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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 28, 2009, at the First Century Bank
Seminar Center, 525 Federal Street,

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



Table of
Contents



|                           |  |  
|-------------------------- |  | -
|Letter to the Stockholders |  | 1

|                                                                                      |  |  
|------------------------------------------------------------------------------------- |  | -
|Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 2

|                                               |  |   
|---------------------------------------------- |  | --
|Consolidated Statements of Financial Condition |  | 22

|                                  |  |   
|--------------------------------- |  | --
|Consolidated Statements of Income |  | 23

|                                                           |  |   
|---------------------------------------------------------- |  | --
|Consolidated Statements of Changes in Stockholders Equity |  | 24

|                                      |  |   
|------------------------------------- |  | --
|Consolidated Statements of Cash Flows |  | 25

|                                           |  |   
|------------------------------------------ |  | --
|Notes to Consolidated Financial Statements |  | 26

|                                                                        |  |   
|----------------------------------------------------------------------- |  | --
|Managements Annual Report on Internal Control Over Financial Reporting |  | 49

|                                                        |  |   
|------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm |  | 50

|                    |  |   
|------------------- |  | --
|Boards of Directors |  | 51

|                            |  |   
|--------------------------- |  | --
|Corporate and Bank Officers |  | 53

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



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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 for 2008.



First Century Bankshares, Inc. had earnings of $3,685,000 for the year which was a decrease of 21.4% from prior year earnings of
$4,688,000. On a per share basis, net income decreased to $1.93 from $2.40. This equated to a return on average assets of 0.85% and a return on average equity of 8.96%. The information contained in this report will provide you with the details of
the results for our operations for 2008.



Total assets for the
corporation decreased from $433,879,000 to $425,694,000 for the year ended 2008 or a decrease of 1.9%. Management continues to monitor the balance sheet during this critical economic period, but due to a lack of growth in loans, we have allowed the
deposit base to contract to help manage the Corporations interest expense. As loan volume increases, it will be managements intention to be more competitive in pricing our interest bearing deposit products.



Management and the board of directors have been closely monitoring the
economic environment during 2008, and the Corporation has been focused on three critical areas during this time. Asset quality, liquidity, and capital levels, and we feel these will be the keys to a successful landing while operating in an
environment that is as unstable as we find our national economy. Our strategy of remaining asset sensitive affected our earnings in 2008. We experienced rapid drops in the federal funds and prime rates which negatively affected our loan yields. The
prime rate dropped from 8.25 % in late 2007 to the now current rate of 3.25%, and many of the meetings of the Federal Reserve Open Market Committee saw rates drop at a pace of 50 to 75 basis points per meeting. Traditional rate movements by the
Committee have been in increments of 25 basis points at each meeting. This rate scenario created compression on the Corporations earnings through the interest margin as we could not reprice our liabilities (i.e. certificates of deposit) as
quickly as our loans repriced. Also, the larger reduction in rates per meeting made the loss of income at the margin even greater than the traditional moves of 25 basis points.



Management and the board have decided not to apply for U.S. Government TARP funding. All of our risk-based capital ratios
are above the regulatory levels to be considered well capitalized which further supports this decision. We feel we are better able to manage our operations with a strong committed board of directors and with capable management than to
allow the government to play an active role in our day to day operations and our dividend policies.



I am happy to report that on April 28, 2008 we opened our first full service facility in Beckley, West Virginia. Our facility is located at 1826 Harper
Road and we have been well received by the community. We had nearly one hundred folks in attendance at our ribbon cutting ceremony, and the transaction volumes are increasing every month. We are also close to surpassing the $30,000,000 mark in
new loan growth which is quite an accomplishment during these challenging times. We have an excellent staff of local bankers with many years of experience in banking the Raleigh County clients. We are excited about the future of our
newest location.



Management and the board of directors are in
the process of updating the Corporations strategic plan for 2009 through 2013. This process has been ongoing since the fourth quarter of 2008, and it continues to be a work in process. As we meet, we still come back to the three
critical areas of asset quality, liquidity, and capital. This will remain our focus as we move towards the future, and we will look for opportunities as we go forward. Our vision will be that we provide a fair and consistent return for
you, our shareholders, that we will continue to give exceptional service to our customers supported by competitive products and services and that we will take care of our employees by being the employer of choice in the markets we serve. We feel
this vision will keep us successful in the years to come.



As we move into 2009 we look forward to your continued support. Together we will accomplish the goals of the Corporation in this most challenging operating environment. I welcome your comments and recommendations as we face unprecedented
challenges for the banking industry and our national economy. I will pledge to keep you fully advised as we move forward.



Sincerely,



LOGO

R. W. Buz Wilkinson

President and Chief Executive Officer



First Century Bankshares, Inc.     Page 1



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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



|                                                           |  |                        |         |   |                        |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|---------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------------- | - | ----------- |  | ---- | -------------- |  | - | -------- | - | ----------- | - | ------ |  | ---- | -
|                                                           |  | 2008                   |         |   | 2007                   |  
|                                                           |  | (Dollars in Thousands) |         |   | (Dollars in Thousands) |  
|ASSETS:                                                    |  | AverageBalance         |         |   | Interest               |   | AverageRate |  |      | AverageBalance |  |   | Interest |   | AverageRate |  
|Interest-bearing deposits with banks                       |  | $                      | 6,296   |   |                        | $ | 165         |  | 2.62 | %              |  | $ | 1,244    |   |             | $ | 64     |  | 5.14 | %
|Securities available for sale and other equity securities: |  |                        |         |   |                        |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|U. S. Treasury securities                                  |  |                        | 746     |   |                        |   | 35          |  | 4.69 | %              |  |   | 999      |   |             |   | 47     |  | 4.70 | %
|U. S. Government agency securities                         |  |                        | 75,645  |   |                        |   | 3,704       |  | 4.90 | %              |  |   | 80,226   |   |             |   | 3,549  |  | 4.42 | %
|Other securities                                           |  |                        | 3,708   |   |                        |   | 131         |  | 3.53 | %              |  |   | 3,157    |   |             |   | 165    |  | 5.23 | %
|Total securities available for sale                        |  |                        | 80,099  |   |                        |   | 3,870       |  | 4.83 | %              |  |   | 84,382   |   |             |   | 3,761  |  | 4.46 | %
|Securities held to maturity:                               |  |                        |         |   |                        |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|State and municipal securities                             |  |                        | 17,978  |   |                        |   | 686         |  | 3.82 | %              |  |   | 15,219   |   |             |   | 592    |  | 3.89 | %
|Other securities                                           |  |                        |        |   |                        |   |            |  |     |                |  |   | 32       |   |             |   | 2      |  | 6.25 | %
|Total securities held to maturity                          |  |                        | 17,978  |   |                        |   | 686         |  | 3.82 | %              |  |   | 15,251   |   |             |   | 594    |  | 3.89 | %
|Federal funds sold                                         |  |                        | 6,100   |   |                        |   | 122         |  | 2.00 | %              |  |   | 1,094    |   |             |   | 56     |  | 5.12 | %
|Loans                                                      |  |                        | 290,928 |   |                        |   | 18,008      |  | 6.19 | %              |  |   | 295,451  |   |             |   | 22,363 |  | 7.57 | %
|Total interest-earning assets                              |  |                        | 401,401 |   |                        |   | 22,851      |  | 5.69 | %              |  |   | 397,422  |   |             |   | 26,838 |  | 6.75 | %
|Allowance for loan losses                                  |  |                        | (2,481  | ) |                        |   |             |  |      |                |  |   | (2,526   | ) |             |   |        |  |      |  
|Cash and due from banksdemand                             |  |                        | 10,685  |   |                        |   |             |  |      |                |  |   | 10,916   |   |             |   |        |  |      |  
|Bank Premises and equipmentnet                            |  |                        | 14,434  |   |                        |   |             |  |      |                |  |   | 12,408   |   |             |   |        |  |      |  
|Other assets                                               |  |                        | 10,556  |   |                        |   |             |  |      |                |  |   | 10,377   |   |             |   |        |  |      |  
|TOTAL ASSETS                                               |  | $                      | 434,595 |   |                        |   |             |  |      |                |  | $ | 428,597  |   |             |   |        |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY:                      |  |                        |         |   |                        |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Interest-bearing demand deposits                           |  | $                      | 75,056  |   |                        | $ | 298         |  | 0.40 | %              |  | $ | 73,923   |   |             | $ | 605    |  | 0.82 | %
|Savings deposits                                           |  |                        | 56,026  |   |                        |   | 357         |  | 0.64 | %              |  |   | 56,156   |   |             |   | 598    |  | 1.06 | %
|Time deposits                                              |  |                        | 183,041 |   |                        |   | 6,820       |  | 3.73 | %              |  |   | 190,391  |   |             |   | 8,610  |  | 4.52 | %
|Total interest-bearing deposits                            |  |                        | 314,123 |   |                        |   | 7,475       |  | 2.38 | %              |  |   | 320,470  |   |             |   | 9,813  |  | 3.06 | %
|Short-term debt                                            |  |                        | 21,560  |   |                        |   | 341         |  | 1.58 | %              |  |   | 18,203   |   |             |   | 652    |  | 3.58 | %
|Total interest-bearing liabilities                         |  |                        | 335,683 |   |                        |   | 7,816       |  | 2.33 | %              |  |   | 338,673  |   |             |   | 10,465 |  | 3.09 | %
|Demand deposits                                            |  |                        | 54,288  |   |                        |   |             |  |      |                |  |   | 45,794   |   |             |   |        |  |      |  
|Other liabilities                                          |  |                        | 3,128   |   |                        |   |             |  |      |                |  |   | 3,519    |   |             |   |        |  |      |  
|TOTAL LIABILITIES                                          |  |                        | 393,099 |   |                        |   |             |  |      |                |  |   | 387,986  |   |             |   |        |  |      |  
|Stockholders equity                                       |  |                        | 41,496  |   |                        |   |             |  |      |                |  |   | 40,611   |   |             |   |        |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                 |  | $                      | 434,595 |   |                        |   |             |  |      |                |  | $ | 428,597  |   |             |   |        |  |      |  
|Average rate paid to fund earning assets                   |  |                        |         |   |                        |   |             |  | 1.95 | %              |  |   |          |   |             |   |        |  | 2.63 | %
|NET INTEREST DIFFERENTIAL                                  |  |                        |         |   |                        | $ | 15,035      |  | 3.75 | %              |  |   |          |   |             | $ | 16,373 |  | 4.12 | %

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 $257,000 in 2008 and $182,000 in 2007. Average balances of securities available for
sale are reported at amortized cost; excludes pretax unrealized gains of $461,000 in 2008 and pretax unrealized losses of $651,000 in 2007. Interest income on tax exempt securities is shown based on the actual yield.



