 2,607 8,037 7,426
---------- ---------- ---------- ----------
Net interest income 3,700 3,246 9,995 9,549
Provision for loan losses 83 124 248 445
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 3,617 3,122 9,747 9,104
NONINTEREST INCOME
Income from fiduciary activities 250 230 775 740
Other operating income 538 419 1,388 1,193
Securities losses - - - (14)
---------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 788 649 2,163 1,919
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,405 1,181 3,862 3,501
Premises and equipment expense 428 372 1,179 1,001
Other noninterest expense 1,181 928 3,002 2,747
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSE 3,014 2,481 8,043 7,249
---------- ---------- ---------- ----------
Income before income taxes 1,391 1,290 3,867 3,774
Provision for income taxes 473 470 1,351 1,365
---------- ---------- ---------- ----------
NET INCOME 918 820 2,516 2,409
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax 73 300 (842) 327
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME $ 991 $ 1,120 $ 1,674 $ 2,736
========== ========== ========== ==========
NET INCOME PER COMMON SHARE:
Basic $ 0.46 $ 0.41 $ 1.26 $ 1.20
Diluted $ 0.46 $ 0.41 $ 1.26 $ 1.20
AVERAGE SHARES OUTSTANDING:
Basic 2,000,000 2,000,000 2,000,000 2,000,000
Diluted 2,000,000 2,001,794 2,001,907 2,000,598
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
(Dollars in thousands)
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,516 $ 2,409
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 248 445
Depreciation and amortization 770 560
Securities losses -- 14
Net investment amortization and accretion 148 102
(Increase) decrease in interest receivable and other assets (1,108) 301
Increase in interest payable and other liabilities 532 531
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,106 4,362
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in federal funds sold (4,000) (2,600)
Purchases of securities held to maturity (1,158) (2,580)
Purchases of securities available for sale (45,917) (16,428)
Purchases of Federal Home Loan Bank Stock (37) --
Purchases of Federal Reserve Bank Stock (68) --
Proceeds from maturities and calls of securities held to
maturity 4,693 6,940
Proceeds from maturities and calls of securities available for
sale 17,743 7,315
Proceeds from sales of securities available for sale -- 883
Net (increase) decrease in loans (448) 394
Net cash received from branch acquisition 14,727 8,510
Acquisition of fixed assets (329) (729)
------------- -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (14,794) 1,705
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 7,335 3,880
Net increase (decrease) in time deposits 5,569 (948)
Net increase (decrease) in short-term borrowings 6,564 (4,576)
Cash dividends paid (1,200) (1,000)
------------- -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 18,268 (2,644)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,580 3,423
CASH AND CASH EQUIVALENTS AT JANUARY 1, 13,748 10,896
------------- -------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30, $ 20,328 $ 14,319
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,220 $ 7,001
Income taxes 1,343 1,420
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
(Dollars in thousands)
1999 1998
------------- -------------
<S> <C> <C>
BALANCE, JANUARY 1, $28,503 $26,589
Net income 2,516 2,409
Cash dividends declared - $0.60 per share in 1999
and $0.50 per share in 1998 1,200 1,000
Other comprehensive income (loss), net of tax (842) 327
------- -------
BALANCE, SEPTEMBER 30, $28,977 $28,325
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Rule S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments were of a
normal recurring nature. Certain reclassifications have been made to the prior
period's financial statements to place them on a comparable basis with the
current period's financial statements. Operating results are for the nine-month
period ended September 30, 1999, and are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For further
information refer to the financial statements and footnotes thereto included as
Exhibit 13 to Corporation's annual report on Form 10-K for the year ended
December 31, 1998.
NOTE B - OTHER COMPREHENSIVE INCOME
Comprehensive income is defined as net income plus transactions and other
occurrences that are the result of nonowner changes in equity. Other
comprehensive income is defined as comprehensive income exclusive of net income.
Unrealized gains and losses on available for sale investment securities
represent the sole component of the Corporation's other comprehensive income.
