Back to GetFilings.com
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: June 30, 2002
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 August 13, 2002, was 1,991,200 shares.
1
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 - 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................. 11 - 13
Quantitative and Qualitative Disclosures about Market Risk ..................................... 13
PART II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders ............................................ 14
Exhibits and Reports on Form 8-K ............................................................... 14
SIGNATURES ..................................................................................... 14
The total number of pages of the Form 10-Q Quarterly Report is fourteen (14)
pages.
2
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data) June 30, December 31,
2002 2001
ASSETS (Unaudited) (Audited)
------------- -------------
Cash and due from banks $ 15,769 $ 15,427
Interest-bearing balances with banks 5,704 862
Federal funds sold 4,000 2,000
Securities available for sale 79,075 75,585
Securities held to maturity: (market value approximated $10,566 at
June 30, 2002 and $10,859 at December 31, 2001) 10,258 10,708
Federal Home Loan Bank and Federal Reserve Bank Stock 1,174 1,226
Loans 232,812 244,068
Less allowance for loan losses 3,180 3,180
------------- -------------
Net loans 229,632 240,888
Premises and equipment 10,351 10,651
Real estate owned other than bank premises 1,140 1,279
Other assets 5,409 5,394
Goodwill and other intangible assets 5,183 5,183
------------- -------------
TOTAL ASSETS $ 367,695 $ 369,203
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 39,560 $ 36,991
Interest-bearing 274,053 280,382
------------- -------------
Total deposits 313,613 317,373
Federal funds purchased and securities sold under
agreements to repurchase 18,248 16,994
Demand notes to U. S. Treasury and other
liabilities for borrowed money 26 26
Other liabilities 1,924 1,843
------------- -------------
TOTAL LIABILITIES 333,811 336,236
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - par value per share $1.25
Shares authorized: 10,000,000 at June 30, 2002
and December 31, 2001
Shares issued: 2,000,000 at June 30, 2002
and December 31, 2001
Shares outstanding: 1,991,200 at June 30, 2002
and 2,000,000 at December 31, 2001 2,500 2,500
Paid-in capital 785 785
Retained earnings 29,642 28,566
Treasury stock, at cost (144) --
Accumulated other comprehensive income, net of tax 1,101 1,116
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 33,884 32,967
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 367,695 $ 369,203
============= =============
See accompanying notes to consolidated financial statements
3
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited) Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
(Dollars in thousands, except per share data)
INTEREST INCOME 2002 2001 2002 2001
------------ ------------ ------------ ------------
Interest and fees on loans $ 4,284 $ 5,058 $ 8,466 $ 10,130
Interest on balances with banks 17 87 35 155
Interest and dividends from securities available for sale:
Taxable 1,117 1,240 2,223 2,546
Interest and dividends from securities held to maturity:
Taxable 23 4 46 31
Tax-exempt 107 123 224 249
Interest on federal funds sold 15 35 32 49
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 5,563 6,547 11,026 13,160
INTEREST EXPENSE
Interest on time certificates of $100,000 or more 253 507 574 1,023
Interest on other deposits 1,182 2,125 2,529 4,464
Interest on federal funds purchased and securities
sold under agreements to repurchase 41 145 86 309
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money 1 -- 1 --
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 1,477 2,777 3,190 5,796
------------ ------------ ------------ ------------
Net interest income 4,086 3,770 7,836 7,364