VOLUME/RATE ANALYSIS



|                                                          |  |                                 |      |   |                        |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|--------------------------------------------------------- |  | ------------------------------- | ---- | - | ---------------------- | - | ------ | ----- |  | - | ------ | - |  | ---- | ----- | - | ----- | - | ----- | - |  | - | ----- | -
|                                                          |  | Increase (Decrease) in Interest |     
|                                                          |  | 2008 vs. 2007                   |      |   | 2007 vs. 2006          |  
|                                                          |  | (Dollars in Thousands)          |      |   | (Dollars in Thousands) |  
|                                                          |  | Due to Change in (1)            |      |   | Due to Change in (1)   |  
|Interest income on:                                       |  | Volume                          |      |   | Rate                   |   |        | Total |  |   | Volume |   |  | Rate |       |   | Total |  
|Loans                                                     |  | $                               | (311 | ) |                        | $ | (4,044 | )     |  | $ | (4,355 | ) |  | $    | 1,585 |   |       | $ | 442   |   |  | $ | 2,027 |  
|Securities available for sale and other equity securities |  |                                 | (199 | ) |                        |   | 308    |       |  |   | 109    |   |  |      | 15    |   |       |   | 466   |   |  |   | 481   |  
|Securities held to maturity                               |  |                                 | 105  |   |                        |   | (13    | )     |  |   | 92     |   |  |      | 75    |   |       |   | (5    | ) |  |   | 70    |  
|Federal funds sold                                        |  |                                 | 178  |   |                        |   | (112   | )     |  |   | 66     |   |  |      | 12    |   |       |   | 5     |   |  |   | 17    |  
|Interest-bearing deposits with banks                      |  |                                 | 196  |   |                        |   | (95    | )     |  |   | 101    |   |  |      | 52    |   |       |   | (2    | ) |  |   | 50    |  
|TOTAL INTEREST INCOME                                     |  |                                 | (31  | ) |                        |   | (3,956 | )     |  |   | (3,987 | ) |  |      | 1,739 |   |       |   | 906   |   |  |   | 2,645 |  
|Interest expense on:                                      |  |                                 |      |   |                        |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Interest-bearing demand deposits                          |  |                                 | 7    |   |                        |   | (314   | )     |  |   | (307   | ) |  |      | (16   | ) |       |   | 78    |   |  |   | 62    |  
|Savings deposits                                          |  |                                 | (1   | ) |                        |   | (240   | )     |  |   | (241   | ) |  |      | (27   | ) |       |   | 87    |   |  |   | 60    |  
|Time deposits                                             |  |                                 | (303 | ) |                        |   | (1,487 | )     |  |   | (1,790 | ) |  |      | 1,139 |   |       |   | 1,218 |   |  |   | 2,357 |  
|Short-term borrowings                                     |  |                                 | 87   |   |                        |   | (398   | )     |  |   | (311   | ) |  |      | (28   | ) |       |   | 2     |   |  |   | (26   | )
|TOTAL INTEREST EXPENSE                                    |  |                                 | (210 | ) |                        |   | (2,439 | )     |  |   | (2,649 | ) |  |      | 1,068 |   |       |   | 1,385 |   |  |   | 2,453 |  
|NET INTEREST INCOME                                       |  | $                               | 179  |   |                        | $ | (1,517 | )     |  | $ | (1,338 | ) |  | $    | 671   |   |       | $ | (479  | ) |  | $ | 192   |  

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



Page 2     First Century Bankshares, Inc.



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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.



Forward-looking Statements



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.



First Century Bankshares, Inc.     Page 3



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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 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 classification.
For those individually significant loans where it is determined that it is not probable that the borrower will make all payments in accordance with the original loan agreement, we perform an impairment analysis. 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 market 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 were not considered in the aforementioned procedures. We segregate the remaining portfolio into consumer, commercial and residential real estate loans, and apply the historical net charge off
percentage of each category 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, loan volume and maturity of the portfolio, national and local economic conditions and the experience, ability and depth of lending management and staff.



Pensions



We have a defined benefit pension plan covering substantially all employees with at least nine months of service
who are at least 201/2years of age. Pension expense is determined by an actuarial valuation based on assumptions that are
evaluated annually 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, 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.



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Balance Sheet Analysis



Loans



AMOUNTS OF LOANS OUTSTANDING



|                                         |  |                        |         |      |   |        
|---------------------------------------- |  | ---------------------- | ------- | ---- | - | -------
|                                         |  | December 31,          
|                                         |  | 2008                   |         | 2007
|                                         |  | (Dollars in Thousands)
|Commercial, financial and agricultural   |  | $                      | 44,966  |      | $ | 46,599 
|Real estateconstruction and development |  |                        | 25,074  |      |   | 18,339 
|Real estatemortgage                     |  |                        | 204,686 |      |   | 209,221
|Installment loans to individuals         |  |                        | 21,894  |      |   | 22,787 
|TOTAL LOANS OUTSTANDING                  |  | $                      | 296,620 |      | $ | 296,946



MATURITY SCHEDULE OF LOANS



|                                         |  |                                         |        |              |   |               |  |       |        |  |   |        
|---------------------------------------- |  | --------------------------------------- | ------ | ------------ | - | ------------- |  | ----- | ------ |  | - | -------
|                                         |  | Remaining maturity at December 31, 2008
|                                         |  | (Dollars in Thousands)                 
|                                         |  | 1 Year or Less                          |        | 1 to 5 Years |   | After 5 Years |  | Total
|Commercial, financial and agricultural   |  | $                                       | 27,357 |              | $ | 14,850        |  | $     | 2,759  |  | $ | 44,966 
|Real estateconstruction and development |  |                                         | 15,172 |              |   | 9,902         |  |       | 0      |  |   | 25,074 
|Real estatemortgage                     |  |                                         | 27,507 |              |   | 100,091       |  |       | 77,088 |  |   | 204,686
|Installment loans to individuals         |  |                                         | 3,275  |              |   | 15,340        |  |       | 3,279  |  |   | 21,894 
|TOTAL                                    |  | $                                       | 73,311 |              | $ | 140,183       |  | $     | 83,126 |  | $ | 296,620
|                                         |  |                                         |        |             
|With predetermined interest rates        |  | $                                       | 20,490 |              | $ | 120,027       |  | $     | 50,653 |  | $ | 191,170
|With floating interest rates             |  |                                         | 52,821 |              |   | 20,156        |  |       | 32,473 |  |   | 105,450
|TOTAL                                    |  | $                                       | 73,311 |              | $ | 140,183       |  | $     | 83,126 |  | $ | 296,620



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 decreased approximately $326,000, or 0.1%, in 2008, following a 1.5% increase of $4,303,000 in 2007. Competition in
our market is very aggressive for the acquisition of new loans. We had an increase in our participation loan portfolio of approximately $7,500,000. We also experienced loan growth from our new expansion into the Beckley, West Virginia market.
However, loan demand was down during 2008 in all of our other markets. We continued to adhere to our philosophy of not retaining long-term fixed-rate commitments in order to better manage our interest rate risk. In order to provide consumers with a
long term option for home financing, we originate and sell mortgages to the Federal National Mortgage Association (Fannie Mae). At December 31, 2008, the loan portfolio comprised 75.3% of total interest-earning assets as compared to 74.4% of
total interest-earning assets at December 31, 2007, and contributed 78.8% of total interest income in 2008, and 83.3% in 2007.



During 2008, 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.



First Century Bankshares, Inc.     Page 5



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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 decreased to an average rate of 6.19% in 2008 compared to 7.57% in 2007. Earnings reflect pressure on the net interest margin arising from the rapid reduction in interest rates by the Federal Reserve in 2008 that resulted in lower
interest income from our variable rate loans. Additionally, one commercial loan was placed in nonaccrual status in the first quarter of 2008 that resulted in a $381,000 interest reversal.



Our commercial loan portfolio is generally diversified and geographically dispersed within the region. At December 31, 2008, we had
concentrations of $20,361,000, or 49.2% of stockholders equity in loans to lessors of residential property, $17,880,000, or 43.2% of stockholders equity in loans to lessors of nonresidential property and $12,744,000, or 30.8% 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 health of the respective industry within the overall economic environment of southern West Virginia and southwestern Virginia, which traditionally has been 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. Rising unemployment and a deepening recession will usually result in higher delinquency rates and other deterioration in this 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 indications 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 $52,623,000 at December 31, 2008, and $65,917,000 at December 31, 2007. This included $9,525,000 and $9,748,000 of commitments
at December 31, 2008 and 2007, respectively, for our overdraft protection product. This also included unfunded loan commitments and unused lines of credit totaling $38,661,000 at December 31, 2008, and $52,033,000 at December 31,
2007. Additionally, standby letters of credit totaled $4,437,000 at December 31, 2008, and $4,136,000 at December 31, 2007. 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.



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The following table details the amount and expected maturities of significant commitments as of December 31, 2008.
Further discussion of these commitments is included in Notes 14 and 15 to the Consolidated Financial Statements.



COMMITMENTS



|                                                                                |  |                        |        |                  |   |                    |  |                 |     |       |   |       |  |   |       
|------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------------------ |  | --------------- | --- | ----- | - | ----- |  | - | ------
|                                                                                |  | One Year or Less       |        | OnetoThree Years |   | Three toFive Years |  | Over Five Years |     | Total
|Unused lines of credit                                                          |  | (Dollars in Thousands)
|Home equity lines                                                               |  | $                      | 370    |                  | $ | 151                |  | $               | 248 |       | $ | 3,748 |  | $ | 4,517 
|Commercial real estate, construction andland development secured by real estate |  |                        | 15,541 |                  |   | 2,394              |  |                 |    |       |   | 2,730 |  |   | 20,665
|Other unused commitments                                                        |  |                        | 23,004 |                  |   |                   |  |                 |    |       |   |      |  |   | 23,004
|Financial standby letters of credit                                             |  |                        | 4,322  |                  |   | 115                |  |                 |    |       |   |      |  |   | 4,437 



