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Exhibit 13



LOGO



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Common Shares

Common shares are not traded on any stock exchange. Quotations may be

obtained through the OTC Bulletin Board under the trading symbol FCBS.



Stockholder Inquiries

Communications regarding transfer requirements
and lost certificates

should be directed to the transfer agent.



Transfer Agent/Registrar

Registrar and Transfer Company, 10 Commerce
Drive,

Cranford, NJ 07016-3572, (800) 368-5948, www.rtco.com



Form 10-K Information

Copies of the First Century Bankshares, Inc.
Annual Report to the

Securities and Exchange Commission, Form 10K, may be obtained by

writing J. Ronald Hypes, Treasurer, First Century Bankshares, Inc.,

P.O. Box 1559, Bluefield, WV 24701.



Annual Meeting

The annual meeting of the stockholders will be held at 3:00 p.m., Tuesday,

April 22, 2008, at the First Century Bank
Seminar Center, 525 Federal Street,

Bluefield, West Virginia. All stockholders are cordially invited to attend.



Table of Contents



|                     |  |  
|-------------------- |  | -
|Financial Highlights |  | 1

|                           |  |  
|-------------------------- |  | -
|Letter to the Stockholders |  | 2

|                                                                                      |  |  
|------------------------------------------------------------------------------------- |  | -
|Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 3

|                                               |  |   
|---------------------------------------------- |  | --
|Consolidated Statements of Financial Condition |  | 25

|                                  |  |   
|--------------------------------- |  | --
|Consolidated Statements of Income |  | 26

|                                                           |  |   
|---------------------------------------------------------- |  | --
|Consolidated Statements of Changes in Stockholders Equity |  | 27

|                                      |  |   
|------------------------------------- |  | --
|Consolidated Statements of Cash Flows |  | 28

|                                           |  |   
|------------------------------------------ |  | --
|Notes to Consolidated Financial Statements |  | 29

|                                                                        |  |   
|----------------------------------------------------------------------- |  | --
|Managements Annual Report on Internal Control Over Financial Reporting |  | 53

|                                                        |  |   
|------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm |  | 54

|                    |  |   
|------------------- |  | --
|Boards of Directors |  | 55

|                            |  |   
|--------------------------- |  | --
|Corporate and Bank Officers |  | 57

|                                                    |  |           
|--------------------------------------------------- |  | ----------
|First Century Bankshares, Inc. Subsidiary Locations |  | Back Cover



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##### Table of Contents

Financial

Highlights



|                        |  |                                               |         |      |   |         |  |   |        
|----------------------- |  | --------------------------------------------- | ------- | ---- | - | ------- |  | - | -------
|                        |  | 2007                                          |         | 2006 |   | 2005   
|                        |  | (Dollars in Thousands, Except Per Share Data)
|FOR THE YEAR            |  |                                               |         |      |   |         |  |   |        
|Total operating income  |  | $                                             | 31,623  |      | $ | 28,777  |  | $ | 24,755 
|Total operating expense |  |                                               | 24,506  |      |   | 21,888  |  |   | 18,607 
|Net income              |  |                                               | 4,688   |      |   | 4,489   |  |   | 4,004  
|Cash dividends declared |  |                                               | 2,136   |      |   | 2,057   |  |   | 1,968  
|AT YEAR END             |  |                                               |         |      |   |         |  |   |        
|Assets                  |  | $                                             | 433,879 |      | $ | 410,948 |  | $ | 390,789
|Deposits                |  |                                               | 362,755 |      |   | 357,355 |  |   | 332,791
|Loans                   |  |                                               | 296,946 |      |   | 292,643 |  |   | 257,732
|Securities              |  |                                               | 102,349 |      |   | 88,127  |  |   | 99,101 
|Stockholders equity    |  |                                               | 40,405  |      |   | 38,432  |  |   | 35,953 
|PER COMMON SHARE        |  |                                               |         |      |   |         |  |   |        
|Net income, basic       |  | $                                             | 2.40    |      | $ | 2.29    |  | $ | 2.03   
|Net income, diluted     |  |                                               | 2.39    |      |   | 2.28    |  |   | 2.02   
|Cash dividends declared |  |                                               | 1.10    |      |   | 1.05    |  |   | 1.00   
|Book value              |  |                                               | 21.16   |      |   | 19.58   |  |   | 18.36  



|     |  |     
|---- |  | ----
|LOGO |  | LOGO
|     | 
|LOGO |  | LOGO



First Century Bankshares, Inc.     Page 1



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Letter to the

Stockholders



To Our Stockholders, Customers, and Friends:



The Directors, Officers, and Employees of First Century Bankshares, Inc. and its wholly owned subsidiary, First Century Bank, N.A. are pleased to present
this Annual Report to our stockholders for the year 2007.

First Century Bankshares, Inc. had earnings of $4,688,000 for the year ended
2007, which was an increase of 4.4% over the previous years earnings of $4,489,000. Earnings for year end 2007 reflect a return on average assets (ROAA) of 1.10% compared to 1.12% for year end 2006. Also, these earnings reflect an annualized
return on average equity (ROAE) of 11.79% compared to 12.07% for year end 2006. On a per share basis, net income increased to $2.39 per diluted share for year end 2007, from $2.28 per diluted share for year end 2006.

We were pleased to be able to increase the dividend of the corporation in 2007 by 4.8%. The dividend increased from $1.05 per share in 2006 to $1.10 per
share for 2007. We will continue to focus on creating a strong total return for our shareholders as we move into the future.

Management
continues to be focused on our strategy to grow the assets of the corporation with opportunities in the Beckley, West Virginia, Raleigh County market. Our expansion efforts and the opening of our new office in April of 2008 should provide additional
opportunity to meet our growth goal targets. We will continue to keep a close watch on credit quality and refrain from weakening our credit standards to meet these goals. The current national economy is something we are watching closely, and we want
to make sure we do not lose our focus during this time.

Our improved credit quality is continuing to create excellent results. The
provision for loan losses was $166,159 for year end 2007 and we feel this was very favorable even though it was higher than the $80,445 posted in 2006. Comparing the provision for loan losses to regulatory peers who show an average of 0.18% of total
loans, we feel we compare quite favorably at 0.09%. Our credit analysis process, internal risk rating systems, and properly underwritten credit accommodations are essential to our continued success. We are also continuing our practice of external
credit review to ensure that our risk rating system is comprehensive and sound.

Management is closely monitoring our asset sensitive
balance sheet, and we are committed to staying flexible with our variable rate loan pricing strategy. We will give up short term earnings opportunities for the ability to re-price our assets in a volatile market, and we will not commit to fixed rate
accommodations when we feel we are near the bottom of an interest rate cycle. We feel as though we take credit risk within our loan portfolio and we have to look at our opportunities to minimize our interest rate risk to help maintain our net
interest margin.

We believe we have successfully achieved the 2007 goals of our corporate strategic plan, and we plan to keep you fully
advised as we move forward through 2008. We have set high expectations for our corporation, and we believe we will continue to achieve our goals. We feel that value is created with our three constituencies in mind, the shareholders, the customers,
and the employees, and if we take care of all three we will have done our job. We plan to stay the course of remaining a locally owned and locally managed community bank serving southern West Virginia and southwest Virginia.



Sincerely,



LOGO

R. W. Buz Wilkinson

President and Chief Executive Officer



Page 2     First Century Bankshares, Inc.



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Managements

Discussion and Analysis of Financial Condition and Results of Operations



AVERAGE STATEMENTS OF FINANCIAL CONDITION AND NET INTEREST DIFFERENTIAL



|                                                           |  |                        |         |   |                        |   |             |                        |      |                |  |   |          |   |             |   |        |                |      |   |                |   |            |   |  |   |        |  |      |  
|---------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------------- | - | ----------- | ---------------------- | ---- | -------------- |  | - | -------- | - | ----------- | - | ------ | -------------- | ---- | - | -------------- | - | ---------- | - |  | - | ------ |  | ---- | -
|                                                           |  | 2007                   |         |   | 2006                   |   |             | 2005                   |     
|                                                           |  | (Dollars in Thousands) |         |   | (Dollars in Thousands) |   |             | (Dollars in Thousands) |     
|ASSETS:                                                    |  | AverageBalance         |         |   | Interest               |   | AverageRate |                        |      | AverageBalance |  |   | Interest |   | AverageRate |   |        | AverageBalance |      |   | Income/Expense |   | Yield/Rate |  
|Interest-bearing deposits with banks                       |  | $                      | 1,244   |   |                        | $ | 64          |                        | 5.14 | %              |  | $ | 259      |   |             | $ | 14     |                | 5.41 | % |                | $ | 943        |   |  | $ | 26     |  | 2.76 | %
|Securities available for sale and other equity securities: |  |                        |         |   |                        |   |             |                        |      |                |  |   |          |   |             |   |        |                |      |   |                |   |            |   |  |   |        |  |      |  
|U. S. Treasury securities                                  |  |                        | 999     |   |                        |   | 47          |                        | 4.70 | %              |  |   | 1,133    |   |             |   | 51     |                | 4.50 | % |                |   | 999        |   |  |   | 20     |  | 2.00 | %
|U. S. Government agency securities                         |  |                        | 80,226  |   |                        |   | 3,549       |                        | 4.42 | %              |  |   | 79,419   |   |             |   | 3,048  |                | 3.84 | % |                |   | 76,581     |   |  |   | 2,685  |  | 3.51 | %
|Other securities                                           |  |                        | 3,157   |   |                        |   | 165         |                        | 5.23 | %              |  |   | 3,481    |   |             |   | 181    |                | 5.20 | % |                |   | 6,961      |   |  |   | 377    |  | 5.42 | %
|Total securities available for sale                        |  |                        | 84,382  |   |                        |   | 3,761       |                        | 4.46 | %              |  |   | 84,033   |   |             |   | 3,280  |                | 3.90 | % |                |   | 84,541     |   |  |   | 3,082  |  | 3.65 | %
|Securities held to maturity:                               |  |                        |         |   |                        |   |             |                        |      |                |  |   |          |   |             |   |        |                |      |   |                |   |            |   |  |   |        |  |      |  
|State and municipal securities                             |  |                        | 15,219  |   |                        |   | 592         |                        | 3.89 | %              |  |   | 13,264   |   |             |   | 519    |                | 3.91 | % |                |   | 13,071     |   |  |   | 509    |  | 3.89 | %
|Other securities                                           |  |                        | 32      |   |                        |   | 2           |                        | 6.25 | %              |  |   | 75       |   |             |   | 5      |                | 6.67 | % |                |   | 75         |   |  |   | 5      |  | 6.67 | %
|Total securities held to maturity                          |  |                        | 15,251  |   |                        |   | 594         |                        | 3.89 | %              |  |   | 13,339   |   |             |   | 524    |                | 3.93 | % |                |   | 13,146     |   |  |   | 514    |  | 3.91 | %
|Federal funds sold                                         |  |                        | 1,094   |   |                        |   | 56          |                        | 5.12 | %              |  |   | 852      |   |             |   | 39     |                | 4.58 | % |                |   | 2,620      |   |  |   | 81     |  | 3.09 | %
|Loans                                                      |  |                        | 295,451 |   |                        |   | 22,363      |                        | 7.57 | %              |  |   | 274,300  |   |             |   | 20,336 |                | 7.41 | % |                |   | 253,621    |   |  |   | 16,715 |  | 6.59 | %
|Total interest-earning assets                              |  |                        | 397,422 |   |                        |   | 26,838      |                        | 6.75 | %              |  |   | 372,783  |   |             |   | 24,193 |                | 6.49 | % |                |   | 354,871    |   |  |   | 20,418 |  | 5.75 | %
|Allowance for loan losses                                  |  |                        | (2,526  | ) |                        |   |             |                        |      |                |  |   | (2,652   | ) |             |   |        |                |      |   |                |   | (2,792     | ) |  |   |        |  |      |  
|Cash and due from banksdemand                             |  |                        | 10,916  |   |                        |   |             |                        |      |                |  |   | 11,418   |   |             |   |        |                |      |   |                |   | 11,232     |   |  |   |        |  |      |  
|Bank Premises and equipmentnet                            |  |                        | 12,408  |   |                        |   |             |                        |      |                |  |   | 12,324   |   |             |   |        |                |      |   |                |   | 12,065     |   |  |   |        |  |      |  
|Other assets                                               |  |                        | 10,377  |   |                        |   |             |                        |      |                |  |   | 10,593   |   |             |   |        |                |      |   |                |   | 9,783      |   |  |   |        |  |      |  
|TOTAL ASSETS                                               |  |                        | 428,597 |   |                        |   |             |                        |      |                |  | $ | 404,466  |   |             |   |        |                |      |   |                | $ | 385,159    |   |  |   |        |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY:                      |  |                        |         |   |                        |   |             |                        |      |                |  |   |          |   |             |   |        |                |      |   |                |   |            |   |  |   |        |  |      |  
|Interest-bearing demand deposits                           |  | $                      | 73,923  |   |                        | $ | 605         |                        | 0.82 | %              |  | $ | 75,958   |   |             | $ | 543    |                | 0.71 | % |                | $ | 78,343     |   |  | $ | 352    |  | 0.45 | %
|Savings deposits                                           |  |                        | 56,156  |   |                        |   | 598         |                        | 1.06 | %              |  |   | 58,904   |   |             |   | 538    |                | 0.91 | % |                |   | 65,113     |   |  |   | 521    |  | 0.80 | %
|Time deposits                                              |  |                        | 190,391 |   |                        |   | 8,610       |                        | 4.52 | %              |  |   | 163,133  |   |             |   | 6,253  |                | 3.83 | % |                |   | 136,285    |   |  |   | 3,689  |  | 2.71 | %
|Total interest-bearing deposits                            |  |                        | 320,470 |   |                        |   | 9,813       |                        | 3.06 | %              |  |   | 297,995  |   |             |   | 7,334  |                | 2.46 | % |                |   | 279,741    |   |  |   | 4,562  |  | 1.63 | %
|Short-term debt                                            |  |                        | 18,203  |   |                        |   | 652         |                        | 3.58 | %              |  |   | 18,977   |   |             |   | 678    |                | 3.57 | % |                |   | 18,073     |   |  |   | 335    |  | 1.85 | %
|Total interest-bearing liabilities                         |  |                        | 338,673 |   |                        |   | 10,465      |                        | 3.09 | %              |  |   | 316,972  |   |             |   | 8,012  |                | 2.53 | % |                |   | 297,814    |   |  |   | 4,897  |  | 1.64 | %
|Demand deposits                                            |  |                        | 45,794  |   |                        |   |             |                        |      |                |  |   | 45,955   |   |             |   |        |                |      |   |                |   | 48,423     |   |  |   |        |  |      |  
|Other liabilities                                          |  |                        | 3,519   |   |                        |   |             |                        |      |                |  |   | 3,130    |   |             |   |        |                |      |   |                |   | 2,408      |   |  |   |        |  |      |  
|TOTAL LIABILITIES                                          |  |                        | 387,986 |   |                        |   |             |                        |      |                |  |   | 366,057  |   |             |   |        |                |      |   |                |   | 348,645    |   |  |   |        |  |      |  
|Stockholders equity                                       |  |                        | 40,611  |   |                        |   |             |                        |      |                |  |   | 38,409   |   |             |   |        |                |      |   |                |   | 36,514     |   |  |   |        |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                 |  | $                      | 428,597 |   |                        |   |             |                        |      |                |  | $ | 404,466  |   |             |   |        |                |      |   |                | $ | 385,159    |   |  |   |        |  |      |  
|Average rate paid to fund earning assets                   |  |                        |         |   |                        |   |             |                        | 2.63 | %              |  |   |          |   |             |   |        |                | 2.15 | % |                |   |            |   |  |   |        |  | 1.38 | %
|NET INTEREST DIFFERENTIAL                                  |  |                        |         |   |                        | $ | 16,373      |                        | 4.12 | %              |  |   |          |   |             | $ | 16,181 |                | 4.34 | % |                |   |            |   |  | $ | 15,521 |  | 4.37 | %

For purposes of this schedule, interest on nonaccrual loans have been included only to the
extent reflected in the income statement. However, the nonaccrual loan balance is included in the average amount outstanding. Income on loans includes loan fees of $182,000 in 2007, $160,000 in 2006 and $257,000 in 2005. Average balances of
securities available for sale are reported at amortized cost; excludes pretax unrealized losses of $651,000 in 2007, $1,789,000 in 2006, and $1,769,000 in 2005. Interest income on tax exempt securities is shown based on the actual yield.



VOLUME/RATE ANALYSIS



|                                                          |  |                                 |       |   |                        |   |       |                        |  |   |        |   |  |      |       |       |  |   |        |  |   |       |   |  |       |     |   |  |   |       |   |  |   |       |  
|--------------------------------------------------------- |  | ------------------------------- | ----- | - | ---------------------- | - | ----- | ---------------------- |  | - | ------ | - |  | ---- | ----- | ----- |  | - | ------ |  | - | ----- | - |  | ----- | --- | - |  | - | ----- | - |  | - | ----- | -
|                                                          |  | Increase (Decrease) in Interest |      
|                                                          |  | 2007 vs. 2006                   |       |   | 2006 vs. 2005          |   |       | 2005 vs. 2004          | 
|                                                          |  | (Dollars in Thousands)          |       |   | (Dollars in Thousands) |   |       | (Dollars in Thousands) | 
|                                                          |  | Due to Change in (1)            |       |   | Due to Change in (1)   |   |       | Due to Change in (1)   | 
|Interest income on:                                       |  | Volume                          |       |   | Rate                   |   |       | Total                  |  |   | Volume |   |  | Rate |       | Total |  |   | Volume |  |   | Rate  |   |  | Total |    
|Loans                                                     |  | $                               | 1,585 |   |                        | $ | 442   |                        |  | $ | 2,027  |   |  | $    | 1,448 |       |  | $ | 2,173  |  | $ | 3,621 |   |  | $     | 426 |   |  | $ | 1,671 |   |  | $ | 2,097 |  
|Securities available for sale and other equity securities |  |                                 | 15    |   |                        |   | 466   |                        |  |   | 481    |   |  |      | (19   | )     |  |   | 217    |  |   | 198   |   |  |       | 366 |   |  |   | 41    |   |  |   | 407   |  
|Securities held to maturity                               |  |                                 | 75    |   |                        |   | (5    | )                      |  |   | 70     |   |  |      | 8     |       |  |   | 2      |  |   | 10    |   |  |       | 3   |   |  |   | (18   | ) |  |   | (15   | )
|Federal funds sold                                        |  |                                 | 12    |   |                        |   | 5     |                        |  |   | 17     |   |  |      | (68   | )     |  |   | 26     |  |   | (42   | ) |  |       | (2  | ) |  |   | 48    |   |  |   | 46    |  
|Interest-bearing deposits with banks                      |  |                                 | 52    |   |                        |   | (2    | )                      |  |   | 50     |   |  |      | (28   | )     |  |   | 16     |  |   | (12   | ) |  |       | (4  | ) |  |   | 16    |   |  |   | 12    |  
|TOTAL INTEREST INCOME                                     |  |                                 | 1,739 |   |                        |   | 906   |                        |  |   | 2,645  |   |  |      | 1,341 |       |  |   | 2,434  |  |   | 3,775 |   |  |       | 789 |   |  |   | 1,758 |   |  |   | 2,547 |  
|Interest expense on:                                      |  |                                 |       |   |                        |   |       |                        |  |   |        |   |  |      |       |       |  |   |        |  |   |       |   |  |       |     |   |  |   |       |   |  |   |       |  
|Interest-bearing demand deposits                          |  |                                 | (16   | ) |                        |   | 78    |                        |  |   | 62     |   |  |      | (14   | )     |  |   | 205    |  |   | 191   |   |  |       | (1  | ) |  |   | 163   |   |  |   | 162   |  
|Savings deposits                                          |  |                                 | (27   | ) |                        |   | 87    |                        |  |   | 60     |   |  |      | (53   | )     |  |   | 70     |  |   | 17    |   |  |       | (26 | ) |  |   | 48    |   |  |   | 22    |  
|Time deposits                                             |  |                                 | 1,139 |   |                        |   | 1,218 |                        |  |   | 2,357  |   |  |      | 878   |       |  |   | 1,686  |  |   | 2,564 |   |  |       | 262 |   |  |   | 703   |   |  |   | 965   |  
|Short-term borrowings                                     |  |                                 | (28   | ) |                        |   | 2     |                        |  |   | (26    | ) |  |      | 25    |       |  |   | 318    |  |   | 343   |   |  |       | 16  |   |  |   | 232   |   |  |   | 248   |  
|TOTAL INTEREST EXPENSE                                    |  |                                 | 1,068 |   |                        |   | 1,385 |                        |  |   | 2,453  |   |  |      | 836   |       |  |   | 2,279  |  |   | 3,115 |   |  |       | 251 |   |  |   | 1,146 |   |  |   | 1,397 |  
|NET INTEREST INCOME                                       |  | $                               | 671   |   |                        | $ | (479  | )                      |  | $ | 192    |   |  | $    | 505   |       |  | $ | 155    |  | $ | 660   |   |  | $     | 539 |   |  | $ | 611   |   |  | $ | 1,150 |  

(1) Changes due to a combination of volume and rate have been allocated proportionally to volume and rate.



First Century Bankshares, Inc.     Page 3



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##### Table of Contents

Managements

Discussion and Analysis of Financial Condition and Results of Operations



This narrative will assist you in your analysis of the accompanying consolidated financial statements and supplemental financial information. It should be read in conjunction with the audited consolidated financial
statements and the notes that follow, along with the selected financial data presented elsewhere in this report. We are not aware of any market or institutional trends, events or uncertainties that will have or are reasonably likely to have a
material effect on the liquidity, capital resources or operations of the Corporation, except as discussed herein. We are also not aware of any current recommendations by any regulatory authorities, which would have such a material effect if
implemented.



This report contains certain forward-looking statements (as
defined in the Private Securities Litigation Act of 1995), including certain plans, expectations, goals and projections, which are inherently 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 but not limited to: changes in economic conditions which may affect our 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; continuing consolidation on the financial services industry; rapidly changing technology; and evolving financial industry standards.



Corporate Structure and Acquisitions



First Century Bankshares, Inc. (Corporation) is chartered under the laws of West
Virginia and operates as a financial holding company headquartered in Bluefield, WV. We began active operations in March 1984, in a business combination with our then sole subsidiary, The First National Bank of Bluefield. Through a series of
acquisitions and consolidations, we now operate one subsidiary bank, First Century Bank, N.A., Bluefield, WV (FCBNA). FCBNA is engaged in commercial banking activities that provide a broad menu of financial services to individuals and
businesses. FCBNA operates 12 branch offices and 17 ATM locations throughout southern West Virginia and southwestern Virginia.



During 2001, we formed a financial subsidiary, First Century Financial Services, LLC, (FCFSLLC). This entity conducts our insurance activities through its
investment in the Bankers Insurance Corporation, a relationship among several community banks, which offers a full range of insurance products and services. We believe the expansion of nontraditional financial service offerings to our
customers will enhance the Corporations performance, and ultimately, shareholder value. FCFSLLC was formed with a minimal capital investment, which is carried at cost and eliminates upon consolidation.



Critical Accounting Policies



Our accounting policies are an integral part to understanding the results reported.
Accounting policies are described in detail in Note 1 to the Consolidated Financial Statements. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and
follow general practices within the financial services industry. Our most complex accounting policies require us to make estimates, assumptions and judgments to ascertain the valuation of assets, liabilities, commitments and contingencies reported
in our financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial



Page 4     First Century Bankshares, Inc.



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##### Table of Contents

statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates,
assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.



Allowance for Loan Losses



We maintain, through the provision expense, an allowance for loan losses that we believe to be adequate to absorb probable credit losses inherent in the portfolio. The procedures that we use entail preparation of a
loan watch list and assigning each loan a credit risk rating. We perform an impairment analysis for those individually significant loans when we determine it is not probable that the borrower will make all payments in accordance with the original
loan agreement. The measurement of impaired loans is based on either the fair value of the underlying collateral, the present value of the future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, or
the estimated fair value of the loan.