Provision for loan losses 743 842 1,006 1,037
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 3,343 2,928 6,830 6,327
NONINTEREST INCOME
Income from fiduciary activities 360 300 720 680
Other operating income 1,039 550 1,614 1,057
Securities gains (losses) -- -- -- --
------------ ------------ ------------ ------------
TOTAL NONINTEREST INCOME 1,399 850 2,334 1,737
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,634 1,527 3,287 3,060
Premises and equipment expense 462 412 943 820
Other noninterest expense 951 1,306 1,938 2,502
------------ ------------ ------------ ------------
TOTAL NONINTEREST EXPENSE 3,047 3,245 6,168 6,382
------------ ------------ ------------ ------------
Income before income taxes 1,695 533 2,996 1,682
Provision for income taxes 653 167 1,122 561
------------ ------------ ------------ ------------
NET INCOME 1,042 366 1,874 1,121
------------ ------------ ------------ ------------
Other comprehensive income (loss), net of tax 577 32 (15) 557
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 1,619 $ 398 $ 1,859 $ 1,678
============ ============ ============ ============
NET INCOME PER COMMON SHARE:
Basic $ 0.52 $ 0.18 $ 0.94 $ 0.56
Diluted $ 0.52 $ 0.18 $ 0.94 $ 0.56
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 1,996,422 2,000,000 1,998,201 2,000,000
Diluted 1,996,422 2,000,000 1,998,201 2,000,000
See accompanying notes to consolidated financial statements
4
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Six Months Ended
June 30,
--------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001
------------ ------------
Net income $ 1,874 $ 1,121
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,006 1,037
Depreciation and amortization 423 629
Securities (gains) losses -- --
Net investment amortization and (accretion) 37 (92)
Decrease in interest receivable and other assets 206 1,557
Increase (decrease) in interest payable and other liabilities (128) 98
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,418 4,350
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held to maturity (193) (1,377)
Purchases of securities available for sale (23,621) (27,610)
Purchases of Federal Home Loan Bank Stock -- (46)
Proceeds from maturities and calls of securities held to maturity 679 796
Proceeds from maturities and calls of securities available for sale 20,352 36,360
Proceeds from redemptions of Federal Home Loan Bank Stock 52 --
Net decrease in loans 10,115 1,185
Acquisition of fixed assets (170) (811)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 7,214 8,497
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits 2,304 (4,385)
Net decrease in time deposits (6,064) (624)
Net increase in short-term borrowings 1,254 3,035
Purchase of treasury stock (144) --
Cash dividends paid (798) (800)
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES (3,448) (2,774)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,184 10,073
CASH AND CASH EQUIVALENTS AT JANUARY 1, 18,289 15,745
------------ ------------
CASH AND CASH EQUIVALENTS AT JUNE 30, $ 25,473 $ 25,818
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,151 $ 5,677
Income taxes 1,114 697
See accompanying notes to consolidated financial statements
5
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited) Six Months Ended
June 30,
--------
(Dollars in thousands)
2002 2001
------------ ------------
BALANCE, JANUARY 1, $ 32,967 $ 31,682
Net income 1,874 1,121
Cash dividends declared - $0.40 per share in 2001 and 2000 (798) (800)
Purchase 8,800 shares of treasury stock, at cost (144) --
Other comprehensive income (loss), net of tax (15) 557
------------ ------------
BALANCE, JUNE 30, $ 33,884 $ 32,560
============ ============
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles 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 six-month period ended June 30, 2002, and are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. 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, 2001.