NONPERFORMING ASSETS AND LOAN
LOSS ANALYSIS



|                                                            |  |                         |         |   |      |   |         |  
|----------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                            |  | Years EndedDecember 31, |        
|                                                            |  | 2008                    |         |   | 2007 |  
|                                                            |  | (Dollars in Thousands)  |        
|Average amount of loans outstanding                         |  | $                       | 290,928 |   |      | $ | 295,451 |  
|Allowance for loan losses:                                  |  |                         |         |   |      |   |         |  
|Balance at beginning of the year                            |  | $                       | 2,455   |   |      | $ | 2,555   |  
|Loans charged off                                           |  |                         |         |   |      |   |         |  
|Commercial, financial and agricultural                      |  |                         |        |   |      |   | 12      |  
|Real estateconstruction and development                    |  |                         |        |   |      |   | 92      |  
|Real estatemortgage                                        |  |                         | 113     |   |      |   | 33      |  
|Installment loans to individuals                            |  |                         | 302     |   |      |   | 283     |  
|TOTAL LOANS CHARGED OFF                                     |  |                         | 415     |   |      |   | 420     |  
|Loan recoveries                                             |  |                         |         |   |      |   |         |  
|Commercial, financial and agricultural                      |  |                         | 45      |   |      |   |        |  
|Real estatemortgage                                        |  |                         | 78      |   |      |   | 64      |  
|Installment loans to individuals                            |  |                         | 78      |   |      |   | 90      |  
|TOTAL LOAN RECOVERIES                                       |  |                         | 201     |   |      |   | 154     |  
|Net loans charged off                                       |  |                         | (214    | ) |      |   | (266    | )
|Provision for loan losses                                   |  |                         | 449     |   |      |   | 166     |  
|BALANCE AT END OF THE YEAR                                  |  | $                       | 2,690   |   |      | $ | 2,455   |  
|Ratio of net loans charged off to average loans outstanding |  |                         | 0.07    | % |      |   | 0.09    | %
|                                                            |  |                        
|Provision for loan losses as a percent of loans             |  |                         | 0.15    | % |      |   | 0.06    | %
|Allowance at year end as a percent of loans                 |  |                         | 0.91    | % |      |   | 0.83    | %
|Nonperforming assets (at year end)                          |  |                         |         |   |      |   |         |  
|Nonaccrual                                                  |  | $                       | 5,614   |   |      | $ | 1,211   |  
|Pastdue ninety days or more and still accruing             |  |                         | 553     |   |      |   | 711     |  
|Troubled debt restructurings                                |  |                         | 311     |   |      |   | 198     |  
|Other real estate owned                                     |  |                         | 203     |   |      |   | 135     |  
|TOTAL NONPERFORMING ASSETS                                  |  | $                       | 6,681   |   |      | $ | 2,255   |  
|Nonperforming assets/total loans                            |  |                         | 2.3     | % |      |   | 0.8     | %
|Nonperforming assets/total assets                           |  |                         | 1.6     | % |      |   | 0.5     | %



ALLOCATION OF THE ALLOWANCE FOR
LOAN LOSSES



|                                         |  |                        |       |                                                  |        |   |        |   |                                                  |  |        |  
|---------------------------------------- |  | ---------------------- | ----- | ------------------------------------------------ | ------ | - | ------ | - | ------------------------------------------------ |  | ------ | -
|                                         |  | 2008                   |       |                                                  | 2007   |  
|                                         |  | (Dollars in Thousands) |      
|                                         |  | Amount                 |       | Percent of Loans in Each Category to Total Loans |        |   | Amount |   | Percent of Loans in Each Category to Total Loans | 
|Commercial, financial and agricultural   |  | $                      | 463   |                                                  | 15.16  | % |        | $ | 523                                              |  | 15.69  | %
|Real estateconstruction and development |  |                        | 382   |                                                  | 8.45   | % |        |   | 76                                               |  | 6.18   | %
|Real estatemortgage                     |  |                        | 1,402 |                                                  | 69.01  | % |        |   | 1,471                                            |  | 70.46  | %
|Installment loans to individuals         |  |                        | 426   |                                                  | 7.38   | % |        |   | 348                                              |  | 7.67   | %
|Unallocated                              |  |                        | 17    |                                                  | N/A    |   |        |   | 37                                               |  | N/A    |  
|TOTAL                                    |  | $                      | 2,690 |                                                  | 100.00 | % |        | $ | 2,455                                            |  | 100.00 | %



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Nonperforming assets, including nonaccrual
loans, loans past-due 90 days or more, restructured loans and other real estate owned, increased $4,426,000, or 196.3%, from December 31, 2007 to December 31, 2008, following a decrease of $536,000, or 19.2% for 2007. The increase in 2008
is primarily attributable to one commercial loan relationship that went into nonaccrual in the first quarter. We are working with this customer to allow them time to bring a new product to market that we believe will then allow the customer to pay
this loan in full, including all interest and fees due. We anticipate a resolution to this credit during 2009. Without the deterioration of this relationship, nonperforming assets would have only increased approximately 10% for 2008. This also
reflects 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. We may also classify 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
increased to $203,000 at December 31, 2008, compared with $135,000 at December 31, 2007. 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 0.91% of year-end loans at
December 31, 2008 and 0.83% at December 31, 2007. 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 a 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 where 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 $186,000 and $303,000 at December 31 2008 and 2007, 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.



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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, 2008 the reserve for unfunded lending commitments was $10,000 compared to
$8,000 at December 31, 2007. Estimates may change at some point in the future.



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,          
|                                                   |  | 2008                   |        | 2007
|                                                   |  | (Dollars in Thousands)
|Securities available for sale:                     |  |                        |        |      |   |       
|U. S. Government securities                        |  | $                      |       |      | $ | 1,009 
|U. S. Government agency securities                 |  |                        | 42,004 |      |   | 63,195
|U. S. Government agency mortgage-backed securities |  |                        | 29,878 |      |   | 16,588
|Other securities                                   |  |                        | 967    |      |   | 1,971 
|TOTAL SECURITIES AVAILABLE FOR SALE                |  | $                      | 72,849 |      | $ | 82,763
|Securities held to maturity:                       |  |                        |        |      |   |       
|State, county and municipal securities             |  | $                      | 17,286 |      | $ | 18,156
|Other securities                                   |  |                        |       |      |   |      
|TOTAL SECURITIES HELD TO MATURITY                  |  | $                      | 17,286 |      | $ | 18,156



MATURITIES OF SECURITIES



The following table shows the contractual maturities of debt
securities at December 31, 2008 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. Government agency securities                 |  | $                      | 8,253 |       | 4.05                          | % |        | $                             | 26,589 |  | 4.50            | %      |  | $     | 7,162  |  | 4.59   | % |       | $ |       |        | 0.00 | %     |  | $ | 42,004 |  | 4.43 | %
|U. S. Government agency mortgage-backed securities |  |                        | 334   |       | 4.07                          | % |        |                               | 4,516  |  | 4.64            | %      |  |       | 10,436 |  | 4.88   | % |       |   | 14,592 |        | 4.99 | %     |  |   | 29,878 |  | 4.89 | %
|Other securities                                   |  |                        |      |       | 0.00                          | % |        |                               | 967    |  | 4.57            | %      |  |       |       |  | 0.00   | % |       |   |       |        | 0.00 | %     |  |   | 967    |  | 4.57 | %
|TOTAL SECURITIES AVAILABLE FOR SALE                |  | $                      | 8,587 |       | 4.05                          | % |        | $                             | 32,072 |  | 4.52            | %      |  | $     | 17,598 |  | 4.76   | % |       | $ | 14,592 |        | 4.99 | %     |  | $ | 72,849 |  | 4.62 | %
|Securities held to maturity:                       |  |                        |       |       |                               |   |        |                               |        |  |                 |        |  |       |        |  |        |   |       |   |        |        |      |       |  |   |        |  |      |  
|State, county and municipal securities             |  | $                      | 3,231 |       | 4.77                          | % |        | $                             | 7,085  |  | 6.01            | %      |  | $     | 3,875  |  | 5.41   | % |       | $ | 3,095  |        | 5.72 | %     |  | $ | 17,286 |  | 5.59 | %
|TOTAL SECURITIES HELD TO MATURITY                  |  | $                      | 3,231 |       | 4.77                          | % |        | $                             | 7,085  |  | 6.01            | %      |  | $     | 3,875  |  | 5.41   | % |       | $ | 3,095  |        | 5.72 | %     |  | $ | 17,286 |  | 5.59 | %



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



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##### Table of Contents





During 2008, securities, our second largest category of assets, decreased by $10,784,000 or 10.7%. At December 31, 2008, securities comprised 22.9% of total interest-earning assets compared to 25.6% of total
interest-earning assets at December 31, 2007. 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. In order to maintain
liquidity and flexibility, we categorize most investments in the available for sale portfolio. We typically purchase U.S. Government agency securities in order to maintain the maximum liquidity of the portfolio. We have not purchased any of the
preferred stocks or private label mortgage products that have resulted in impairment charges for other financial companies. We believe that the potential for increased loan demand as we expand our market footprint requires maintaining adequate
liquidity in the securities portfolio.



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 $158,000 at December 31, 2008, compared to $20,000 at December 31, 2007. The
held to maturity portfolio decreased to $17,286,000 at December 31, 2008, from $18,156,000 at December 31, 2007. State and municipal securities contained no individual issues in excess of 10% of stockholders equity.



No gains or losses were realized from the sale of securities in 2008 or 2007.



At December 31, 2008, we held two investments having continuous unrealized loss
positions for more than 12 months totaling $667,000. Both of these investments were West Virginia county obligations, the cash flows of which are guaranteed by the respective counties. 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 recent market conditions 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, decreased approximately $4,724,000 in 2008, following an increase of $5,400,000 in 2007. Noninterest-bearing deposits increased $8,693,000 in 2008, following an increase of $453,000 in 2007. This increase in noninterest-bearing deposits
allowed us the opportunity to not be as aggressive for higher priced certificates of deposit, providing future relief to the net interest margin. The average rate paid on interest-bearing deposits in 2008 was 2.38% and 3.06% in 2007. 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



|                                    |  |              |                        |              |       |        |   |         |  |      
|----------------------------------- |  | ------------ | ---------------------- | ------------ | ----- | ------ | - | ------- |  | -----
|                                    |  | 2008 Average |                        | 2007 Average
|                                    |  | Amount       |                        | Rate         |       | Amount |   | Rate   
|                                    |  |              | (Dollars in Thousands)
|Noninterestbearing demand deposits |  | $            | 54,288                 |              | N/A   |        | $ | 45,794  |  | N/A  
|Interestbearing demand deposits    |  |              | 75,056                 |              | 0.40% |        |   | 73,923  |  | 0.82%
|Savings deposits                    |  |              | 56,026                 |              | 0.64% |        |   | 56,156  |  | 1.06%
|Time deposits                       |  |              | 183,041                |              | 3.73% |        |   | 190,391 |  | 4.52%
|TOTAL AVERAGE DEPOSITS              |  | $            | 368,411                |              | 2.03% |        | $ | 366,264 |  | 2.68%



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, 2008     
|                                                  |  | (Dollars in Thousands)
|Under 3 months                                    |  | $                      | 13,631
|3 to 6 months                                     |  |                        | 12,738
|6 to 12 months                                    |  |                        | 11,461
|Over 12 months                                    |  |                        | 9,869 
|TOTAL CERTIFICATES OF DEPOSIT OF $100,000 OR MORE |  | $                      | 47,699



SHORT-TERM BORROWED FUNDS



|                                                                           |  |                        |        |      |   |       
|-------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------
|                                                                           |  | December 31,          
|                                                                           |  | 2008                   |        | 2007
|                                                                           |  | (Dollars in Thousands)
|Federal funds purchased and securities sold under agreements to repurchase |  | $                      | 22,632 |      | $ | 27,682
|Other borrowed funds                                                       |  |                        | 26     |      |   | 26    
|TOTAL BORROWED FUNDS                                                       |  | $                      | 22,658 |      | $ | 27,708



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:



|                                             |  |      |        |      |   |       
|-------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                             |  | 2008 |        | 2007
|Average interest rates at December 31        |  |      | 1.25%  |      |   | 3.38% 
|Maximum amounts outstanding at any month-end |  | $    | 24,778 |      | $ | 27,682
|Average daily amount outstanding             |  | $    | 21,534 |      | $ | 18,177
|Weighted average interest rates              |  |      | 1.58%  |      |   | 3.58% 



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 2008 to $1.11 per share, an increase of 0.9%, from the $1.10 per share paid in 2007. Cash dividends paid to stockholders during 2008 totaled $2,116,000 and $2,136,000 in 2007. This represents a dividend pay out ratio
(dividends divided by net income) of 58% in 2008 and 46% in 2007. 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.