Other classified loans are categorized
and allocated appropriate reserves. We also reserve for other loans more than 90 days past due that have not been considered in the aforementioned procedures. The remaining portfolio is segregated into consumer, commercial and residential real
estate loans, and the historical net charge off percentage of each category is applied to the current amount outstanding in those categories. Additionally, as part of this analysis we include such factors as concentrations of credit, collateral
deficient loans, volume and trends in delinquencies, loan portfolio composition, expected loan volume and maturities within the portfolio, national and local economic conditions and the experience, ability and depth of our lending management and
staff.



Pensions



We have a defined benefit pension plan covering substantially all employees with at least six
months of service who are at least 201⁄2 years of age. Pension expense is determined by an actuarial valuation based on assumptions as of December 31, the measurement date for pension obligations. The most significant assumptions are the
long-term expected rate of return on plan assets, the discount rate used to determine the present value of the pension obligations, the participants expected life span, and the weighted-average rate of expected increase in future compensation
levels. We review these assumptions with the plan actuaries and modify them as necessary to reflect current market conditions as well as anticipated long-term market conditions.



First Century Bankshares, Inc.     Page 5



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Balance Sheet Analysis



Loans



AMOUNTS OF LOANS OUTSTANDING



|                                         |  |                        |         |      |   |         |  |      |         |      |   |         |  |   |        
|---------------------------------------- |  | ---------------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                         |  | December 31,          
|                                         |  | 2007                   |         | 2006 |   | 2005    |  | 2004 |         | 2003
|                                         |  | (Dollars in Thousands)
|Commercial, financial and agricultural   |  | $                      | 46,599  |      | $ | 49,111  |  | $    | 44,721  |      | $ | 41,497  |  | $ | 47,010 
|Real estateconstruction and development |  |                        | 18,339  |      |   | 8,832   |  |      | 11,654  |      |   | 11,037  |  |   | 6,137  
|Real estatemortgage                     |  |                        | 209,221 |      |   | 213,185 |  |      | 181,551 |      |   | 175,487 |  |   | 173,104
|Installment loans to individuals         |  |                        | 22,787  |      |   | 21,515  |  |      | 19,806  |      |   | 19,787  |  |   | 20,699 
|TOTAL LOANS OUTSTANDING                  |  | $                      | 296,946 |      | $ | 292,643 |  | $    | 257,732 |      | $ | 247,808 |  | $ | 246,950



MATURITY SCHEDULE OF LOANS



|                                         |  |                                         |        |              |   |               |  |       |        |  |   |        
|---------------------------------------- |  | --------------------------------------- | ------ | ------------ | - | ------------- |  | ----- | ------ |  | - | -------
|                                         |  | Remaining maturity at December 31, 2007
|                                         |  | (Dollars in Thousands)                 
|                                         |  | 1 Year or Less                          |        | 1 to 5 Years |   | After 5 Years |  | Total
|Commercial, financial and agricultural   |  | $                                       | 25,325 |              | $ | 17,803        |  | $     | 3,471  |  | $ | 46,599 
|Real estateconstruction and development |  |                                         | 15,859 |              |   | 2,480         |  |       |       |  |   | 18,339 
|Real estatemortgage                     |  |                                         | 45,776 |              |   | 85,667        |  |       | 77,778 |  |   | 209,221
|Installment loans to individuals         |  |                                         | 4,177  |              |   | 14,947        |  |       | 3,663  |  |   | 22,787 
|TOTAL                                    |  | $                                       | 91,137 |              | $ | 120,897       |  | $     | 84,912 |  | $ | 296,946
|                                         |  |                                         |        |             
|With predetermined interest rates        |  | $                                       | 29,740 |              | $ | 93,843        |  | $     | 48,873 |  | $ | 172,456
|With floating interest rates             |  |                                         | 61,397 |              |   | 27,054        |  |       | 36,039 |  |   | 124,490
|TOTAL                                    |  | $                                       | 91,137 |              | $ | 120,897       |  | $     | 84,912 |  | $ | 296,946



Our primary goal is to meet the credit
needs of the retail and commercial customers in our primary markets of southern West Virginia and southwestern Virginia. Total loans increased approximately $4,303,000, or 1.5%, in 2007, following a 13.5% increase of $34,911,000 in 2006. Competition
in our market is very aggressive for the acquisition of new loans. Much of this growth came from our efforts to expand our commercial loan participation efforts with several community banks in Virginia. We also experienced loan growth from our new
expansion into the Beckley, West Virginia market. We continued to adhere to our philosophy of not retaining long-term fixed-rate commitments in order to better manage our interest rate risk. At December 31, 2007, the loan portfolio comprised 74.4%
of total interest-earning assets as compared to 76.8% of total interest-earning assets at December 31, 2006, and contributed 83.3% of total interest income in 2007, 84.1% in 2006 and 81.9% in 2005.



During 2007, our emphasis continued to be on strong, small to mid-sized companies with known
management and excellent financial stability. Most of the commercial loans in the portfolio have variable rates of interest. Additionally, we continued to make loans available in an expanding retail marketplace. We also continued to develop
relationships with other community banks to seek loan participation opportunities outside of our existing footprint. Consistent with our philosophy on relationship banking, most of our borrowers are also depositors and utilize other banking
services. The average yield of the loan portfolio increased to an average rate of 7.57% in 2007 compared to 7.41% in 2006. This reflected the relatively stable interest rate environment during most of 2006 and 2007, and our ability to replace older
loans at higher interest rates.



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Our commercial loan portfolio is generally diversified and geographically dispersed within the region. At December 31,
2007, we had concentrations of $13,820,000, or 34.2% of stockholders equity in loans to lessors of residential property, and $20,400,000, or 50.5% of stockholders equity in loans to land subdividers and developers. These concentrations
are diversified by geography throughout the Mid-Atlantic region. There are no other concentrations of lines of business or industry that represent greater than 25% of stockholders equity. Within each specific industry, our borrowers are
diversified as to specialty, service or other unique feature of the overall industry. A substantial portion of our customers ability to honor their contractual commitment is largely dependent upon the economic conditions of the respective
industry and overall economic conditions of southern West Virginia and southwestern Virginia, which is somewhat less volatile than many areas of the country.



The consumer portion of our loan portfolio consists of both secured and unsecured loans made to individuals and families for various reasons including the purchase of
automobiles, home improvements, educational expenses and other worthwhile purposes. We continue to carefully monitor the consumer sector during this period of economic downturn. Inflationary pressures beginning to appear may have a negative impact
on this sectors ability to service higher levels of debt when combined with the impact of the turmoil in the housing sector. Recent national trends in delinquency and foreclosures do not appear to be as prevalent in our markets as in some
other parts of the country. However, we continue to monitor this sector and the residential housing sector for signs of further deterioration.



Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total amount of commitments does not necessarily represent future cash
requirements. We had outstanding commitments to extend credit of approximately $65,917,000 at December 31, 2007, and $64,850,000 at December 31, 2006. This included $9,748,000 and $9,990,000 of commitments at December 31, 2007 and 2006,
respectively, for our overdraft protection product. This also included unfunded loan commitments and unused lines of credit totaling $52,033,000 at December 31, 2007 and $50,127,000 at December 31, 2006. Additionally, standby letters of credit
totaled $4,136,000 at December 31, 2007, and $4,733,000 at December 31, 2006. Financial standby letters of credit are conditional commitments that we issue to guarantee the financial performance of a customer to a third party. Those guarantees are
primarily used to support public and private borrowing arrangements.



The
following table details the amount and expected maturities of significant commitments as of December 31, 2007. Further discussion of these commitments is included in Note 14 to the Consolidated Financial Statements.



COMMITMENTS



|                                                                                 |  |                        |        |              |   |              |  |              |     |       |   |       |  |   |       
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ | ------------ | - | ------------ |  | ------------ | --- | ----- | - | ----- |  | - | ------
|                                                                                 |  | 1 Year or Less         |        | 1 to 3 Years |   | 3 to 5 Years |  | Over 5 Years |     | Total
|Unused lines of credit                                                           |  | (Dollars in Thousands)
|Home equity lines                                                                |  | $                      | 918    |              | $ | 479          |  | $            | 266 |       | $ | 2,189 |  | $ | 3,852 
|Commercial real estate, construction and land development secured by real estate |  |                        | 20,239 |              |   | 6,065        |  |              | 64  |       |   | 1,930 |  |   | 28,298
|Other unused commitments                                                         |  |                        | 29,631 |              |   |              |  |              |     |       |   |       |  |   | 29,631
|Financial standby letters of credit                                              |  |                        | 3,866  |              |   | 270          |  |              |    |       |   |      |  |   | 4,136 



First Century Bankshares, Inc.     Page 7



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NONPERFORMING ASSETS AND LOAN LOSS
ANALYSIS



|                                                            |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                            |  | Years Ended December 31, |        
|                                                            |  | 2007                     |         |   | 2006 |   |         | 2005 |  |   | 2004    |   |  | 2003 |        
|                                                            |  | (Dollars in Thousands)   |        
|Average amount of loans outstanding                         |  | $                        | 295,451 |   |      | $ | 274,300 |      |  | $ | 253,621 |   |  | $    | 246,814 |   |  | $ | 241,266 |  
|Allowance for loan losses:                                  |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance at beginning of the year                            |  | $                        | 2,555   |   |      | $ | 2,661   |      |  | $ | 2,900   |   |  | $    | 3,075   |   |  | $ | 3,005   |  
|Loans charged off                                           |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial, financial and agricultural                      |  |                          | 12      |   |      |   | 111     |      |  |   | 105     |   |  |      | 121     |   |  |   | 78      |  
|Real estateconstruction and development                    |  |                          | 92      |   |      |   |        |      |  |   |        |   |  |      | 234     |   |  |   |        |  
|Real estatemortgage                                        |  |                          | 33      |   |      |   | 132     |      |  |   | 424     |   |  |      | 30      |   |  |   | 272     |  
|Installment loans to individuals                            |  |                          | 283     |   |      |   | 342     |      |  |   | 232     |   |  |      | 165     |   |  |   | 315     |  
|TOTAL LOANS CHARGED OFF                                     |  |                          | 420     |   |      |   | 585     |      |  |   | 761     |   |  |      | 550     |   |  |   | 665     |  
|Loan recoveries                                             |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial, financial and agricultural                      |  |                          |        |   |      |   | 40      |      |  |   | 15      |   |  |      |        |   |  |   | 4       |  
|Real estatemortgage                                        |  |                          | 64      |   |      |   | 244     |      |  |   | 40      |   |  |      | 95      |   |  |   | 14      |  
|Installment loans to individuals                            |  |                          | 90      |   |      |   | 115     |      |  |   | 33      |   |  |      | 56      |   |  |   | 64      |  
|TOTAL LOAN RECOVERIES                                       |  |                          | 154     |   |      |   | 399     |      |  |   | 88      |   |  |      | 151     |   |  |   | 82      |  
|Net loans charged off                                       |  |                          | (266    | ) |      |   | (186    | )    |  |   | (673    | ) |  |      | (399    | ) |  |   | (583    | )
|Provision for loan losses                                   |  |                          | 166     |   |      |   | 80      |      |  |   | 434     |   |  |      | 224     |   |  |   | 653     |  
|BALANCE AT END OF THE YEAR                                  |  | $                        | 2,455   |   |      | $ | 2,555   |      |  | $ | 2,661   |   |  | $    | 2,900   |   |  | $ | 3,075   |  
|Ratio of net loans charged off to average loans outstanding |  |                          | 0.09    | % |      |   | 0.07    | %    |  |   | 0.27    | % |  |      | 0.16    | % |  |   | 0.24    | %
|                                                            |  |                          |         |   |     
|Allowance at year end as a percent of loans                 |  |                          | 0.83    | % |      |   | 0.87    | %    |  |   | 1.03    | % |  |      | 1.17    | % |  |   | 1.25    | %
|Provision for loan losses as a percent of loans             |  |                          | 0.06    | % |      |   | 0.03    | %    |  |   | 0.17    | % |  |      | 0.09    | % |  |   | 0.27    | %
|Nonperforming assets (at year end)                          |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Nonaccrual                                                  |  | $                        | 1,211   |   |      | $ | 1,605   |      |  | $ | 2,173   |   |  | $    | 2,493   |   |  | $ | 2,542   |  
|Pastdue ninety days or more and still accruing             |  |                          | 711     |   |      |   | 397     |      |  |   | 517     |   |  |      | 423     |   |  |   | 400     |  
|Troubled debt restructurings                                |  |                          | 198     |   |      |   | 272     |      |  |   | 133     |   |  |      | 149     |   |  |   | 120     |  
|Other real estate owned                                     |  |                          | 135     |   |      |   | 517     |      |  |   | 316     |   |  |      | 112     |   |  |   | 383     |  
|TOTAL NONPERFORMING ASSETS                                  |  | $                        | 2,255   |   |      | $ | 2,791   |      |  | $ | 3,139   |   |  | $    | 3,177   |   |  | $ | 3,445   |  
|Nonperforming assets/total loans                            |  |                          | 0.8     | % |      |   | 1.0     | %    |  |   | 1.2     | % |  |      | 1.3     | % |  |   | 1.4     | %
|Nonperforming assets/total assets                           |  |                          | 0.5     | % |      |   | 0.7     | %    |  |   | 0.8     | % |  |      | 0.8     | % |  |   | 0.9     | %



ALLOCATION OF THE ALLOWANCE FOR
LOAN LOSSES



|                                         |  |                        |       |                                                  |        |   |        |      |                                                  |  |        |        |  |                                                  |       |  |        |   |                                                  |   |       |        |        |                                                  |  |   |       |  |        |  
|---------------------------------------- |  | ---------------------- | ----- | ------------------------------------------------ | ------ | - | ------ | ---- | ------------------------------------------------ |  | ------ | ------ |  | ------------------------------------------------ | ----- |  | ------ | - | ------------------------------------------------ | - | ----- | ------ | ------ | ------------------------------------------------ |  | - | ----- |  | ------ | -
|                                         |  | 2007                   |       |                                                  | 2006   |   |        | 2005 |                                                  |  | 2004   |        |  | 2003                                             |      
|                                         |  | (Dollars in Thousands) |      
|                                         |  | Amount                 |       | Percent of Loans in Each Category to Total Loans |        |   | Amount |      | Percent of Loans in Each Category to Total Loans |  |        | Amount |  | Percent of Loans in Each Category to Total Loans |       |  | Amount |   | Percent of Loans in Each Category to Total Loans |   |       | Amount |        | Percent of Loans in Each Category to Total Loans | 
|Commercial, financial and agricultural   |  | $                      | 523   |                                                  | 15.69  | % |        | $    | 569                                              |  | 16.78  | %      |  | $                                                | 495   |  | 17.35  | % |                                                  | $ | 534   |        | 16.75  | %                                                |  | $ | 652   |  | 19.04  | %
|Real estateconstruction and development |  |                        | 76    |                                                  | 6.18   | % |        |      | 19                                               |  | 3.02   | %      |  |                                                  | 15    |  | 4.52   | % |                                                  |   | 37    |        | 4.45   | %                                                |  |   |      |  | 2.48   | %
|Real estatemortgage                     |  |                        | 1,471 |                                                  | 70.46  | % |        |      | 1,463                                            |  | 72.85  | %      |  |                                                  | 1,422 |  | 70.45  | % |                                                  |   | 1,715 |        | 70.82  | %                                                |  |   | 1,964 |  | 70.10  | %
|Installment loans to individuals         |  |                        | 348   |                                                  | 7.67   | % |        |      | 361                                              |  | 7.35   | %      |  |                                                  | 484   |  | 7.68   | % |                                                  |   | 404   |        | 7.98   | %                                                |  |   | 459   |  | 8.38   | %
|Unallocated                              |  |                        | 37    |                                                  | N/A    |   |        |      | 143                                              |  | N/A    |        |  |                                                  | 245   |  | N/A    |   |                                                  |   | 210   |        | N/A    |                                                  |  |   |      |  | N/A    |  
|TOTAL                                    |  | $                      | 2,455 |                                                  | 100.00 | % |        | $    | 2,555                                            |  | 100.00 | %      |  | $                                                | 2,661 |  | 100.00 | % |                                                  | $ | 2,900 |        | 100.00 | %                                                |  | $ | 3,075 |  | 100.00 | %



Nonperforming assets, including
nonaccrual loans, loans past-due 90 days or more, restructured loans and other real estate owned, decreased $536,000, or 19.2%, from December 31, 2006 to December 31, 2007, following a decrease of $348,000, or 11.1% for 2006. These decreases reflect
our ongoing efforts to enhance the quality of the loan portfolio. This also shows improvements we have made in the criteria we use in the determination of granting renewals and extensions. Our policy is to discontinue the accrual of interest on
loans that are past due more than 90 days, unless those loans are well collateralized and in process of collection. Loans past due more than 90 days and still accruing increased approximately $314,000 from December 31, 2006 to December 31, 2007.
This was primarily attributable to one large residential real estate loan. We may also classify



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loans that are on a current payment status or past due less than 90 days as nonaccrual if the repayment of principal or interest is in doubt. Our holdings of
other real estate owned decreased $382,000 in 2007, following an increase of $201,000 in 2006. Other real estate owned consists primarily of residential real estate and is recorded at fair value less estimated selling costs.



We maintain an allowance for loan losses that we believe to be adequate to absorb probable
credit losses inherent in the portfolio. We are committed to the early recognition of problem loans, and to an appropriate and adequate level of allowance. We do not engage in any of the subprime mortgage practices that have impacted the recent
economic downturn, but we continue to monitor any spillover effects this environment may have not only on our mortgage loan portfolio, but also on our commercial and consumer customers. The allowance for loan losses was 0.83% of year-end loans at
December 31, 2007 and 0.87% at December 31, 2006, further reflecting enhanced credit quality. The estimation of the adequacy of the allowance for loan losses is the most significant estimate that we determine. Different amounts could result under
different conditions or assumptions.



We use an independent third-party firm to
enhance our loan review function. This process includes a thorough evaluation of our credit administration systems and personnel. The objective is to have an effective loan review system that provides us with information that will produce a more
focused and effective approach in managing credit risk inherent in the loan portfolio. As part of this process, we use a system of loan grades to further support the adequacy of the loan loss allowance. Loans are categorized into one of nine loan
grades with grades 1 through 5 representing various levels of acceptable loans and grades 6 through 9 representing various levels of credit deterioration.



In addition to the review of credit quality through the credit review process, we construct a comprehensive allowance analysis for the loan portfolio at least quarterly.
The procedures that we use entail preparation of a loan watch list and assigning each loan a classification. We perform an impairment analysis for those individually significant loans when it is determined that it is not probable that
the borrower will make all payments in accordance with the original loan agreement. Specific reserves are recorded on impaired loans of $303,000 and $298,000 at December 31 2007 and 2006, respectively. Other classified loans are categorized and
allocated appropriate reserves. Other loans more than 90 days past due that have not been considered in these procedures are assigned a classification of Substandard and are reserved for accordingly. The remaining portfolio is segregated into
consumer, commercial, and residential real estate loans, and the historical net charge off percentage of each category is applied to the current amount outstanding in that category. Also, a review of concentrations of credit, classes of loans and
pledged collateral is performed to determine the existence of any deterioration. In addition, volume and trends in delinquencies and nonaccrual loans, the loan portfolio composition, loan volume and maturity of the portfolio, national and local
economic conditions and the experience, ability and depth of our lending management and staff are considered.



The methodology used to determine an estimate for the reserve for unfunded lending commitments is inherently similar to the methodology used in calculating the allowance for loan losses adjusted for factors specific
to binding commitments, including the probability of funding and exposure at the time of funding. The reserve for unfunded lending commitments is included in other liabilities with increases or decreases included in noninterest expense. At December
31, 2007 the reserve for unfunded lending commitments was $8,000 compared to $21,000 at December 31, 2006. Estimates may change at some point in the future.



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Securities



SECURITIES



The following table shows the carrying values of securities at the respective periods, which is fair value for available for sale
securities and amortized cost for securities held to maturity:



|                                       |  |                        |        |      |   |        |  |   |       
|-------------------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | - | ------
|                                       |  | December 31,          
|                                       |  | 2007                   |        | 2006 |   | 2005  
|                                       |  | (Dollars in Thousands)
|Securities available for sale:         |  |                        |        |      |   |        |  |   |       
|U. S. Government securities            |  | $                      | 1,009  |      | $ | 996    |  | $ | 986   
|U. S. Government agency securities     |  |                        | 79,783 |      |   | 70,463 |  |   | 78,802
|Other securities                       |  |                        | 1,971  |      |   | 1,982  |  |   | 5,000 
|TOTAL SECURITIES AVAILABLE FOR SALE    |  | $                      | 82,763 |      | $ | 73,441 |  | $ | 84,788
|Securities held to maturity:           |  |                        |        |      |   |        |  |   |       
|State, county and municipal securities |  | $                      | 18,156 |      | $ | 13,324 |  | $ | 13,142
|Other securities                       |  |                        |       |      |   | 75     |  |   | 75    
|TOTAL SECURITIES HELD TO MATURITY      |  | $                      | 18,156 |      | $ | 13,399 |  | $ | 13,217



MATURITIES OF SECURITIES



The following table shows the contractual maturities of debt
securities at December 31, 2007 and the weighted average yields of such securities:



|                                       |  |                        |        |       |                               |   |        |                               |        |  |                 |        |  |       |        |  |        |   |       |   |       |        |      |       |  |   |        |  |      |  
|-------------------------------------- |  | ---------------------- | ------ | ----- | ----------------------------- | - | ------ | ----------------------------- | ------ |  | --------------- | ------ |  | ----- | ------ |  | ------ | - | ----- | - | ----- | ------ | ---- | ----- |  | - | ------ |  | ---- | -
|                                       |  | WithinOne Year         |        |       | After OneBut WithinFive Years |   |        | After FiveBut WithinTen Years |        |  | After Ten Years |        |  | Total |       
|                                       |  | Amount                 |        | Yield |                               |   | Amount |                               | Yield  |  |                 | Amount |  | Yield |        |  | Amount |   | Yield |   |       | Amount |      | Yield | 
|                                       |  | (Dollars in Thousands) |       
|Securities available for sale:         |  |                        |        |       |                               |   |        |                               |        |  |                 |        |  |       |        |  |        |   |       |   |       |        |      |       |  |   |        |  |      |  
|U. S. Treasury securities              |  | $                      | 1,009  |       | 4.69                          | % |        | $                             |       |  | 0.00            | %      |  | $     |       |  | 0.00   | % |       | $ |      |        | 0.00 | %     |  | $ | 1,009  |  | 4,69 | %
|U. S. Government agency securities     |  |                        | 16,729 |       | 3.72                          |   |        |                               | 45,581 |  | 4.78            |        |  |       | 11,206 |  | 5.33   |   |       |   | 6,267 |        | 5.14 |       |  |   | 79,783 |  | 4.66 |  
|Other securities                       |  |                        | 1,971  |       | 3.74                          |   |        |                               |       |  | 0.00            |        |  |       |       |  | 0.00   |   |       |   |      |        | 0.00 |       |  |   | 1,971  |  | 3,74 |  
|TOTAL SECURITIES AVAILABLE FOR SALE    |  | $                      | 19,709 |       | 3.77                          | % |        | $                             | 45,581 |  | 4,78            | %      |  | $     | 11,206 |  | 5.33   | % |       | $ | 6,267 |        | 5.14 | %     |  | $ | 82,763 |  | 4,64 | %
|Securities held to maturity:           |  |                        |        |       |                               |   |        |                               |        |  |                 |        |  |       |        |  |        |   |       |   |       |        |      |       |  |   |        |  |      |  
|State, county and municipal securities |  | $                      | 1,832  |       | 6.52                          | % |        | $                             | 7,865  |  | 5.47            | %      |  | $     | 4,952  |  | 5.57   | % |       | $ | 3,507 |        | 5.50 | %     |  | $ | 18,156 |  | 5,61 | %
|TOTAL SECURITIES HELD TO MATURITY      |  | $                      | 1,832  |       | 6.52                          | % |        | $                             | 7,865  |  | 5.47            | %      |  | $     | 4,952  |  | 5.57   | % |       | $ | 3,507 |        | 5.50 | %     |  | $ | 18,156 |  | 5.61 | %



Yields on tax-exempt obligations
have been computed based on tax equivalent yield.



