<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, 2000
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 November 13, 2000, was 2,000,000 shares.
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
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 - 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 10 - 11
Quantitative and Qualitative Disclosures about Market Risk.................... 12
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K.............................................. 12
SIGNATURES.................................................................... 12
</TABLE>
The total number of pages of the Form 10-Q Quarterly Report is twelve (12)
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,
2000 1999
(Unaudited) (Audited)
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,878 $ 15,372
Interest-bearing balances with banks 11,001 3,239
Securities available for sale: (cost approximated $81,193 at
September 30, 2000, and $76,224 at December 31, 1999) 80,239 74,521
Securities held to maturity: (market value approximated $10,313 at
September 30, 2000 and $9,242 at December 31, 1999) 10,383 9,455
Federal Home Loan Bank and Federal Reserve Bank Stock 1,180 1,155
Loans 242,440 243,977
Less allowance for loan losses 3,180 3,050
------------- -------------
Net loans 239,260 240,927
Premises and equipment 10,329 10,712
Real estate owned other than bank premises 490 104
Other assets 6,732 6,017
Goodwill and other intangible assets 5,739 6,076
------------- -------------
TOTAL ASSETS $ 378,231 $ 367,578
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 34,101 $ 31,743
Interest-bearing 293,261 288,152
------------- -------------
Total deposits 327,362 319,895
Federal funds purchased and securities sold under
agreements to repurchase 17,442 13,918
Demand notes to U. S. Treasury and other
liabilities for borrowed money 26 3,040
Other liabilities 2,425 1,851
------------- -------------
TOTAL LIABILITIES 347,255 338,704
------------- -------------
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 28,344 26,740
Accumulated other comprehensive loss, net of tax (653) (1,151)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 30,976 28,874
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 378,231 $ 367,578
============= =============
</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 2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 5,602 $ 5,360 $ 16,352 $ 14,372
Interest on balances with banks 58 64 119 196
Interest and dividends from securities available for sale:
Taxable 1,356 1,109 3,995 2,753
Interest and dividends from securities held to maturity:
Taxable 15 19 41 139
Tax-exempt 133 102 332 287
Interest on federal funds sold 15 90 65 285
------------ ------------- ------------- -----------
TOTAL INTEREST INCOME 7,179 6,744 20,904 18,032
INTEREST EXPENSE
Interest on time certificates of $100,000 or more 506 405 1,396 1,050
Interest on other deposits 2,408 2,491 7,027 6,553
Interest on federal funds purchased and
securities sold under agreements to repurchase 220 127 592 387
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money - 21 9 47
------------ ------------- ------------- -----------
TOTAL INTEREST EXPENSE 3,134 3,044 9,024 8,037
------------ ------------- ------------- -----------
Net interest income 4,045 3,700 11,880 9,995
Provision for loan losses 491 83 999 248
------------ ------------- ------------- -----------
Net interest income after provision for loan losses 3,554 3,617 10,881 9,747
NONINTEREST INCOME
Income from fiduciary activities 500 250 1,100 775
Other operating income 531 538 1,480 1,388
Securities losses - - (40) -
------------ ------------- ------------- -----------
TOTAL NONINTEREST INCOME 1,031 788 2,540 2,163
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,493 1,405 4,459 3,862
Premises and equipment expense 439 428 1,289 1,179
Other noninterest expense 1,140 1,181 3,332 3,002
------------ ------------- ------------- -----------
TOTAL NONINTEREST EXPENSE 3,072 3,014 9,080 8,043
------------ ------------- ------------- -----------
Income before income taxes 1,513 1,391 4,341 3,867
Provision for income taxes 534 473 1,537 1,351
------------ ------------- ------------- -----------
NET INCOME 979 918 2,804 2,516
------------ ------------- ------------- -----------
Other comprehensive income (loss), net of tax 680 73 498 (842)
------------ ------------- ------------- -----------
COMPREHENSIVE INCOME $ 1,659 $ 991 $ 3,302 $ 1,674
============ ============= ============= ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.49 $ 0.46 $ 1.40 $ 1.26
Diluted $ 0.49 $ 0.46 $ 1.40 $ 1.26
AVERAGE SHARES OUTSTANDING:
Basic 2,000,000 2,000,000 2,000,000 2,000,000
Diluted 2,000,000 2,000,000 2,000,000 2,001,907
