ITEM 1. BUSINESS
FIRST CENTURY BANKSHARES, INC.
First Century Bankshares, Inc. ("Corporation" or "Registrant"), formerly Pocahontas Bankshares Corporation, was organized under the laws of West Virginia in 1983 at the direction of the Board of Directors of The First National Bank of Bluefield ("Bluefield"). On March 1, 1984, the effective date of the corporate reorganization, the shareholders of Bluefield became the shareholders of the Corporation, and Bluefield became a wholly-owned subsidiary of the Corporation. On March 11, 1988, the Registrant acquired control of the Bank of Oceana, Oceana, WV ("Oceana"). On May 24, 1991, the Registrant formed First Century Bank, Roanoke, Virginia. During 1993, the main office of First Century Bank was redesignated to Wytheville, Virginia. Effective November 28, 1994, the merger of Bank of Oceana into The First National Bank of Bluefield was completed and the name of the resulting entity was changed to First Century Bank, National Association ("FCBNA"), with its main office in Bluefield, West Virginia. Effective May 7, 1999, First Century Bank was merged into FCBNA. Substantially, all of the operations of the Corporation are carried on through FCBNA which is the Registrant's only subsidiary. The officers and directors of the Corporation, who are also officers and directors of FCBNA, receive their entire compensation from FCBNA. The Corporation's executive offices are located at 500 Federal Street, Bluefield, West Virginia.
The Registrant's principal business and major source of revenue is, and is expected to remain, commercial banking. The Registrant currently derives substantially all its revenues from dividends paid by the subsidiary bank. The earnings, asset growth and current capital position of the subsidiary influence dividend payments by FCBNA. In addition, various regulatory agencies control the payment of dividends. For additional information regarding the payment of dividends, see Note 16 of the Notes to the Consolidated Financial Statements in the Registrant's 2000 Annual Report to the Stockholders attached as Exhibit 13 to this report.
FIRST CENTURY BANK, N.A.
First Century Bank, N.A., a national banking association, was organized and chartered in 1891 as The First National Bank of Bluefield, under the laws of the State of West Virginia and the National Bank Act. FCBNA offers customary banking services, including commercial, real estate, installment, and other loans; interest-bearing and non-interest bearing transaction accounts, savings and time deposit accounts including certificates and other deposit accounts, featuring various maturities and market rates; Individual Retirement Accounts; Visa and MasterCard services under an arrangement with a correspondent bank; safe deposit facilities; personal and corporate trust services; and various cash management services.
During 2000, management made commitments to expand nontraditional financial services offered to the Corporation's customers. The Corporation entered into an affiliation arrangement with Salomon Smith Barney, Inc. to provide full service brokerage services. Additionally, the Corporation entered into an affiliation with the Banker's Insurance Corporation, a relationship with 67 community banks, which will offer a full range of insurance products and services.
In addition to the main office, FCBNA currently operates nine additional branches in Mercer, Summers and Wyoming counties in southern West Virginia and Tazewell and Wythe Counties in southwestern Virginia. As of December 31, 2000, FCBNA had 163 full-time employees and 15 part-time employees. FCBNA is not a party to any collective bargaining agreements, and, in the opinion of management, enjoys satisfactory relations with its employees.
COMPETITION
Vigorous and intense competition exists in all areas where the Registrant and its subsidiary are engaged in business, generally from other banks located in southern West Virginia and southwestern Virginia. However, this competition is not only limited to other commercial banks. The subsidiary banks also compete for certain lines of business with savings and loan associations, mortgage companies, credit unions, consumer finance companies, leasing companies, insurance companies, mutual funds and brokerage firms. Significant competition also exists from state-wide and nation-wide bank holding companies located in West Virginia and Virginia, which have offices in the communities the Registrant serves. These institutions are larger in terms of capital, resources and personnel. This requires that the Registrant place a high emphasis on quality service, with a significant amount of personal attention, in
order to effectively compete with these larger institutions. Management feels that this competitive environment will continue in the markets in which the Registrant currently operates.
FUTURE ACQUISITIONS AND EXPANSION
The Registrant may from time to time consider expansion of its banking operations through acquisition of or formation of other banks and/or bank related businesses. In addition to traditional banking products and services, with the passage of the Graham-Leach-Bliley Financial Modernization Act, the registrant will evaluate the potential of offering new financial services allowed under the Act.
SUPERVISION AND REGULATION
The Corporation is under the jurisdiction of the United States Securities and Exchange Commission and the State of West Virginia's Secretary of State with respect to matters relating to the offer and sale of its securities and matters relating to reporting to such commissions and to its shareholders.