During 2007, securities,
our second largest asset, increased by $14,222,000 or 16.1%. At December 31, 2007, securities comprised 25.6% of total interest-earning assets compared to 23.1% of total interest-earning assets at December 31, 2006. The composition of our securities
portfolio reflects our investment strategy of maximizing portfolio yields subject to risk and liquidity considerations. The primary objective of our investment strategy is to maintain an appropriate level of asset liquidity and provide us with a
tool to assist in controlling and managing our interest rate position while at the same time producing appropriate levels of interest income. Managing the average maturity and optionality of the portfolio is necessary to ensure adequate liquidity
and acceptable interest rate risk. In order to maintain liquidity and flexibility, we categorize most investments in the available for sale portfolio. We believe that the potential for increased loan demand as we expand our market footprint requires
maintaining adequate liquidity in the securities portfolio.



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The remaining securities, primarily state, county and municipal obligations comprise the held to maturity portfolio. Net
unrealized gains in the held to maturity portfolio amounted to approximately $20,000 at December 31, 2007, compared to net unrealized losses of $45,000 at December 31, 2006. The held to maturity portfolio increased to $18,156,000 at December 31,
2007, from $13,399,000 at December 31, 2006. State and municipal securities contained no individual issues in excess of 10% of stockholders equity.



As of December 31, 2007, the investment portfolio contained $2,000,000 of corporate debt obligations in the available for sale portfolio. These obligations have an
average remaining life of less than one year and are primarily in the financial services sector. No investment with an individual issuer is in excess of 10% of stockholders equity.



No gains or losses were realized from the sale of securities in 2007. Realized losses from the sale of available for sale securities were
approximately $166,000 in 2006 and $60,000 in 2005.



At December 31, 2007, we
held certain investments having continuous unrealized loss positions for more than 12 months totaling $26,651,000. The majority of these investments were in U.S. Treasury and U.S. government agency obligations, the cash flows of which are guaranteed
by the U.S. government or its agencies; therefore, we expect that the securities would not be settled at a price less than their amortized cost. Because the decline in the market value was caused by interest rate increases and not credit quality,
and because we have the ability and intent to hold these investments until a recovery of fair value, which may be maturity, we have not recognized any other-than-temporary impairment in connection with these investments.



Deposits



Deposits, our major source of funds, increased approximately $5,400,000 in 2007, following an increase of $24,564,000 in 2006. These increases occurred in
interest-bearing deposits as we continued a strategy we began in 2004 to regain market share that we had lost over the previous two years to the entrance of new competitors in the marketplace. Noninterest-bearing deposits increased $453,000 in 2007,
following a decrease of $6,193,000 in 2006. The average rate paid on interest-bearing deposits in 2007 was 3.06% and 2.46% in 2006. Strong competition for deposits exists in our primary market among commercial banks, savings banks, thrift
institutions, credit unions, mutual funds, brokerage houses, insurance companies, and certain national retailers. Despite this intense competition, we continue to evaluate pricing strategies that will insure the long-term benefit of maintaining
market share without sacrificing profitability.



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AVERAGE DEPOSITS



|                                    |  |              |                        |              |       |        |              |         |  |      |        |  |      |         |  |      |   
|----------------------------------- |  | ------------ | ---------------------- | ------------ | ----- | ------ | ------------ | ------- |  | ---- | ------ |  | ---- | ------- |  | ---- | --
|                                    |  | 2007 Average |                        | 2006 Average |       |        | 2005 Average |        
|                                    |  | Amount       |                        | Rate         |       | Amount |              | Rate    |  |      | Amount |  | Rate |        
|                                    |  |              | (Dollars in Thousands) |             
|Noninterestbearing demand deposits |  | $            | 45,794                 |              | NA    |        | $            | 45,955  |  | N    | /A     |  | $    | 48,423  |  | N    | /A
|Interestbearing demand deposits    |  |              | 73,923                 |              | 0.82% |        |              | 75,958  |  | 0.71 | %      |  |      | 78,343  |  | 0.45 | % 
|Savings deposits                    |  |              | 56,156                 |              | 1.06% |        |              | 58,904  |  | 0.91 | %      |  |      | 65,113  |  | 0.80 | % 
|Time deposits                       |  |              | 190,391                |              | 4.52% |        |              | 163,133 |  | 3.83 | %      |  |      | 136,285 |  | 2.71 | % 
|TOTAL AVERAGE DEPOSITS              |  | $            | 366,264                |              | 2.68% |        | $            | 343,950 |  | 2.13 | %      |  | $    | 328,164 |  | 1.39 | % 



There are no foreign offices.
Average balances are computed on daily balances.



MATURITIES OF TIME
CERTIFICATES OF DEPOSIT OF $100,000 OR MORE



|                                                  |  |                        |       
|------------------------------------------------- |  | ---------------------- | ------
|                                                  |  | December 31, 2007     
|                                                  |  | (Dollars in Thousands)
|Under 3 months                                    |  | $                      | 21,465
|3 to 6 months                                     |  |                        | 12,078
|6 to 12 months                                    |  |                        | 11,907
|Over 12 months                                    |  |                        | 7,033 
|TOTAL CERTIFICATES OF DEPOSIT OF $100,000 OR MORE |  | $                      | 52,483



SHORT-TERM BORROWED FUNDS



|                                                                           |  |                        |        |      |   |        |  |   |       
|-------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                           |  | December 31,          
|                                                                           |  | 2007                   |        | 2006 |   | 2005  
|                                                                           |  | (Dollars in Thousands)
|Federal funds purchased and securities sold under agreements to repurchase |  | $                      | 27,682 |      | $ | 12,648 |  | $ | 19,656
|Other borrowed funds                                                       |  |                        | 26     |      |   | 26     |  |   | 26    
|TOTAL BORROWED FUNDS                                                       |  | $                      | 27,708 |      | $ | 12,674 |  | $ | 19,682



The approximate average interest
rates, average amounts outstanding, and maximum amounts outstanding at any month-end for federal funds purchased and securities sold under agreements to repurchase are as follows:



|                                             |  |      |        |      |   |        |  |   |       
|-------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                             |  | 2007 |        | 2006 |   | 2005  
|Average interest rates at December 31        |  |      | 3.38%  |      |   | 3.24%  |  |   | 3.03% 
|Maximum amounts outstanding at any month-end |  | $    | 27,682 |      | $ | 25,366 |  | $ | 23,536
|Average daily amount outstanding             |  | $    | 18,177 |      | $ | 18,951 |  | $ | 18,047
|Weighted average interest rates              |  |      | 3.58%  |      |   | 3.57%  |  |   | 1.85% 



The weighted average interest rates
are calculated by dividing the annual interest expense by the related average daily amounts outstanding.



Capital Resources



We increased the total
per share dividend for 2007 to $1.10 per share, an increase of 4.8%, from the $1.05 per share paid in 2006. Cash dividends paid to stockholders during 2007 totaled $2,136,000, following $2,057,000 in 2006 and $1,968,000 for 2005. This represents a
dividend pay out ratio (dividends divided by net income) of 46% in 2007 and 2006, and 49% in 2005. We are dependent upon dividends paid by FCBNA to fund dividends to the stockholders and to cover other operating costs. Our board of directors
considers historical financial performance, future prospects, and anticipated needs for capital in formulating the dividend payment policy. Future dividends are dependent upon our financial results, capital requirements and general economic
conditions.



One of our primary objectives is to maintain a strong capital
position. Stockholders equity increased $1,973,000 or 5.1% in 2007. This increase resulted primarily from an increase in



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retained earnings of $2,552,000. Additionally, during 2007 we acquired 56,887 treasury shares for a total of $1,365,000 through our stock repurchase program.
At December 31, 2007, we had approval to repurchase 17,256 shares of the Corporations common stock. We will continue to evaluate capital utilization to provide the most long-term value for our shareholders. The percentage of earnings
reinvested in the Corporation (net income less dividends as a percentage of net income) for the years 2007, 2006 and 2005 was 54%, 54% and 51%, respectively. The internal capital formation rate (net income less dividends as a percentage of average
stockholders equity) indicates the rate at which assets can grow while maintaining the current ratio of stockholders equity to assets. The internal capital formation rate was 6.4% in 2007, 6.3% in 2006 and 5.6% in 2005.



REGULATORY CAPITAL



|                         |  |        |  |                                     |  |         
|------------------------ |  | ------ |  | ----------------------------------- |  | --------
|Entity                   |  | Tier 1 |  | Combined Capital(Tier 1 and Tier 2) |  | Leverage
|Consolidated             |  | 11.45% |  | 12.24%                              |  | 8.33%   
|First Century Bank, N.A. |  | 11.06% |  | 11.86%                              |  | 8.04%   



Risk-based capital regulations require
all banks and bank holding companies to have a minimum total risk-based capital ratio of 8% with half of the capital composed of core capital. Conceptually, risk-based capital requirements assess the risk of a financial institutions balance
sheet and off-balance sheet commitments in relation to its capital. Under the guidelines, capital strength is measured in two tiers which are used in conjunction with risk adjusted assets in determining the risk-based capital ratios. Our Tier I
capital, which consists of stockholders equity, adjusted for certain intangible assets, amounted to $35,615,000 at December 31, 2007, or 11.45% of total risk-weighted assets, compared to $34,353,000 at December 31, 2006, or 11.30% of total
risk-weighted assets. Tier II capital, or supplementary capital, includes capital components such as qualifying allowance for loan losses, and can equal up to 100% of an institutions Tier I capital with certain limitations. Our Tier II capital
amounted to $2,463,000 at December 31, 2007, or 0.79% of total risk-weighted assets, compared to $2,576,000 at December 31, 2006, or 0.85% of total risk-weighted assets. Our total consolidated risk-based capital was $38,078,000 at December 31, 2007,
or 12.24% of total risk-weighted assets, compared to $36,929,000, or 12.15% of total risk-weighted assets as of December 31, 2006. Additionally, risk-based capital guidelines require that we maintain a minimum leverage ratio (Tier I capital divided
by average adjusted total consolidated assets) of 4%, which may be increased for institutions with higher levels of risk or that are experiencing or anticipating significant growth. We have not been advised by any regulatory agency of any additional
specific minimum leverage ratio applicable to us. As of December 31, 2007 and 2006, the Corporations leverage ratio was 8.33% and 8.41% respectively; therefore, we exceeded all current minimum capital requirements.



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Asset and Liability Management and Interest Rate
Sensitivity



Our income stream is subject to risk resulting from
interest rate fluctuations to the extent there is a difference between the amount of our interest-earning assets and the amount of our interest-bearing liabilities that are prepaid, withdrawn, mature or reprice in specified periods. The goal of
asset and liability management is to maintain high quality and consistent growth of net interest income with acceptable levels of risk to changes in interest rates.



Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds,
on which rates change daily, and loans that are tied to the prime rate differ considerably from long-term securities and fixed rate loans. Similarly, time deposits of $100,000 and over, NOW accounts and money market deposit accounts are much more
interest sensitive than passbook savings accounts and other interest-bearing liabilities. We use a number of tools to measure interest rate risk, including simulating net interest income under various rate scenarios, monitoring the change in present
value of the asset and liability portfolios under the same rate scenarios and monitoring the difference or gap between rate sensitive assets and liabilities over various time periods.



We continue our efforts to generate variable rate loans. However, with strong competition for loans, and with the potential for rising
interest rates, customers are demanding more fixed rate commitments. The results of our efforts to balance interest-earning assets against interest-bearing liabilities can be seen in the Analysis of Interest Rate Sensitivity table.



We continue to monitor asset/liability gap positions, while incorporating more sophisticated
risk measurement tools, including simulation modeling which calculates expected net interest income based on projected interest-earning assets, interest-bearing liabilities and interest rates. Using simulation modeling allows us to evaluate earnings
and capital at risk due to significant changes in interest rates. We monitor exposure to the effect of an instantaneous change in rates of 200 basis points up or down over the same period. As of December 31, 2007, simulation indicated the impact of
a 200 basis point increase in rates would result in a 0.9% increase in net interest income, while a 200 basis point decline in rates would result in a 6.9% decrease in net interest income from an unchanged rate environment. These changes fall within
our policy limit of 10% for the maximum negative impact to net interest income from a 200 basis point change in interest rates.



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ANALYSIS OF INTEREST RATE SENSITIVITY



An analysis of interest rate sensitivity as of December 31, 2007, is shown below.



|                                                                    |  |                        |         |   |        |   |         |        |  |   |         |   |  |   |        |   |  |   |        
|------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------ | - | ------- | ------ |  | - | ------- | - |  | - | ------ | - |  | - | -------
|                                                                    |  | Months                 |         |   | Years  |   |         | Totals
|                                                                    |  | Less Than 3            |         |   | 3  12 |   |         | 1  5  |  |   | Over 5  |   | 
|                                                                    |  | (Dollars in Thousands) |         |   |       
|Investment securities                                               |  | $                      | 31,124  |   |        | $ | 23,083  |        |  | $ | 35,267  |   |  | $ | 12,875 |   |  | $ | 102,349
|Federal funds sold and interest-bearingbalances with banks          |  |                        | 65      |   |        |   |        |        |  |   |        |   |  |   |       |   |  |   | 65     
|Loans                                                               |  |                        | 114,556 |   |        |   | 101,220 |        |  |   | 68,843  |   |  |   | 12,327 |   |  |   | 296,946
|Interest-earning assets                                             |  |                        | 145,745 |   |        |   | 124,303 |        |  |   | 104,110 |   |  |   | 25,202 |   |  |   | 399,360
|Time deposits                                                       |  |                        | 65,068  |   |        |   | 95,005  |        |  |   | 31,124  |   |  |   |       |   |  |   | 191,197
|Other interest-bearing deposits                                     |  |                        | 55,243  |   |        |   | 27,622  |        |  |   | 43,788  |   |  |   |       |   |  |   | 126,653
|Other interest-bearing liabilities                                  |  |                        | 19,721  |   |        |   | 7,961   |        |  |   |        |   |  |   | 26     |   |  |   | 27,708 
|Interest-bearing liabilities                                        |  |                        | 140,032 |   |        |   | 130,588 |        |  |   | 74,912  |   |  |   | 26     |   |  |   | 345,558
|Interest sensitivity gap                                            |  | $                      | 5,713   |   |        | $ | (6,285  | )      |  | $ | 29,198  |   |  | $ | 25,176 |   |  | $ | 53,802 
|Cumulative interest sensitivity gap                                 |  | $                      | 5,713   |   |        | $ | (572    | )      |  | $ | 28,626  |   |  | $ | 53,802 |   |  |   |        
|Ratio of interest-earning assets tointerest-bearing liabilities     |  |                        | 1.04    | x |        |   | 0.95    | x      |  |   | 1.39    | x |  |   | 969.31 | x |  |   |        
|Ratio of cumulative interest sensitivitygap to total earning assets |  |                        | 1.43    | % |        |   | (0.14   | ) %    |  |   | 7.17    | % |  |   | 13.47  | % |  |   |        



Liquidity Management



Liquidity management involves our ability to meet the cash flow requirements of depositors
wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. To ensure that we are positioned to meet immediate and future cash demands, we rely on liquidity analysis, knowledge of
business trends over past economic cycles and forecasts of future conditions.



Liquidity can best be demonstrated by an analysis of cash flows. Our primary source of cash flows is from operating activities. Operating activities provided $5,992,000 of liquidity for the year ended December 31, 2007, compared to
$5,792,000 and $5,931,000 in 2006 and 2005, respectively. The principal elements of these operating flows are net income, increased for significant non-cash expenses for the provision for loan losses and depreciation and amortization.



In 2007, cash flows from financing activities increased $17,008,000, primarily due to
increased short-term borrowings of $15,034,000. These funds were used primarily to fund increased loan demand of $4,909,000, and securities purchased in advance of expected calls and maturities in early 2008.



A secondary source of liquidity comes from investing activities, principally the maturities
of investment securities. With the falling interest rate environment at the end of 2007, maturities and calls of investment securities increased to $31,851,000, compared to $10,267,000 in 2006 and $12,238,000 in 2005. As of December 31, 2007, we had
approximately $48,399,000 of investment securities that mature within 36 months.



We also have access to additional sources of liquidity through the Federal Reserve System, through our membership in the Federal Home Loan Bank system and through a correspondent bank, Silverton Bank, Atlanta, GA. As of December 31, 2007,
FCBNA had a max-



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imum borrowing capacity exceeding $100,000,000 through the Federal Home Loan Bank of Pittsburgh. These funds can be made available with various maturities
and interest rate structures. As a member, we are required to own stock in the Federal Home Loan Bank of Pittsburgh. The amount of stock we own is based on the amount of outstanding borrowings at any given point in time. Borrowings are also
collateralized by a blanket lien by the Federal Home Loan Bank on its members qualifying assets. At December 31, 2007, FCBNA owned $1,047,000 of stock for which we had $10,616,000 outstanding from our overnight repo account. We had no other
outstanding advances from the Federal Home Loan Bank of Pittsburgh as of December 31, 2007.



At December 31, 2007, we had $550,000 in outstanding federal funds purchased from Silverton Bank from our $8,600,000 federal funds line.



As a member of the Federal Reserve System, we have access to funding through the Federal Reserve Bank of Richmond. The Federal Reserve requires its members
to exhaust other sources of liquidity before seeking advances; therefore, unless we would discontinue our membership in the Federal Home Loan Bank of Pittsburgh, borrowing from the Federal Reserve Bank of Richmond would be very unlikely. Any
borrowings from the Federal Reserve Bank of Richmond would require us to pledge assets of FCBNA as collateral, and we would be expected to repay any borrowings as soon as possible.



Income Statement Analysis



Earnings Overview



Net income for the three years ended December 31, 2007, 2006 and 2005, was $4,688,000, $4,489,000, and $4,004,000, respectively. On a per share basis, diluted net income was $2.39 in 2007 compared to $2.28 in 2006,
and $2.02 in 2005. Return on average equity was 11.79% in 2007 compared to 12.07% in 2006, and 11.17% in 2005. Return on average assets for the year ended December 31, 2007 was 1.10% compared to 1.12% in 2006 and 1.04% in 2005. A summary of the
significant factors influencing our results of operations and related ratios is included in the following discussion.



Earnings Per Share



The Earnings Per Share Table summarizes the principal sources of changes in earnings per share for 2007. For further details on the computation of earnings per share, refer to Note 9 of the Notes to Consolidated
Financial Statements, presented elsewhere in this report.



EARNINGS PER
SHARE



|                                      |  |   |      |  
|------------------------------------- |  | - | ---- | -
|Net income per share  2006           |  | $ | 2.29 |  
|Increase (decrease) due to change in: |  |   |      |  
|Net interest income                   |  |   | .10  |  
|Provision for loan losses             |  |   | (.04 | )
|Other operating income                |  |   | .10  |  
|Personnel expense                     |  |   | .05  |  
|Other expense                         |  |   | (.10 | )
|Net income per share  2007           |  | $ | 2.40 |  



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Net Interest Income



The major portion of our earnings is derived from net interest income, which is the interest income on interest-earning assets less the interest expense on
interest-bearing liabilities. During 2007 net interest income increased $192,000 or 1.2%. This followed a 4.3% increase in 2006, and an 8.0% increase in 2005. Net interest income resulted in a net interest margin to earning assets ratio of 4.12% for
2007, compared with 4.35% for 2006, and 4.37% for 2005.



For the year ended
December 31, 2007, interest income increased $2,645,000, or approximately 10.9%, compared to an increase of $3,775,000, or 18.5% for 2006, and an increase of $2,547,000, or 14.3% for 2005. Interest on loans, which increased $2,027,000 or 10.0%,
contributed to the increase in 2007. Interest on securities increased $551,000, or 14.5% for 2007. Interest income reflects a yield on average earnings assets of 6.75% for 2007, compared with 6.49% for 2006 and 5.75% for 2005.



The increase in interest income was accompanied by an increase in interest expense of
$2,453,000 or 30.6% for 2007. This followed an increase in interest expense of $3,115,000, or 63.6% for 2006, and an increase of $1,397,000, or 39.9% for 2005. Interest expense reflects a cost on average interest-bearing liabilities of 3.09% for
2007, compared with 2.53% for 2006 and 1.64% for 2005.



Net interest income is
affected by many factors, but most significantly by the prevailing interest rates during the period, the spread between the various sources and uses of funds, and by changes in the volume of various assets and liabilities. The performance for 2007
illustrates the asset sensitive structure of our balance sheet as repricing opportunities occurred in our loan portfolio beginning in 2005, followed by more rapid increased cost of funding during 2006 and 2007. It also reflects the income provided
by having additional assets in loans in 2007. The increase in interest expense reflects the effects of rising interest rates for certificates of deposit that continued to reprice from historically low levels, as well as our pricing strategy for
regaining market share.



Provision for Loan Losses



We experienced an $86,000 increase in the provision for loan losses during 2007. The
provision for loan losses was $166,000 for 2007, compared to $80,000 for 2006 and $434,000 for 2005. The provision for loan losses as a percentage of average loans was 0.06% for 2007, compared with 0.03% for 2006, and 0.17% for 2005. Charge-offs
decreased $165,000, or 28.2% during 2007. However, recoveries of previous charge-offs were down $245,000, or 61.4% in 2007. The ratio of net charge offs to average loans outstanding was 0.09% for 2007, compared with 0.07% for 2006, and 0.27% for
2005. In evaluating the loan portfolio at December 31, 2007, with the improved level of nonaccrual and past-due loans, we anticipate the loan loss provision will remain stable in 2008; however, continued deterioration in the economy could result in
higher than expected provision levels in 2008.



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##### Table of Contents



Noninterest Income and Expense



Noninterest income net of securities gains and losses increased
$35,000 or 0.7% in 2007, following a $353,000 or 8.0% increase in 2006, and a $647,000 or 17.3% increase in 2005. The largest component of noninterest income is service charges on deposit accounts. These fees decreased approximately $8,000 or 0.4%
in 2007, following an increase of $241,000 or 14.8% in 2006, and an increase of $429,000 or 35.7% in 2005. The small change in 2007 reflected the minimal growth of noninterest-bearing deposits for the year. During 2006, our overdraft protection
product contributed the full year which resulted in additional income of $302,000 compared with 2005. The second largest component of noninterest income is fees from fiduciary activities. Fees from fiduciary activities decreased approximately
$80,000 in 2007, following an increase of $262,000 in 2006 and an increase of $13,000 in 2005. The fluctuations in fiduciary fees are attributed to the timing of the receipt of fees from estate settlements, growth of assets under management and
changes in overall investment performance.



Noninterest expense, excluding the
provision for loan losses, increased 0.6% in 2007, following a 3.9% increase in 2006 and a 0.4% increase in 2005. Personnel expense is the largest component of noninterest expense. Personnel expense decreased 1.7% in 2007, following an increase of
1.3% in 2006, and a decrease of 2.2% in 2005. For a complete discussion of our employee benefit programs, refer to Note 12 of the Notes to Consolidated Financial Statements, presented elsewhere in this report. We remain committed to improving
operational efficiency throughout the organization while keeping compensation levels adequate to attract and retain competent staff. Reductions in personnel and occupancy expenses were offset by increased costs for various other noninterest
expenses.



Income Taxes



Applicable income taxes for 2007 increased $29,000 or 1.2%. This followed a $256,000 or 11.9%
increase for 2006, and a $540,000 or 33.7% increase for 2005. Income taxes computed at the statutory rate are reduced primarily by interest earned on state and municipal obligations. For a complete discussion of the Corporations tax position,
refer to Note 13 of the Notes to Consolidated Financial Statements, presented elsewhere in this report.