</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)
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
---------------- --------------
<S> <C> <C>
Net income $ 2,804 $ 2,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 999 248
Depreciation and amortization 972 770
Securities losses 40 --
Net investment amortization (accretion) (1) 148
Increase in interest receivable and other assets (1,240) (1,108)
Increase in interest payable and other liabilities 306 532
---------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,880 3,106
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held to maturity (1,779) (1,158)
Purchases of securities available for sale (20,410) (45,917)
Purchases of Federal Home Loan Bank Stock (25) (37)
Purchases of Federal Reserve Bank Stock -- (68)
Proceeds from maturities and calls of securities held to maturity 816 4,693
Proceeds from maturities and calls of securities available for 10,472 17,743
sale
Proceeds from sales of securities available for sale 4,967 --
Net (increase) decrease in loans 1,095 (448)
Net cash received from branch acquisition -- 14,727
Acquisition of fixed assets (322) (329)
---------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (5,186) (10,794)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits (2,126) 7,335
Net increase in time deposits 9,390 5,569
Net increase in short-term borrowings 510 6,564
Cash dividends paid (1,200) (1,200)
---------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,574 18,268
---------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,268 10,580
CASH AND CASH EQUIVALENTS AT JANUARY 1, 18,611 17,748
---------------- --------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30, $ 23,879 $ 28,328
================ ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,582 $ 7,220
Income taxes 1,568 1,343
See accompanying notes to consolidated financial statements
</TABLE>
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)
2000 1999
------------- -------------
<S> <C> <C>
BALANCE, JANUARY 1, $ 28,874 $ 28,503
Net income 2,804 2,516
Cash dividends declared - $0.60 per share in 2000 and 1999 1,200 1,200
Other comprehensive income (loss), net of tax 498 (842)
------------- -------------
BALANCE, SEPTEMBER 30, $ 30,976 $ 28,977
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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, 2000, and are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999.
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, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
(Dollars in thousands)
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Unrealized holding gains (losses) arising during
the period $ 1,025 $ 115 $ 709 $ (1,256)
Reclassification adjustment for losses
included in net income -- -- 40 --
----------- ---------- ----------- ----------
Other comprehensive income (loss) before tax 1,025 115 749 (1,256)
Income tax (expense) benefit related to other
comprehensive income (loss) (345) (42) (251) 414
----------- ---------- ----------- ----------
Other comprehensive income (loss) $ 680 $ 73 $ 498 $ (842)
=========== ========== =========== ==========
</TABLE>
6
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
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, 2000 and 1999:
<TABLE>
<CAPTION>
For the three months ended September 30,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------
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 $ 979,000 2,000,000 $ 0.49 $ 918,000 2,000,000 $ 0.46
======== =========
Effect of dilutive securities -
Stock options 0 0 0 0
---------- --------- ---------- ---------
Diluted EPS
Income available to common
shareholders and assumed
conversions $ 979,000 2,000,000 $ 0.49 $ 918,000 2,000,000 $ 0.46
========== ========== ======== ========== ========= =========
<CAPTION>
For the nine months ended September 30,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------
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 $2,804,000 2,000,000 $ 1.40 $2,516,000 2,000,000 $ 1.26
========= =========
Effect of dilutive securities -
Stock options 0 0 0 1,907
---------- --------- ---------- ---------
Diluted EPS
Income available to common
shareholders and assumed
conversions $2,804,000 2,000,000 $ 1.40 $2,516,000 2,001,907 $ 1.26
========== ========= ========= ========== ========= =========
</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, 2000, no options were granted under
the Officer Plan. The weighted average remaining contractual life of currently
outstanding options is 93 months. At September 30, 2000, 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, 2000, no options had
been exercised under the Officer Plan, and 6,250 options had expired
unexercised.