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One of our primary objectives is to maintain
a strong capital position. Stockholders equity increased $960,000 or 2.4% in 2008. This increase resulted primarily from an increase in retained earnings of $1,569,000. Additionally, during 2008 we acquired 7,684 treasury shares for a total of
$161,000 through our stock repurchase program. At December 31, 2008, we had approval to repurchase 9,572 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 2008 and 2007 was 42% and 54%, 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 3.8% in 2008 and 6.4% in
2007.



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 $38,143,000 at December 31, 2008, or 12.42% of total risk-weighted assets, compared to $35,615,000 at December 31, 2007, or 11.45% 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
$2,700,000 at December 31, 2008, or 0.88% of total risk-weighted assets, compared to $2,463,000 at December 31, 2007, or 0.79% of total risk-weighted assets. Our total consolidated risk-based capital was $40,843,000 at December 31,
2008, or 13.30% of total risk-weighted assets, compared to $38,078,000, or 12.24% of total risk-weighted assets as of December 31, 2007. 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, 2008 and 2007, the Corporations leverage ratio was 8.93% and 8.33% respectively; therefore, we exceeded all current minimum capital requirements.



As a result of the strong capital position of the Corporation, along with
other general concerns for government intervention in the day-to-day operations of the Corporation, we chose to not participate in the U.S. Governments Troubled Asset Relief Program (TARP) or the Capital Purchase Program (CPP).



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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 rate 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, 2008, simulation indicated the
impact of a 200 basis point increase in rates would result in a 6.2% increase in net interest income, while a 200 basis point decline in rates would result in a 10.4% decrease in net interest income from an unchanged rate environment. These changes
fall within our policy limits for the maximum negative impact to net interest income from a change in interest rates.



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ANALYSIS OF INTEREST RATE SENSITIVITY



An analysis of interest rate sensitivity as of December 31, 2008,
is shown below.



|                                                                    |  |                        |         |   |        |   |         |        |  |   |         |   |  |   |          |   |  |   |        
|------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------ | - | ------- | ------ |  | - | ------- | - |  | - | -------- | - |  | - | -------
|                                                                    |  | Months                 |         |   | Years  |   |         | Totals
|                                                                    |  | Less Than 3            |         |   | 3  12 |   |         | 1  5  |  |   | Over 5  |   | 
|                                                                    |  | (Dollars in Thousands) |         |   |       
|Investment securities                                               |  | $                      | 3,365   |   |        | $ | 8,452   |        |  | $ | 39,158  |   |  | $ | 40,795   |   |  | $ | 91,770 
|Federal funds sold and interest-bearingbalances with banks          |  |                        | 4,551   |   |        |   |        |        |  |   | 1,000   |   |  |   |         |   |  |   | 5,551  
|Loans                                                               |  |                        | 118,730 |   |        |   | 61,528  |        |  |   | 100,076 |   |  |   | 16,286   |   |  |   | 296,620
|Interest-earning assets                                             |  |                        | 126,646 |   |        |   | 69,980  |        |  |   | 140,234 |   |  |   | 57,081   |   |  |   | 393,941
|Time deposits                                                       |  |                        | 47,461  |   |        |   | 93,089  |        |  |   | 33,781  |   |  |   |         |   |  |   | 174,331
|Other interest-bearing deposits                                     |  |                        | 56,202  |   |        |   | 28,101  |        |  |   | 45,799  |   |  |   |         |   |  |   | 130,102
|Other interest-bearing liabilities                                  |  |                        | 17,494  |   |        |   | 138     |        |  |   | 5,000   |   |  |   | 26       |   |  |   | 22,658 
|Interest-bearing liabilities                                        |  |                        | 121,157 |   |        |   | 121,328 |        |  |   | 84,580  |   |  |   | 26       |   |  |   | 327,091
|Interest sensitivity gap                                            |  | $                      | 5,489   |   |        | $ | (51,348 | )      |  | $ | 55,654  |   |  | $ | 57,055   |   |  | $ | 66,850 
|Cumulative interest sensitivity gap                                 |  | $                      | 5,489   |   |        | $ | (45,859 | )      |  | $ | 9,795   |   |  | $ | 66,850   |   |  |   |        
|Ratio of interest-earning assets tointerest-bearing liabilities     |  |                        | 1.05    | x |        |   | 0.58    | x      |  |   | 1.66    | x |  |   | 2,195.42 | x |  |   |        
|Ratio of cumulative interest sensitivitygap to total earning assets |  |                        | 1.39    | % |        |   | (11.64  | )%     |  |   | 2.49    | % |  |   | 16.97    | % |  |   |        



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 $5,215,000 of liquidity for the year ended December 31, 2008, compared to
$5,992,000 in 2007. 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 2008, cash flows from financing activities decreased $12,041,000, primarily due to
decreases in time deposits of $16,866,000 and short-term borrowings of $5,050,000. These funds were partially offset by additional demand and savings deposits of $12,142,000.



A secondary source of liquidity comes from investing activities, principally the maturities of investment securities. With the falling
interest rate environment during 2008, maturities and calls of investment securities increased to $56,656,000, compared to $31,851,000 in 2007. This rapid flow of liquidity allowed us to reallocate a portion of the available for sale portfolio into
U.S. Government agency mortgage-backed securities which enhanced the yield in the portfolio and will provide additional liquidity with future monthly payments. As of December 31, 2008, we had approximately $27,260,000 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 corre-



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spondent bank, Silverton Bank, Atlanta, GA. As of December 31, 2008, FCBNA had a maximum borrowing capacity exceeding $150,000,000 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, 2008, FCBNA owned $1,252,500 of stock and
had nothing outstanding on our overnight repo account. We had no other outstanding advances from the Federal Home Loan Bank of Pittsburgh as of December 31, 2008.



At December 31, 2008, we had no 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 has traditionally required its members to exhaust other sources of liquidity before seeking advances, however, the Federal Reserve has become more of a liquidity provider for the banking system. Any
borrowings from the Federal Reserve Bank of Richmond would require us to pledge assets of FCBNA as collateral. We had no outstanding borrowings from the Federal Reserve Bank of Richmond at December 31, 2008.



Income Statement Analysis



Earnings Overview



Net income for the two years ended December 31, 2008 and 2007, was $3,685,000 and $4,688,000, respectively. On a per share basis, diluted net income was $1.93 in
2008 compared to $2.39 in 2007. Return on average equity was 8.96% in 2008 compared to 11.79% in 2007. Return on average assets for the year ended December 31, 2008 was 0.85% compared to 1.10% in 2007. 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 2008. 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  2007           |  | $ | 2.40  |  
|Increase (decrease) due to change in: |  |   |       |  
|Net interest income                   |  |   | (0.69 | )
|Provision for loan losses             |  |   | (0.14 | )
|Other operating income                |  |   | 0.01  |  
|Personnel expense                     |  |   | 0.08  |  
|Other expense                         |  |   | 0.27  |  
|Net income per share  2008           |  | $ | 1.93  |  



First Century Bankshares, Inc.     Page 15



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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 2008 net interest income decreased $1,338,000 or 8.2%. This followed a 1.2% increase in 2007. Net interest income resulted in a net interest margin
to earning assets ratio of 3.75% for 2008, compared with 4.12% for 2007.



For
the year ended December 31, 2008, interest income decreased $3,987,000, or approximately 14.9%, compared to an increase of $2,645,000, or 10.9% for 2007. Interest on loans decreased $4,355,000 or 19.5% during 2008. Interest on securities
increased $201,000, or 4.6% for 2008, following an increase of 551,000, or 14.5% for 2007. Interest income reflects a yield on average earnings assets of 5.74% for 2008, compared with 6.75% for 2007.



The decrease in interest income was accompanied by a decrease in interest expense of
$2,649,000 or 25.3% for 2008. This followed an increase in interest expense of $2,453,000, or 30.6% for 2007. Interest expense reflects a cost on average interest-bearing liabilities of 2.33% for 2008, compared with 3.09% for 2007.



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. Earnings reflect pressure on the net interest margin arising from the rapid reduction in
interest rates by the Federal Reserve in 2008 that resulted in lower interest income from our variable rate loans. This reduction was not completely offset by lower interest expense as many certificates of deposit remained at previously higher
rates, pending the opportunity to renew. Additionally, as previously mentioned, one larger commercial loan was placed in nonaccrual status in the first quarter of 2008 that resulted in a $381,000 accrued interest reversal.



Provision for Loan Losses



We experienced a $283,000 increase in the provision for loan losses during 2008. The provision for loan losses was $449,000 for 2008,
compared to $166,000 for 2007. The provision for loan losses as a percentage of average loans was 0.15% for 2008, compared with 0.06% for 2007. Charge-offs decreased $5,000, or 1.2% during 2008. Additionally, recoveries of previous charge-offs were
up $47,000, or 30.5% in 2008. The ratio of net charge offs to average loans outstanding was 0.07% for 2008, compared with 0.09% for 2007. Additional reserves in excess of net charge-offs of $235,000 were added to the allowance for loan losses in
2008, reflecting deterioration in the national economy and the potential effects this will have in our local markets.



Noninterest Income and Expense



Noninterest income net of securities gains and losses remained relatively stable in 2008, increasing $8,000 or 0.2%, following a $35,000 or 0.7% increase in 2007. The
largest component of noninterest income is service charges on deposit accounts. These fees decreased approximately $40,000 or 2.1% in 2008, following a decrease of $8,000 or 0.4% in 2007. Fierce competition exists in our local markets for free
checking type products. Additionally, the income from our overdraft protection product has leveled from the rapid in-



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creases we experienced earlier in the product life cycle. The second largest component of noninterest income is fees from fiduciary activities. Fees from
fiduciary activities remained flat in 2008, following a decrease of $80,000 in 2007. 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. Investment performance across all sectors dramatically reduced the values of assets under management. This will likely have a negative affect on fiduciary fees in 2009.



Noninterest expense, excluding the provision for loan losses, decreased 1.4% in 2008,
following a 0.6% increase in 2007. Personnel expense is the largest component of noninterest expense. Personnel expense decreased 2.0% in 2008, following a decrease of 1.7% in 2007. For a complete discussion of our employee benefit programs, refer
to Note 11 of the Notes to Consolidated Financial Statements, presented elsewhere in this report. Premises and equipment expense increased 9.5% in 2008 with the opening of our new facility in Beckley, West Virginia, and due to higher costs for
maintenance contracts.



Income Taxes



Applicable income taxes for 2008 decreased $418,000 or 17.2%. This followed a $29,000 or 1.2%
increase for 2007. This reflected an effective income tax rate of 35.3% for 2008 and 34.1% for 2007. 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 12 of the Notes to Consolidated Financial Statements, presented elsewhere in this report.