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RETURN ON EQUITY AND ASSETS



|                                                                                 |  |              |   |  |       |   |  |       |  
|-------------------------------------------------------------------------------- |  | ------------ | - |  | ----- | - |  | ----- | -
|                                                                                 |  | December 31, |  
|                                                                                 |  | 2007         |   |  | 2006  |   |  | 2005  |  
|Percentage of net income to:                                                     |  |              |   |  |       |   |  |       |  
|Average stockholders equity                                                     |  | 11.79        | % |  | 12.07 | % |  | 11.17 | %
|Average total assets                                                             |  | 1.10         | % |  | 1.12  | % |  | 1.04  | %
|Percentage of dividends declared per common share to net income per common share |  | 45.83        | % |  | 45.85 | % |  | 49.26 | %
|Percentage of average stockholders equity to average total assets               |  | 9.48         | % |  | 9.50  | % |  | 9.48  | %



The Effects of Inflation and Changing
Prices



Our company is affected by inflation in several ways, but not
to the same extent as a company that makes large capital expenditures or has a large investment in inventory. Our asset and liability structure is primarily monetary in nature and, therefore, our financial results are more affected by changes in
interest rates than by inflation. However, the actions of the Federal Reserve Board indicate that interest rate management will continue to be the primary tool used to curtail inflationary pressures. Inflation does affect our noninterest expense,
such as personnel expense and the cost of services and supplies. These increases must be offset to the extent possible, by increases in noninterest income and by controlling noninterest expense.



Accounting, Legislative and Regulatory Matters



In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48 (FIN 48), Accounting for Uncertainty in Income Taxes. This interpretation applies to all tax positions accounted for in accordance with SFAS No. 109, Accounting for Income Taxes.FIN 48 clarifies
the application of SFAS No. 109 by defining the criteria that an individual tax position must meet in order for the position to be recognized within the financial statements and provides guidance on measurement, de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition for tax positions. This interpretation is effective for fiscal years beginning after December 15, 2006, with earlier adoption permitted. The Corporation has evaluated
the impact of the adoption of this interpretation and has determined that it did not have a material impact on its financial statements.



In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements(SFAS 157). SFAS 157 enhances existing guidance for
measuring assets and liabilities using fair value. Prior to the issuance of SFAS 157, guidance for applying fair value was incorporated in several accounting pronouncements. SFAS 157 provides a single definition of fair value, together with a
framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a
fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS 157, fair value measurements are disclosed by level within that hierarchy. While SFAS 157 does not add any new fair value measurements, it does change
current practice. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Corporation is currently reviewing the effect SFAS 157 will have on its
financial statements.



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In February 2007, the FASB issued Statement
of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value.
SFAS 159s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and
other users of financial statements to more easily understand the effect of the companys choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has
chosen to use fair value on the face of the balance sheet. SFAS 159 is effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year
provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of Statement 157. The Corporation did not early adopt SFAS 159. The Corporation is currently reviewing the effect SFAS 159
will have on its financial statements.



In December 2007, the FASB issued FASB
Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)), which requires all assets acquired and liabilities assumed in a business combination (with a few exceptions, such as deferred tax assets and
liabilities) be measured at fair value in accordance with SFAS 157. SFAS 141(R) is effective prospectively for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating the impact of
adopting SFAS 141(R) on its financial statements.



Also in December 2007, the
FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 SFAS 160), which amends ARB No. 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB No. 51s consolidation procedures for consistency with the requirements of SFAS 141(R), Business
Combinations. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The standard should be applied prospectively. Presentation and disclosure requirements should be
applied retrospectively to comparative financial statements. Earlier adoption is prohibited. The Company is currently evaluating the impact of adopting SFAS 160 on its financial statements.



Several other new accounting standards became effective during the periods presented or will
be effective subsequent to December 31, 2007. None of these new standards had or is expected to have a significant impact on the Companys consolidated financial statements.



Page 20     First Century Bankshares, Inc.



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Per Share Data by Quarter



The common stock of the Corporation is quoted on the NASD OTC Bulletin Board under the trading symbol FCBS. The per share data by quarter table shows the approximate high
and low bid as reported by the transfer agent and market makers for 2007 and 2006. Also presented below are the dividends paid for those respective years. The number of stockholders of record on December 31, 2007, was 473 and outstanding shares
totaled 1,909,792.



PER SHARE DATA BY QUARTER



|               |  |           |      |      |   |                   |  |     |       |      |   |       |  |   |       |  |   |      
|-------------- |  | --------- | ---- | ---- | - | ----------------- |  | --- | ----- | ---- | - | ----- |  | - | ----- |  | - | -----
|               |  |           |      |      |   | Market Quotations
|               |  | Dividends |      | 2007 |   | 2006             
|Quarter        |  | 2007      |      | 2006 |   | High              |  | Low |       | High |   | Low  
|First Quarter  |  | $         | 0.26 |      | $ | 0.25              |  | $   | 28.50 |      | $ | 26.50 |  | $ | 25.00 |  | $ | 23.25
|Second Quarter |  |           | 0.26 |      |   | 0.25              |  |     | 28.95 |      |   | 25.50 |  |   | 25.50 |  |   | 23.30
|Third Quarter  |  |           | 0.27 |      |   | 0.25              |  |     | 28.00 |      |   | 25.50 |  |   | 26.25 |  |   | 23.50
|Fourth Quarter |  |           | 0.31 |      |   | 0.30              |  |     | 25.75 |      |   | 20.80 |  |   | 28.00 |  |   | 25.50



First Century Bankshares, Inc.     Page 21



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##### Table of Contents



PERFORMANCE GRAPH



This graph compares our total shareholder returns (assuming reinvestment of
dividends), the NASDAQ stock index and the Carson Medlin Companys Independent Bank Index. The Independent Bank Index is the compilation of the total return to shareholders over the past five years of a group of 27 independent community banks
located in the southeastern states of Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.



LOGO



|                               |  |      |  |      |  |      |  |      |  |      |  |     
|------------------------------ |  | ---- |  | ---- |  | ---- |  | ---- |  | ---- |  | ----
|                               |  | 2002 |  | 2003 |  | 2004 |  | 2005 |  | 2006 |  | 2007
|                               |  |      |  |      |  |     
|FIRST CENTURY BANKSHARES, INC. |  | 100  |  | 126  |  | 143  |  | 144  |  | 181  |  | 172 
|                               |  |      |  |      |  |     
|INDEPENDENT BANK INDEX         |  | 100  |  | 137  |  | 156  |  | 167  |  | 194  |  | 147 
|                               |  |      |  |      |  |     
|NASDAQ INDEX                   |  | 100  |  | 150  |  | 163  |  | 166  |  | 183  |  | 198 



Page 22     First Century Bankshares, Inc.



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Trust Asset Responsibility



Assets managed by our Trust Division are presented in the graph below at market value. These assets are not included in the financial statements contained elsewhere in
this report.



LOGO



Trust account administration and investment
management are linked through the talents of a skilled professional and support staff. Their education and experience through decades of service results in specialization in personal and retirement relationships, foundations, charitable and
endowment purposes.



First Century Bankshares, Inc.     Page 23



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CONDENSED STATEMENTS OF FINANCIAL
CONDITION

Statistical Summary, 2007  2003



|                                     |  |                                               |         |   |   |     |   |      |   |         |   |  |     |      |  |   |         |   |  |      |   |  |   |         |   |      |     |   |   |   |         |   |  |     |  
|------------------------------------ |  | --------------------------------------------- | ------- | - | - | --- | - | ---- | - | ------- | - |  | --- | ---- |  | - | ------- | - |  | ---- | - |  | - | ------- | - | ---- | --- | - | - | - | ------- | - |  | --- | -
|                                     |  | December 31,                                  |        
|                                     |  | 2007                                          |         |   | % |     |   | 2006 |   |         | % |  |     | 2005 |  |   | %       |   |  | 2004 |   |  | % |         |   | 2003 |     |   | % |  
|                                     |  | (Dollars in Thousands, Except Per Share Data) |        
|Loans                                |  | $                                             | 296,946 |   |   | 68  |   |      | $ | 292,643 |   |  | 71  |      |  | $ | 257,732 |   |  | 66   |   |  | $ | 247,808 |   |      | 66  |   |   | $ | 246,950 |   |  | 68  |  
|Securities                           |  |                                               | 102,349 |   |   | 24  |   |      |   | 88,127  |   |  | 22  |      |  |   | 99,101  |   |  | 25   |   |  |   | 94,152  |   |      | 25  |   |   |   | 78,444  |   |  | 22  |  
|Federal funds sold                   |  |                                               |        |   |   |    |   |      |   |        |   |  |    |      |  |   |        |   |  |     |   |  |   | 4,000   |   |      | 1   |   |   |   | 4,000   |   |  | 1   |  
|Interestbearing deposits with banks |  |                                               | 65      |   |   |    |   |      |   | 50      |   |  |    |      |  |   | 6       |   |  |     |   |  |   | 3,042   |   |      | 1   |   |   |   | 1,002   |   |  |    |  
|INTEREST-EARNING ASSETS              |  |                                               | 399,360 |   |   | 92  |   |      |   | 380,820 |   |  | 93  |      |  |   | 356,839 |   |  | 91   |   |  |   | 349,002 |   |      | 93  |   |   |   | 330,396 |   |  | 91  |  
|Cash and due from banks              |  |                                               | 13,462  |   |   | 3   |   |      |   | 10,162  |   |  | 2   |      |  |   | 14,293  |   |  | 4    |   |  |   | 9,974   |   |      | 3   |   |   |   | 14,576  |   |  | 4   |  
|Premises and equipment               |  |                                               | 13,385  |   |   | 3   |   |      |   | 12,202  |   |  | 3   |      |  |   | 11,816  |   |  | 3    |   |  |   | 12,268  |   |      | 3   |   |   |   | 11,697  |   |  | 3   |  
|Other assets                         |  |                                               | 10,127  |   |   | 3   |   |      |   | 10,319  |   |  | 3   |      |  |   | 10,502  |   |  | 3    |   |  |   | 9,735   |   |      | 2   |   |   |   | 10,133  |   |  | 3   |  
|Allowance for loan losses            |  |                                               | (2,455  | ) |   | (1  | ) |      |   | (2,555  | ) |  | (1  | )    |  |   | (2,661  | ) |  | (1   | ) |  |   | (2,900  | ) |      | (1  | ) |   |   | (3,075  | ) |  | (1  | )
|TOTAL ASSETS                         |  | $                                             | 433,879 |   |   | 100 |   |      | $ | 410,948 |   |  | 100 |      |  | $ | 390,789 |   |  | 100  |   |  | $ | 378,079 |   |      | 100 |   |   | $ | 363,727 |   |  | 100 |  
|Savings deposits                     |  | $                                             | 126,653 |   |   | 29  |   |      | $ | 128,987 |   |  | 31  |      |  | $ | 137,415 |   |  | 35   |   |  | $ | 146,744 |   |      | 39  |   |   | $ | 144,294 |   |  | 40  |  
|Time deposits                        |  |                                               | 191,197 |   |   | 44  |   |      |   | 183,916 |   |  | 45  |      |  |   | 144,731 |   |  | 37   |   |  |   | 129,420 |   |      | 34  |   |   |   | 122,262 |   |  | 34  |  
|Other interestbearing liabilities   |  |                                               | 27,708  |   |   | 7   |   |      |   | 12,674  |   |  | 3   |      |  |   | 19,682  |   |  | 5    |   |  |   | 18,973  |   |      | 5   |   |   |   | 19,167  |   |  | 5   |  
|INTEREST-BEARING LIABILITIES         |  |                                               | 345,558 |   |   | 80  |   |      |   | 325,577 |   |  | 79  |      |  |   | 301,828 |   |  | 77   |   |  |   | 295,137 |   |      | 78  |   |   |   | 285,723 |   |  | 79  |  
|Demand deposits                      |  |                                               | 44,905  |   |   | 10  |   |      |   | 44,452  |   |  | 11  |      |  |   | 50,645  |   |  | 13   |   |  |   | 45,087  |   |      | 12  |   |   |   | 41,163  |   |  | 11  |  
|Other liabilities                    |  |                                               | 3,011   |   |   | 1   |   |      |   | 2,487   |   |  | 1   |      |  |   | 2,363   |   |  | 1    |   |  |   | 2,066   |   |      | 1   |   |   |   | 1,847   |   |  |    |  
|TOTAL LIABILITIES                    |  |                                               | 393,474 |   |   | 91  |   |      |   | 372,516 |   |  | 91  |      |  |   | 354,836 |   |  | 91   |   |  |   | 342,290 |   |      | 91  |   |   |   | 328,733 |   |  | 90  |  
|STOCKHOLDERS EQUITY                 |  |                                               | 40,405  |   |   | 9   |   |      |   | 38,432  |   |  | 9   |      |  |   | 35,953  |   |  | 9    |   |  |   | 35,789  |   |      | 9   |   |   |   | 34,994  |   |  | 10  |  
|TOTAL LIABILITIES & EQUITY           |  | $                                             | 433,879 |   |   | 100 |   |      | $ | 410,948 |   |  | 100 |      |  | $ | 390,789 |   |  | 100  |   |  | $ | 378,079 |   |      | 100 |   |   | $ | 363,727 |   |  | 100 |  
|TOTAL DEPOSITS                       |  | $                                             | 362,755 |   |   |     |   |      | $ | 357,355 |   |  |     |      |  | $ | 332,791 |   |  |      |   |  | $ | 321,251 |   |      |     |   |   | $ | 307,719 |   |  |     |  
|BOOK VALUE PER SHARE                 |  | $                                             | 21.16   |   |   |     |   |      | $ | 19.58   |   |  |     |      |  | $ | 18.36   |   |  |      |   |  | $ | 17.98   |   |      |     |   |   | $ | 17.58   |   |  |     |  



SUMMARY OF OPERATIONS

Statistical Summary, 2007  2003



|                           |  |                                               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|-------------------------- |  | --------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                           |  | Years Ended December 31,                      |       
|                           |  | 2007                                          |        |   | 2006 |   |        | 2005 |  |   | 2004   |   |  | 2003 |       
|                           |  | (Dollars in Thousands, Except Per Share Data) |       
|Interest income            |  | $                                             | 26,838 |   |      | $ | 24,193 |      |  | $ | 20,418 |   |  | $    | 17,871 |   |  | $ | 18,079 |  
|Interest expense           |  |                                               | 10,465 |   |      |   | 8,012  |      |  |   | 4,897  |   |  |      | 3,500  |   |  |   | 3,912  |  
|NET INTEREST MARGIN        |  |                                               | 16,373 |   |      |   | 16,181 |      |  |   | 15,521 |   |  |      | 14,371 |   |  |   | 14,167 |  
|Provision for loan losses  |  |                                               | 166    |   |      |   | 80     |      |  |   | 434    |   |  |      | 224    |   |  |   | 653    |  
|Net credit margin          |  |                                               | 16,207 |   |      |   | 16,101 |      |  |   | 15,087 |   |  |      | 14,147 |   |  |   | 13,514 |  
|Noninterest income         |  |                                               | 4,785  |   |      |   | 4,584  |      |  |   | 4,337  |   |  |      | 3,734  |   |  |   | 3,981  |  
|Noninterest expense        |  |                                               | 13,875 |   |      |   | 13,796 |      |  |   | 13,276 |   |  |      | 13,222 |   |  |   | 13,241 |  
|INCOME BEFORE INCOME TAXES |  |                                               | 7,117  |   |      |   | 6,889  |      |  |   | 6,148  |   |  |      | 4,659  |   |  |   | 4,254  |  
|Provision for income taxes |  |                                               | 2,429  |   |      |   | 2,400  |      |  |   | 2,144  |   |  |      | 1,604  |   |  |   | 1,462  |  
|NET INCOME                 |  | $                                             | 4,688  |   |      | $ | 4,489  |      |  | $ | 4,004  |   |  | $    | 3,055  |   |  | $ | 2,792  |  
|EARNINGS PER COMMON SHARE: |  |                                               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Basic                      |  | $                                             | 2.40   |   |      | $ | 2.29   |      |  | $ | 2.03   |   |  | $    | 1.53   |   |  | $ | 1.40   |  
|Diluted                    |  | $                                             | 2.39   |   |      | $ | 2.28   |      |  | $ | 2.02   |   |  | $    | 1.53   |   |  | $ | 1.40   |  
|Dividends per common share |  | $                                             | 1.10   |   |      | $ | 1.05   |      |  | $ | 1.00   |   |  | $    | 0.88   |   |  | $ | 0.85   |  
|Payout ratio               |  |                                               | 46     | % |      |   | 46     | %    |  |   | 49     | % |  |      | 58     | % |  |   | 61     | %



Page 24     First Century Bankshares, Inc.



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##### Table of Contents

Consolidated

Statements of Financial Condition



|                                                                                                                                                                                                                              |  |                                              |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                              |  | December 31,                                 |        
|                                                                                                                                                                                                                              |  | 2007                                         |         |   | 2006 |  
|ASSETS                                                                                                                                                                                                                        |  | (Dollars in Thousands,Except Per Share Data) |        
|Cash and due from banks                                                                                                                                                                                                       |  | $                                            | 13,462  |   |      | $ | 10,162  |  
|Interest-bearing balances with banks                                                                                                                                                                                          |  |                                              | 65      |   |      |   | 50      |  
|Securities available for sale                                                                                                                                                                                                 |  |                                              | 82,763  |   |      |   | 73,441  |  
|Securities held to maturity (estimated fair value of $18,176in 2007 and $13,354 in 2006)                                                                                                                                      |  |                                              | 18,156  |   |      |   | 13,399  |  
|Federal Home Loan Bank and Federal Reserve Bank Stock                                                                                                                                                                         |  |                                              | 1,430   |   |      |   | 1,287   |  
|Loans                                                                                                                                                                                                                         |  |                                              | 296,946 |   |      |   | 292,643 |  
|Less allowance for loan losses                                                                                                                                                                                                |  |                                              | 2,455   |   |      |   | 2,555   |  
|Net loans                                                                                                                                                                                                                     |  |                                              | 294,491 |   |      |   | 290,088 |  
|Premises and equipment, net                                                                                                                                                                                                   |  |                                              | 13,385  |   |      |   | 12,202  |  
|Other real estate owned                                                                                                                                                                                                       |  |                                              | 135     |   |      |   | 517     |  
|Goodwill                                                                                                                                                                                                                      |  |                                              | 5,183   |   |      |   | 5,183   |  
|Other assets                                                                                                                                                                                                                  |  |                                              | 4,809   |   |      |   | 4,619   |  
|TOTAL ASSETS                                                                                                                                                                                                                  |  | $                                            | 433,879 |   |      | $ | 410,948 |  
|                                                                                                                                                                                                                              |  |                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                          |  |                                              |         |   |      |   |         |  
|Deposits:                                                                                                                                                                                                                     |  |                                              |         |   |      |   |         |  
|Noninterest-bearing                                                                                                                                                                                                           |  | $                                            | 44,905  |   |      | $ | 44,452  |  
|Interest-bearing                                                                                                                                                                                                              |  |                                              | 317,850 |   |      |   | 312,903 |  
|Total deposits                                                                                                                                                                                                                |  |                                              | 362,755 |   |      |   | 357,355 |  
|Short-term borrowings                                                                                                                                                                                                         |  |                                              | 27,708  |   |      |   | 12,674  |  
|Other liabilities                                                                                                                                                                                                             |  |                                              | 3,011   |   |      |   | 2,487   |  
|TOTAL LIABILITIES                                                                                                                                                                                                             |  |                                              | 393,474 |   |      |   | 372,516 |  
|Commitments and contingencies (see Notes 14 and 15)                                                                                                                                                                           |  |                                              |         |   |      |   |         |  
|STOCKHOLDERS EQUITY                                                                                                                                                                                                          |  |                                              |         |   |      |   |         |  
|Common stock - $1.25 par value; 10,000,000 shares authorized and2,000,000 shares issued at December 31, 2007 and 2006;1,909,792 shares outstanding at December 31, 2007,
and1,962,879 shares outstanding at December 31, 2006 |  |                                              | 2,500   |   |      |   | 2,500   |  
|Paid-in capital                                                                                                                                                                                                               |  |                                              | 772     |   |      |   | 783     |  
|Retained earnings                                                                                                                                                                                                             |  |                                              | 39,670  |   |      |   | 37,118  |  
|Accumulated other comprehensive income, net of tax                                                                                                                                                                            |  |                                              | (393    | ) |      |   | (1,104  | )
|Treasury stock, at cost; 90,208 shares at December 31, 2007 and                                                                                                                                                               |  |                                              |         |   |      |   |         |  
|37,121 shares at December 31, 2006                                                                                                                                                                                            |  |                                              | (2,144  | ) |      |   | (865    | )
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                                                                    |  |                                              | 40,405  |   |      |   | 38,432  |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                    |  | $                                            | 433,879 |   |      | $ | 410,948 |  



The accompanying notes are an
integral part of the consolidated financial statements.



First Century Bankshares, Inc.     Page 25



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##### Table of Contents

Consolidated

Statements of Income



|                                                                                      |  |                                               |           |      |   |           |      |  |   |           |  
|------------------------------------------------------------------------------------- |  | --------------------------------------------- | --------- | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                      |  | Years Ended December 31,                      |          
|                                                                                      |  | 2007                                          |           | 2006 |   |           | 2005 | 
|INTEREST INCOME                                                                       |  | (Dollars in Thousands, Except Per Share Data) |          
|Interest and fees on loans                                                            |  | $                                             | 22,363    |      | $ | 20,336    |      |  | $ | 16,715    |  
|Interest on balances with banks                                                       |  |                                               | 64        |      |   | 14        |      |  |   | 26        |  
|Interest and dividends from securities available for sale:                            |  |                                               |           |      |   |           |      |  |   |           |  
|Taxable                                                                               |  |                                               | 3,761     |      |   | 3,280     |      |  |   | 3,082     |  
|Interest and dividends from securities held to maturity:                              |  |                                               |           |      |   |           |      |  |   |           |  
|Taxable                                                                               |  |                                               | 56        |      |   | 59        |      |  |   | 64        |  
|Tax-exempt                                                                            |  |                                               | 538       |      |   | 465       |      |  |   | 450       |  
|Interest on federal funds sold                                                        |  |                                               | 56        |      |   | 39        |      |  |   | 81        |  
|TOTAL INTEREST INCOME                                                                 |  |                                               | 26,838    |      |   | 24,193    |      |  |   | 20,418    |  
|INTEREST EXPENSE                                                                      |  |                                               |           |      |   |           |      |  |   |           |  
|Interest on time certificates of $100,000 or more                                     |  |                                               | 2,198     |      |   | 1,649     |      |  |   | 1,091     |  
|Interest on other deposits                                                            |  |                                               | 7,615     |      |   | 5,685     |      |  |   | 3,471     |  
|Interest on federal funds purchased and securitiessold under agreements to repurchase |  |                                               | 539       |      |   | 485       |      |  |   | 296       |  
|Interest on other short-term borrowings                                               |  |                                               | 113       |      |   | 193       |      |  |   | 39        |  
|TOTAL INTEREST EXPENSE                                                                |  |                                               | 10,465    |      |   | 8,012     |      |  |   | 4,897     |  
|Net interest income                                                                   |  |                                               | 16,373    |      |   | 16,181    |      |  |   | 15,521    |  
|Provision for loan losses                                                             |  |                                               | 166       |      |   | 80        |      |  |   | 434       |  
|Net interest income after provision for loan losses                                   |  |                                               | 16,207    |      |   | 16,101    |      |  |   | 15,087    |  
|NONINTEREST INCOME                                                                    |  |                                               |           |      |   |           |      |  |   |           |  
|Income from fiduciary activities                                                      |  |                                               | 1,605     |      |   | 1,685     |      |  |   | 1,423     |  
|Service charges on deposit accounts                                                   |  |                                               | 1,864     |      |   | 1,872     |      |  |   | 1,631     |  
|Other noninterest income                                                              |  |                                               | 1,316     |      |   | 1,193     |      |  |   | 1,343     |  
|Securities gains (losses)                                                             |  |                                               |          |      |   | (166      | )    |  |   | (60       | )
|TOTAL NONINTEREST INCOME                                                              |  |                                               | 4,785     |      |   | 4,584     |      |  |   | 4,337     |  
|NONINTEREST EXPENSE                                                                   |  |                                               |           |      |   |           |      |  |   |           |  
|Salaries, wages, and other employee benefits                                          |  |                                               | 6,879     |      |   | 6,995     |      |  |   | 6,906     |  
|Premises and equipment                                                                |  |                                               | 2,194     |      |   | 2,319     |      |  |   | 2,174     |  
|Data processing                                                                       |  |                                               | 934       |      |   | 929       |      |  |   | 779       |  
|Advertising and public relations                                                      |  |                                               | 278       |      |   | 272       |      |  |   | 245       |  
|Postage                                                                               |  |                                               | 243       |      |   | 240       |      |  |   | 234       |  
|Telephone                                                                             |  |                                               | 136       |      |   | 144       |      |  |   | 186       |  
|Supplies and printing                                                                 |  |                                               | 328       |      |   | 326       |      |  |   | 298       |  
|Other taxes                                                                           |  |                                               | 321       |      |   | 318       |      |  |   | 283       |  
|Other noninterest expense                                                             |  |                                               | 2,562     |      |   | 2,253     |      |  |   | 2,171     |  
|TOTAL NONINTEREST EXPENSE                                                             |  |                                               | 13,875    |      |   | 13,796    |      |  |   | 13,276    |  
|Income before income taxes                                                            |  |                                               | 7,117     |      |   | 6,889     |      |  |   | 6,148     |  
|Provision for income taxes                                                            |  |                                               | 2,429     |      |   | 2,400     |      |  |   | 2,144     |  
|NET INCOME                                                                            |  | $                                             | 4,688     |      | $ | 4,489     |      |  | $ | 4,004     |  
|                                                                                      |  |                                               |          
|NET INCOME PER COMMON SHARE:                                                          |  |                                               |           |      |   |           |      |  |   |           |  
|Basic                                                                                 |  | $                                             | 2.40      |      | $ | 2.29      |      |  | $ | 2.03      |  
|Diluted                                                                               |  | $                                             | 2.39      |      | $ | 2.28      |      |  | $ | 2.02      |  
|                                                                                      |  |                                               |          
|AVERAGE SHARES OUTSTANDING:                                                           |  |                                               |           |      |   |           |      |  |   |           |  
|Basic                                                                                 |  |                                               | 1,950,317 |      |   | 1,958,756 |      |  |   | 1,972,233 |  
|Diluted                                                                               |  |                                               | 1,962,949 |      |   | 1,971,587 |      |  |   | 1,983,015 |  



The accompanying notes are an
integral part of the consolidated financial statements.