7
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
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, 2000, no options were granted under the Director
Plan. The weighted average remaining contractual life of currently outstanding
options is 93 months. At September 30, 2000, 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, 2000, no options had been exercised
under the Director Plan.
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,
-------------------------------------------------
2000 1999
------------------------ -----------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net income $ 979,000 $ 975,000 $ 918,000 $ 914,000
========== ========== ========== ==========
Net income per share - basic $ 0.49 $ 0.49 $ 0.46 $ 0.46
========== ========== ========== ==========
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------
2000 1999
------------------------ -----------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net income $2,804,000 $2,792,000 $2,516,000 $2,504,000
========== ========== ========== ==========
Net income per share - basic $ 1.40 $ 1.40 $ 1.26 $ 1.25
========== ========== ========== ==========
</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, 2000
NOTE E - 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 4% is required. The following table
contains the capital ratios for the Corporation and each subsidiary as of June
30, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------------------------
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.............. 10.27% 11.52% 7.07% 9.39% 10.62% 6.41%
First Century Bank, N.A... 10.07% 11.32% 6.90% 9.26% 10.48% 6.30%
</TABLE>
NOTE F - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities and in July 1999 issued SFAS 137 which deferred the
effective date of SFAS 133, as it pertains to the Corporation, to fiscal years
beginning after July 1, 2000. This statement is not expected to have a material
impact on the Corporation.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. It is
effective no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. This pronouncement is not expected to have a material
impact on the Corporation.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44) which clarifies the application of Accounting
Principles Board Opinion 25 for certain transactions. The interpretation
addresses many issues related to granting or modifying stock options including
changes in accounting for modifications of awards (increased life, reduction of
exercise price, etc.). It was effective July 1, 2000 but certain conclusions
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The affects of applying the interpretation are to be recognized on a
prospective basis from July 1, 2000. FIN 44 has not had a material impact on
the Corporation.
In September 2000, the FASB issued SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement replaces SFAS 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of
Statement 125's provisions without reconsideration. This statement shall be
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. This Statement shall be applied
prospectively and is not expected to have a material impact on the Corporation.
9
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
NOTE G - SUBSEQUENT EVENTS
Subsequent to September 30, 2000, but prior to the filing of this report, the
Corporation became aware of a defalcation involving one of the Corporation's
customers. If not satisfactorily resolved, this event could have a significant
effect on the Corporation's earnings as early as the fourth quarter and for the
year ended December 31, 2000. As of the date of this release, the estimate of
the maximum potential pretax exposure to the Corporation could range from
$500,000 to $900,000, and would be reflected as additional noninterest expense.
If necessary, the Corporation will vigorously pursue all of its legal and
factual defenses in consultation with legal counsel.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the third quarter of 2000 net income increased $61,000 or 6.6% from the
$918,000 earned during the third quarter of 1999, to $979,000 earned during the
same period in 2000. This improvement was primarily the result of increases in
the interest margin of $345,000, or 9.3%, and in noninterest income of $243,000,
or 30.8%. The increase in noninterest income was primarily attributable to an
increase in income from fiduciary activities of approximately $250,000. These
improvements were offset by an increase in the provision for loan losses of
$408,000, primarily due to deterioration in the collectability of certain
commercial loans. A modest increase in noninterest expenses of $58,000, or 1.9%
further offset these improvements. Earnings per share for the third quarter of
2000 were $0.49 compared to $0.46 per share for the third quarter of 1999.
When compared to the second quarter of 2000, net income increased $107,000, from
$872,000 for the quarter ended June 30, 2000, to $979,000 for the quarter ended
September 30, 2000. This was attributable to increases in the interest margin
of $80,000, or 2.0%, and in noninterest income of $281,000, or 37.5%. Again,
the increase in noninterest income was primarily the result of a $200,000
increase in income from fiduciary activities over the second quarter of 2000.