RETURN ON EQUITY AND ASSETS



|                                                                                |  |              |   |  |       |  
|------------------------------------------------------------------------------- |  | ------------ | - |  | ----- | -
|                                                                                |  | December 31, |  
|                                                                                |  | 2008         |   |  | 2007  |  
|Percentage of net income to:                                                    |  |              |   |  |       |  
|Average stockholders equity                                                    |  | 8.96         | % |  | 11.79 | %
|Average total assets                                                            |  | 0.85         | % |  | 1.10  | %
|Percentage of dividends declared per common share to net incomeper common share |  | 57.51        | % |  | 45.83 | %
|Percentage of average stockholders equity to average total assets              |  | 9.55         | % |  | 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, its 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.



First Century Bankshares, Inc.     Page 17



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Accounting, Legislative and Regulatory Matters



In September 2006, the FASB issued Statement of Financial Accounting
Standard (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair
value measurements. This standard eliminates inconsistencies found in various prior pronouncements but does not require any new fair value measurements. SFAS No. 157 was effective for the Company on January 1, 2008 for financial assets and
liabilities and did not impact the Companys accounting measurements but it is ultimately expected to result in additional disclosures. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, permitting entities to delay
application of SFAS 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis
(at least annually). Beginning January 1, 2009, we will apply SFAS 157 fair value requirements to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed on a recurring basis.



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). This statement permits, but does not require, entities to measure many financial instruments at fair value. The
objective is to provide entities with an opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Entities electing this
option will apply it when the entity first recognizes an eligible instrument and will report unrealized gains and losses on such instruments in current earnings. This statement 1) applies to all entities, 2) specifies certain election dates, 3) can
be applied on an instrument-by-instrument basis with some exceptions, 4) is irrevocable and 5) applies only to entire instruments. One exception is demand deposit liabilities which are explicitly excluded as qualifying for fair value. SFAS 159 was
effective for the Company on January 1, 2008. Adoption of SFAS 159 did not have a material impact on the financial position, results of operations or cash flows of the Company.



In November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109, Written Loan
Commitments Recorded at Fair Value Through Earnings (SAB 109). SAB 109 expresses the current view of the SEC staff that the expected net future cash flows related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value through earnings. SEC registrants are expected to apply this guidance on a prospective basis to derivative loan commitments issued or modified in the first quarter of
2008 and thereafter. The application of SAB 109 did not have a material impact on the financial position, results of operations or cash flows of the Company.



In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, (SFAS 141(R)) which replaces SFAS 141. SFAS 141(R) establishes
principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures goodwill
acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141(R) is
effective for acquisitions by the Company taking place on or



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after January 1, 2009. Early adoption is prohibited. Accordingly, a calendar year-end company is required to record and disclose business combinations
following existing accounting guidance until January 1, 2009. The Company will assess the impact of SFAS 141(R) if and when a future acquisition occurs.



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company on January 1,
2009. Earlier adoption is prohibited. The Company is currently evaluating the impact, if any, the adoption of SFAS 160 will have on its consolidated financial statements.



Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a
material impact on the Companys financial position, results of operations and cash flows.



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 2008 and 2007. Also presented
below are the dividends paid for those respective years. The number of stockholders of record on December 31, 2008, was 461 and outstanding shares totaled 1,903,120.



PER SHARE DATA BY QUARTER



|               |  |           |      |      |   |                   |  |     |       |      |   |       |  |   |       |  |   |      
|-------------- |  | --------- | ---- | ---- | - | ----------------- |  | --- | ----- | ---- | - | ----- |  | - | ----- |  | - | -----
|               |  |           |      |      |   | Market Quotations
|               |  | Dividends |      | 2008 |   | 2007             
|Quarter        |  | 2008      |      | 2007 |   | High              |  | Low |       | High |   | Low  
|First Quarter  |  | $         | 0.27 |      | $ | 0.26              |  | $   | 25.75 |      | $ | 22.00 |  | $ | 28.50 |  | $ | 26.50
|Second Quarter |  |           | 0.27 |      |   | 0.26              |  |     | 23.90 |      |   | 18.50 |  |   | 28.95 |  |   | 25.50
|Third Quarter  |  |           | 0.27 |      |   | 0.27              |  |     | 21.00 |      |   | 18.60 |  |   | 28.00 |  |   | 25.50
|Fourth Quarter |  |           | 0.30 |      |   | 0.31              |  |     | 19.75 |      |   | 14.70 |  |   | 25.75 |  |   | 20.80



First Century Bankshares, Inc.     Page 19



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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.



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CONDENSED STATEMENTS OF FINANCIAL CONDITION

Statistical Summary, 2008  2004



|                                     |  |                                               |         |   |   |     |   |      |   |         |   |  |     |      |  |   |         |   |  |      |   |  |   |         |   |      |     |   |   |   |         |   |  |     |  
|------------------------------------ |  | --------------------------------------------- | ------- | - | - | --- | - | ---- | - | ------- | - |  | --- | ---- |  | - | ------- | - |  | ---- | - |  | - | ------- | - | ---- | --- | - | - | - | ------- | - |  | --- | -
|                                     |  | December 31,                                  |        
|                                     |  | 2008                                          |         |   | % |     |   | 2007 |   |         | % |  |     | 2006 |  |   | %       |   |  | 2005 |   |  | % |         |   | 2004 |     |   | % |  
|                                     |  | (Dollars in Thousands, Except Per Share Data) |        
|Loans                                |  | $                                             | 296,620 |   |   | 70  |   |      | $ | 296,946 |   |  | 68  |      |  | $ | 292,643 |   |  | 71   |   |  | $ | 257,732 |   |      | 66  |   |   | $ | 247,808 |   |  | 66  |  
|Securities                           |  |                                               | 91,770  |   |   | 22  |   |      |   | 102,349 |   |  | 24  |      |  |   | 88,127  |   |  | 22   |   |  |   | 99,101  |   |      | 25  |   |   |   | 94,152  |   |  | 25  |  
|Federal funds sold                   |  |                                               | 3,500   |   |   | 1   |   |      |   |        |   |  |    |      |  |   |        |   |  |     |   |  |   |        |   |      |    |   |   |   | 4,000   |   |  | 1   |  
|Interestbearing deposits with banks |  |                                               | 2,051   |   |   |    |   |      |   | 65      |   |  |    |      |  |   | 50      |   |  |     |   |  |   | 6       |   |      |    |   |   |   | 3,042   |   |  | 1   |  
|INTEREST-EARNING ASSETS              |  |                                               | 393,941 |   |   | 93  |   |      |   | 399,360 |   |  | 92  |      |  |   | 380,820 |   |  | 93   |   |  |   | 356,839 |   |      | 91  |   |   |   | 349,002 |   |  | 93  |  
|Cash and due from banks              |  |                                               | 10,908  |   |   | 3   |   |      |   | 13,462  |   |  | 3   |      |  |   | 10,162  |   |  | 2    |   |  |   | 14,293  |   |      | 4   |   |   |   | 9,974   |   |  | 3   |  
|Premises and equipment               |  |                                               | 14,354  |   |   | 3   |   |      |   | 13,385  |   |  | 3   |      |  |   | 12,202  |   |  | 3    |   |  |   | 11,816  |   |      | 3   |   |   |   | 12,268  |   |  | 3   |  
|Other assets                         |  |                                               | 9,181   |   |   | 2   |   |      |   | 10,127  |   |  | 3   |      |  |   | 10,319  |   |  | 3    |   |  |   | 10,502  |   |      | 3   |   |   |   | 9,735   |   |  | 2   |  
|Allowance for loan losses            |  |                                               | (2,690  | ) |   | (1  | ) |      |   | (2,455  | ) |  | (1  | )    |  |   | (2,555  | ) |  | (1   | ) |  |   | (2,661  | ) |      | (1  | ) |   |   | (2,900  | ) |  | (1  | )
|TOTAL ASSETS                         |  | $                                             | 425,694 |   |   | 100 |   |      | $ | 433,879 |   |  | 100 |      |  | $ | 410,948 |   |  | 100  |   |  | $ | 390,789 |   |      | 100 |   |   | $ | 378,079 |   |  | 100 |  
|Savings deposits                     |  | $                                             | 130,102 |   |   | 30  |   |      | $ | 126,653 |   |  | 29  |      |  | $ | 128,987 |   |  | 31   |   |  | $ | 137,415 |   |      | 35  |   |   | $ | 146,744 |   |  | 39  |  
|Time deposits                        |  |                                               | 174,331 |   |   | 41  |   |      |   | 191,197 |   |  | 44  |      |  |   | 183,916 |   |  | 45   |   |  |   | 144,731 |   |      | 37  |   |   |   | 129,420 |   |  | 34  |  
|Other interestbearing liabilities   |  |                                               | 22,658  |   |   | 5   |   |      |   | 27,708  |   |  | 7   |      |  |   | 12,674  |   |  | 3    |   |  |   | 19,682  |   |      | 5   |   |   |   | 18,973  |   |  | 5   |  
|INTEREST-BEARING LIABILITIES         |  |                                               | 327,091 |   |   | 76  |   |      |   | 345,558 |   |  | 80  |      |  |   | 325,577 |   |  | 79   |   |  |   | 301,828 |   |      | 77  |   |   |   | 295,137 |   |  | 78  |  
|Demand deposits                      |  |                                               | 53,598  |   |   | 13  |   |      |   | 44,905  |   |  | 10  |      |  |   | 44,452  |   |  | 11   |   |  |   | 50,645  |   |      | 13  |   |   |   | 45,087  |   |  | 12  |  
|Other liabilities                    |  |                                               | 3,640   |   |   | 1   |   |      |   | 3,011   |   |  | 1   |      |  |   | 2,487   |   |  | 1    |   |  |   | 2,363   |   |      | 1   |   |   |   | 2,066   |   |  | 1   |  
|TOTAL LIABILITIES                    |  |                                               | 384,329 |   |   | 90  |   |      |   | 393,474 |   |  | 91  |      |  |   | 372,516 |   |  | 91   |   |  |   | 354,836 |   |      | 91  |   |   |   | 342,290 |   |  | 91  |  
|STOCKHOLDERS EQUITY                 |  |                                               | 41,365  |   |   | 10  |   |      |   | 40,405  |   |  | 9   |      |  |   | 38,432  |   |  | 9    |   |  |   | 35,953  |   |      | 9   |   |   |   | 35,789  |   |  | 9   |  
|TOTAL LIABILITIES & EQUITY           |  | $                                             | 425,694 |   |   | 100 |   |      | $ | 433,879 |   |  | 100 |      |  | $ | 410,948 |   |  | 100  |   |  | $ | 390,789 |   |      | 100 |   |   | $ | 378,079 |   |  | 100 |  
|TOTAL DEPOSITS                       |  | $                                             | 358,031 |   |   |     |   |      | $ | 362,755 |   |  |     |      |  | $ | 357,355 |   |  |      |   |  | $ | 332,791 |   |      |     |   |   | $ | 321,251 |   |  |     |  
|BOOK VALUE PER SHARE                 |  | $                                             | 21.74   |   |   |     |   |      | $ | 21.16   |   |  |     |      |  | $ | 19.58   |   |  |      |   |  | $ | 18.36   |   |      |     |   |   | $ | 17.98   |   |  |     |  