The Corporation is a registered holding company under the Bank Holding Company Act of 1956, as amended, and is regulated by the Federal Reserve. As a bank holding company, the Corporation is required to file with the Federal Reserve an Annual Report and such additional information as the Federal Reserve may require pursuant to the Bank Holding Company Act. The Federal Reserve may also conduct examinations of the Corporation and each subsidiary. The Bank Holding Company Act requires every bank holding company to obtain prior approval from the Federal Reserve before acquiring direct or indirect ownership or control of more than five percent of the voting shares of any bank which is not already majority owned or controlled by that bank holding company. Pursuant to West Virginia law, the Corporation is authorized to acquire ownership or control of additional banks in the state of West Virginia, provided, this does not result in control of more than twenty percent (20%) of the total deposits of all depository institutions in the state of West Virginia. Acquisition of such additional banks would require approval from the Federal Reserve and the Commissioner of Banking of the State of West Virginia.
The Bank Holding Company Act further provides that the Federal Reserve will not approve any acquisition, merger or consolidation (a) which would result in a monopoly, (b) which would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States, (c) the effect of which may be to substantially lessen competition or to tend to create a monopoly in any section of the country or (d) which in any other manner would be in restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in the probable effect of the transaction meeting the convenience and needs of the community to be served.
In addition to having the right to acquire ownership and control of other banks, the Corporation is authorized to acquire ownership and control of non-banking companies, provided the activities of such companies are so closely related to banking or managing or controlling banks that the Federal Reserve considers such activities to be proper to the operation and control of banks. Regulation Y, promulgated by the Federal Reserve, sets forth those activities which are regarded as closely related to banking or managing or controlling banks and thus are permissible activities for bank holding companies, subject to the approval by the Federal Reserve in individual cases.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Bank Holding Company Act on any extension of credit to the bank holding company or any of its subsidiaries, on investment in the stock or other securities thereof, and on the taking of such stock or securities for loans to any borrower. Further, under Section 106 of the 1970 amendments to the Bank Holding Company Act and the regulations of the Federal Reserve, a bank holding company through its banking subsidiaries is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. The Federal Reserve possesses cease and desist powers over bank holding companies and their non-bank subsidiaries if their actions are unsafe or unsound practices or violations of law.
FCBNA operates as a national banking association subject to examination by the Office of the Comptroller of the Currency (the "Comptroller"). The Comptroller regulates all areas of a national bank's operations, both commercial and trust, including loans, deposits, mergers, branches and payments of dividends.
FCBNA, by means of its national charter, is also a member of the Federal Reserve System, and as such, is affected by the monetary policies of the Federal Reserve System, which regulates the national money supply in order to mitigate recessionary and inflationary pressures. The instruments of monetary policy employed by the Federal Reserve include open market operations in U. S. Government securities, changes in the reserve requirement for member banks, and changes in the discount rate for member bank borrowings.
In view of the changing conditions in the national economy and the money markets, as well as, the effect of actions by monetary and fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand of the business and earnings of the Corporation or its subsidiaries.
FCBNA is also insured and regulated by the Federal Deposit Insurance Corporation (the "FDIC"). The major function of the FDIC with respect to insured member banks is to pay depositors to the extent provided by law in the event an insured bank is closed without adequately providing for payment of the claims of the depositors.
STATISTICAL DISCLOSURE
The statistical and other financial data disclosures required pursuant to Guide 3 of the Preparation and Filing of Reports and Registration Statements under the Securities Exchange Act of 1934 are contained within Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 3 through 19 of the accompanying 2000 Annual Report to Stockholders, incorporated herein by reference in this Form 10-K annual report as Exhibit 13.
ITEM 2.
ITEM 2. PROPERTIES
The executive offices of the Registrant are located at 500 Federal Street, Bluefield, West Virginia. There are ten properties owned or leased by the subsidiary banks consisting of modern single purpose facilities that house all the amenities to comfortably conduct the full range of financial services provided by the Registrant and its subsidiaries. Eight of these offices are owned and two are leased.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Neither the Registrant nor any of its subsidiaries are presently involved in any material legal proceedings other than ordinary routine litigation incidental to its business, except as follows:
In First Century Bank, National Association, v. Community National Bank, in the United States District Court, Western District of Virginia, Roanoke Division, Case No. 7:00CV00904, FCBNA brought suit against the defendant seeking recovery of approximately $3,400,000 plus interest and costs related to the dishonor of checks presented for payment by FCBNA as a depository bank and violations of Regulation CC of The Code of Federal Regulations, Part 229 of Title 12. The defendant has filed third party complaints against additional parties. While the net recovery cannot be stated with reasonable certainty, the claims asserted against the defendant are valid and a recovery is expected.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders for a vote during the fourth quarter ended December 31, 2000.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No established public market presently exists for the common stock of the Registrant. Quotations may be obtained through the OTC Bulletin Board under the trading symbol FCBS. Management does not expect that a more active trading market will develop in the near future for the common stock of the Registrant.
