<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: March 31, 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 May 11, 2000, was 2,000,000 shares.
1
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FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <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 - 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9 - 10
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K................................. 10
SIGNATURES....................................................... 10
</TABLE>
The total number of pages of the Form 10-Q Quarterly Report is ten (10) pages.
2
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data) March 31, December 31,
2000 1999
(Unaudited) (Audited)
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,124 $ 15,372
Interest-bearing balances with banks 2,368 3,239
Federal funds sold 1,500 --
Securities available for sale: (cost approximated $83,489 at
March 31, 2000, and $76,224 at December 31, 1999) 81,405 74,521
Securities held to maturity: (market value approximated $9,292 at
March 31, 2000 and $9,242 at December 31, 1999) 9,526 9,455
Federal Home Loan Bank and Federal Reserve Bank Stock 1,155 1,155
Loans 239,388 243,977
Less allowance for loan losses 3,050 3,050
------------- -------------
Net loans 236,338 240,927
Premises and equipment 10,625 10,712
Real estate owned other than bank premises 133 104
Other assets 6,663 6,017
Goodwill and other intangible assets 5,963 6,076
------------- -------------
TOTAL ASSETS $ 367,800 $ 367,578
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 33,523 $ 31,743
Interest-bearing 287,996 288,152
------------- -------------
Total deposits 321,519 319,895
Federal funds purchased and securities sold under
agreements to repurchase 14,524 13,918
Demand notes to U. S. Treasury and other
liabilities for borrowed money 26 3,040
Other liabilities 2,556 1,851
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TOTAL LIABILITIES 338,625 338,704
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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 27,293 26,740
Accumulated other comprehensive loss, net of tax (1,403) (1,151)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 29,175 28,874
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 367,800 $ 367,578
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited) Three Months Ended
March 31,
--------
(Dollars in thousands, except per share data)
2000 1999
------------------ ----------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,317 $ 4,378
Interest on balances with banks 42 66
Interest and dividends from securities
available for sale:
Taxable 1,270 757
Interest and dividends from securities held to maturity:
Taxable 21 65
Tax-exempt 102 87
Interest on federal funds sold 37 90
------------- -------------
TOTAL INTEREST INCOME 6,789 5,443
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 443 311
Interest on other deposits 2,308 1,962
Interest on federal funds purchased and securities
sold under agreements to repurchase 160 133
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money 8 12
------------- -------------
TOTAL INTEREST EXPENSE 2,919 2,418
------------- -------------
Net interest income 3,870 3,025
Provision for loan losses 174 45
------------- -------------
Net interest income after provision for loan losses 3,696 2,980
NONINTEREST INCOME
Income from fiduciary activities 300 225
Other operating income 459 391
------------- -------------
TOTAL NONINTEREST INCOME 759 616
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,485 1,211
Furniture and equipment expense 411 369
Other noninterest expense 1,087 893
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TOTAL NONINTEREST EXPENSE 2,983 2,473
------------- -------------
Income before income taxes 1,472 1,123
Provision for income taxes 519 407
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NET INCOME 953 716
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Other comprehensive loss, net of tax (252) (267)
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COMPREHENSIVE INCOME $ 701 $ 449
============= =============
NET INCOME PER COMMON SHARE:
Basic $ 0.48 $ 0.36
Diluted $ 0.48 $ 0.36
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 2,000,000 2,000,000
Diluted 2,000,000 2,005,675
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Ended
March 31,
--------
(Dollars in thousands)
2000 1999
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 953 $ 716
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 174 45
Depreciation and amortization 323 218
Net investment amortization and accretion 6 49
Increase in interest receivable and other assets (562) (222)
Increase in interest payable and other liabilities 616 539
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,510 1,345
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held to maturity (103) --
Purchases of securities available for sale (11,417) (15,018)
Proceeds from maturities and calls of securities held to 19 3,026
maturity
Proceeds from maturities and calls of securities available for 4,159 6,161
sale
Net decrease in loans 4,558 1,442
Acquisition of fixed assets (161) (35)
------------- -------------
NET CASH USED BY INVESTING ACTIVITIES (2,945) (4,424)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 1,352 3,333
Net increase in time deposits 272 3,579
Net (decrease) increase in short-term borrowings (2,408) 4,988
Cash dividends paid (400) (400)