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 six-month periods ended June 30, 2002 and 2001 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
(Dollars in thousands)
2002 2001 2002 2001
------------ ------------ ------------ ------------
Unrealized holding gains (losses) arising during the period $ 874 $ 51 $ (23) $ 841
Reclassification adjustment for (gains) losses
included in net income -- -- -- --
------------ ------------ ------------ ------------
Other comprehensive income (loss) before tax 874 51 (23) 841
Income tax (expense) benefit related to other
comprehensive income (loss) (297) (19) 8 (284)
------------ ------------ ------------ ------------
Other comprehensive income (loss) $ 577 $ 32 $ (15) $ 557
============ ============ ============ ============
6
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2002
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
six-month periods ended June 30, 2002 and 2001:
For the three months ended June 30,
-------------------------------------------------------------------------------------------------
2002 2001
---------------------------------------------- ----------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS
Income available to
common shareholders $ 1,042,000 1,996,422 $ 0.52 $ 366,000 2,000,000 $ 0.18
============ ============
Effect of dilutive securities -
Stock options (Note D) 0 0 0 0
------------ ------------ ------------ ------------
Diluted EPS
Income available to common
shareholders and assumed
conversions $ 1,042,000 1,996,422 $ 0.52 $ 366,000 2,000,000 $ 0.18
============ ============ ============ ============ ============ ============
For the six months ended June 30,
-------------------------------------------------------------------------------------------------
2002 2001
---------------------------------------------- ----------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS
Income available to
common shareholders $ 1,874,000 1,998,201 $ 0.94 $ 1,121,000 2,000,000 $ 0.56
============ ============
Effect of dilutive securities -
Stock options (Note D) 0 0 0 0
------------ ------------ ------------ ------------
Diluted EPS
Income available to common
shareholders and assumed
conversions $ 1,874,000 1,998,201 $ 0.94 $ 1,121,000 2,000,000 $ 0.56
============ ============ ============ ============ ============ ============
NOTE D - COMPENSATION PLANS
The Corporation's 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 six months ended June 30,
2002, no options were granted under the Officer Plan. The weighted average
remaining contractual life of currently outstanding options is 72 months. At
June 30, 2002, 58,470 options were outstanding and options for 117,780 shares of
common stock were reserved for future issuance for the Officer Plan. As of June
30, 2002, no options had been exercised under the Officer Plan, and 6,250
options had expired unexercised.
7
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2002
NOTE D - COMPENSATION PLANS (Continued)
The Corporation's 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 six months ended
June 30, 2002, no options were granted under the Director Plan. The weighted
average remaining contractual life of currently outstanding options is 72
months. At June 30, 2002, 13,000 options were outstanding and options for 17,000
shares of common stock were reserved for future issuance for the Director Plan.
As of June 30, 2002, no options had been exercised under the Director Plan, and
7,000 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.
Three Months Ended June 30,
---------------------------------------------------------------
2002 2001
----------------------------- -----------------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
Net income $ 1,042,000 $ 1,038,000 $ 366,000 $ 362,000
============ ============ ============ ============
Net income per share - basic $ 0.52 $ 0.52 $ 0.18 $ 0.18
============ ============ ============ ============
Six Months Ended June 30,
---------------------------------------------------------------
2002 2001
----------------------------- -----------------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
Net income $ 1,874,000 $ 1,866,000 $ 1,121,000 $ 1,113,000
============ ============ ============ ============
Net income per share - basic $ 0.94 $ 0.94 $ 0.56 $ 0.56
============ ============ ============ ============
8
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2002
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.
June 30, 2002 December 31, 2001
------------------------------------ ------------------------------------
Combined Capital Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage Tier 1 (Tier 1 and Tier 2) Leverage
Consolidated 10.87% 12.12% 7.58% 10.29% 11.52% 7.20%
First Century Bank, N.A. 10.55% 11.80% 7.36% 9.99% 11.22% 6.99%
NOTE F - SEGMENT INFORMATION
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Corporation has determined that it has one significant
operating segment, the providing of general commercial financial services to
customers located in the geographic areas of southern West Virginia and
southwestern Virginia. The various products are those generally offered by
community banks, and the allocation of resources is based on the overall
performance of the institution, versus the individual branches or products.