Information concerning the Corporation's other comprehensive income for the
three and nine-month periods ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------
(Dollars in thousands)
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Unrealized holding gains (losses) arising during $115 $ 453 $(1,256) $ 468
the period
Reclassification adjustment for losses
included in net income -- -- -- 19
---- ----- ------- -----
Other comprehensive income (loss) before tax 115 453 (1,256) 487
Income tax (expense) benefit related to other
comprehensive income (loss) (42) (153) 414 (160)
---- ----- ------- -----
Other comprehensive income (loss) $ 73 $ 300 $ (842) $ 327
==== ===== ======= =====
</TABLE>
6
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1999
NOTE C - EARNINGS PER SHARE
The following tables reconcile the numerator and denominator of the basic and
diluted computations for income from continuing operations for the three and
nine-month periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $918,000 2,000,000 $0.46 $820,000 2,000,000 $0.41
===== =====
Effect of dilutive securities -
Stock options 0 0 0 1,794
-------- --------- -------- ---------
Diluted EPS
Income available to common
shareholders and assumed
conversions $918,000 2,000,000 $0.46 $820,000 2,001,794 $0.41
======== ========= ===== ======== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended September 30,
----------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $2,516,000 2,000,000 $1.26 $2,409,000 2,000,000 $1.20
===== =====
Effect of dilutive securities -
Stock options 0 1,907 0 598
---------- --------- ---------- ---------
Diluted EPS
Income available to common
shareholders and assumed
conversions $2,516,000 2,001,907 $1.26 $2,409,000 2,001,794 $1.20
========== ========= ===== ========== ========= =====
</TABLE>
NOTE D - COMPENSATION PLANS
The Corporation has two stock option plans. The 1998 Officer Stock Option Plan
(the "Officer Plan") provides for the issuance of options to purchase shares of
the Corporation's common stock to officers of the Corporation and its
subsidiaries. The options have an original term of ten years with an exercise
price equal to the market price of the common stock on the date of grant, as
defined by the plan. The options vest 20% per year after their date of grant.
During the nine months ended September 30, 1999, no options were granted under
the Officer Plan. The weighted average remaining contractual life of currently
outstanding options is 105 months. At September 30, 1999, 58,470 options were
outstanding and options for 111,530 shares of common stock were reserved for
future issuance for the Officer Plan. As of September 30, 1999, no options had
been exercised under the Officer Plan.
7
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1999
NOTE D - COMPENSATION PLANS (Continued)
The Corporation's second plan, the 1998 Director Stock Option Plan (the
"Director Plan"), provides for the issuance of options to purchase shares of the
Corporation's common stock to directors of the Corporation and its subsidiaries.
The options have an original term of ten years with an exercise price equal to
the market price of the common stock on the date of grant, as defined by the
plan. The options are fully vested upon their date of grant. During the nine
months ended September 30, 1999, no options were granted under the Director
Plan. The weighted average remaining contractual life of currently outstanding
options is 105 months. At September 30, 1999, 18,000 options were outstanding
and options for 12,000 shares of common stock were reserved for future issuance
for the Director Plan. As of September 30, 1999, no options had been exercised
under the Director Plan and 2,000 options had expired unexercised.
The Corporation accounts for the Officer Plan and the Director Plan under the
provision of SFAS No. 123, "Accounting for Stock Based Compensation". As
permitted by SFAS No. 123, the Corporation has chosen to apply APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans. Accordingly, no compensation cost had been recognized
for options granted under the plans. Had compensation cost for the
Corporation's plans been determined based on the fair value at the grant dates
for awards under the plans consistent with the method of SFAS No. 123, the
Corporation's net income and net income per share would have been decreased to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 918,000 $ 914,000 $ 820,000 $ 793,000
========== ========== ========== ==========
Net income per share - basic $ 0.46 $ 0.46 $ 0.41 $ 0.40
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $2,516,000 $2,504,000 $2,409,000 $2,382,000
========== ========== ========== ==========
Net income per share - basic $ 1.26 $ 1.26 $ 1.20 $ 1.19
========== ========== ========== ==========
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for the 1998 grants; 8% dividend yield; expected volatility of
3.31%; risk-free interest rate of 5.46%; and expected life of six years for
directors and seven years for officers.
8
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1999
NOTE E - BRANCH ACQUISITION
Effective June 11, 1999, First Century Bank, N.A., the sole subsidiary of the
Corporation completed the acquisition of the Hinton, West Virginia branch of
City National Bank of West Virginia. The transaction was accounted for as a
purchase; accordingly, operating results of the Hinton Branch have been included
in the consolidated financial statements since the date of acquisition. The
purchase price was based on a premium on deposits of 8.4% and was allocated
based on preliminary estimates of fair value. The allocation of the purchase
price was as follows:
Cash $14,727
Net loans 39,337
Premises and equipment 1,620
Interest receivable and other assets 160
Goodwill 4,681
-------
Total assets acquired $60,525
=======
Deposits $59,958
Interest payable and other liabilities 567
-------
Total liabilities assumed $60,525
=======
Goodwill established from this acquisition is being amortized over an estimated
useful life of 15 years.