Page 26     First Century Bankshares, Inc.



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##### Table of Contents

Consolidated

Statements of Changes in Stockholders Equity



|                                                                                                                         |  |                                               |       |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------- | ----- | -------------- | - | --- | ---------------- |  | - | ------------------------------------------ | - |  | ------------- | ------ | - | ----- | - | ------ | - |  | - | ------ | -
|                                                                                                                         |  | CommonStock                                   |       | Paid-inCapital |   |     | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (loss) |   |  | TreasuryStock |        |   | Total |  
|                                                                                                                         |  | (Dollars in Thousands, Except Per Share Data) |      
|Balance at December 31, 2004                                                                                             |  |                                               | 2,500 |                |   | 785 |                  |  |   | 32,650                                     |   |  |               | 6      |   |       |   | (152   | ) |  |   | 35,789 |  
|                                                                                                                         |  |                                               |       |                |   |    
|Comprehensive income:                                                                                                    |  |                                               |       |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|Net income                                                                                                               |  |                                               |      |                |   |    |                  |  |   | 4,004                                      |   |  |               |       |   |       |   |       |   |  |   | 4,004  |  
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               | (1,125 | ) |       |   |       |   |  |   | (1,125 | )
|Total comprehensive income                                                                                               |  |                                               |      |                |   |    |                  |  |   | 4,004                                      |   |  |               | (1,125 | ) |       |   |       |   |  |   | 2,879  |  
|Purchase 33,027 treasury shares at $22.89 per share                                                                      |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               |       |   |       |   | (756   | ) |  |   | (756   | )
|Option exercises 500 shares                                                                                              |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               |       |   |       |   | 9      |   |  |   | 9      |  
|Cash dividends declared$1.00 per share                                                                                  |  |                                               |      |                |   |    |                  |  |   | (1,968                                     | ) |  |               |       |   |       |   |       |   |  |   | (1,968 | )
|Balance at December 31, 2005                                                                                             |  | $                                             | 2,500 |                | $ | 785 |                  |  | $ | 34,686                                     |   |  | $             | (1,119 | ) |       | $ | (899   | ) |  | $ | 35,953 |  
|                                                                                                                         |  |                                               |       |                |   |    
|Comprehensive income:                                                                                                    |  |                                               |       |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|Net income                                                                                                               |  |                                               |      |                |   |    |                  |  |   | 4,489                                      |   |  |               |       |   |       |   |       |   |  |   | 4,489  |  
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               | 455    |   |       |   |       |   |  |   | 455    |  
|Total comprehensive income                                                                                               |  |                                               |      |                |   |    |                  |  |   | 4,489                                      |   |  |               | 455    |   |       |   |       |   |  |   | 4,944  |  
|Adjustment to initially apply FASB Statement No. 158, net of tax                                                         |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               | (440   | ) |       |   |       |   |  |   | (440   | )
|Purchase 3,630 treasury shares at $24.00 per share                                                                       |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               |       |   |       |   | (87    | ) |  |   | (87    | )
|Option exercises 15,755 shares                                                                                           |  |                                               |      |                |   | (2  | )                |  |   |                                           |   |  |               |       |   |       |   | 121    |   |  |   | 119    |  
|Cash dividends declared$1.05 per share                                                                                  |  |                                               |      |                |   |    |                  |  |   | (2,057                                     | ) |  |               |       |   |       |   |       |   |  |   | (2,057 | )
|Balance at December 31, 2006                                                                                             |  | $                                             | 2,500 |                | $ | 783 |                  |  | $ | 37,118                                     |   |  | $             | (1,104 | ) |       | $ | (865   | ) |  | $ | 38,432 |  
|                                                                                                                         |  |                                               |       |                |   |    
|Comprehensive income:                                                                                                    |  |                                               |       |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|Net income                                                                                                               |  |                                               |      |                |   |    |                  |  |   | 4,688                                      |   |  |               |       |   |       |   |       |   |  |   | 4,688  |  
|Change in net unrealized gain (loss) on pension and postretirement benefits                                              |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               | (270   | ) |       |   |       |   |  |   | (270   | )
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               | 981    |   |       |   |       |   |  |   | 981    |  
|Total comprehensive income                                                                                               |  |                                               |      |                |   |    |                  |  |   | 4,688                                      |   |  |               | 711    |   |       |   |       |   |  |   | 5,399  |  
|Purchase 56,887 treasury shares at $23.99 per average share                                                              |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               |       |   |       |   | (1,365 | ) |  |   | (1,365 | )
|Option exercises 3,800 shares                                                                                            |  |                                               |      |                |   | (11 | )                |  |   |                                           |   |  |               |       |   |       |   | 86     |   |  |   | 75     |  
|Cash dividends declared$1.10 per share                                                                                  |  |                                               |      |                |   |    |                  |  |   | (2,136                                     | ) |  |               |       |   |       |   |       |   |  |   | (2,136 | )
|Balance at December 31, 2007                                                                                             |  | $                                             | 2,500 |                | $ | 772 |                  |  | $ | 39,670                                     |   |  | $             | (393   | ) |       | $ | (2,144 | ) |  | $ | 40,405 |  



The accompanying notes are an
integral part of the consolidated financial statements.



First Century Bankshares, Inc.     Page 27



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##### Table of Contents

Consolidated

Statements of Cash Flows



|                                                                                                    |  |                          |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                    |  | Years Ended December 31, |        
|                                                                                                    |  | 2007                     |         |   | 2006 |   |         | 2005 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                |  | (Dollars in Thousands)   |        
|Net income before adjustments to reconcile net income to net cash provided by operating activities: |  | $                        | 4,688   |   |      | $ | 4,489   |      |  | $ | 4,004   |  
|Provision for loan losses                                                                           |  |                          | 166     |   |      |   | 80      |      |  |   | 434     |  
|Depreciation and amortization                                                                       |  |                          | 887     |   |      |   | 969     |      |  |   | 952     |  
|Deferred income tax expense                                                                         |  |                          | 226     |   |      |   | 137     |      |  |   | 264     |  
|Securities losses                                                                                   |  |                          |        |   |      |   | 166     |      |  |   | 60      |  
|Loss on disposal of fixed assets                                                                    |  |                          | 12      |   |      |   | 16      |      |  |   | 69      |  
|Increase in interest receivable                                                                     |  |                          | (390    | ) |      |   | (321    | )    |  |   | (216    | )
|Net investment amortization (accretion)                                                             |  |                          | (87     | ) |      |   | (53     | )    |  |   | 79      |  
|Net (increase) decrease in other assets                                                             |  |                          | 432     |   |      |   | 254     |      |  |   | (234    | )
|Net increase (decrease) in interest payable and other liabilities                                   |  |                          | (12     | ) |      |   | 55      |      |  |   | 519     |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                           |  |                          | 5,922   |   |      |   | 5,792   |      |  |   | 5,931   |  
|                                                                                                    |  |                          |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                |  |                          |         |   |      |   |         |      |  |   |         |  
|Purchases of securities held to maturity                                                            |  |                          | (6,482  | ) |      |   | (2,107  | )    |  |   | (1,585  | )
|Purchases of securities available for sale                                                          |  |                          | (37,850 | ) |      |   | (9,801  | )    |  |   | (22,475 | )
|Redemptions (purchases) of Federal Home Loan Bank stock                                             |  |                          | (143    | ) |      |   | (191    | )    |  |   | 86      |  
|Proceeds from maturities and calls of securities held to maturity                                   |  |                          | 1,700   |   |      |   | 1,895   |      |  |   | 1,290   |  
|Proceeds from maturities and calls of securities available for sale                                 |  |                          | 30,151  |   |      |   | 8,372   |      |  |   | 10,948  |  
|Proceeds from sales of securities available for sale                                                |  |                          |        |   |      |   | 13,383  |      |  |   | 4,944   |  
|Net increase in loans                                                                               |  |                          | (4,909  | ) |      |   | (35,590 | )    |  |   | (10,821 | )
|Acquisition of premises and equipment                                                               |  |                          | (2,086  | ) |      |   | (1,376  | )    |  |   | (569    | )
|Proceeds from disposal of premises and equipment                                                    |  |                          | 4       |   |      |   | 5       |      |  |   |        |  
|NET CASH USED BY INVESTING ACTIVITIES                                                               |  |                          | (19,615 | ) |      |   | (25,410 | )    |  |   | (18,182 | )
|                                                                                                    |  |                          |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                |  |                          |         |   |      |   |         |      |  |   |         |  
|Net decrease in demand and savings deposits                                                         |  |                          | (1,881  | ) |      |   | (14,621 | )    |  |   | (3,771  | )
|Net increase in time deposits                                                                       |  |                          | 7,281   |   |      |   | 39,185  |      |  |   | 15,311  |  
|Net increase (decrease) in short-term borrowings                                                    |  |                          | 15,034  |   |      |   | (7,008  | )    |  |   | 709     |  
|Cash received from stock option exercise                                                            |  |                          | 75      |   |      |   | 119     |      |  |   | 9       |  
|Purchase of treasury stock                                                                          |  |                          | (1,365  | ) |      |   | (87     | )    |  |   | (756    | )
|Cash dividends paid                                                                                 |  |                          | (2,136  | ) |      |   | (2,057  | )    |  |   | (1,968  | )
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                           |  |                          | 17,008  |   |      |   | 15,531  |      |  |   | 9,534   |  
|Net increase (decrease) in cash and cash equivalents                                                |  |                          | 3,315   |   |      |   | (4,087  | )    |  |   | (2,717  | )
|Cash and cash equivalents at beginning of year                                                      |  |                          | 10,212  |   |      |   | 14,299  |      |  |   | 17,016  |  
|Cash and cash equivalents at end of year                                                            |  | $                        | 13,527  |   |      | $ | 10,212  |      |  | $ | 14,299  |  
|                                                                                                    |  |                          |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for:                                                                      |  |                          |         |   |      |   |         |      |  |   |         |  
|Interest                                                                                            |  | $                        | 10,474  |   |      | $ | 7,806   |      |  | $ | 4,825   |  
|Income taxes                                                                                        |  | $                        | 2,260   |   |      | $ | 2,408   |      |  | $ | 1,940   |  



The accompanying notes are an
integral part of the consolidated financial statements.



Page 28     First Century Bankshares, Inc.



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##### Table of Contents

Notes to

Consolidated Financial Statements



1. Summary of Significant Accounting and Reporting Policies



First Century Bankshares, Inc. (the Corporation or the Company), and its wholly owned subsidiaries, First Century
Bank, N.A. and First Century Financial Services, LLC, operate twelve branches in southern West Virginia and southwestern Virginia. The Corporations primary source of revenue is derived from loans to customers who are predominately small to
medium size businesses and middle income individuals. The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.
Certain reclassifications have been made to the prior years financial statements to place them on a comparable basis with the current years financial statements. The following is a summary of the more significant accounting and reporting
policies:



Management Estimates The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates relate to the calculation of the allowance for loan losses, valuation of impaired loans, goodwill impairment
and valuation of pension and postretirement benefits. Actual results could differ from those estimates.



Principles of Consolidation The consolidated financial statements include the accounts of First Century Bankshares, Inc. and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.



Cash and Cash
Equivalents For purposes of reporting cash flows, cash equivalents include cash on hand and amounts due from banks (including cash items in process of collection); interestbearing balances with banks and federal funds sold. To
comply with Federal Reserve regulations, the subsidiary bank is required to maintain reserve balances with the Federal Reserve Bank of Richmond. The amount of those reserve balances at December 31, 2007 and 2006, was approximately $1,534,000
and $245,000, respectively.



Securities Securities are classified
as either held to maturity, available for sale or trading. Classification of securities is determined on the date of purchase. In determining such classification, debt securities that the Corporation has the positive intent and ability to hold to
maturity are classified as held to maturity and are carried at amortized cost. All other securities are classified as available for sale and are carried at fair value with unrealized gains and losses included in comprehensive income. The Corporation
has no securities classified as trading.



Realized gains and losses, determined
using the specific identification method, and declines in value judged to be other than temporary are included in noninterest income. Premiums and discounts are amortized into interest income using a level yield method.



Loans Loans are reported at their principal outstanding balance net of
charge-offs and certain other deferred or unearned income. Interest income is recognized as earned using the interest method.



Allowance for Loan Losses and Reserve for Unfunded Lending Commitments  It is the policy of the Corporation to maintain an allowance for loan losses and a
reserve for unfunded lending commitments that equals managements best estimate of probable credit



First Century Bankshares, Inc.     Page 29



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##### Table of Contents

Notes to

Consolidated Financial Statements

1. Summary of Significant Accounting and Reporting Policies (continued)





losses that are inherent in the portfolio at the balance sheet date. The adequacy of the allowance for loan losses is periodically evaluated by the
Corporation in order to maintain the allowance at a level that is sufficient to absorb probable credit losses. Managements evaluation of the adequacy of the allowance 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 and industry concentrations are also considered.



The allowance for loan losses is established through charges to earnings in the form of a
provision for loan losses. Increases and decreases in the allowance due to changes in the measurement of impaired loans are included in the provision for loan losses. Loans continue to be classified as impaired unless they are brought fully current
and the collection of scheduled interest and principal is considered probable.



A loan is considered impaired, based on current information and events, if it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans that are collateral dependent is based on the fair value of the collateral. The measurement of other impaired loans is generally based on the present value of expected future cash flows discounted at the
historical effective interest rate.



The Corporation uses several factors in
determining if a loan is impaired. The internal asset classification procedures include a thorough review of significant loans and lending relationships and include the accumulation of related data. This data includes loan payment status,
borrowers financial data and borrowers operating factors such as cash flows, operating income or loss, etc.



When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any,
are credited to the allowance.



The methodology used to determine an estimate
for the reserve for unfunded lending commitments is inherently similar to the methodology used in calculating the allowance for loan losses adjusted for factors specific to binding commitments, including the probability of funding and exposure at
the time of funding. The reserve for unfunded lending commitments is included in other liabilities with increases or decreases included in noninterest expense. At December 31, 2007 and 2006, the reserve for unfunded lending commitments was
$8,000 and $21,000, respectively. Estimates may change at some point in the future.



Income Recognition on Impaired and Nonaccrual Loans Loans, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90
days, unless such loans are well-collateralized and in the process of collection. If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan is classified as nonaccrual. Loans that are on a current payment
status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is in doubt.



Page 30     First Century Bankshares, Inc.



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##### Table of Contents

1. Summary of Significant Accounting and Reporting Policies (continued)



Loans may be returned to accrual status when all principal and interest amounts contractually
due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms of interest and principal.



While a loan is classified as nonaccrual and the future collectibility of the recorded loan
balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. In
the case where a nonaccrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash receipts in excess of
that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.



Loan Servicing  At December 31, 2007 and 2006, the Corporation serviced the home mortgage loans of approximately 1,200 borrowers. Loans are serviced
for the Federal National Mortgage Association (Fannie Mae). As of December 31, 2007, the Corporation serviced loans with an aggregate principal amount of approximately $97,197,000 compared to $91,764,000 at December 31, 2006. The average annual
servicing fee on its servicing portfolio was 0.249% for 2007 and 0.247% for 2006. The Corporations servicing business collects mortgage payments, administers tax and insurance escrows, and seeks to mitigate losses on defaulted loans and
responds to borrower inquiries. Fannie Mae reserves the right to change service providers at its discretion. Therefore, the Corporation does not recognize an intangible asset for mortgage servicing rights. During 2007 and 2006, the loan servicing
function generated fees of approximately $236,000 and $223,000, respectively.



Other Real Estate Owned Other real estate owned includes properties on which the Corporations subsidiary has foreclosed and taken title. Real estate properties acquired as a result of foreclosures are carried at the
lower of the recorded investment in the loan or the fair value less estimated selling costs. Any excess of the outstanding principal loan balance over the fair value less estimated selling costs of the foreclosed property is charged to the allowance
for loan losses. Any subsequent fair value adjustments and net operating expenses are charged to noninterest expense.



Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed by the straightline method
based upon the estimated useful lives of the assets. Buildings and improvements have estimated useful lives of 20 to 40 years. Equipment and fixtures have estimated useful lives of 3 to 10 years. The cost of major improvements is capitalized. The
expenditures for maintenance and repairs are charged to expense as incurred. Gains or losses on assets sold are included in other noninterest income or expense.



Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities The Corporation applies a financial-components approach
that focuses on control when accounting and reporting for transfers and servicing of financial assets and extinguishments of liabilities. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This approach provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.



First Century Bankshares, Inc.     Page 31



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##### Table of Contents

1. Summary of Significant Accounting and Reporting Policies (continued)



Goodwill And Other Intangibles Goodwill and indefinite-lived intangible assets
are not amortized, but are reviewed at least annually for impairment. If impaired, goodwill or indefinite-lived intangible assets are written down to fair value, calculated using the discounted cash flow method. The unimpaired balance of goodwill
and indefinite-lived intangibles totaled approximately $5,183,000 at December 31, 2007 and 2006.



Income Taxes The Corporation files a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.



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.



Comprehensive Income The Company classifies items of other comprehensive income by their nature in the financial statements and displays accumulated other
comprehensive income separately from retained earnings in the equity section of the balance sheet. Unrealized gains and losses on available for sale securities and net accrued pension benefit liability are the components of the Companys other
accumulated comprehensive income.



Stock Based Compensation The
Corporation maintains two stock-based compensation plans that provide for grants of stock options to selected employees and directors. These plans have been presented to and approved by the Corporations shareholders. On January 1, 2006, the
Corporation adopted SFAS No. 123R, Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123R establishes accounting requirements for share-based compensation to employees
and carries forward prior guidance on accounting for awards to non-employees. Prior to the adoption of SFAS No. 123R, in accordance with the intrinsic value method of Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees, and related interpretations, the Corporation reported no compensation expense on options granted as the exercise price of the options granted always equaled the market price of the underlying stock on the date of
grant. SFAS No. 123R eliminates the ability to account for stock-based compensation using APB No. 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the measurement date,
which is generally the date of the grant.



The Corporation transitioned to SFAS
No. 123R using the modified prospective application method (modified prospective application). As permitted under modified prospective



Page 32     First Century Bankshares, Inc.



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##### Table of Contents

1. Summary of Significant Accounting and Reporting Policies (continued)



application, as it is applicable to the Corporation, SFAS No. 123R applies to new awards and to awards modified, repurchased, or cancelled after January 1,
2006. Additionally, compensation cost for non-vested awards that were outstanding as of January 1, 2006 are recognized as the remaining requisite service is rendered during the period of and/or the periods after the adoption of SFAS No. 123R,
adjusted for estimated forfeitures. The recognition of compensation cost for those earlier awards is based on the same method and on the same grant-date fair values previously determined for the pro forma disclosures reported by the Corporation for
periods prior to January 1, 2006. Results for prior periods have not been restated.



The following pro forma information presents net income, earnings per share, and diluted earnings per share for the year ended December 31, 2005, as if the fair value method of SFAS No. 123R had been used to measure compensation cost for
stock-based compensation plans. For purposes of these pro forma disclosures, the estimated fair value of options is amortized to expense over the options vesting periods.



|                                                              |  |                         |       |  
|------------------------------------------------------------- |  | ----------------------- | ----- | -
|                                                              |  | Year Ended December 31, |      
|(Dollars in Thousands, Except Per Share Data)                 |  | 2005                    |      
|Net Income, as reported                                       |  | $                       | 4,004 |  
|Less pro forma expense related to options granted, net of tax |  |                         | (19   | )
|Pro forma net income                                          |  | $                       | 3,985 |  
|Pro forma net income per share:                               |  |                         |       |  
|Basicas reported                                             |  | $                       | 2.03  |  
|Basicpro forma                                               |  | $                       | 2.02  |  
|                                                              | 
|Dilutedas reported                                           |  | $                       | 2.02  |  
|Dilutedpro forma                                             |  | $                       | 2.01  |  



First Century Bankshares, Inc.     Page 33



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##### Table of Contents

2. Securities



Securities available for sale at December 31, 2007 and 2006 are summarized as follows:



|                                    |  |                        |        |                      |   |                       |  |           |       |  |   |       
|----------------------------------- |  | ---------------------- | ------ | -------------------- | - | --------------------- |  | --------- | ----- |  | - | ------
|                                    |  | 2007                  
|                                    |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                    |  | (Dollars in Thousands)
|U.S. Government obligations         |  | $                      | 1,000  |                      | $ | 9                     |  | $         |      |  | $ | 1,009 
|U.S. Government agency obligations  |  |                        | 62,746 |                      |   | 493                   |  |           | 44    |  |   | 63,195
|Mortgage-backed securities          |  |                        | 16,511 |                      |   | 117                   |  |           | 40    |  |   | 16,588
|Other debt securities               |  |                        | 2,000  |                      |   |                      |  |           | 29    |  |   | 1,971 
|TOTAL SECURITIES AVAILABLE FOR SALE |  | $                      | 82,257 |                      | $ | 619                   |  | $         | 113   |  | $ | 82,763
|                                    | 
|                                    |  | 2006                  
|                                    |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                    |  | (Dollars in Thousands)
|U.S. Government obligations         |  | $                      | 999    |                      | $ |                       |  | $         | 3     |  | $ | 996   
|U.S. Government agency obligations  |  |                        | 60,861 |                      |   | 9                     |  |           | 860   |  |   | 60,010
|Mortgage-backed securities          |  |                        | 10,587 |                      |   | 4                     |  |           | 138   |  |   | 10,453
|Other debt securities               |  |                        | 2,000  |                      |   |                      |  |           | 18    |  |   | 1,982 
|TOTAL SECURITIES AVAILABLE FOR SALE |  | $                      | 74,447 |                      | $ | 13                    |  | $         | 1,019 |  | $ | 73,441



Securities held to maturity at
December 31, 2007 and 2006 are summarized as follows:



|                                  |  |                        |        |                      |   |                       |  |           |     |  |   |       
|--------------------------------- |  | ---------------------- | ------ | -------------------- | - | --------------------- |  | --------- | --- |  | - | ------
|                                  |  | 2007                  
|                                  |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                  |  | (Dollars in Thousands)
|State and municipal obligations   |  | $                      | 18,156 |                      | $ | 84                    |  | $         | 64  |  | $ | 18,176
|TOTAL SECURITIES HELD TO MATURITY |  | $                      | 18,156 |                      | $ | 84                    |  | $         | 64  |  | $ | 18,176
|                                  | 
|                                  |  | 2006                  
|                                  |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                  |  | (Dollars in Thousands)
|State and municipal obligations   |  | $                      | 13,324 |                      | $ | 55                    |  | $         | 100 |  | $ | 13,279
|Other debt securities             |  |                        | 75     |                      |   |                      |  |           |    |  |   | 75    
|TOTAL SECURITIES HELD TO MATURITY |  | $                      | 13,399 |                      | $ | 55                    |  | $         | 100 |  | $ | 13,354



Securities with an aggregate fair
value of $39,261,000 at December 31, 2007 and $33,361,000 at December 31, 2006, were pledged to secure public and trust deposits and for other purposes required or permitted by law, including approximately $16,516,000 at December 31,
2007 and $11,448,000 at December 31, 2006 pledged to secure repurchase agreements.