9
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2002
NOTE G - GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF STATEMENT 142
Effective January 1, 2002, the Corporation adopted the provisions of Financial
Accounting Standards Board Statement No. 142 "Goodwill and Other Intangible
Assets," (SFAS 142). As of January 1, 2002, the Corporation had approximately
$5,183,000 in unamortized goodwill from previous acquisitions. SFAS 142 requires
a transitional impairment test be performed within six-months of adoption. The
initial valuation of the Corporation's goodwill pursuant to this pronouncement
resulted in no write-downs for impairment. Additionally, SFAS 142 requires a
reconciliation of previously reported net income and earnings per share,
adjusted for changes pursuant to this statement. Following is the pro forma
effect of adoption of SFAS 142 on the three-month period ended March 31, 2001:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
(Dollars in thousands, except per share amounts)
2002 2001 2002 2001
---- ---- ---- ----
Reported net income $ 1,042 $ 366 $ 1,874 $ 1,121
Add back: Goodwill amortization, net of tax -- 70 -- 140
---------- ---------- ---------- -----------
Adjusted net income $ 1,042 $ 436 $ 1,874 $ 1,261
========== ========== ========== ===========
Basic earnings per share:
Reported net income $ 0.52 $ 0.18 $ 0.94 $ 0.56
Add back: Goodwill amortization, net of tax -- 0.03 -- 0.07
---------- ---------- ---------- -----------
Adjusted net income $ 0.52 $ 0.21 $ 0.94 $ 0.63
========== ========== ========== ===========
Diluted earnings per share:
Reported net income $ 0.52 $ 0.18 $ 0.94 $ 0.56
Add back: Goodwill amortization, net of tax -- 0.03 -- 0.07
---------- ---------- ---------- -----------
Adjusted net income $ 0.52 $ 0.21 $ 0.94 $ 0.63
========== ========== ========== ===========
NOTE H - RECENT ACCOUNTING DEVELOPMENTS
Effective January 1, 2002, the Corporation adopted the provisions of Financial
Accounting Standards Board Statement No. 141, "Business Combinations" (SFAS
141). SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. The implementation of SFAS 141 did
not have a material impact on the Corporation's consolidated financial position
or consolidated results of operations.
Effective January 1, 2002, the Corporation adopted the provisions of Financial
Accounting Standards Board Statements No. 143 "Accounting for Asset Retirement
Obligations" (SFAS 143), and No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" (SFAS 144).
SFAS 143 requires that obligations associated with the retirement of tangible
long-lived assets be recorded as a liability when those obligations are
incurred, with the amount of liability initially measured at fair value. SFAS
143 is effective for financial statements beginning after June 15, 2002, though
early adoption is encouraged. The implementation of this statement did not have
a material impact on the Corporation's consolidated financial position or
consolidated results of operations.
10
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2002
NOTE H - RECENT ACCOUNTING DEVELOPMENTS (Continued)
SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 applies to all
long-lived assets including discontinued operations, and amends Accounting
Principle Board Opinion No. 30, "Reporting the Effect of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS 144 requires that long-lived assets that are to be disposed
of by sale be measured at the lower of book or fair value less cost to sell.
SFAS 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and its provisions are generally expected to be applied
prospectively. The implementation of this statement did not have a material
impact on the Corporation's consolidated financial position or consolidated
results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2002
During the second quarter of 2002 net income increased $676,000 or 184.7% from
$366,000 earned during the second three months of 2001, to $1,042,000 earned
during the same period in 2002. Net interest income for the three-month period
ended June 30, 2002 increased $316,000 or 8.3% to $4,086,000 as compared to
$3,770,000 for the second three months of 2001. This increase was primarily the
result of repricing certificates of deposit in a significantly lower interest
rate environment than existed during the first half of 2001. Noninterest income
increased $549,000 or 64.6% to $1,399,000 for the three-month period ended June
30, 2002, compared to $850,000 for the same period in 2001. This increase was
primarily attributable to the settlement of litigation between the Corporation
and another financial institution of $475,000. Noninterest expense decreased
$198,000, or 6.1%, to $3,047,000 for the quarter ended June 30, 2002, from
$3,245,000 for the same period in 2001. Earnings per share increased from $0.18
for the second quarter of 2001 to $0.52 for the three-month period ended June
30, 2002.
Compared to the first quarter of 2002, net interest income increased 9.0% from
$3,750,000 to $4,086,000 for the three-month period ended June 30, 2002. This
increase was primarily from reduced interest expense on certificates of deposit.
Noninterest income increased $464,000 to $1,399,000 for the three-month period
ended June 30, 2002 compared to $935,000 for the three-month period ended March
31, 2002. Noninterest expense decreased 2.4% from $3,121,000 for the three-month
period ended March 31, 2002, when compared to $3,047,000 for the three-month
period ended June 30, 2002. Earnings per share increased $0.10 per share from
$0.42 per share for the quarter ended March 31, 2002, to $0.52 per share for the
quarter ended June 30, 2002.