SUMMARY OF OPERATIONS

Statistical Summary, 2008  2004



|                           |  |                                               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|-------------------------- |  | --------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                           |  | Years Ended December 31,                      |       
|                           |  | 2008                                          |        |   | 2007 |   |        | 2006 |  |   | 2005   |   |  | 2004 |       
|                           |  | (Dollars in Thousands, Except Per Share Data) |       
|Interest income            |  | $                                             | 22,851 |   |      | $ | 26,838 |      |  | $ | 24,193 |   |  | $    | 20,418 |   |  | $ | 17,871 |  
|Interest expense           |  |                                               | 7,816  |   |      |   | 10,465 |      |  |   | 8,012  |   |  |      | 4,897  |   |  |   | 3,500  |  
|NET INTEREST MARGIN        |  |                                               | 15,035 |   |      |   | 16,373 |      |  |   | 16,181 |   |  |      | 15,521 |   |  |   | 14,371 |  
|Provision for loan losses  |  |                                               | 449    |   |      |   | 166    |      |  |   | 80     |   |  |      | 434    |   |  |   | 224    |  
|Net credit margin          |  |                                               | 14,586 |   |      |   | 16,207 |      |  |   | 16,101 |   |  |      | 15,087 |   |  |   | 14,147 |  
|Noninterest income         |  |                                               | 4,793  |   |      |   | 4,785  |      |  |   | 4,584  |   |  |      | 4,337  |   |  |   | 3,734  |  
|Noninterest expense        |  |                                               | 13,683 |   |      |   | 13,875 |      |  |   | 13,796 |   |  |      | 13,276 |   |  |   | 13,222 |  
|INCOME BEFORE INCOME TAXES |  |                                               | 5,696  |   |      |   | 7,117  |      |  |   | 6,889  |   |  |      | 6,148  |   |  |   | 4,659  |  
|Provision for income taxes |  |                                               | 2,011  |   |      |   | 2,429  |      |  |   | 2,400  |   |  |      | 2,144  |   |  |   | 1,604  |  
|NET INCOME                 |  | $                                             | 3,685  |   |      | $ | 4,688  |      |  | $ | 4,489  |   |  | $    | 4,004  |   |  | $ | 3,055  |  
|EARNINGS PER COMMON SHARE: |  |                                               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Basic                      |  | $                                             | 1.93   |   |      | $ | 2.40   |      |  | $ | 2.29   |   |  | $    | 2.03   |   |  | $ | 1.53   |  
|Diluted                    |  | $                                             | 1.93   |   |      | $ | 2.39   |      |  | $ | 2.28   |   |  | $    | 2.02   |   |  | $ | 1.53   |  
|Dividends per common share |  | $                                             | 1.11   |   |      | $ | 1.10   |      |  | $ | 1.05   |   |  | $    | 1.00   |   |  | $ | 0.88   |  
|Payout ratio               |  |                                               | 58     | % |      |   | 46     | %    |  |   | 46     | % |  |      | 49     | % |  |   | 58     | %



First Century Bankshares, Inc.     Page 21



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##### Table of Contents

Consolidated

Statements of Financial Condition



|                                                                                                                                                                                                                              |  |                                              |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                              |  | December 31,                                 |        
|                                                                                                                                                                                                                              |  | 2008                                         |         |   | 2007 |  
|ASSETS                                                                                                                                                                                                                        |  | (Dollars in Thousands,Except Per Share Data) |        
|Cash and due from banks                                                                                                                                                                                                       |  | $                                            | 10,908  |   |      | $ | 13,462  |  
|Interest-bearing balances with banks                                                                                                                                                                                          |  |                                              | 2,051   |   |      |   | 65      |  
|Federal funds sold                                                                                                                                                                                                            |  |                                              | 3,500   |   |      |   |        |  
|Securities available for sale                                                                                                                                                                                                 |  |                                              | 72,849  |   |      |   | 82,763  |  
|Securities held to maturity (estimated fair value of $17,444in 2008 and $18,176 in 2007)                                                                                                                                      |  |                                              | 17,286  |   |      |   | 18,156  |  
|Federal Home Loan Bank and Federal Reserve Bank Stock                                                                                                                                                                         |  |                                              | 1,635   |   |      |   | 1,430   |  
|Loans                                                                                                                                                                                                                         |  |                                              | 296,620 |   |      |   | 296,946 |  
|Less allowance for loan losses                                                                                                                                                                                                |  |                                              | 2,690   |   |      |   | 2,455   |  
|Net loans                                                                                                                                                                                                                     |  |                                              | 293,930 |   |      |   | 294,491 |  
|Premises and equipment, net                                                                                                                                                                                                   |  |                                              | 14,354  |   |      |   | 13,385  |  
|Other real estate owned                                                                                                                                                                                                       |  |                                              | 203     |   |      |   | 135     |  
|Goodwill                                                                                                                                                                                                                      |  |                                              | 5,183   |   |      |   | 5,183   |  
|Other assets                                                                                                                                                                                                                  |  |                                              | 3,795   |   |      |   | 4,809   |  
|TOTAL ASSETS                                                                                                                                                                                                                  |  | $                                            | 425,694 |   |      | $ | 433,879 |  
|                                                                                                                                                                                                                              |  |                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                          |  |                                              |         |   |      |   |         |  
|Deposits:                                                                                                                                                                                                                     |  |                                              |         |   |      |   |         |  
|Noninterest-bearing                                                                                                                                                                                                           |  | $                                            | 53,598  |   |      | $ | 44,905  |  
|Interest-bearing                                                                                                                                                                                                              |  |                                              | 304,433 |   |      |   | 317,850 |  
|Total deposits                                                                                                                                                                                                                |  |                                              | 358,031 |   |      |   | 362,755 |  
|Short-term borrowings                                                                                                                                                                                                         |  |                                              | 22,658  |   |      |   | 27,708  |  
|Other liabilities                                                                                                                                                                                                             |  |                                              | 3,640   |   |      |   | 3,011   |  
|TOTAL LIABILITIES                                                                                                                                                                                                             |  |                                              | 384,329 |   |      |   | 393,474 |  
|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, 2008 and 2007;1,903,120 shares outstanding at December 31, 2008,
and1,909,792 shares outstanding at December 31, 2007 |  |                                              | 2,500   |   |      |   | 2,500   |  
|Paid-in capital                                                                                                                                                                                                               |  |                                              | 757     |   |      |   | 772     |  
|Retained earnings                                                                                                                                                                                                             |  |                                              | 41,239  |   |      |   | 39,670  |  
|Accumulated other comprehensive income, net of tax                                                                                                                                                                            |  |                                              | (851    | ) |      |   | (393    | )
|Treasury stock, at cost; 96,880 shares at December 31, 2008 and                                                                                                                                                               |  |                                              |         |   |      |   |         |  
|90,208 shares at December 31, 2007                                                                                                                                                                                            |  |                                              | (2,280  | ) |      |   | (2,144  | )
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                                                                    |  |                                              | 41,365  |   |      |   | 40,405  |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                    |  | $                                            | 425,694 |   |      | $ | 433,879 |  



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



Page 22     First Century Bankshares, Inc.



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##### Table of Contents

Consolidated

Statements of Income



|                                                                                      |  |                                              |           |      |   |          
|------------------------------------------------------------------------------------- |  | -------------------------------------------- | --------- | ---- | - | ---------
|                                                                                      |  | Years EndedDecember 31,                     
|                                                                                      |  | 2008                                         |           | 2007
|INTEREST INCOME                                                                       |  | (Dollars in Thousands,Except Per Share Data)
|Interest and fees on loans                                                            |  | $                                            | 18,008    |      | $ | 22,363   
|Interest on balances with banks                                                       |  |                                              | 165       |      |   | 64       
|Interest and dividends from securities available for sale:                            |  |                                              |           |      |   |          
|Taxable                                                                               |  |                                              | 3,870     |      |   | 3,761    
|Interest and dividends from securities held to maturity:                              |  |                                              |           |      |   |          
|Taxable                                                                               |  |                                              | 54        |      |   | 56       
|Tax-exempt                                                                            |  |                                              | 632       |      |   | 538      
|Interest on federal funds sold                                                        |  |                                              | 122       |      |   | 56       
|TOTAL INTEREST INCOME                                                                 |  |                                              | 22,851    |      |   | 26,838   
|INTEREST EXPENSE                                                                      |  |                                              |           |      |   |          
|Interest on time certificates of $100,000 or more                                     |  |                                              | 1,772     |      |   | 2,198    
|Interest on other deposits                                                            |  |                                              | 5,703     |      |   | 7,615    
|Interest on federal funds purchased and securitiessold under agreements to repurchase |  |                                              | 336       |      |   | 539      
|Interest on other short-term borrowings                                               |  |                                              | 5         |      |   | 113      
|TOTAL INTEREST EXPENSE                                                                |  |                                              | 7,816     |      |   | 10,465   
|Net interest income                                                                   |  |                                              | 15,035    |      |   | 16,373   
|Provision for loan losses                                                             |  |                                              | 449       |      |   | 166      
|Net interest income after provision for loan losses                                   |  |                                              | 14,586    |      |   | 16,207   
|NONINTEREST INCOME                                                                    |  |                                              |           |      |   |          
|Income from fiduciary activities                                                      |  |                                              | 1,605     |      |   | 1,605    
|Service charges on deposit accounts                                                   |  |                                              | 1,824     |      |   | 1,864    
|Other noninterest income                                                              |  |                                              | 1,364     |      |   | 1,316    
|Securities gains (losses)                                                             |  |                                              |          |      |   |         
|TOTAL NONINTEREST INCOME                                                              |  |                                              | 4,793     |      |   | 4,785    
|NONINTEREST EXPENSE                                                                   |  |                                              |           |      |   |          
|Salaries, wages, and other employee benefits                                          |  |                                              | 6,742     |      |   | 6,879    
|Premises and equipment                                                                |  |                                              | 2,402     |      |   | 2,194    
|Data processing                                                                       |  |                                              | 910       |      |   | 934      
|Advertising and public relations                                                      |  |                                              | 342       |      |   | 278      
|Postage                                                                               |  |                                              | 259       |      |   | 243      
|Telephone                                                                             |  |                                              | 149       |      |   | 136      
|Supplies and printing                                                                 |  |                                              | 287       |      |   | 328      
|Other taxes                                                                           |  |                                              | 343       |      |   | 321      
|Other noninterest expense                                                             |  |                                              | 2,249     |      |   | 2,562    
|TOTAL NONINTEREST EXPENSE                                                             |  |                                              | 13,683    |      |   | 13,875   
|Income before income taxes                                                            |  |                                              | 5,696     |      |   | 7,117    
|Provision for income taxes                                                            |  |                                              | 2,011     |      |   | 2,429    
|NET INCOME                                                                            |  | $                                            | 3,685     |      | $ | 4,688    
|                                                                                      |  |                                             
|NET INCOME PER COMMON SHARE:                                                          |  |                                              |           |      |   |          
|Basic                                                                                 |  | $                                            | 1.93      |      | $ | 2.40     
|Diluted                                                                               |  | $                                            | 1.93      |      | $ | 2.39     
|                                                                                      |  |                                             
|AVERAGE SHARES OUTSTANDING:                                                           |  |                                              |           |      |   |          
|Basic                                                                                 |  |                                              | 1,905,949 |      |   | 1,950,317
|Diluted                                                                               |  |                                              | 1,910,192 |      |   | 1,962,949