These increases were offset by an increases in the provision for loan losses of
$157,000, or 47.0% and in noninterest expenses of $47,000, or 1.6%, when
compared with the second quarter of 2000. Earnings per share increased $0.05
per share from $0.44 per share for the quarter ended June 30, 2000, to $0.49 per
share for the quarter ended September 30, 2000.
The improved performance during the third quarter enhanced the earnings for the
nine-month period ended September 30, 2000. Net income was $2,804,000 for the
first nine months of 2000 which was an increase of $288,000, or 11.4%, over the
1999 earnings of $2,516,000. The interest margin increased $1,885,000, or
18.9%. This increase was attributable to a full nine months of operations from
the Hinton office in 2000, as well as the repricing that occurred in the loan
portfolio as a result of the rising interest rate environment experienced
through the first six months of 2000. 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 $377,000, or
17.4%. The primary contributor to the improvement in noninterest income was a
$325,000, or 41.9%, increase in income from fiduciary activities. Noninterest
expenses increased $1,037,000, or 12.9%, to $9,080,000 for the nine months ended
September 30, 2000, from $8,043,000 for the same period in 1999. This increase
is the result of additional cost of personnel and goodwill amortization due to
expanding markets and additional costs of technology and facilities.
Earnings per share for the nine-month period ended September 30, 2000 were $1.40
compared to $1.26 per share for 1999. The Corporation's performance through
September 30, 2000 reflects an annualized return on average assets of 1.01% and
a return on average equity of 12.63%.
10
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
September 30, 2000
Total assets increased $10,653,000 from December 31, 1999 to September 30, 2000.
Total assets at September 30, 2000 were approximately $378.2 million as compared
to approximately $367.6 million at December 31, 1999. The loan portfolio
declined slightly during this nine-month period to $242.4 million or a decrease
of $1.5 million or 0.6%. The investment portfolio increased approximately $6.7
million, or 7.8%, during the first nine months of 2000. Total deposits
increased approximately $7.5 million during the first nine months of 2000.
Deposit increases of $5.1 million, or 1.8%, occurred in the interest-bearing
category and noninterest-bearing deposits increased approximately $2.4 million,
or 7.4%.
Subsequent to September 30, 2000, but prior to the filing of this report, the
Corporation became aware of a defalcation involving one of the Corporation's
customers. If not satisfactorily resolved, this event could have a significant
effect on the Corporation's earnings as early as the fourth quarter and for the
year ended December 31, 2000. As of the date of this release, the estimate of
the maximum potential pretax exposure to the Corporation could range from
$500,000 to $900,000, and would be reflected as additional noninterest expense.
If necessary, the Corporation will vigorously pursue all of its legal and
factual defenses in consultation with legal counsel.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities and in July 1999 issued SFAS 137 which deferred the
effective date of SFAS 133, as it pertains to the Corporation, to fiscal years
beginning after July 1, 2000. This statement is not expected to have a material
impact on the Corporation.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. It is
effective no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. This pronouncement is not expected to have a material
impact on the Corporation.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44) which clarifies the application of Accounting
Principles Board Opinion 25 for certain transactions. The interpretation
addresses many issues related to granting or modifying stock options including
changes in accounting for modifications of awards (increased life, reduction of
exercise price, etc.). It was effective July 1, 2000 but certain conclusions
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The affects of applying the interpretation are to be recognized on a
prospective basis from July 1, 2000. FIN 44 has not had a material impact on
the Corporation.
In September 2000, the FASB issued SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement replaces SFAS 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of
Statement 125's provisions without reconsideration. This statement shall be
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. This Statement shall be applied
prospectively and is not expected to have a material impact on the Corporation.
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<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is incorporated herein by reference to
the "Asset and Liability Management and Interest Rate Sensitivity" subsection of
the Management's Discussion and Analysis section contained in the Company's 1999
Annual Report to shareholders. Management believes there has been no material
change in either interest rate risk or market risk since December 31, 1999.
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 13, 2000
-------------------------
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