Net income was $1,874,000 for the first six months of 2002 which was an increase
of $753,000, or 67.2%, over the 2001 level of $1,121,000. The interest margin
increased $472,000, or 6.4%, from $7,364,000 for the six-month period ended June
30, 2001, to $7,836,000 for the six-month period ended June 30, 2002. This
increase was attributable to the repricing of certificates of deposit that has
occurred in the lower interest rate environment than existed during the first
six months of 2001. Noninterest income increased $597,000, or 34.4%. This
increase resulted from the previously mentioned litigation settlement, along
with a rapid pace of mortgage originations and refinancings. Noninterest
expenses decreased $214,000, or 3.4%, to $6,168,000 for the six months ended
June 30, 2002, from $6,382,000 for the same period in 2001.
The reductions in noninterest expense during the three and six-month periods
ended June 30, 2002 were primarily a result of the adoption of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
(FAS 142). The Corporation adopted this standard effective January 1, 2002. The
adoption of this standard resulted in a reduction in quarterly amortization of
goodwill of approximately $106,000. Please refer to Note F of the accompanying
financial statements for a complete discussion of the adoption of FAS 142.
11
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
June 30, 2002
Management continued its efforts to enhance the quality of the loan portfolio
during the second quarter of 2002. Due to these efforts, combined with a recent
increase in bankruptcy filings by certain of the Corporation's commercial loan
customers, the provision for loan losses was essentially unchanged from 2001.
Management anticipates loan losses will return to more normal levels during the
third and fourth quarters of 2002; however, continuation of the sluggish local
economy could result in further credit deterioration.
Earnings per share for the six-month period ended June 30, 2002 were $0.94
compared to $0.56 per share for 2001. The Corporation's performance through June
30, 2002 reflects an annualized return on average assets of 1.01% and a return
on average equity of 11.25%, compared to 0.60% and 6.92%, respectively, for the
six-month period ended June 30, 2001.
Total assets decreased slightly from December 31, 2001 to June 30, 2002. Total
assets at June 30, 2002 were approximately $367,695,000 as compared to
approximately $369,203,000 at December 31, 2001. The loan portfolio decreased
4.6% during this six-month period, to approximately $232,812,000. The investment
portfolio increased approximately $2,988,000, or 3.4%, during this same period.
During the first half of 2002, management adhered to its policy of not extending
long-term fixed rate financing in this low interest rate environment. This has
hindered loan production. However, by investing short-term, management believes
it is better positioned to manage the interest margin when interest rates begin
to increase. Total deposits decreased by $3,760,000 to $313,613,000 at June 30,
2002 from $317,373,000 at December 31, 2001. The decrease in deposits occurred
in the interest-bearing category which decreased $6,329,000 or 2.26%.
Noninterest-bearing deposits increased $2,569,000 or 6.94%. Competition for
deposits remains strong in the Corporation's primary trade areas between banks
and other nontraditional financial service providers.
The increasing trend in personal and corporate bankruptcy filings continues to
highlight the importance of the Corporation's methodology in determining the
adequacy of the allowance for loan losses. The Corporation periodically
evaluates the adequacy of the allowance for loan losses in order to maintain the
allowance at a level that is sufficient to absorb probable credit losses. This
evaluation is based on a review of the Corporation's historical loss experience,
known and inherent risks in the loan portfolio, including adverse circumstances
that may affect the ability of the borrower to repay interest and/or principal,
the estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs and the risk ratings of the various loan categories.
Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered. Estimates may change at some
point in the future.
In the accounting and regulatory arena, management is continuing to monitor the
developments surrounding the recent occurrences of bankruptcies and alleged
accounting irregularities. New regulatory and legislative efforts will require
more thorough disclosures, as well as a more in depth certification by senior
management as to the accuracy of financial results. Every effort will be made to
comply with any rules that enhance transparency of reporting so that our
stockholders or potential stockholders will be able to make informed investment
decisions.