There were no gains or losses recognized on sales of securities during 2007. Gross gains of $4,000 and gross losses of $170,000 were recognized on sales of available for sale securities for the year ended December 31, 2006. Gross gains of
$10,000 and gross losses of $70,000 were recognized on sales of available for sale securities for the year ended December 31, 2005.



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2. Securities (continued)



The amortized cost and estimated fair value for securities available for sale and securities held to maturity by contractual maturities at December 31, 2007 are
shown in the following tables. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.



|                                       |  |                        |        |           |   |                              |  |   |     |  
|-------------------------------------- |  | ---------------------- | ------ | --------- | - | ---------------------------- |  | - | --- | -
|                                       |  | AmortizedCost          |        | FairValue |   | NetUnrealizedGains (Losses)  | 
|                                       |  | (Dollars in Thousands) |       
|Due in one year or less                |  | $                      | 19,771 |           | $ | 19,709                       |  | $ | (62 | )
|Due after one year through five years  |  |                        | 45,210 |           |   | 45,581                       |  |   | 371 |  
|Due after five years through ten years |  |                        | 11,030 |           |   | 11,206                       |  |   | 176 |  
|Due after ten years                    |  |                        | 6,246  |           |   | 6,267                        |  |   | 21  |  
|TOTAL SECURITIES AVAILABLE FOR SALE    |  | $                      | 82,257 |           | $ | 82,763                       |  | $ | 506 |  
|                                       |  |                        |       
|                                       |  | AmortizedCost          |        | FairValue |   | Net UnrealizedGains (Losses) | 
|                                       |  | (Dollars in Thousands) |       
|Due in one year or less                |  | $                      | 1,832  |           | $ | 1,834                        |  | $ | 2   |  
|Due after one year through five years  |  |                        | 7,865  |           |   | 7,887                        |  |   | 22  |  
|Due after five years through ten years |  |                        | 4,952  |           |   | 4,981                        |  |   | 29  |  
|Due after ten years                    |  |                        | 3,507  |           |   | 3,474                        |  |   | (33 | )
|TOTAL SECURITIES HELD TO MATURITY      |  | $                      | 18,156 |           | $ | 18,176                       |  | $ | 20  |  



The following table shows the gross
unrealized losses and fair value of the Corporations investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category at December 31, 2007:



|                                                                            |  |                         |    |           |   |       |  |                    |  |                       |  |           |     |  |   |       
|--------------------------------------------------------------------------- |  | ----------------------- | -- | --------- | - | ----- |  | ------------------ |  | --------------------- |  | --------- | --- |  | - | ------
|                                                                            |  | Less Than Twelve Months |    |           |   |       |  | Over Twelve Months
|                                                                            |  | (Dollars in Thousands) 
|                                                                            |  |                         |    |           |   |      
|Description of Security                                                     |  | GrossUnrealizedLosses   |    | FairValue |   |       |  |                    |  | GrossUnrealizedLosses |  | FairValue
|                                                                            |  |                         |    |           |   |      
|Securities available for sale:                                              |  |                         |    |           |   |       |  |                    |  |                       |  |           |     |  |   |       
|U.S. Treasury obligations and directobligations of U.S. government agencies |  | $                       | 3  |           | $ | 997   |  |                    |  |                       |  | $         | 41  |  | $ | 18,135
|Federal agency mortgage-backed securities                                   |  |                         |   |           |   |      |  |                    |  |                       |  |           | 40  |  |   | 3,690 
|Other debt securities                                                       |  |                         |   |           |   |      |  |                    |  |                       |  |           | 29  |  |   | 1,971 
|Total securities available for sale                                         |  | $                       | 3  |           | $ | 997   |  |                    |  |                       |  | $         | 110 |  | $ | 23,796
|Securities held to maturity:                                                |  |                         |    |           |   |       |  |                    |  |                       |  |           |     |  |   |       
|Municipal securities                                                        |  | $                       | 40 |           | $ | 4,694 |  |                    |  |                       |  | $         | 24  |  | $ | 2,855 
|Total securities held to maturity                                           |  | $                       | 40 |           | $ | 4,694 |  |                    |  |                       |  | $         | 24  |  | $ | 2,855 



U. S. Treasury Obligations and
Government Agency Obligations. The unrealized losses on the Corporations investments in U.S. Treasury obligations and direct obligations of U.S. government agencies were the result of interest rate increases. The contractual terms of these
investments do not permit the issuer to settle the securities at a price materially less than the amortized cost of the investment.



Federal Agency Mortgage-Backed Securities. The unrealized losses on the Corporations investment in agency mortgage-backed securities issued by FNMA and FHLMC were
caused



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##### Table of Contents

2. Securities (continued)



by interest rate increases. The Corporation purchased these investments, most at a premium relative to their face amount, and the contractual cash flows of
these investments are guaranteed by the issuer organization. Accordingly, it is expected that the securities would not be settled at a price materially less than the amortized cost of the Corporations investment.



Municipal Securities. The unrealized losses on the Corporations municipal securities
were caused by interest rate increases. The contractual cash flows of these investments are guaranteed by the issuer organization. Accordingly, it is expected that the securities would not be settled at a price materially less than the amortized
cost of the Corporations investment.



Other Debt Securities: The
unrealized losses on the Corporations other debt securities were caused by increases in market interest rates. The contractual cash flows of these investments are guaranteed by the issuer corporation, all of which are in the financial services
sector. It is expected that the securities would not be settled at a price materially less than the amortized cost of the Corporations investment.



For all of these securities, because the decline in market value is attributable to changes in interest rates and not credit quality and because the Corporation has the
ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Corporation does not consider these investments to be other-than-temporarily impaired at December 31, 2007.



3. Loans



Loans at December 31, 2007 and 2006 consisted of the following:



|                                                  |  |                        |         |      |   |        
|------------------------------------------------- |  | ---------------------- | ------- | ---- | - | -------
|                                                  |  | December 31,          
|                                                  |  | 2007                   |         | 2006
|                                                  |  | (Dollars in Thousands)
|Commercial, financial and agricultural            |  | $                      | 46,599  |      | $ | 49,111 
|Real estateconstruction and development          |  |                        | 18,339  |      |   | 8,832  
|Real estatemortgage (residential and commercial) |  |                        | 209,221 |      |   | 213,185
|Installment loans to individuals                  |  |                        | 22,787  |      |   | 21,515 
|Total loans                                       |  |                        | 296,946 |      |   | 292,643
|Less: allowance for loan losses                   |  |                        | 2,455   |      |   | 2,555  
|NET LOANS                                         |  | $                      | 294,491 |      | $ | 290,088



The Corporations subsidiary has
had and can be expected to have in the future various banking transactions with directors, executive officers, their immediate families and affiliated companies in which they are principal stockholders (commonly referred to as related parties). The
total amount of these loans was $18,714,000 and $15,105,000 at December 31, 2007 and 2006, respectively. During 2007, $20,254,000 in loan advances were made and repayments were $16,645,000.



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4. Allowance for Loan Losses



An analysis of changes in the allowance for loan losses for 2007, 2006 and 2005 is as follows:



|                                           |  |                          |       |   |      |   |       |      |  |   |       |  
|------------------------------------------ |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                           |  | Years Ended December 31, |      
|                                           |  | 2007                     |       |   | 2006 |   |       | 2005 | 
|                                           |  | (Dollars in Thousands)   |      
|Balance at beginning of year               |  | $                        | 2,555 |   |      | $ | 2,661 |      |  | $ | 2,900 |  
|Provision for loan losses                  |  |                          | 166   |   |      |   | 80    |      |  |   | 434   |  
|Recoveries on loans previously charged off |  |                          | 154   |   |      |   | 399   |      |  |   | 88    |  
|Loans charged off                          |  |                          | (420  | ) |      |   | (585  | )    |  |   | (761  | )
|BALANCE AT END OF YEAR                     |  | $                        | 2,455 |   |      | $ | 2,555 |      |  | $ | 2,661 |  



The following is a summary of loans
considered impaired:



|                                       |  |                        |       |      |   |      
|-------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                       |  | December 31,          
|                                       |  | 2007                   |       | 2006
|                                       |  | (Dollars in Thousands)
|Gross impaired loans                   |  | $                      | 1,211 |      | $ | 1,605
|Valuation allowance for impaired loans |  |                        | 303   |      |   | 298  
|Recorded investment in impaired loans  |  | $                      | 908   |      | $ | 1,307



The average recorded investment in
impaired loans for the years ended December 31, 2007, 2006 and 2005 was $1,939,000, $1,459,000 and $1,903,000, respectively. There was no interest income recognized on impaired loans (during the portion of the year they were impaired) for any of
these years. At December 31, 2007, 2006 and 2005, the Corporation had nonaccrual loans of $1,211,000, $1,605,000 and $2,173,000, respectively. Interest income of $5,000, $14,000 and $26,000 was recognized on these loans in 2007, 2006 and 2005,
respectively. Had these loans performed in accordance with their original terms, additional interest income of $65,000, $179,000 and $164,000 would have been recorded in 2007, 2006 and 2005, respectively.



At December 31, 2007, 2006 and 2005, the Corporation had loans past-due 90 days or more and
still in accrual status of $711,000, $397,000 and $517,000, respectively. Additionally, at December 31, 2007, 2006 and 2005, the Corporation had other real estate owned of $135,000, $517,000 and $316,000, respectively.



5. Premises and Equipment



Premises and equipment at December 31, 2007 and 2006 consisted of the following:



|                              |  |                        |        |      |   |       
|----------------------------- |  | ---------------------- | ------ | ---- | - | ------
|                              |  | December 31,          
|                              |  | 2007                   |        | 2006
|                              |  | (Dollars in Thousands)
|Land                          |  | $                      | 2,552  |      | $ | 2,552 
|Buildings and improvements    |  |                        | 14,345 |      |   | 12,641
|Equipment and fixtures        |  |                        | 6,406  |      |   | 6,200 
|Total                         |  |                        | 23,303 |      |   | 21,393
|Less accumulated depreciation |  |                        | 9,918  |      |   | 9,191 
|NET PREMISES AND EQUIPMENT    |  | $                      | 13,385 |      | $ | 12,202



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##### Table of Contents



5. Premises and Equipment (continued)



Depreciation charged to operating expense amounted to $887,000 in 2007,
$969,000 in 2006, and $952,000 in 2005.



Certain premises and equipment are
utilized under long-term operating leases. The aggregate minimum annual rental commitments under those leases total approximately $69,000 in 2008, $64,000 in 2009, $53,000 in 2010, $44,000 in 2011 and $46,000 in 2012. Total net rent expense included
in the accompanying consolidated financial statements was $101,000 in 2007, $97,000 in 2006 and $62,000 in 2005.



6. Deposits



Deposits at December 31, 2007 and 2006 were as follows:



|                                            |  |                        |         |      |   |        
|------------------------------------------- |  | ---------------------- | ------- | ---- | - | -------
|                                            |  | December 31,          
|                                            |  | 2007                   |         | 2006
|                                            |  | (Dollars in Thousands)
|Individuals, partnerships and corporations: |  |                        |         |      |   |        
|Demand deposits                             |  | $                      | 41,399  |      | $ | 41,246 
|Time and savings deposits                   |  |                        | 303,692 |      |   | 297,359
|U.S. Government                             |  |                        | 37      |      |   | 126    
|States and political subdivisions           |  |                        | 15,124  |      |   | 15,549 
|Due to banks                                |  |                        | 911     |      |   | 1,570  
|Certified and official checks               |  |                        | 1,592   |      |   | 1,505  
|TOTAL DEPOSITS                              |  | $                      | 362,755 |      | $ | 357,355



The scheduled maturities of time
deposits at December 31, 2007 were as follows:



|                    |  |                        |        
|------------------- |  | ---------------------- | -------
|                    |  | (Dollars in Thousands)
|2008                |  | $                      | 159,890
|2009                |  |                        | 16,786 
|2010                |  |                        | 10,501 
|2011                |  |                        | 1,652  
|2012                |  |                        | 2,241  
|Thereafter          |  |                        | 127    
|TOTAL TIME DEPOSITS |  | $                      | 191,197



Time deposits include certificates of
deposit issued in amounts of $100,000 or more totaling approximately $52,483,000 and $47,641,000 at December 31, 2007 and 2006, respectively. At December 31, 2007, deposits of executive officers, directors and their related interests were
$9,567,000.



7. Short-term Borrowings



Short-term borrowings consist of securities sold under agreements to repurchase. Federal
funds purchased and securities sold under agreements to repurchase generally mature within one to four days from the transaction date. Information concerning federal funds purchased and securities sold under agreements to repurchase at
December 31, 2007 and 2006 is summarized as follows:



|                                          |  |                        |        |   |      |   |        |  
|----------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | 2007                   |        |   | 2006 |  
|                                          |  | (Dollars in Thousands) |       
|Average balance during the year           |  | $                      | 18,177 |   |      | $ | 18,951 |  
|Average interest rate during the year     |  |                        | 3.58   | % |      |   | 3.57   | %
|Maximum month-end balance during the year |  | $                      | 27,682 |   |      | $ | 25,366 |  



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8. Other Comprehensive Income



Other comprehensive income is defined as comprehensive income exclusive of net income. Other comprehensive income (loss) consists of the
following:



|                                                                                            |  |                          |       |   |      |   |      |      |  |   |        |  
|------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                                            |  | Years Ended December 31, |      
|                                                                                            |  | 2007                     |       |   | 2006 |   |      | 2005 | 
|Unrealized losses on pension and postretirement benefit obligations arising during the year |  | $                        | (466  | ) |      | $ |     |      |  | $ |       |  
|Unrealized gains (losses) on available for sale securities arising during the year          |  |                          | 1,511 |   |      |   | 524  |      |  |   | (1,764 | )
|Reclassification adjustment for (gains) losses included in net income                       |  |                          |      |   |      |   | 166  |      |  |   | 60     |  
|Other comprehensive income (loss) before tax                                                |  |                          | 1,045 |   |      |   | 690  |      |  |   | (1,704 | )
|Income tax (expense) benefit related to other comprehensive income                          |  |                          | (334  | ) |      |   | (235 | )    |  |   | 579    |  
|Other comprehensive income (loss), net of tax                                               |  | $                        | 711   |   |      | $ | 455  |      |  | $ | (1,125 | )



9. Earnings Per Share



The following table reconciles the numerator and denominator of the basic and diluted
computations for net income per common share for the years ended December 31, 2007, 2006 and 2005:



|                                                                |  |                   |           |                                     |           |                   |   |     
|--------------------------------------------------------------- |  | ----------------- | --------- | ----------------------------------- | --------- | ----------------- | - | ----
|                                                                |  | 2007             
|                                                                |  | Income(Numerator) |           | Weighted AverageShares(Denominator) |           | Per-Share  Amount
|Basic EPS:                                                      |  |                   |           |                                     |           |                   |   |     
|Income available to common shareholders                         |  | $                 | 4,688,000 |                                     | 1,950,317 |                   | $ | 2.40
|Diluted EPS:                                                    |  |                   |           |                                     |           |                   |   |     
|Effect of dilutive securitiesStock options                     |  |                   |           |                                     | 12,632    |                   |   |     
|Income available to common shareholders and assumed conversions |  | $                 | 4,688,000 |                                     | 1,962,949 |                   |   | 2.39
|                                                                | 
|                                                                |  | 2006             
|                                                                |  | Income(Numerator) |           | Weighted AverageShares(Denominator) |           | Per-ShareAmount  
|Basic EPS:                                                      |  |                   |           |                                     |           |                   |   |     
|Income available to common shareholders                         |  | $                 | 4,489,000 |                                     | 1,958,756 |                   | $ | 2.29
|Diluted EPS:                                                    |  |                   |           |                                     |           |                   |   |     
|Effect of dilutive securitiesStock options                     |  |                   |           |                                     | 12,831    |                   |   |     
|Income available to common shareholders and assumed conversions |  | $                 | 4,489,000 |                                     | 1,971,587 |                   | $ | 2.28
|                                                                | 
|                                                                |  | 2005             
|                                                                |  | Income(Numerator) |           | Weighted AverageShares(Denominator) |           | Per-ShareAmount  
|Basic EPS:                                                      |  |                   |           |                                     |           |                   |   |     
|Income available to common shareholders                         |  | $                 | 4,004,000 |                                     | 1,972,233 |                   | $ | 2.03
|Diluted EPS:                                                    |  |                   |           |                                     |           |                   |   |     
|Effect of dilutive securitiesStock options                     |  |                   |          |                                     | 10,782    |                   |   |     
|Income available to common shareholders and assumed conversions |  | $                 | 4,004,000 |                                     | 1,983,015 |                   | $ | 2.02



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10. Stockholders Equity



The authorized capital stock of the Corporation consists of 10,000,000
shares of $1.25 par value common stock. At December 31, 2007 and 2006, 2,000,000 shares were issued. At December 31, 2007, 1,909,792 shares were outstanding compared to 1,962,879 shares at December 31, 2006.



SHARE REPURCHASE ACTIVITY



During the years ended December 31, 2007, 2006 and 2005, the Corporation repurchased
56,887 shares, 3,630 shares and 33,027 shares, respectively. At December 31, 2007, management was authorized to repurchase 17,256 shares.



11. Stock Based Compensation



The Corporations 1998 Officer Stock Option Plan (the Officer Plan) provides for the issuance of 170,000 options to purchase shares of the
Corporations common stock to officers of the Corporation. The options can have an original term of up to ten years with an exercise price equal to the market price of the common stock on the date of grant, as defined by the Officer Plan. The
options vest 20% per year after their date of grant. At December 31, 2007, the weighted average remaining contractual life of the outstanding options was 13 months. At December 31, 2007, options for 100,365 shares of common stock were
reserved for future issuance for the Officer Plan.



The Corporations 1998
Director Stock Option Plan (the Director Plan) provides for the issuance of 30,000 options to purchase shares of the Corporations common stock to directors of the Corporation and its subsidiaries. The options can have an original
term of up to ten years with an exercise price equal to the market price of the common stock on the date of grant, as defined by the Director Plan. The options are fully vested upon their date of grant. At December 31, 2007, the weighted
average remaining contractual life of the outstanding options was 12 months. At December 31, 2007, options for 21,500 shares of common stock were reserved for future issuance for the Director Plan.



The fair value of the Corporations stock options granted is estimated at the date of
grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a
significant effect on the value of stock options granted but are not considered by the model. Because the Corporations stock options have characteristics significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options at the time of grant.



The Corporation did not issue any options during the years ended December 31,
2007 and 2006. For the year ended December 31, 2007, compensation cost related to the Corporations employee stock option plan recorded in net income was $9,000. As of

December 31, 2007, no unrecognized compensation costs remained to be recognized.



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11. Stock Based Compensation (continued)



A summary of the Corporations stock option activity, and related information for the years ended December 31, is as follows:



|                                                               |  |              |  |                                |       |              |        |                                |   |              |  |                                |  |   |      
|-------------------------------------------------------------- |  | ------------ |  | ------------------------------ | ----- | ------------ | ------ | ------------------------------ | - | ------------ |  | ------------------------------ |  | - | -----
|                                                               |  | 2007         |  | 2006                           |       | 2005        
|                                                               |  | OptionShares |  | Weighted-AverageExercise Price |       | OptionShares |        | Weighted-AverageExercise Price |   | OptionShares |  | Weighted-AverageExercise Price
|Officer stock options:                                         |  |              |  |                                |       |              |        |                                |   |              |  |                                |  |   |      
|Outstanding, beginning of year                                 |  | 70,070       |  | $                              | 19.26 |              | 80,325 |                                | $ | 19.26        |  | 80,325                         |  | $ | 19.26
|Granted                                                        |  |             |  |                                |      |              |       |                                |   |             |  |                               |  |   |     
|Exercised                                                      |  | 300          |  |                                | 18.00 |              | 9,755  |                                |   | 19.31        |  |                               |  |   |     
|Forfeited                                                      |  | 135          |  |                                | 18.00 |              | 500    |                                |   | 18.00        |  |                               |  |   |     
|Outstanding, end of year                                       |  | 69,635       |  | $                              | 19.26 |              | 70,070 |                                | $ | 19.26        |  | 80,325                         |  | $ | 19.26
|Exercisable at end of year                                     |  | 69,635       |  | $                              | 19.26 |              | 63,070 |                                | $ | 19.40        |  | 66,125                         |  | $ | 19.53
|Weighted-average fair value of options granted during the year |  | $           |  |                                |       |              | $     |                                |   |              |  | $                             |  |   |      
|                                                               |  |              |  |                                |       |             
|Director stock options:                                        |  |              |  |                                |       |              |        |                                |   |              |  |                                |  |   |      
|Outstanding, beginning of year                                 |  | 12,000       |  | $                              | 19.50 |              | 18,000 |                                | $ | 19.50        |  | 18,500                         |  | $ | 19.46
|Granted                                                        |  |             |  |                                |      |              |       |                                |   |             |  |                               |  |   |     
|Exercised                                                      |  | 3,500        |  |                                | 19.93 |              | 6,000  |                                |   | 19.50        |  | 500                            |  |   | 18.00
|Forfeited                                                      |  |             |  |                                |      |              |       |                                |   |             |  |                               |  |   |     
|Outstanding, end of year                                       |  | 8,500        |  | $                              | 19.32 |              | 12,000 |                                | $ | 19.50        |  | 18,000                         |  | $ | 19.50
|Exercisable at end of year                                     |  | 8,500        |  | $                              | 19.32 |              | 12,000 |                                | $ | 19.50        |  | 18,000                         |  | $ | 19.50
|Weighted-average fair value of options granted during the year |  | $           |  |                                |       |              | $     |                                |   |              |  | $                             |  |   |      



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12. Post Employment Benefits



In September
2006, the Financial Accounting Standards Board issued SFAS 158 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 required the
Corporation to recognize the funded status (i.e., the difference between the fair value of plan assets and the benefit obligation) of its defined benefit pension and other postretirement plans (collectively postretirement benefit plans)
in its December 31, 2006 Consolidated Statement of Financial Condition, with a corresponding adjustment to Accumulated Other Comprehensive Income, net of tax.



The adjustment to Accumulated Other Comprehensive Income at adoption represents the net unrecognized actuarial losses and unrecognized prior service costs which were
previously netted against the Corporations postretirement benefit plans funded status in the Consolidated Statement of Financial Condition pursuant to the provisions of SFAS 87 Employers Accounting for Pensions and SFAS
106 Employers Accounting for Postretirement Benefits Other Than Pensions. These amounts will subsequently be recognized as net periodic postretirement cost consistent with the Corporations historical accounting policy for
amortizing such amounts. The adoption of SFAS 158 had no effect on the Corporations Consolidated Statement of Income for the year ended December 31, 2006, or for any prior period, and it will not affect the Corporations operating results
in future periods. Additionally, SFAS 158 did not have an effect on the Corporations Consolidated Statement of Financial Condition at December 31, 2005.