NOTE F - REGULATORY CAPITAL REQUIREMENTS
Regulators of the Corporation and its subsidiaries have implemented risk-based
capital guidelines which require the maintenance of certain minimum capital as a
percent of assets and certain off-balance sheet items adjusted for predefined
credit risk factors. The regulatory minimums as defined by regulation for Tier
1 and combined Tier 1 and Tier 2 capital ratios were 4.0% and 8.0% respectively.
Tier 1 capital includes tangible common shareholders' equity reduced by goodwill
and certain other intangibles. Tier 2 capital includes portions of the
allowance for loan losses, not to exceed Tier 1 capital. In addition to the
risk-based guidelines, a minimum leverage ratio (Tier 1 capital as a percentage
of average total consolidated assets) of 3% is required. The following table
contains the capital ratios for the Corporation and each subsidiary as of
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- --------------------------------------
Combined Capital Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage Tier 1 (Tier 1 and Tier 2) Leverage
<S> <C> <C> <C> <C> <C> <C>
Consolidated.............. 9.39% 10.62% 6.41% 12.78% 14.02% 8.84%
First Century Bank, N.A... 9.26% 10.48% 6.30% 12.39% 13.62% 8.48%
First Century Bank........ --- --- --- 13.18% 14.43% 9.60%
</TABLE>
NOTE G - NEW ACCOUNTING PRONOUNCEMENT
In July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 makes SFAS No. 133 effective for all fiscal
quarters beginning after June 15, 2000.
9
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 1999
During the third quarter of 1999 net income increased $98,000 or 12.0% from the
$820,000 earned during the third quarter of 1998, to $918,000 earned during the
same period in 1999. This improvement was primarily the result of increases in
the interest margin of $454,000, or 14.0%, and in noninterest income of
$139,000, or 21.4%. The increase in noninterest income was primarily
attributable to an increase in other operating income of approximately $119,000.
Additionally, the provision for loan losses decreased $41,000, or 33.1%,
primarily due to a successful recovery effort of a previously charged-off
commercial loan. These improvements were offset by an increase in noninterest
expenses of $533,000, or 21.5%. Earnings per share for the third quarter of
1999 were $0.46 compared to $0.41 per share for the third quarter of 1998.
When compared to the second quarter of 1999, net income increased $36,000, from
$882,000 for the quarter ended June 30, 1999, to $918,000 for the quarter ended
September 30, 1999. This was attributable to increases in the interest margin
of $430,000, or 13.1%, and in noninterest income of $29,000, or 3.8%. These
increases were offset by an increase in noninterest expenses of $458,000, or
17.9%, when compared with the second quarter of 1999. Earnings per share
increased $0.02 per share from $0.44 per share for the quarter ended June 30,
1999, to $0.46 per share for the quarter ended September 30, 1999. The
increases in the interest margin and noninterest expenses during the third
quarter of 1999 reflect the first complete quarter of operations following the
acquisition of the Hinton, West Virginia branch.
The improved performance during the third quarter enhanced the earnings for the
nine-month period ended September 30, 1999. Net income was $2,516,000 for the
first nine months of 1999 which was an increase of $107,000, or 4.4%, over the
1998 earnings of $2,409,000. The interest margin increased $446,000, or 4.7%,
as a result of the additional earning assets from the Hinton Branch acquisition.
The interest margin still reflects the declining loan demand in the
Corporation's primary markets and the deployment of funds in the investment
portfolio. Noninterest income increased $244,000, or 12.7%. All components of
noninterest income improved, reflecting enhanced pricing strategies for the
Corporation's products and services. Noninterest expenses increased $794,000,
or 11.0%, to $8,043,000 for the nine months ended September 30, 1999, from
$7,249,000 for the same period in 1998. This increase is reflected in the
additional cost of personnel due to expanding markets and additional costs of
technology and facilities.
Earnings per share for the nine-month period ended September 30, 1999 were $1.26
compared to $1.20 per share for 1998. The Corporation's performance through
September 30, 1999 reflects an annualized return on average assets of 1.00% and
a return on average equity of 11.69%.
Total assets at September 30, 1999 were $375.5 million as compared to $294.6
million at December 31, 1998. Total assets increased approximately $80.9
million, or 27.46%. Approximately $60.3 million of this growth was the result
of the completion of an acquisition of the Hinton, West Virginia branch of City
National Bank of West Virginia, during the third quarter of 1999. This
acquisition was accounted for as a purchase by the Corporation. The purchase
price was based on an 8.4% deposit premium that resulted in approximately $4.7
million in goodwill reflected in the Corporation's Consolidated Statements of
Financial Condition. Refer to Note E for a further description of this
transaction. The loan portfolio grew during this nine-month period to $242.4
million or an increase of $40.2 million or 19.9%. Approximately $39.8 million
of the increase was attributable to loans that were acquired in the Hinton
Branch acquisition. The investment portfolio increased approximately $23.3
million, or 38.3%, during the first nine months of 1999 as liquidity from the
Hinton Branch acquisition was invested in the available-for-sale portfolio until
such time as it could be redeployed in loans. Total deposits increased
approximately $72.9 million during the first nine months of 1999, with $60.5
million of this increase attributable to the Hinton Branch acquisition.