Effective January 1, 2002, the Corporation adopted the provisions of Financial
Accounting Standards Board Statement No. 141, "Business Combinations" (SFAS
141). SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. The implementation of SFAS 141 did
not have a material impact on the Corporation's consolidated financial position
or consolidated results of operations.
Effective January 1, 2002, the Corporation adopted the provisions of Financial
Accounting Standards Board Statements No. 143 "Accounting for Asset Retirement
Obligations" (SFAS 143), and No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" (SFAS 144).
12
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
June 30, 2002
SFAS 143 requires that obligations associated with the retirement of tangible
long-lived assets be recorded as a liability when those obligations are
incurred, with the amount of liability initially measured at fair value. SFAS
143 is effective for financial statements beginning after June 15, 2002, though
early adoption is encouraged. The implementation of this statement did not a
material impact on the Corporation's consolidated financial position or
consolidated results of operations.
SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 applies to all
long-lived assets including discontinued operations, and amends Accounting
Principle Board Opinion No. 30, "Reporting the Effect of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS 144 requires that long-lived assets that are to be disposed
of by sale be measured at the lower of book or fair value less cost to sell.
SFAS 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and its provisions are generally expected to be applied
prospectively. The implementation of this statement did not have a material
impact on the Corporation's consolidated financial position or consolidated
results of operations.
This report may contain certain forward-looking statements, including certain
plans, expectations, goals and projections, which are subject to numerous
assumptions, risks and uncertainties. Actual results could differ materially
from those contained in or implied by such statements for a variety of factors
including: changes in economic conditions which may affect the Corporation's
primary market area; rapid movements in interest rates; competitive pressures on
product pricing and services; success and timing of business strategies; the
nature and extent of governmental actions and reforms; and rapidly changing
technology and evolving financial industry standards.
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 2001
Annual Report to shareholders. Management believes there has been no material
change in either interest rate risk or market risk since December 31, 2001.
13
FIRST CENTURY BANKSHARES, INC.
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on April 16, 2002. Total outstanding
shares were 2,000,000 at April 16, 2002. Matters brought before the stockholders
and the voting results are as follows:
(1) To elect fifteen (15) nominees for director to serve for a term of one year.
Nominee Shares For Shares Against Abstentions
------- ---------- -------------- -----------
Paul Cole, Jr. 1,704,573 2,448 --
Eustace Frederick 1,706,121 900 --
B. L. Jackson, Jr. 1,683,673 23,348 --
Robert M. Jones, Jr., M.D. 1,703,835 3,186 --
Marshall S. Miller 1,706,121 900 --
Charles A. Peters 1,683,673 23,348 --
C. E. Richner 1,706,121 900 --
Byron K. Satterfield 1,705,921 1,100 --
John H. Shott 1,699,301 7,720 --
Scott H. Shott 1,706,121 900 --
Walter L. Sowers 1,706,121 900 --
Wm. Chandler Swope 1,699,301 7,720 --
J. Brookins Taylor, M.D. 1,703,335 3,686 --
Frank W. Wilkinson 1,683,673 23,348 --
R. W. Wilkinson 1,683,673 23,348 --
(2) To ratify the selection of PricewaterhouseCoopers, LLP to serve as
independent auditors for the registrant for the year ending December 31, 2002.
Shares for: 1,659,702; Shares against: 3,866; Abstentions: 9,652.
Item 6 - Exhibits and Reports on Form 8-K.
(a.) Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350
(b.) Reports on Form 8-K
1. On April 8, 2002, the Corporation filed a current report on
Form 8-K announcing the settlement of litigation between First
Century Bank, N.A. and Community National Bank, Pulaski, Virginia.
2. On April 23, 2002, the Corporation filed a current report on Form
8-K announcing its earnings for the period ended March 31, 2002.
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: August 13, 2002
14