SFAS 158 also required companies to measure the fair value of plan assets and benefit obligations as of the date of the fiscal year-end balance sheet. This provision
of SFAS 158 is not applicable as the Corporation already uses a measurement date of December 31 for its postretirement benefit plans.



The incremental effect of applying SFAS 158 on the Consolidated Statement of Financial Condition at December 31, 2006 for all of the Corporations postretirement
benefit plans is presented in the following table:



|                                       |  |                               |   |  |                             |   |  |                            |  
|-------------------------------------- |  | ----------------------------- | - |  | --------------------------- | - |  | -------------------------- | -
|                                       |  | Prior toapplicationof SFAS158 |   |  | SFAS 158AdoptionAdjustments |   |  | Afterapplicationof SFAS158 |  
|Deferred tax liability                 |  | (278                          | ) |  | 227                         |   |  | (51                        | )
|Prepaid pension cost                   |  | 1,254                         |   |  | (775                        | ) |  | 479                        |  
|Net postretirement cost                |  | 1,131                         |   |  | (108                        | ) |  | 1,023                      |  
|Accumulated other comprehensive income |  | 664                           |   |  | (440                        | ) |  | (1,104                     | )



The Corporation has a noncontributory
pension plan covering all eligible employees with six months of service who have attained the age of twenty and one-half. Contributions to the plan are based on computations by independent actuarial consultants. The plans assets include common
stock, fixed income securities, short-term investments and cash.



The
Corporation sponsors two defined benefit post retirement plans that cover both salaried and nonsalaried employees. One plan provides medical benefits, and the other provides life insurance benefits. The post retirement health care plan is
contributory and the life insurance plan is noncontributory. The health plan has an annual limitation (a cap) on the dollar amount of the employers share of the cost of covered benefits incurred by a plan participant. The retiree
is responsible, therefore, for the amount by which the cost of



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12. Post Employment Benefits (continued)



the benefit coverage under the plan incurred during a year exceeds that cap. No health care cost increases have been factored into the health plans
actuarial calculations due to this cap.



The following table outlines the
changes in the Corporations postemployment benefit plan obligations, assets and funded status for the years ended December 31, 2007 and 2006, and the assumptions and components of net periodic benefit costs for the three years in the
period ended December 31, 2007.



|                                               |  |                        |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|---------------------------------------------- |  | ---------------------- | ----- | - | ----------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                               |  | Pension Benefits       |       |   | Other Postretirement Benefits |  
|                                               |  | 2007                   |       |   | 2006                          |   |       | 2007 |  |   | 2006   |  
|                                               |  | (Dollars in Thousands) |      
|Change in benefit obligation                   |  |                        |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Benefit obligation at beginning of year        |  | $                      | 6,579 |   |                               | $ | 6,151 |      |  | $ | 1,023  |   |  | $ | 1,038  |  
|Service cost                                   |  |                        | 255   |   |                               |   | 241   |      |  |   | 15     |   |  |   | 15     |  
|Interest cost                                  |  |                        | 368   |   |                               |   | 348   |      |  |   | 57     |   |  |   | 58     |  
|Actuarial (gain) loss                          |  |                        | 240   |   |                               |   | 64    |      |  |   | (7     | ) |  |   | (32    | )
|Benefits paid                                  |  |                        | (144  | ) |                               |   | (225  | )    |  |   | (51    | ) |  |   | (56    | )
|Benefit obligation at end of year              |  |                        | 7,298 |   |                               |   | 6,579 |      |  |   | 1,037  |   |  |   | 1,023  |  
|                                               |  |                        |       |  
|Change in plan asset                           |  |                        |       |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at beginning of year |  |                        | 7,058 |   |                               |   | 6,163 |      |  |   |       |   |  |   |       |  
|Actual return on plan assets                   |  |                        | 323   |   |                               |   | 820   |      |  |   |       |   |  |   |       |  
|Employer contribution                          |  |                        | 300   |   |                               |   | 300   |      |  |   | 51     |   |  |   | 56     |  
|Benefits paid                                  |  |                        | (144  | ) |                               |   | (225  | )    |  |   | (51    | ) |  |   | (56    | )
|Fair value of plan assets at end of year       |  |                        | 7,537 |   |                               |   | 7,058 |      |  |   |       |   |  |   |       |  
|Funded status                                  |  |                        | 239   |   |                               |   | 479   |      |  |   | (1,037 | ) |  |   | (1,023 | )
|Unrecognized net actuarial (gain) loss         |  |                        | 2,169 |   |                               |   | 1,760 |      |  |   | (418   | ) |  |   | (440   | )
|Unrecognized prior service cost                |  |                        | (895  | ) |                               |   | (985  | )    |  |   |       |   |  |   |       |  
|Unrecognized transition obligation             |  |                        |      |   |                               |   |      |      |  |   | 277    |   |  |   | 332    |  
|Prepaid (accrued) benefit cost                 |  | $                      | 1,513 |   |                               | $ | 1,254 |      |  | $ | (1,178 | ) |  | $ | (1,131 | )



|                                         |  |                  |      |   |                               |   |      |      |  |   |      |   |  |      |      |   |      |   |      |   |  |   |      |  
|---------------------------------------- |  | ---------------- | ---- | - | ----------------------------- | - | ---- | ---- |  | - | ---- | - |  | ---- | ---- | - | ---- | - | ---- | - |  | - | ---- | -
|                                         |  | Pension Benefits |      |   | Other Postretirement Benefits |  
|Weighted-average assumptions as of 12/31 |  | 2007             |      |   | 2006                          |   |      | 2005 |  |   | 2007 |   |  | 2006 |      |   | 2005 |  
|Discount rate                            |  |                  | 5.75 | % |                               |   | 5.75 | %    |  |   | 5.75 | % |  |      | 5.75 | % |      |   | 5.75 | % |  |   | 5.75 | %
|Expected return on plan assets           |  |                  | 8.00 | % |                               |   | 8.00 | %    |  |   | 8.00 | % |  |      | N/A  |   |      |   | N/A  |   |  |   | N/A  |  
|Rate of compensation increase            |  |                  | 3.00 | % |                               |   | 3.00 | %    |  |   | 3.00 | % |  |      | N/A  |   |      |   | N/A  |   |  |   | N/A  |  
|                                         |  |                  |      |   |                               |  
|Components of net periodic benefit cost  |  |                  |      |   |                               |   |      |      |  |   |      |   |  |      |      |   |      |   |      |   |  |   |      |  
|Service cost                             |  | $                | 255  |   |                               | $ | 241  |      |  | $ | 228  |   |  | $    | 15   |   |      | $ | 15   |   |  | $ | 17   |  
|Interest cost                            |  |                  | 368  |   |                               |   | 348  |      |  |   | 332  |   |  |      | 57   |   |      |   | 58   |   |  |   | 61   |  
|Expected return on plan assets           |  |                  | (562 | ) |                               |   | (492 | )    |  |   | (455 | ) |  |      |     |   |      |   |     |   |  |   |     |  
|Amortization of prior service cost       |  |                  | (90  | ) |                               |   | (90  | )    |  |   | (90  | ) |  |      |     |   |      |   |     |   |  |   |     |  
|Amortization of transition obligation    |  |                  |     |   |                               |   |     |      |  |   | (37  | ) |  |      | 55   |   |      |   | 55   |   |  |   | 55   |  
|Recognized net actuarial (gain) loss     |  |                  | 70   |   |                               |   | 101  |      |  |   | 96   |   |  |      | (28  | ) |      |   | (26  | ) |  |   | (24  | )
|Net periodic (benefit) cost              |  | $                | 41   |   |                               | $ | 108  |      |  | $ | 74   |   |  | $    | 99   |   |      | $ | 102  |   |  | $ | 109  |  



Included in Accumulated Other
Comprehensive Income at December 31, 2007 are the following non-cash pretax charges which have not yet been recognized in net periodic pen-



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12. Post Employment Benefits (continued)



sion cost. Also presented is the estimated portion of each component of Accumulated Other Comprehensive Income which is expected to be recognized as a
component of net periodic benefit cost during the year-ending December 31, 2008.



|                               |  |                                                           |       |   |                                                          |   |     |  
|------------------------------ |  | --------------------------------------------------------- | ----- | - | -------------------------------------------------------- | - | --- | -
|                               |  | Amt. recognized inAcc. Other Comp. Income at Dec 31,
2007 |       |   | Amount expectedto be charged to net periodiccost in 2008 |  
|Pension Benefits:              |  |                                                           |       |   |                                                          |   |     |  
|Net actuarial losses           |  | $                                                         | 2,169 |   |                                                          | $ | 94  |  
|Prior service cost             |  | $                                                         | (895  | ) |                                                          | $ | (90 | )
|                               |  |                                                          
|Other Postretirement Benefits: |  |                                                           |       |   |                                                          |   |     |  
|Net actuarial gains            |  | $                                                         | (418  | ) |                                                          | $ | (29 | )
|Transition obligation          |  | $                                                         | 277   |   |                                                          | $ | 55  |  



The expected benefits to be paid under
the Corporations postemployment benefit plans are as follows:



|          |  |                 |       |                             |   |    
|--------- |  | --------------- | ----- | --------------------------- | - | ---
|          |  | PensionBenefits |       | OtherPostretirementBenefits
|2008      |  | $               | 171   |                             | $ | 62 
|2009      |  | $               | 187   |                             | $ | 61 
|2010      |  | $               | 214   |                             | $ | 60 
|2011      |  | $               | 226   |                             | $ | 59 
|2012      |  | $               | 262   |                             | $ | 62 
|2013-2017 |  | $               | 1,999 |                             | $ | 324



The asset allocation for the defined
benefit pension plan for the years ended December 31, 2007 and 2006, by asset category, is as follows:



ASSET CATEGORY



|                  |  |                          |   |  |      |  
|----------------- |  | ------------------------ | - |  | ---- | -
|                  |  | Percentage ofPlan Assets |  
|                  |  | 2007                     |   |  | 2006 |  
|Equity securities |  | 75                       | % |  | 72   | %
|Debt securities   |  | 13                       |   |  | 13   |  
|Real estate       |  | 2                        |   |  | 4    |  
|Other             |  | 10                       |   |  | 11   |  
|Total             |  | 100                      | % |  | 100  | %



The investment objective for the
defined benefit pension plan is to maximize total return with tolerance for slightly above average risk. Asset allocation strongly favors equities, with a target allocation of approximately 75% equity securities, 20% fixed income securities, and 5%
cash and cash equivalents. Due to volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between the acceptable ranges. A core equity position of large cap stocks will be maintained. However,
more aggressive or volatile sectors will be meaningfully represented in the asset mix in pursuit of higher returns.



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12. Post Employment Benefits (continued)



Higher volatility investment strategies such as real estate mortgages, limited partnerships, and international equities will be appropriate strategies in
conjunction with the core position. It is managements intent to give the investment managers flexibility within the overall guidelines with respect to investment decisions and their timing. The defined benefit pension plan holds no investments
in the Corporations common stock.



The Corporation contributed $300,000
to the pension plan in 2007, 2006 and 2005 and expects to do so for 2008.



In
December 2003, President Bush signed into law a bill that expanded Medicare benefits, primarily adding a prescription drug benefit for Medicare-eligible retirees beginning in 2006. The law also provided a federal subsidy to companies that sponsor
postretirement benefit plans that provide prescription drug coverage. FASB Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 provides
guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) for employers that sponsor postretirement health care plans that provide prescription drug benefits. The Corporation
has determined that it is not eligible for the federal subsidy as the postretirement benefit plan does not meet the definition for actuarially equivalent to the Medicare Part D benefit. Therefore, the Corporation does not include the
effects of the subsidy in measuring net periodic postretirement benefit cost. The Corporation expects to contribute $62,000 to the postretirement benefit plan in 2008.



The Corporation maintains a qualified 401(k) retirement savings plan. All employees age 21 and over are eligible to participate on a voluntary basis. All
employees may elect to make pretax contributions up to a maximum of fifteen percent (15%) of their salary, which are matched fifty percent (50%) by the Corporation. Total amounts charged to operating expense for payments pursuant to this
plan were approximately $164,000 in 2007, $154,000 in 2006 and $131,000 in 2005.



13. Income Taxes



The provision for income taxes
consisted of the following:



|                                                    |  |                         |       |      |   |       |  |   |      
|--------------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                                    |  | Years EndedDecember 31,
|Tax provision attributed to income from operations: |  | 2007                    |       | 2006 |   | 2005 
|Current:                                            |  | (Dollars in Thousands) 
|Federal                                             |  | $                       | 1,824 |      | $ | 1,901 |  | $ | 1,581
|State                                               |  |                         | 379   |      |   | 362   |  |   | 299  
|Deferred expense (benefit)                          |  |                         | 226   |      |   | 137   |  |   | 264  
|PROVISION FOR INCOME TAX                            |  | $                       | 2,429 |      | $ | 2,400 |  | $ | 2,144



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13. Income Taxes (continued)



The components of deferred tax assets and liabilities at December 31, 2007 and 2006 were as follows:



|                                                   |  |                        |        |   |      |   |        |  
|-------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                                   |  | 2007                   |        |   | 2006 |  
|                                                   |  | (Dollars in Thousands) |       
|Allowance for loan losses                          |  | $                      | 578    |   |      | $ | 490    |  
|Retirement plans                                   |  |                        | 297    |   |      |   | 181    |  
|Unrealized losses on securities available for sale |  |                        |       |   |      |   | 342    |  
|Other                                              |  |                        | 204    |   |      |   | 162    |  
|Gross deferred tax assets                          |  |                        | 1,079  |   |      |   | 1,175  |  
|Depreciation                                       |  |                        | (364   | ) |      |   | (286   | )
|Goodwill                                           |  |                        | (952   | ) |      |   | (793   | )
|Unrealized gains on securities available for sale  |  |                        | (189   | ) |      |   |       |  
|Other                                              |  |                        | (186   | ) |      |   | (147   | )
|Gross deferred tax liabilities                     |  |                        | (1,691 | ) |      |   | (1,226 | )
|NET DEFERRED TAX ASSET (LIABILITY)                 |  |                        | (612   | ) |      | $ | (51    | )



The principal differences between the
effective tax rate and the federal statutory rate were as follows:



|                                                                       |  |                          |       |   |      |    |   |        |   |       |   |  |    |        |  |   |       |   |  |    |  
|---------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | -- | - | ------ | - | ----- | - |  | -- | ------ |  | - | ----- | - |  | -- | -
|                                                                       |  | Years Ended December 31, |      
|                                                                       |  | 2007                     |       |   | 2006 |    |   | 2005   |  
|                                                                       |  | (Dollars in Thousands)   |      
|                                                                       |  | Amount                   |       |   | %    |    |   | Amount |   |       | % |  |    | Amount |  |   | %     |  
|Provision at statutory rate                                            |  | $                        | 2,420 |   |      | 34 |   |        | $ | 2,343 |   |  | 34 |        |  | $ | 2,090 |   |  | 34 |  
|Tax-exempt interest income from certain investmentsecurities and loans |  |                          | (199  | ) |      | (3 | ) |        |   | (177  | ) |  | (3 | )      |  |   | (176  | ) |  | (3 | )
|State income tax expense, net of federal benefit                       |  |                          | 263   |   |      | 4  |   |        |   | 253   |   |  | 4  |        |  |   | 222   |   |  | 4  |  
|Other, net                                                             |  |                          | (55   | ) |      | (1 | ) |        |   | (19   | ) |  |   |        |  |   | 8     |   |  |   |  
|PROVISION FOR INCOME TAXES                                             |  | $                        | 2,429 |   |      | 34 |   |        | $ | 2,400 |   |  | 35 |        |  | $ | 2,144 |   |  | 35 |  



14. Commitments and Contingencies



In the normal course of business, the Corporation is involved in various legal
suits and proceedings. In the opinion of management, based on the advice of legal counsel, these suits are without substantial merit and should not result in judgments which in the aggregate would have a material adverse effect on the
Corporations financial statements.



15. Financial Instruments, Concentrations
of Credit and Fair Values



The subsidiary of the Corporation is party
to various financial instruments with off-balance sheet risk arising in the normal course of business to meet the financing needs of its customers. Those financial instruments include commitments to extend credit in the form of unused lines of
credit and financial standby letters of credit. These instruments contain various elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.



Unused lines of credit represent agreements to lend to a customer as long as there is no
violation of any condition established in the contract, and generally have fixed expiration dates or other termination clauses and may require payment of a fee. Financial standby letters of



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15. Financial Instruments, Concentrations of Credit and Fair Values (continued)



credit are conditional commitments issued by the subsidiary to guarantee the financial performance of a customer to a third party. Those guarantees are
primarily used to support public and private borrowing arrangements.



The
subsidiarys exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, is the contractual amount of those instruments. The subsidiary
uses the same credit policies in making commitments and conditional obligations that it does for on-balance sheet instruments.



The components of the Corporations off-balance sheet financial commitments at December 31, 2007 and 2006 are as follows:



|                                                                                 |  |                        |        |      |   |       
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------
|                                                                                 |  | December 31,          
|                                                                                 |  | 2007                   |        | 2006
|Unused lines of credit                                                           |  | (Dollars in Thousands)
|Home equity lines                                                                |  | $                      | 3,852  |      | $ | 3,671 
|Commercial real estate, construction and land development secured by real estate |  |                        | 28,298 |      |   | 25,392
|Other unused commitments                                                         |  |                        | 29,631 |      |   | 31,054
|Total unused lines of credit                                                     |  | $                      | 61,781 |      | $ | 60,117
|Financial standby letters of credit                                              |  | $                      | 4,136  |      | $ | 4,733 



At December 31, 2007 and 2006,
the carrying amount and fair value of financial standby letters of credit was $4,000 and $5,000, respectively. Also, at December 31, 2007 and 2006, the Corporation had residential mortgage loan commitments outstanding of $1,528,000 and
$619,000, respectively. Derivative financial instruments related to these commitments at December 31, 2007 and 2006 were $10,000 and $4,000, respectively.



The Corporations subsidiary grants various types of credit including, but not limited to, agriculture, commercial, consumer, and residential loans to customers
primarily located throughout southern West Virginia and southwestern Virginia. Each customers creditwor-thiness is examined on a case by case basis. The amount of collateral obtained, if any, is determined by managements credit
evaluation of the customer. Collateral held varies, but may include property, accounts receivable, inventory, plant and equipment, securities, or other income producing property. The loan portfolio is generally well diversified and geographically
dispersed within the region. Within each specific industry, borrowers are well diversified as to specialty, service, or other unique feature of the overall industry.



A substantial portion of the customers ability to honor their contractual commitment is largely dependent upon the economic conditions
of the respective industry and overall economic conditions of the region. At December 31, 2007, the Corporation had concentrations of $13,820,000, or 34.2% of stockholders equity in loans to lessors of residential real property, and
$20,400,000, or 50.5% of stockholders equity in loans to land subdividers and developers. These concentrations are diversified by geography throughout the Mid-Atlantic region.



SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires the disclosure of the estimated fair value of
on and off-balance sheet financial instruments. For the



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15. Financial Instruments, Concentrations of Credit and Fair Values (continued)



Corporation, as for most financial institutions, most of its assets and liabilities are considered financial instruments as defined by SFAS 107. Most of the
Corporations financial instruments, however, lack an available trading market characterized by a willing buyer and a willing seller engaging in an exchange transaction. It is also the Corporations general practice and intent to hold its
financial instruments to maturity and not to engage in trading or sales activities. Therefore, significant estimations and present value calculations were used by the Corporation for the purposes of this disclosure.



Fair values are based on quoted market prices for similar instruments or estimated using
discounted cash flow analysis. The discount rates used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs, and optionality of such instruments.



The estimated fair value and the recorded book balances at December 31, 2007 and 2006
were as follows:



|                                                      |  |                        |         |                        |   |                     |  |                |         |  |   |        
|----------------------------------------------------- |  | ---------------------- | ------- | ---------------------- | - | ------------------- |  | -------------- | ------- |  | - | -------
|                                                      |  | 2007                   |         | 2006                  
|                                                      |  | EstimatedFair Value    |         | CarryingAmount         |   | EstimatedFair Value |  | CarryingAmount
|                                                      |  | (Dollars in Thousands) |         | (Dollars in Thousands)
|Assets:                                               |  |                        |         |                        |   |                     |  |                |         |  |   |        
|Cash and due from banks                               |  | $                      | 13,527  |                        | $ | 13,527              |  | $              | 10,212  |  | $ | 10,212 
|Securities available for sale                         |  |                        | 82,763  |                        |   | 82,763              |  |                | 73,441  |  |   | 73,441 
|Securities held to maturity                           |  |                        | 18,176  |                        |   | 18,156              |  |                | 13,354  |  |   | 13,399 
|Federal Home Loan Bank and Federal Reserve Bank stock |  |                        | 1,430   |                        |   | 1,430               |  |                | 1,287   |  |   | 1,287  
|Net loans                                             |  |                        | 298,924 |                        |   | 294,491             |  |                | 292,835 |  |   | 290,088
|                                                      |  |                        |         |                       
|Liabilities:                                          |  |                        |         |                        |   |                     |  |                |         |  |   |        
|Noninterest-bearing deposits                          |  |                        | 44,905  |                        |   | 44,905              |  |                | 44,452  |  |   | 44,452 
|Deposits with no stated maturities                    |  |                        | 126,653 |                        |   | 126,653             |  |                | 128,987 |  |   | 128,987
|Deposits with stated maturities                       |  |                        | 193,502 |                        |   | 191,197             |  |                | 183,659 |  |   | 183,916
|Short-term borrowings                                 |  |                        | 27,708  |                        |   | 27,708              |  |                | 12,674  |  |   | 12,674 



The estimation methodologies used to
determine fair value are as follows: For those loans and deposits with floating interest rates it was presumed that the estimated fair value generally approximated the recorded book balances. Securities actively traded in a secondary market have
been valued using quoted available market prices. Deposits with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market rates for similar assets and liabilities. Deposits with
no stated maturities have an estimated fair value equal to the amount payable on demand which is the recorded book balance. The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these
calculations is the federal funds sold rate adjusted for noninterest operating costs, credit losses, and assumed prepayment risk. Fair values for nonperforming loans are estimated using discounted cash flow analysis, or underlying collateral values,
where applicable. Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.



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16. Regulatory Matters



The Corporations principal source of funds for dividend payment and debt service is dividends received from the subsidiary bank.



Under applicable Federal laws, the Comptroller of the Currency, the primary regulator of
First Century Bank, N.A., restricts the total dividend payments of a national bank in any calendar year to the net profits of that year, as defined, combined with the retained net profits of the two preceding years. At December 31, 2007,
retained net profits for the years 2007 and 2006, which were free of such regulatory restrictions, aggregated approximately $3,717,000.



The Corporation and its subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporations financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Corporation and its subsidiary must meet specific capital guidelines that involve quantitative measures of the Corporations assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Corporations capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.



Quantitative measures established by regulation to ensure capital adequacy require the
Corporation and its subsidiary to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to riskweighted assets (as defined), and Tier I capital to average assets (as
defined). Management believes, as of December 31, 2007, that the Corporation and its subsidiary meet all capital adequacy requirements to which they are subject.