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NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,184) 11,500
------------- -------------
Net (decrease) increase in cash and cash equivalents (2,619) 8,421
Cash and cash equivalents at January 1, 18,611 17,748
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Cash and cash equivalents at March 31, $ 15,992 $ 26,169
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,775 $ 2,254
Income taxes -- 135
</TABLE>
See accompanying notes to consolidated financial statements
5
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FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited) Three Months Ended
March 31,
---------
(Dollars in thousands)
2000 1999
-------------- ---------------
<S> <C> <C>
BALANCE, JANUARY 1, $ 28,874 $ 28,503
Net income 953 716
Cash dividends declared - $0.20 per share in 2000 and 1999 400 400
Other comprehensive loss, net of tax (252) (267)
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BALANCE, MARCH 31, $ 29,175 $ 28,552
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three-
month period ended March 31, 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-month periods ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Unrealized holding gains (losses) arising during the period $(380) $(400)
Reclassification adjustment for (gains) losses included in net income -- --
----- -----
Other comprehensive income (loss) before tax (380) (400)
Income tax benefit related to other comprehensive income (loss) 128 133
----- -----
Other comprehensive income (loss) $(252) $(267)
===== =====
</TABLE>
6
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 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-month
periods ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
For the three months ended March 31,
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 $ 953,000 2,000,000 $ 0.48 $ 716,000 2,000,000 $ 0.36
========== ==========
Effect of dilutive securities -
Stock options 0 0 0 5,675
---------- --------- ---------- ---------
Diluted EPS
Income available to common
shareholders and assumed
conversions $ 953,000 2,000,000 $ 0.48 $ 716,000 2,005,675 $ 0.36
========== ========= =========== ========== ========= ==========
</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 three months ended March 31, 2000, no options were granted under the
Officer Plan. The weighted average remaining contractual life of currently
outstanding options is 99 months. At March 31, 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 March 31, 2000, no options had been
exercised under the Officer Plan, and 6,250 options had expired unexercised.
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 three
months ended March 31, 2000, no options were granted under the Director Plan.
The weighted average remaining contractual life of currently outstanding options
is 99 months. At March 31, 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 March 31, 2000, no options had been exercised under the
Director Plan.
7
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2000
NOTE D - COMPENSATION PLANS (Continued)
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 March 31,
-----------------------------------------------
2000 1999
----------------------- ----------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income $953,000 $949,000 $716,000 $712,000
======== ======== ======== ========
Net income per share - basic $ 0.48 $ 0.47 $ 0.36 $ 0.36
======== ======== ======== ========
</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.
NOTE E - REGULATORY CAPITAL REQUIREMENTS
Regulators of the Corporation and its subsidiary 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 as of March 31, 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 9.92% 11.15% 6.79% 12.84% 14.05% 8.94%
First Century Bank, N.A. 9.75% 10.99% 6.66% 12.56% 13.78% 8.63%
First Century Bank -- -- -- 12.90% 14.07% 9.61%
</TABLE>
8
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2000
NOTE F - NEW ACCOUNTING PRONOUNCEMENT
In June of 1998, the Financial Accounting Standards Board issued SFAS No.
133,"Accounting for Derivative Instruments and Hedging Activities". As amended,
SFAS No 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. This standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Based on its operations
at March 31, 2000, management does not expect this standard to have a material
effect on the Corporation's consolidated financial statements upon adoption.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2000
During the first quarter of 2000 net income increased $237,000 or 33.1% from
$716,000 earned during the first three months of 1999, to $953,000 earned during
the same period in 2000. Net interest income for the period ended March 31,
2000 increased $845,000 or 27.9% to $3.87 million as compared to $3.03 million
for the first three months of 1999. Noninterest income increased $143,000 or
23.2% to $759,000 for the period ended March 31, 2000, compared to $616,000 for
the same period in 1999. Noninterest expense increased 20.6% to $2.98 million at
March 31, 2000, compared to $2.47 million at March 31, 1999. Excluding merger
related charges for goodwill amortization, noninterest expenses from operations
only increased 17.7%. The major contributor to the improvement in the
Corporation's earnings from the first quarter of 1999 was the addition of the
Hinton, West Virginia office during the second quarter of 1999.