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



First Century Bankshares, Inc.     Page 23



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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, 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 |  
|                                                                                                                         |  |                                               |       |                |   |    
|Comprehensive income:                                                                                                    |  |                                               |       |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|Net income                                                                                                               |  |                                               |      |                |   |    |                  |  |   | 3,685                                      |   |  |               |       |   |       |   |       |   |  |   | 3,685  |  
|Change in net unrealized gain (loss) on pension and postretirement benefits                                              |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               | (1,112 | ) |       |   |       |   |  |   | (1,112 | )
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax
effect |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               | 654    |   |       |   |       |   |  |   | 654    |  
|Total comprehensive income                                                                                               |  |                                               |      |                |   |    |                  |  |   | 3,685                                      |   |  |               | (458   | ) |       |   |       |   |  |   | 3,227  |  
|Purchase 7,684 treasury shares at $20.95 per average share                                                               |  |                                               |      |                |   |    |                  |  |   |                                           |   |  |               |       |   |       |   | (161   | ) |  |   | (161   | )
|Option exercises 1,012 shares                                                                                            |  |                                               |      |                |   | (15 | )                |  |   |                                           |   |  |               |       |   |       |   | 25     |   |  |   | 10     |  
|Cash dividends declared$1.11 per share                                                                                  |  |                                               |      |                |   |    |                  |  |   | (2,116                                     | ) |  |               |       |   |       |   |       |   |  |   | (2,116 | )
|Balance at December 31, 2008                                                                                             |  | $                                             | 2,500 |                | $ | 757 |                  |  | $ | 41,239                                     |   |  | $             | (851   | ) |       | $ | (2,280 | ) |  | $ | 41,365 |  



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



Page 24     First Century Bankshares, Inc.



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##### Table of Contents

Consolidated

Statements of Cash Flows



|                                                                                                    |  |                         |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                    |  | Years EndedDecember 31, |        
|                                                                                                    |  | 2008                    |         |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                |  | (Dollars in Thousands)  |        
|Net income before adjustments to reconcile net income to net cash provided by operating activities: |  | $                       | 3,685   |   |      | $ | 4,688   |  
|Provision for loan losses                                                                           |  |                         | 449     |   |      |   | 166     |  
|Depreciation and amortization                                                                       |  |                         | 1,039   |   |      |   | 887     |  
|Deferred income tax expense                                                                         |  |                         | 47      |   |      |   | 226     |  
|Securities losses                                                                                   |  |                         |        |   |      |   |        |  
|Loss on disposal of fixed assets                                                                    |  |                         | 9       |   |      |   | 12      |  
|(Increase) decrease in interest receivable                                                          |  |                         | 969     |   |      |   | (390    | )
|Net investment accretion                                                                            |  |                         | (229    | ) |      |   | (87     | )
|Net (increase) decrease in other assets                                                             |  |                         | (74     | ) |      |   | 432     |  
|Net decrease in interest payable and other liabilities                                              |  |                         | (680    | ) |      |   | (12     | )
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                           |  |                         | 5,215   |   |      |   | 5,922   |  
|                                                                                                    |  |                        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                |  |                         |         |   |      |   |         |  
|Purchases of securities held to maturity                                                            |  |                         | (986    | ) |      |   | (6,482  | )
|Purchases of securities available for sale                                                          |  |                         | (43,614 | ) |      |   | (37,850 | )
|Purchases of Federal Home Loan Bank stock                                                           |  |                         | (205    | ) |      |   | (143    | )
|Proceeds from maturities and calls of securities held to maturity                                   |  |                         | 1,830   |   |      |   | 1,700   |  
|Proceeds from maturities and calls of securities available for sale                                 |  |                         | 54,826  |   |      |   | 30,151  |  
|Proceeds from sales of securities available for sale                                                |  |                         |        |   |      |   |        |  
|Net increase in loans                                                                               |  |                         | (76     | ) |      |   | (4,909  | )
|Acquisition of premises and equipment                                                               |  |                         | (2,017  | ) |      |   | (2,086  | )
|Proceeds from disposal of premises and equipment                                                    |  |                         |        |   |      |   | 4       |  
|NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                                                    |  |                         | 9,758   |   |      |   | (19,615 | )
|                                                                                                    |  |                        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                |  |                         |         |   |      |   |         |  
|Net increase (decrease) in demand and savings deposits                                              |  |                         | 12,142  |   |      |   | (1,881  | )
|Net increase (decrease) in time deposits                                                            |  |                         | (16,866 | ) |      |   | 7,281   |  
|Net increase (decrease) in short-term borrowings                                                    |  |                         | (5,050  | ) |      |   | 15,034  |  
|Cash received from stock option exercise                                                            |  |                         | 10      |   |      |   | 75      |  
|Purchase of treasury stock                                                                          |  |                         | (161    | ) |      |   | (1,365  | )
|Cash dividends paid                                                                                 |  |                         | (2,116  | ) |      |   | (2,136  | )
|NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                                    |  |                         | (12,041 | ) |      |   | 17,008  |  
|Net increase in cash and cash equivalents                                                           |  |                         | 2,932   |   |      |   | 3,315   |  
|Cash and cash equivalents at beginning of year                                                      |  |                         | 13,527  |   |      |   | 10,212  |  
|Cash and cash equivalents at end of year                                                            |  | $                       | 16,459  |   |      | $ | 13,527  |  
|                                                                                                    |  |                        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                   |  |                         |         |   |      |   |         |  
|Cash paid during the year for:                                                                      |  |                         |         |   |      |   |         |  
|Interest                                                                                            |  | $                       | 7,958   |   |      | $ | 10,474  |  
|Income taxes                                                                                        |  | $                       | 1,899   |   |      | $ | 2,260   |  



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

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. 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, 2008 and 2007, was approximately $572,000 and $1,534,000, 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



Page 26     First Century Bankshares, Inc.



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##### Table of Contents

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, 2008 and 2007, the reserve for unfunded lending commitments was
$10,000 and $8,000, 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.



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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, 2008 and 2007, 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, 2008, the Corporation serviced loans with an aggregate principal amount of approximately $99,229,000 compared to $97,197,000 at December 31, 2007. The average annual
servicing fee on its servicing portfolio was 0.248% for 2008 and 0.249% for 2007. 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 2008 and 2007, the loan servicing
function generated fees of approximately $246,000 and $236,000, 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



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



liabilities when extinguished. This approach provides consistent standards for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings.



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, 2008 and 2007.



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.



Post Employment
Benefits The Corporation has a defined benefit pension plan covering employees meeting certain age and service requirements. There are also two defined benefit post retirement plans that provide medical and life insurance benefits. The
net periodic costs of theses plans are computed in accordance with FASB No. 158, Employers Accounting for Defined Benefit Pensions and Other Post Retirement Plans.



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##### Table of Contents

2. Securities



Securities available for sale at December 31, 2008 and 2007 are summarized as follows:



|                                                  |  |                        |        |                      |   |                       |  |           |     |  |   |       
|------------------------------------------------- |  | ---------------------- | ------ | -------------------- | - | --------------------- |  | --------- | --- |  | - | ------
|                                                  |  | 2008                  
|                                                  |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                                  |  | (Dollars in Thousands)
|                                                  |  |                        |        |                      |   |                       |  |           |     |  |   |       
|U.S. Government agency obligations                |  | $                      | 41,148 |                      | $ | 856                   |  | $         |    |  | $ | 42,004
|U.S. Government agency mortgage-backed securities |  |                        | 29,131 |                      |   | 765                   |  |           | 18  |  |   | 29,878
|Other debt securities                             |  |                        | 1,022  |                      |   |                      |  |           | 55  |  |   | 967   
|TOTAL SECURITIES AVAILABLE FOR SALE               |  | $                      | 71,301 |                      | $ | 1,621                 |  | $         | 73  |  | $ | 72,849
|                                                  |  | 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
|U.S. Government agency 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



Securities held to maturity at
December 31, 2008 and 2007 are summarized as follows:



|                                  |  |                        |        |                      |   |                       |  |           |    |  |   |       
|--------------------------------- |  | ---------------------- | ------ | -------------------- | - | --------------------- |  | --------- | -- |  | - | ------
|                                  |  | 2008                  
|                                  |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                  |  | (Dollars in Thousands)
|State and municipal obligations   |  | $                      | 17,286 |                      | $ | 229                   |  | $         | 71 |  | $ | 17,444
|TOTAL SECURITIES HELD TO MATURITY |  | $                      | 17,286 |                      | $ | 229                   |  | $         | 71 |  | $ | 17,444
|                                  |  | 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



Securities with an aggregate fair
value of $45,362,000 at December 31, 2008 and $39,261,000 at December 31, 2007, were pledged to secure public and trust deposits and for other purposes required or permitted by law, including approximately $22,632,000 at December 31,
2008 and $16,516,000 at December 31, 2007 pledged to secure repurchase agreements.



There were no gains or losses recognized on sales of securities during 2008 or 2007.