As of December 31, 2007, First Century Bank, N.A. has received notification from the Office of the Comptroller of the Currency that it
is wellcapitalized under the regulatory framework for prompt corrective action. To be adequately capitalized, minimum total riskbased, Tier I riskbased, and Tier I leverage ratios as set forth in the following table must be
maintained. There are no conditions or events since the recent notification that management believes have changed the institutions category.



|                                          |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|----------------------------------------- |  | ------ | ------ | ----- | ---------------------------- | - | ------ | ------------------------------------------------------------- | ------- |  | - | ------ | - | ----- | - | ------- |  | - | ----- | -
|                                          |  | Actual |        |       | For CapitalAdequacy Purposes |   |        | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |        
|                                          |  | Amount |        | Ratio |                              |   | Amount |                                                               | Ratio   |  |   | Amount |   | Ratio |  
|As of December 31, 2007:                  |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Total Capital (to Risk Weighted Assets):  |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         | 
|Consolidated                              |  | $      | 38,078 |       | 12.24                        | % |        | 3                                                             | $24,888 |  | 3 | 8.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 36,845 |       | 11.86                        | % |        | 3                                                             | $24,860 |  | 3 | 8.00   | % |       | 3 | $31,075 |  | 3 | 10.00 | %
|Tier I Capital (to Risk Weighted Assets): |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Consolidated                              |  | $      | 35,615 |       | 11.45                        | % |        | 3                                                             | $12,444 |  | 3 | 4.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 34,382 |       | 11.06                        | % |        | 3                                                             | $12,430 |  | 3 | 4.00   | % |       | 3 | $18,645 |  | 3 | 6.00  | %
|Tier I Capital (to Average Assets):       |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Consolidated                              |  | $      | 35,615 |       | 8.33                         | % |        | 3                                                             | $17,110 |  | 3 | 4.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 34,382 |       | 8.04                         | % |        | 3                                                             | $17,096 |  | 3 | 4.00   | % |       | 3 | $21,370 |  | 3 | 5.00  | %







First Century Bankshares, Inc.     Page 49



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16. Regulatory Matters (continued)



|                                          |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|----------------------------------------- |  | ------ | ------ | ----- | ---------------------------- | - | ------ | ------------------------------------------------------------- | ------- |  | - | ------ | - | ----- | - | ------- |  | - | ----- | -
|                                          |  | Actual |        |       | For CapitalAdequacy Purposes |   |        | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |        
|                                          |  | Amount |        | Ratio |                              |   | Amount |                                                               | Ratio   |  |   | Amount |   | Ratio |  
|As of December 31, 2006:                  |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Total Capital (to Risk Weighted Assets):  |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         | 
|Consolidated                              |  | $      | 36,929 |       | 12.15                        | % |        | 3                                                             | $24,322 |  | 3 | 8.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 35,695 |       | 11.75                        | % |        | 3                                                             | $24,294 |  | 3 | 8.00   | % |       | 3 | $30,368 |  | 3 | 10.00 | %
|Tier I Capital (to Risk Weighted Assets): |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Consolidated                              |  | $      | 34,353 |       | 11.30                        | % |        | 3                                                             | $12,161 |  | 3 | 4.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 33,119 |       | 10.91                        | % |        | 3                                                             | $12,147 |  | 3 | 4.00   | % |       | 3 | $18,221 |  | 3 | 6.00  | %
|Tier I Capital (to Average Assets):       |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Consolidated                              |  | $      | 34,353 |       | 8.41                         | % |        | 3                                                             | $16,336 |  | 3 | 4.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 33,119 |       | 8.12                         | % |        | 3                                                             | $16,321 |  | 3 | 4.00   | % |       | 3 | $20,402 |  | 3 | 5.00  | %



17. Parent Company Financial Data



Condensed financial information of First Century Bankshares, Inc. (parent
company only) is presented below:



STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                      |  |  |  |                        |        |   |      |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  |  |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                      |  |  |  | December 31,           |       
|                                                                                                                      |  |  |  | 2007                   |        |   | 2006 |  
|Assets:                                                                                                               |  |  |  | (Dollars in Thousands) |       
|Cash                                                                                                                  |  |  |  | $                      | 232    |   |      | $ | 262    |  
|Investment in subsidiaries at equity                                                                                  |  |  |  |                        | 39,651 |   |      |   | 37,675 |  
|Other assets                                                                                                          |  |  |  |                        | 714    |   |      |   | 573    |  
|TOTAL ASSETS                                                                                                          |  |  |  | $                      | 40,597 |   |      | $ | 38,510 |  
|Liabilities:                                                                                                          |  |  |  |                        |        |   |      |   |        |  
|Other liabilities                                                                                                     |  |  |  | $                      | 192    |   |      | $ | 78     |  
|TOTAL LIABILITIES                                                                                                     |  |  |  |                        | 192    |   |      |   | 78     |  
|Stockholders Equity:                                                                                                 |  |  |  |                        |        |   |      |   |        |  
|Common stock$1.25 par value; 10,000,000 shares authorized and 2,000,000 shares issued at December 31, 2007 and
2006; |  |  |  |                        |        |   |      |   |        |  
|1,909,792 shares outstanding at December 31, 2007, and                                                                |  |  |  |                        |        |   |      |   |        |  
|1,962,879 shares outstanding at December 31, 2006;                                                                    |  |  |  |                        | 2,500  |   |      |   | 2,500  |  
|Paid-in capital                                                                                                       |  |  |  |                        | 772    |   |      |   | 783    |  
|Retained earnings                                                                                                     |  |  |  |                        | 39,277 |   |      |   | 36,014 |  
|Treasury stock, at cost; 90,208 shares at December 31, 2007, and 37,121 shares at
December 31, 2006                   |  |  |  |                        | (2,144 | ) |      |   | (865   | )
|TOTAL STOCKHOLDERS EQUITY                                                                                            |  |  |  |                        | 40,405 |   |      |   | 38,432 |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                            |  |  |  | $                      | 40,597 |   |      | $ | 38,510 |  



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17. Parent Company Financial Data (continued)



|                                                                |  |                          |       |   |      |   |       |      |  |   |       |  
|--------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                |  |                          |      
|STATEMENTS OF INCOME                                            |  |                          |       |   |      |   |       |      |  |   |       |  
|                                                                |  | Years Ended December 31, |      
|                                                                |  | 2007                     |       |   | 2006 |   |       | 2005 | 
|                                                                |  | (Dollars in Thousands)   |      
|Income:                                                         |  |                          |       |   |      |   |       |      |  |   |       |  
|Dividends from subsidiary bank                                  |  | $                        | 3,520 |   |      | $ | 2,100 |      |  | $ | 2,790 |  
|Other income                                                    |  |                          |      |   |      |   | 1     |      |  |   |      |  
|TOTAL INCOME                                                    |  |                          | 3,520 |   |      |   | 2,101 |      |  |   | 2,790 |  
|Expenses:                                                       |  |                          |       |   |      |   |       |      |  |   |       |  
|Other                                                           |  |                          | 157   |   |      |   | 118   |      |  |   | 166   |  
|TOTAL EXPENSES                                                  |  |                          | 157   |   |      |   | 118   |      |  |   | 166   |  
|Applicable income taxes (benefits)                              |  |                          | (60   | ) |      |   | (44   | )    |  |   | (63   | )
|Income before equity in undistributednet income of subsidiaries |  |                          | 3,423 |   |      |   | 2,027 |      |  |   | 2,687 |  
|Equity in undistributed net income of subsidiaries              |  |                          | 1,265 |   |      |   | 2,462 |      |  |   | 1,317 |  
|NET INCOME                                                      |  | $                        | 4,688 |   |      | $ | 4,489 |      |  | $ | 4,004 |  



STATEMENT OF CASH FLOWS



|                                                                                 |  |                          |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                 |  | Years Ended December 31, |       
|                                                                                 |  | 2007                     |        |   | 2006 |   |        | 2005 | 
|Cash flows from operating activities                                             |  | (Dollars in Thousands)   |       
|Net income                                                                       |  | $                        | 4,688  |   |      | $ | 4,489  |      |  | $ | 4,004  |  
|Adjustments to reconcile net income to net cashprovided by operating activities: |  |                          |        |   |      |   |        |      |  |   |        |  
|Equity in undistributed net income of subsidiary                                 |  |                          | (1,265 | ) |      |   | (2,462 | )    |  |   | (1,317 | )
|Other adjustments, net                                                           |  |                          | (27    | ) |      |   | (29    | )    |  |   | (29    | )
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                        |  |                          | 3,396  |   |      |   | 1,998  |      |  |   | 2,658  |  
|Cash flows from investing activities                                             |  |                          |        |   |      |   |        |      |  |   |        |  
|Investment in subsidiary                                                         |  |                          |       |   |      |   |       |      |  |   |       |  
|NET CASH USED BY INVESTING ACTIVITIES                                            |  |                          |       |   |      |   |       |      |  |   |       |  
|Cash flows from financing activities                                             |  |                          |        |   |      |   |        |      |  |   |        |  
|Purchase of treasury stock                                                       |  |                          | (1,365 | ) |      |   | (87    | )    |  |   | (756   | )
|Cash received from stock option exercise                                         |  |                          | 75     |   |      |   | 119    |      |  |   | 9      |  
|Cash dividends paid                                                              |  |                          | (2,136 | ) |      |   | (2,057 | )    |  |   | (1,968 | )
|NET CASH USED BY FINANCING ACTIVITIES                                            |  |                          | (3,426 | ) |      |   | (2,025 | )    |  |   | (2,715 | )
|Net increase (decrease) in cash                                                  |  |                          | (30    | ) |      |   | (27    | )    |  |   | (57    | )
|Cash at January 1,                                                               |  |                          | 262    |   |      |   | 289    |      |  |   | 346    |  
|Cash at December 31,                                                             |  | $                        | 232    |   |      | $ | 262    |      |  | $ | 289    |  



First Century Bankshares, Inc.     Page 51



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18. Quarterly Financial Data (Unaudited)



The summary financial data by quarter for the years ended December 31, 2007, 2006 and 2005 was as follows:



|                                   |  |                                               |       |   |         |   |       |          |  |         |       |  |   |       |  
|---------------------------------- |  | --------------------------------------------- | ----- | - | ------- | - | ----- | -------- |  | ------- | ----- |  | - | ----- | -
|                                   |  | Quarter Ended                                 |      
|                                   |  | Mar. 31                                       |       |   | June 30 |   |       | Sept. 30 |  | Dec. 31 |      
|                                   |  | (Dollars in Thousands, Except Per Share Data) |      
|2007                               |  |                                               |       |   |         |   |       |          |  |         |       |  |   |       |  
|Interest income                    |  | $                                             | 6,467 |   |         | $ | 6,714 |          |  | $       | 6,909 |  | $ | 6,748 |  
|Net interest income                |  |                                               | 4,010 |   |         |   | 4,096 |          |  |         | 4,180 |  |   | 4,087 |  
|Provision for possible loan losses |  |                                               | 34    |   |         |   | 63    |          |  |         | 13    |  |   | 56    |  
|Income before taxes                |  |                                               | 1,656 |   |         |   | 1,728 |          |  |         | 1,865 |  |   | 1,868 |  
|Net income                         |  |                                               | 1,073 |   |         |   | 1,148 |          |  |         | 1,228 |  |   | 1,239 |  
|NET INCOME PER SHARE               |  | $                                             | 0.55  |   |         | $ | 0.59  |          |  | $       | 0.63  |  | $ | 0.64  |  
|                                   |  |                                               |       |  
|2006                               |  |                                               |       |   |         |   |       |          |  |         |       |  |   |       |  
|Interest income                    |  | $                                             | 5,522 |   |         | $ | 5,885 |          |  | $       | 6,298 |  | $ | 6,488 |  
|Net interest income                |  |                                               | 3,944 |   |         |   | 4,068 |          |  |         | 4,079 |  |   | 4,090 |  
|Provision for possible loan losses |  |                                               | 43    |   |         |   | 48    |          |  |         | 78    |  |   | (89   | )
|Securities gains (losses)          |  |                                               | (26   | ) |         |   | (32   | )        |  |         |      |  |   | (108  | )
|Income before taxes                |  |                                               | 1,527 |   |         |   | 1,770 |          |  |         | 1,834 |  |   | 1,758 |  
|Net income                         |  |                                               | 987   |   |         |   | 1,148 |          |  |         | 1,214 |  |   | 1,140 |  
|NET INCOME PER SHARE               |  | $                                             | 0.50  |   |         | $ | 0.59  |          |  | $       | 0.62  |  | $ | 0.58  |  
|                                   |  |                                               |       |  
|2005                               |  |                                               |       |   |         |   |       |          |  |         |       |  |   |       |  
|Interest income                    |  | $                                             | 4,771 |   |         | $ | 5,067 |          |  | $       | 5,173 |  | $ | 5,407 |  
|Net interest income                |  |                                               | 3,777 |   |         |   | 3,950 |          |  |         | 3,844 |  |   | 3,950 |  
|Provision for possible loan losses |  |                                               | 68    |   |         |   | 38    |          |  |         | 180   |  |   | 148   |  
|Securities gains (losses)          |  |                                               | 10    |   |         |   |      |          |  |         |      |  |   | (70   | )
|Income before taxes                |  |                                               | 1,381 |   |         |   | 1,610 |          |  |         | 1,568 |  |   | 1,589 |  
|Net income                         |  |                                               | 885   |   |         |   | 1,063 |          |  |         | 1,020 |  |   | 1,036 |  
|NET INCOME PER SHARE               |  | $                                             | 0.44  |   |         | $ | 0.54  |          |  | $       | 0.52  |  | $ | 0.53  |  



Page 52     First Century Bankshares, Inc.



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Managements Annual Report on Internal Control Over Financial Reporting.



Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.



Because of the inherent
limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.



Management conducted an evaluation of the effectiveness of our system of internal control over financial reporting as of December 31, 2007 based on the framework set
forth in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management concluded that, as of December 31, 2007, First Century
Bankshares, Inc.s internal control over financial reporting was effective.



This annual report does not include an attestation report of the companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the
companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report.



Date: March 10, 2008



|                                                      |  |                                                         
|----------------------------------------------------- |  | --------------------------------------------------------
|LOGO                                                  |  | LOGO                                                    
|R. W. Wilkinson President and Chief Executive Officer |  | J. Ronald Hypes, Treasurer (Principal Financial Officer)



First Century Bankshares, Inc.     Page 53



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##### Table of Contents

Report of

Independent Registered Public Accounting Firm





To the Board of Directors and Stockholders

First Century Bankshares, Inc.

and Subsidiaries

Bluefield, West Virginia



We have audited the accompanying consolidated statements of financial
condition of First Century Bankshares, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders equity, and cash flows for each of the years in the three-year
period ended December 31, 2007. The Companys management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of First Century Bankshares, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.



LOGO



CERTIFIED PUBLIC ACCOUNTANTS



Bluefield, West Virginia

March 7, 2008





Page 54     First Century Bankshares, Inc.



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##### Table of Contents

Boards of

Directors



FIRST CENTURY BANKSHARES, INC.



|                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                               |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|J. J. Booker, III, M.D. Physician  W. Paul Cole, Jr. President, Cole Chevrolet-Cadillac 
Eustace Frederick Member, West VirginiaHouse of Delegates  B. L. Jackson, Jr. Chairman of the Board First Century Bankshares, Inc.  Robert M. Jones, Jr., M.D. Physician; Vice
Chairman, First Century Bankshares, Inc. |  | Samuel V. Jones, CPA Hodges, Jones and Mabry,
P.C.  Marshall S. Miller President, Marshall Miller & Associates  Charles A. Peters Formerly, President, Peters Equipment, Inc. |  | John H. Shott Attorney  Walter L. Sowers President, Pemco Corporation  William Chandler Swope President, Swope Construction Services, Inc.  J. Brookins Taylor, M.D. Physician |  | Frank W. Wilkinson President & Chief Operating Officer, First Century Bank, N.A.,Secretary, First
Century Bankshares, Inc.  R. W. Wilkinson President & ChiefExecutive Officer, First Century Bankshares, Inc., Chairman & Chief Executive Officer, First CenturyBank, N.A.



FIRST CENTURY BANK, N.A.



|                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                            
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|J. J. Booker, III, M.D. Physician  C. Scott Briers President, Briers, Inc.  W. Paul Cole, Jr. President, Cole Chevrolet-Cadillac  Eustace Frederick Member, West VirginiaHouse of Delegates  B. L. Jackson, Jr. Chairman of the Board First Century Bankshares, Inc. |  | Robert M. Jones, Jr., MD Physician; Vice
Chairman, First Century Bankshares, Inc.  Samuel V. Jones, CPA Hodges, Jones and Mabry, P.C.  Marshall S. Miller President, Marshall Miller & Associates  Charles A. Peters Formerly, President, Peters Equipment, Inc. |  | John H. Shott Attorney  Walter L. Sowers President, Pemco Corporation  William Chandler Swope President, Swope Construction Services, Inc.  J. Brookins Taylor, M.D. Physician |  | Frank W. Wilkinson President & Chief Operating Officer, First Century Bank, N.A.,Secretary, First
Century Bankshares, Inc.  R. W. Wilkinson President & ChiefExecutive Officer, First Century Bankshares, Inc., Chairman & Chief Executive Officer, First CenturyBank, N.A.



FIRST CENTURY BANK, N.A.

WYOMING COUNTY OPERATIONS ADVISORY BOARD



|                                                                          |  |                                                                                          |  |                                                                                                                            |  |                                                                                                                                                                                                               
|------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Michelle Brown, DDS Oceana Dental Center  Tom Evans, Jr. Private Investor |  | Debra L. Brunty Vice President-Loans Wyoming County Operations, First Century Bank, N.A. |  | Frank W. Wilkinson President & Chief Operating Officer, First Century Bank, N.A.,Secretary, First
Century Bankshares, Inc. |  | Dennis Worrell Partner, Worrell Exxon & Owner, D & T Car Wash  R. W. Wilkinson President & ChiefExecutive Officer, First Century Bankshares, Inc., Chairman & Chief Executive Officer, First CenturyBank, N.A.



First Century Bankshares, Inc.     Page 55



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##### Table of Contents

Boards of

Directors



FIRST CENTURY BANK, N.A.

WYTHE COUNTY OPERATIONS ADVISORY BOARD



---



|                                                                                    |  |                                                                              |  |                                                                                                                                                                                                               |  |                                                                                                                                                  
|----------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|J. J. Booker, III, M.D. Physician  Robert T. Dupuis President, P & T Products, Inc. |  | Samuel V. Jones, CPA Hodges, Jones & Mabry, PC  Stephen A. Lester Wordsprint |  | W. Edward Smith Vice President, Wythe County Operations First Century Bank, N.A.  Frank W. Wilkinson President & Chief Operating
Officer, First Century Bank, N.A., Secretary, First
Century Bankshares, Inc. |  | R. W. Wilkinson President & Chief Executive Officer, First Century Bankshares, Inc., Chairman & Chief Executive Officer, First Century Bank, N.A.



FIRST CENTURY BANK, N.A.

SUMMERS COUNTY OPERATIONS ADVISORY BOARD



---



|                                                                         |  |                                                                                |  |                                                                                                                                                                                                               |  |                                                                                                                                                  
|------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|C. Scott Briers President, Briers, Inc.  James S. Kerr Owner Kerr Realty |  | David L. Parmer Attorney at Law  Bob Richmond Retired, First Century Bank N.A. |  | Bill J. Keaton Vice President, Summers County Operations First Century Bank N.A.  Frank W. Wilkinson President & Chief
Operating Officer, First Century Bank, N.A., Secretary, First Century Bankshares, Inc. |  | R. W. Wilkinson President & Chief Executive Officer, First Century Bankshares, Inc., Chairman & Chief Executive Officer, First Century Bank, N.A.



Page 56     First Century Bankshares, Inc.



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##### Table of Contents

Officers



FIRST CENTURY
BANKSHARES, INC.



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|B. L. Jackson, Jr.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Robert M. Jones, Jr., MD                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | W. E. Albert                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | J. Ronald Hypes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Chairman of the Board                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Vice Chairman of the Board                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Assistant Secretary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Treasurer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
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|R. W. Wilkinson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Frank W. Wilkinson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Secretary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
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|FIRST CENTURY BANK, N.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|ADMINISTRATION  R. W. Wilkinson Chairman and Chief
Executive Officer  Frank W. Wilkinson President
& Chief Operating Officer  J. Ronald Hypes Senior Vice
President & Chief Financial Officer  John D. Lay Vice President &
Controller  Wayne L. Blevins
Assistant Controller & Trust Officer  Barbara Moore-Ray Community Development Officer  Cynthia Higgins-Atwell Vice President Internal Audit & Compliance  Lisa A. Huff Director of Human Resources  Jason Farmer IT Manager  Deborah L. Bowman Marketing Director  Matthew W. Barnett CRM Administrator  BRANCH ADMINISTRATION  L. Mori
Williams Vice President & Regional Executive
 Bill J. Keaton Vice President, Summers County Operations  W. Edward Smith Vice President, Wythe County Operations  Debra Brunty Vice President-Loans, Wyoming County Operations |  | Brenda G. Davidson Branch Manager & Loan Officer, Bluefield, Virginia Office  Karen R. Kidd Branch
Manager/ Assistant Cashier, College Avenue Office  Rebecca Lynn Daniels Branch Manager, Oceana Office  Sandra K. Taylor Branch Manager, Pineville Office  Zerna A. Felts Branch Manager & Security Officer, Fort Chiswell Office  Kathy L. Peters AVP, Teller Manager  Linda C. Hamer Customer Service Manager  Michelle L. Beck Assistant Vice
President, Princeton Office  Stephanie Bailey Assistant Branch
Manager, Oceana Office  Linda C. Rider IRA
Coordinator  Sharon Cole Assistant Cashier Hinton Office  Nancy M. Cales Assistant Cashier Hinton Office  Rita Goodman Customer Service Officer  Cathy M. Laxton AVP, Security  Ronnie M. Hamlin Facilities Manager
& Assistant Security Officer |  | LOANS  Jeffery L. Forlines Senior Vice
President, Chief Credit Officer  Garnett L. Little Vice President, Loans  Randall D. Price Vice President, Credit Administration Officer  Hal L. Absher Director of Secondary Mortgage Lending  Randy N. Bowles Assistant Vice President, Summers County Office  Barry W. Whitt Assistant Vice President, Loans  Charlene R. Maynard Assistant Vice
President, LoansOceana Office  Rick D.
Blevins Consumer Loan Officer, Princeton Office
 Wanda Blair Loan Officer, Wytheville Office  Louise S. Bowen Loan Officer, Secondary Mortage Lending  Shela D. Acord Consumer Loan Officer, Pineville Office  Vicky C. Eggleston Consumer Loan Officer, Bluefield Office  Charles E. Lester Collections Officer  Curtis R. Moore Loan Officer
Princeton Office  Jean F. Stanley Assistant
Cashier, Princeton Office |  | Janet L. Whitten Assistant Cashier  OPERATIONS  W. E. Albert Senior Vice President & Cashier  Lonnie E. Cochran Vice President,
Operations  Martha B. Cooper
Assistant Vice President, Operations  Harold A. Mitchell Assistant Vice President, Imaging  Angela M. James Director of Treasury Management  Judy A. Cecil Assistant
Cashier  TRUST  John P. Beckett, Jr. Senior Vice President & Trust Officer  Julie H. Johnson Vice President & Trust Officer  Mary A. Musser Trust Officer
 Mary Sue Anderson Assistant Trust Officer



First Century Bankshares, Inc.     Page 57



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##### Table of Contents

First Century

Bankshares, Inc.



First Century Bank, N.A.

Locations



500 Federal Street

Bluefield, WV 24701

(304) 3258181



525 Federal Street

Bluefield, WV 24701

(304) 324-3286



2020 College Avenue

Bluefield, WV 24701

(304) 3275660



1223
Stafford Drive

Pine Plaza, Princeton, WV 24740

(304) 4250856



145 Springhaven Drive

Princeton, WV 24740

(304) 431-7617



108 Spruce Street

Bluefield, VA 24605

(276) 326-2606



Rt. 10, Cook Parkway

Oceana, WV 24870

(304) 6826221



Rt. 10, East Pineville

Pineville, WV 24874

(304) 7328850



321 Temple Street

Hinton, WV 25951

(304) 466-2311



200
Peppers Ferry Road

Wytheville, VA 24382

(276) 2231115



148 Ivanhoe Road

Max Meadows, VA 24360

(276) 6373100



1408 Harper Road

Beckley, WV 25801

(304) 255-4560