Page 17 of the 2000 Annual Report to Stockholders (incorporated herein by reference) describes further the information for market, stockholders, and dividends. The payment of dividends is subject to the restrictions described in Note 16 of the Notes to Consolidated Financial Statements. The Board of Directors evaluates the dividend payment on the Registrant's common stock after the conclusion of each calendar quarter.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required by this item is set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations on page 19 of the Registrant's 2000 Annual Report to Stockholders (Exhibit 13), incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 3 through 19 of the accompanying 2000 Annual Report to Stockholders is incorporated by reference in this Form 10-K annual report as Exhibit 13. Management's discussion and analysis should be read in conjunction with the related financial statements and notes thereto.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information for this item can be found in the Asset and Liability Management and Interest Rate Sensitivity section of Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 12 through 13; and Note 15, Financial Instruments, Concentrations of Credit and Fair Values, appearing on pages 37 through 38 of the accompanying 2000 Annual Report to Stockholders, and is incorporated by reference in this Form 10-K
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and report of independent accountants for the years ended December 31, 2000, 1999, and 1998, which are included in the Corporation's 2000 Annual Report to Stockholders (Exhibit 13), are incorporated herein by reference:
The report of independent accountants on page 42 of the Registrant's 2000 Annual Report to Stockholders reflects an unqualified opinion on the 2000 and 1999 consolidated statements of financial condition and the related consolidated statements of income and comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, issued by PricewaterhouseCoopers, LLP, Greensboro, North Carolina, the Registrant's independent accountant for those years.
Reference to 2000 Annual Report ------------------ Consolidated Statements of Financial Condition Page 20 Consolidated Statements of Income and Comprehensive Income Page 21 Consolidated Statements of Cash Flows Page 22 Consolidated Statements of Changes in Stockholders' Equity Page 23 Notes to Consolidated Financial Statements Pages 24 through 41 Report of Independent Accountants Page 42
The supplementary financial information required by this item is set forth in Note 17 of "Notes to Consolidated Financial Statements" on Page 40 of the Corporation's 2000 Annual Report to Stockholders (Exhibit 13), incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with the independent accountants on accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors and executive officers of the Registrant has been omitted in accordance with General Instruction G since Registrant has filed its definitive proxy statement with the Commission on or about March 23, 2001 (which is not later than 120 days after December 31, 2000, the close of the fiscal year of Registrant): and such information is incorporated herein by reference to such proxy statement.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Management remuneration has been omitted in accordance with General Instruction G since Registrant has filed its definitive proxy statement with the Commission on or about March 23, 2001, (which is not later than 120 days after December 31, 2000, the close of the fiscal year of Registrant): and such information is incorporated herein by reference to such proxy statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management has been omitted in accordance with General Instruction G since Registrant has filed its definitive proxy statement with the Commission on or about March 23, 2001, (which is not later than 120 days after December 31, 2000, the close of the fiscal year of Registrant): and such information is incorporated herein by reference to such proxy statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and related transactions has been omitted in accordance with General Instruction G since Registrant has filed its definitive proxy statement with the commission on or about March 23, 2001, (which is not later than 120 days after December 31, 2000, the close of the fiscal year of Registrant): and is incorporated herein by reference to such proxy statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. See Item 8 on Page 6 of this document for a listing of all Financial Statements, Accountants' Report, and Supplementary Data.
2. Financial Statement Schedules. All schedules are omitted, as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related notes.
(b) Reports on Form 8-K. On November 13, 2000, the Corporation filed a current report on Form 8-K announcing its earnings for the period ended September 30, 2000 and warned of lower earnings for the year ended December 31, 2000.
(c) Exhibits
3. Articles of incorporation and bylaws. Articles of amendment to articles of incorporation and restated articles of incorporation were filed with the Annual Report on Form 10-K for the year ended December 31, 1999 and are incorporated herein by reference. (Bylaws were previously filed in a Registration Statement on Form S-14, Registration No. 2-85126, and are incorporated herein by reference.)
10. Material Contracts a. Sample agreement pertaining to a split-dollar life insurance arrangement between FCBNA and Messrs. Wilkinson, Satterfield, Kennett and Albert.
11. Statement regarding computation of per share earnings. (These statements are included in the notes to the consolidated financial statements which are incorporated herein by reference.)
13. Annual report to security holders.
22. Subsidiaries of the registrant. (This disclosure is included in the notes to the consolidated financial statements which are incorporated herein by reference.)
SIGNATURES
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 Century Bankshares, Inc.
BY: /s/ J. Ronald Hypes -------------------------------------- J. Ronald Hypes, Treasurer (Principal Accounting & Financial Officer)
DATE: March 21, 2001 ------------------------------------
Pursuant to the requirements of the Securities Exchange 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.