Additional increases in deposits occurred due to the deposit reallocation by
customers of a failed financial institution within the Corporation's market,
along with normal internal growth. Deposit increases occurred in both the
interest-bearing and noninterest-bearing categories.
10
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The Year 2000 (Y2K) problem continues to be a major focus of the financial
services industry. The Corporation has been working diligently on this problem
for many months. A member of senior management is directing this effort.
Internal reviews of all software and hardware have now been completed. Internal
test and contingency plans have been developed for all mission critical
applications and testing on these systems has been completed as of December 31,
1998. Contingency plans for other areas deemed not to be mission critical have
been developed and tested. Additionally, the Corporation's subsidiary bank is
undergoing quarterly reviews by its primary regulator. Management is very
focused on its efforts to provide for minimal disruptions to its operations as a
result of this problem. Management estimates that total Year 2000 project costs
will be approximately $80,000, with $60,000 having been spent through September
30, 1999 including $10,000 in the third quarter of 1999 and $30,000 through the
first nine months of the year. The remaining Year 2000 project costs are not
expected to have a material impact on Wachovia's results of operations,
liquidity or capital resources.
The failure to correct a material Y2K problem could result in an interruption
in, or a failure of, normal business activities. The corporation believes the
actions it is taking should reduce the risks posed by Year 2000 challenges to
its own systems. Management recognizes, however, that unforeseen circumstances
could arise both within its own systems and with the systems of external
entities and can give no assurances that, if such circumstances arose, they
would not adversely affect Year 2000 compliance efforts. Management believes a
significant risk to the Corporation is in the efforts of its loan customers to
become Y2K compliant. Failure to do so could result in a customer's inability
to repay its contractual loan obligations, the Corporation's largest asset. In
order to assess this risk, the Corporation has surveyed borrowers who may have
an exposure to Y2K and attempted to assess the borrowers readiness plans.
Additionally, as was previously mentioned, another significant risk to the
Corporation is in the public perception of the soundness of the banking system
and the fear that may result in significantly reduced levels of deposits in
banks. The Corporation is continuing its undertaking to inform and assist key
customers in their Y2K compliance efforts. The Corporation has planned for the
potential impact on liquidity by providing various resources to meet customer's
demands. Also, an educational program including brochures and seminars for
customers is ongoing. By helping its customers understand the significance of
Year 2000, and the ongoing preparations by the Corporation, management believes
it will further reduce the Corporation's exposure to loss.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a.) Exhibit 27 - Financial Data Schedule
(b.) None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and 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 Century Bankshares, Inc.
------------------------------
By: /s/ J. Ronald Hypes
----------------------------------
J. Ronald Hypes, Treasurer
(Principal Accounting and
Financial Officer)
Date: November 11, 1999
---------------------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,316
<INT-BEARING-DEPOSITS> 5,012
<FED-FUNDS-SOLD> 6,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72,783
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<INVESTMENTS-MARKET> 10,218
<LOANS> 242,375
<ALLOWANCE> 3,030
<TOTAL-ASSETS> 375,466
<DEPOSITS> 324,590
<SHORT-TERM> 19,610
<LIABILITIES-OTHER> 2,289
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 26,477
<TOTAL-LIABILITIES-AND-EQUITY> 375,466
<INTEREST-LOAN> 14,372
<INTEREST-INVEST> 3,179
<INTEREST-OTHER> 481
<INTEREST-TOTAL> 18,032
<INTEREST-DEPOSIT> 7,603
<INTEREST-EXPENSE> 8,037
<INTEREST-INCOME-NET> 9,995
<LOAN-LOSSES> 248
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,043
<INCOME-PRETAX> 3,867
<INCOME-PRE-EXTRAORDINARY> 2,516
<EXTRAORDINARY> 0
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<NET-INCOME> 2,516
<EPS-BASIC> 1.26
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 0.00
<LOANS-NON> 1,674
<LOANS-PAST> 4,030
<LOANS-TROUBLED> 631
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,533
<CHARGE-OFFS> 413
<RECOVERIES> 165
<ALLOWANCE-CLOSE> 3,030
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