Compared to the fourth quarter of 1999, net interest income increased 3.9% from
$3.73 million to $3.87 million for the period ended March 31, 2000. Noninterest
income decreased $270,000 to $759,000 for the period ended March 31, 2000
compared to $1,029,000 for the three-month period ended December 31, 1999.
Approximately $150,000 of this decline was attributable to annual fees for
fiduciary activities that are normally collected in December. Noninterest
expense decreased 2.5% from $2.98 million for the period ended March 31, 2000,
when compared to $3.06 million for the three-month period ended December 31,
1999. This was primarily attributable to 1999 year-end incentive compensation
accruals for the Corporation's Executive Bonus Plan that were recognized in the
fourth quarter of 1999.
On a per share basis, earnings per common share for period ended March 31, 2000
were $0.48, compared to $0.36 for the period ended March 31, 1999, and $0.45 for
the three-month period ended December 31, 1999. This reflected an annualized
return on average assets of 1.03% and an annualized return on average equity of
13.15% for the period ended March 31, 2000, compared to 0.95% and 10.01% for the
period ended March 31, 1999.
The trend in earnings through the first quarter of 2000 reflects management's
commitment to enhancing the performance of the Corporation through controlled
expansion in markets surrounding the current service areas, as well as, working
to improve operational efficiency throughout the organization. Management is
committed to improving the earnings and financial condition of the Corporation.
Various strategies for lending and deposit gathering are in effect to maximize
the performance under various interest rate scenarios and economic conditions.
Management believes that controlled growth and cost management will provide for
the long-term financial strength of the Corporation.
9
<PAGE>
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Total assets increased $222,000 from December 31, 1999 to March 31, 2000. Total
assets at March 31, 2000 were approximately $367.8 million as compared to
approximately $367.6 million at December 31, 1999. The loan portfolio decreased
1.9% during this three-month period, to approximately $239.4 million. The
investment portfolio increased approximately $6.9 million, or 8.2%, during this
same period. During the first quarter of 2000, short-term investments that were
accumulated in anticipation of liquidity concerns surrounding the Year 2000
(Y2K) problem were deployed into more profitable investments. Total deposits
increased by $1.6 million to $321.5 million at March 31, 2000 from $319.9
million at December 31, 1999. The increase in deposits was primarily in the
noninterest-bearing category. Competition for deposits remains strong in the
Corporation's primary trade areas between banks and other nontraditional
financial service providers.
Management continued to monitor for Year 2000 (Y2K) problems during the first
quarter of 2000. As a result of the extensive planning and preparation, the
Corporation experienced no Y2K related problems with either its own internal
systems or with its customers or vendors.
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: May 11, 2000
----------------------
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 12,124
<INT-BEARING-DEPOSITS> 2,368
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,560
<INVESTMENTS-CARRYING> 9,526
<INVESTMENTS-MARKET> 9,292
<LOANS> 239,388
<ALLOWANCE> 3,050
<TOTAL-ASSETS> 367,800
<DEPOSITS> 321,519
<SHORT-TERM> 14,550
<LIABILITIES-OTHER> 2,556
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 26,675
<TOTAL-LIABILITIES-AND-EQUITY> 367,800
<INTEREST-LOAN> 5,317
<INTEREST-INVEST> 1,393
<INTEREST-OTHER> 79
<INTEREST-TOTAL> 6,789
<INTEREST-DEPOSIT> 2,751
<INTEREST-EXPENSE> 2,919
<INTEREST-INCOME-NET> 3,870
<LOAN-LOSSES> 174
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,983
<INCOME-PRETAX> 1,472
<INCOME-PRE-EXTRAORDINARY> 953
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 953
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 0.00
<LOANS-NON> 4,244
<LOANS-PAST> 995
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,050
<CHARGE-OFFS> 184
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 3,050
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