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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, 2008 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                |  | $                      | 8,468  |           | $ | 8,587                        |  | $ | 119   |  
|Due after one year through five years  |  |                        | 31,495 |           |   | 32,072                       |  |   | 577   |  
|Due after five years through ten years |  |                        | 17,143 |           |   | 17,598                       |  |   | 455   |  
|Due after ten years                    |  |                        | 14,195 |           |   | 14,592                       |  |   | 397   |  
|TOTAL SECURITIES AVAILABLE FOR SALE    |  | $                      | 71,301 |           | $ | 72,849                       |  | $ | 1,548 |  
|                                       |  |                        |       
|                                       |  | AmortizedCost          |        | FairValue |   | Net UnrealizedGains (Losses) | 
|                                       |  | (Dollars in Thousands) |       
|Due in one year or less                |  | $                      | 3,231  |           | $ | 3,235                        |  | $ | 4     |  
|Due after one year through five years  |  |                        | 7,085  |           |   | 7,177                        |  |   | 92    |  
|Due after five years through ten years |  |                        | 3,875  |           |   | 3,967                        |  |   | 92    |  
|Due after ten years                    |  |                        | 3,095  |           |   | 3,065                        |  |   | (30   | )
|TOTAL SECURITIES HELD TO MATURITY      |  | $                      | 17,286 |           | $ | 17,444                       |  | $ | 158   |  



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, 2008:



|                                                  |  |                         |    |           |   |       |  |                    |  |                       |  |           |    |  |   |    
|------------------------------------------------- |  | ----------------------- | -- | --------- | - | ----- |  | ------------------ |  | --------------------- |  | --------- | -- |  | - | ---
|                                                  |  | Less Than Twelve Months |    |           |   |       |  | Over Twelve Months
|                                                  |  | (Dollars in Thousands) 
|                                                  |  |                         |    |           |   |      
|Description of Security                           |  | GrossUnrealizedLosses   |    | FairValue |   |       |  |                    |  | GrossUnrealizedLosses |  | FairValue
|                                                  |  |                         |    |           |   |      
|Securities available for sale:                    |  |                         |    |           |   |       |  |                    |  |                       |  |           |    |  |   |    
|U.S. Government agency mortgage-backed securities |  | $                       | 18 |           | $ | 1,995 |  |                    |  |                       |  | $         |   |  | $ |   
|Other debt securities                             |  |                         | 55 |           |   | 967   |  |                    |  |                       |  |           |   |  |   |   
|Total securities available for sale               |  | $                       | 73 |           | $ | 2,962 |  |                    |  |                       |  | $         |   |  | $ |   
|Securities held to maturity:                      |  |                         |    |           |   |       |  |                    |  |                       |  |           |    |  |   |    
|Municipal securities                              |  | $                       | 60 |           | $ | 3,120 |  |                    |  |                       |  | $         | 11 |  | $ | 667
|Total securities held to maturity                 |  | $                       | 60 |           | $ | 3,120 |  |                    |  |                       |  | $         | 11 |  | $ | 667



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



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##### Table of Contents

2. Securities (continued)



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, 2008.



3. Loans



Loans at December 31, 2008 and 2007 consisted of the following:



|                                                  |  |                        |         |      |   |        
|------------------------------------------------- |  | ---------------------- | ------- | ---- | - | -------
|                                                  |  | December 31,          
|                                                  |  | 2008                   |         | 2007
|                                                  |  | (Dollars in Thousands)
|Commercial, financial and agricultural            |  | $                      | 44,966  |      | $ | 46,599 
|Real estateconstruction and development          |  |                        | 25,074  |      |   | 18,339 
|Real estatemortgage (residential and commercial) |  |                        | 204,686 |      |   | 209,221
|Installment loans to individuals                  |  |                        | 21,894  |      |   | 22,787 
|Total loans                                       |  |                        | 296,620 |      |   | 296,946
|Less: allowance for loan losses                   |  |                        | 2,690   |      |   | 2,455  
|NET LOANS                                         |  | $                      | 293,930 |      | $ | 294,491



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 $20,575,000 and $18,714,000 at December 31, 2008 and 2007, respectively. During 2008, $20,682,000 in loan advances were made and repayments were $18,821,000.



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4. Allowance for Loan Losses



An analysis of changes in the allowance for loan losses for 2008, 2007 and 2006 is as follows:



|                                           |  |                          |       |   |      |   |       |  
|------------------------------------------ |  | ------------------------ | ----- | - | ---- | - | ----- | -
|                                           |  | Years Ended December 31, |      
|                                           |  | 2008                     |       |   | 2007 |  
|                                           |  | (Dollars in Thousands)   |      
|Balance at beginning of year               |  | $                        | 2,455 |   |      | $ | 2,555 |  
|Provision for loan losses                  |  |                          | 449   |   |      |   | 166   |  
|Recoveries on loans previously charged off |  |                          | 201   |   |      |   | 154   |  
|Loans charged off                          |  |                          | (415  | ) |      |   | (420  | )
|BALANCE AT END OF YEAR                     |  | $                        | 2,690 |   |      | $ | 2,455 |  



The following is a summary of loans
considered impaired:



|                                       |  |                        |       |      |   |      
|-------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                       |  | December 31,          
|                                       |  | 2008                   |       | 2007
|                                       |  | (Dollars in Thousands)
|Gross impaired loans                   |  | $                      | 5,349 |      | $ | 1,211
|Valuation allowance for impaired loans |  |                        | 186   |      |   | 303  
|Recorded investment in impaired loans  |  | $                      | 5,163 |      | $ | 908  



The average recorded investment in
impaired loans for the years ended December 31, 2008 and 2007 was $4,210,000 and $1,939,000, 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, 2008 and 2007, the Corporation had nonaccrual loans of $5,614,000 and $1,211,000, respectively. Interest income of ($302,000) and $5,000 was recognized on these loans in 2008 and 2007, respectively. Had these loans performed in
accordance with their original terms, additional interest income of $662,000 and $65,000 would have been recorded in 2008 and 2007, respectively.



At December 31, 2008 and 2007, the Corporation had loans past-due 90 days or more and still in accrual status of $553,000 and $711,000, respectively. Additionally,
at December 31, 2008 and 2007, the Corporation had other real estate owned of $203,000 and $135,000, respectively.



5. Premises and Equipment



Premises and equipment at December 31, 2008 and 2007 consisted of the following:



|                              |  |                        |        |      |   |       
|----------------------------- |  | ---------------------- | ------ | ---- | - | ------
|                              |  | December 31,          
|                              |  | 2008                   |        | 2007
|                              |  | (Dollars in Thousands)
|Land                          |  | $                      | 2,552  |      | $ | 2,552 
|Buildings and improvements    |  |                        | 15,691 |      |   | 14,345
|Equipment and fixtures        |  |                        | 6,447  |      |   | 6,406 
|Total                         |  |                        | 24,690 |      |   | 23,303
|Less accumulated depreciation |  |                        | 10,336 |      |   | 9,918 
|NET PREMISES AND EQUIPMENT    |  | $                      | 14,354 |      | $ | 13,385



Depreciation charged to operating
expense amounted to $1,039,000 in 2008 and $887,000 in 2007.



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5. Premises and Equipment (continued)



Certain premises and equipment are utilized under long-term operating leases. The aggregate minimum annual rental commitments under those leases total
approximately $80,000 in 2009, $69,000 in 2010, $57,000 in 2011, $49,000 in 2012 and $50,000 in 2013. Total net rent expense included in the accompanying consolidated financial statements was $93,000 in 2008 and $101,000 in 2007.



6. Deposits



Deposits at December 31, 2008 and 2007 were as follows:



|                                            |  |                        |         |      |   |        
|------------------------------------------- |  | ---------------------- | ------- | ---- | - | -------
|                                            |  | December 31,          
|                                            |  | 2008                   |         | 2007
|                                            |  | (Dollars in Thousands)
|Individuals, partnerships and corporations: |  |                        |         |      |   |        
|Demand deposits                             |  | $                      | 49,691  |      | $ | 41,399 
|Time and savings deposits                   |  |                        | 291,977 |      |   | 303,692
|U.S. Government                             |  |                        | 35      |      |   | 37     
|States and political subdivisions           |  |                        | 14,337  |      |   | 15,124 
|Due to banks                                |  |                        | 248     |      |   | 911    
|Certified and official checks               |  |                        | 1,743   |      |   | 1,592  
|TOTAL DEPOSITS                              |  | $                      | 358,031 |      | $ | 362,755



The scheduled maturities of time
deposits at December 31, 2008 were as follows:



|                    |  |                        |        
|------------------- |  | ---------------------- | -------
|                    |  | (Dollars in Thousands)
|2009                |  | $                      | 140,325
|2010                |  |                        | 21,427 
|2011                |  |                        | 5,486  
|2012                |  |                        | 3,242  
|2013                |  |                        | 3,705  
|Thereafter          |  |                        | 146    
|TOTAL TIME DEPOSITS |  | $                      | 174,331



Time deposits include certificates of
deposit issued in amounts of $100,000 or more totaling approximately $47,699,000 and $52,483,000 at December 31, 2008 and 2007, respectively. At December 31, 2008, deposits of executive officers, directors and their related interests were
$5,098,000.



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, 2008 and 2007 is summarized as follows:



|                                          |  |                        |        |   |      |   |        |  
|----------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | 2008                   |        |   | 2007 |  
|                                          |  | (Dollars in Thousands) |       
|Average balance during the year           |  | $                      | 21,534 |   |      | $ | 18,177 |  
|Average interest rate during the year     |  |                        | 1.58   | % |      |   | 3.58   | %
|Maximum month-end balance during the year |  | $                      | 24,778 |   |      | $ | 27,682 |  



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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 EndedDecember 31, |       
|                                                                                            |  | 2008                    |        |   | 2007 |  
|Unrealized losses on pension and postretirement benefit obligations arising during the year |  | $                       | (1,773 | ) |      | $ | (466  | )
|Unrealized gains (losses) on available for sale securities arising during the year          |  |                         | 1,042  |   |      |   | 1,511 |  
|Reclassification adjustment for (gains) losses included in net income                       |  |                         |       |   |      |   |      |  
|Other comprehensive income (loss) before tax                                                |  |                         | (731   | ) |      |   | 1,045 |  
|Income tax (expense) benefit related to other comprehensive income                          |  |                         | 273    |   |      |   | (334  | )
|Other comprehensive income (loss), net of tax                                               |  | $                       | (458   | ) |      | $ | 711   |  



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, 2008 and 2007:



|                                                                |  |                   |           |                                     |           |                   |   |     
|--------------------------------------------------------------- |  | ----------------- | --------- | ----------------------------------- | --------- | ----------------- | - | ----
|                                                                |  | 2008             
|                                                                |  | Income(Numerator) |           | Weighted AverageShares(Denominator) |           | Per-Share  Amount
|Basic EPS:                                                      |  |                   |           |                                     |           |                   |   |     
|Income available to common shareholders                         |  | $                 | 3,685,000 |                                     | 1,905,949 |                   | $ | 1.93
|Diluted EPS:                                                    |  |                   |           |                                     |           |                   |   |     
|Effect of dilutive securitiesStock options                     |  |                   |           |                                     | 4,243     |                   |   |     
|Income available to common shareholders and assumed conversions |  | $                 | 3,685,000 |                                     | 1,910,192 |                   | $ | 1.93
|                                                                | 
|                                                                |  | 2007             
|                                                                |  | Income(Numerator) |           | Weighted AverageShares(Denominator) |           | Per-ShareAmount  
|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



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, 2008 and 2007, 2,000,000 shares were issued. At December 31, 2008, 1,903,120 shares were outstanding compared to 1,909,792 shares at December 31, 2007.



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##### Table of Contents

10. Stockholders Equity (continued)



SHARE REPURCHASE ACTIVITY



During the years ended December 31, 2008 and 2007, the Corporation repurchased 7,684 shares and 56,887 shares, respectively. At December 31, 2008, management
was authorized to repurchase 9,572 shares.



11. Post Employment Benefits



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 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.



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11. Post Employment Benefits (continued)



The following table outlines the changes in the Corporations postemployment benefit plan obligations, assets and funded status for the
years ended December 31, 2008 and 2007, and the assumptions and components of net periodic benefit costs for the two years in the period ended December 31, 2008.



|                                               |  |                        |        |   |                               |   |       |      |  |   |        |   |  |   |        |  
|---------------------------------------------- |  | ---------------------- | ------ | - | ----------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                               |  | Pension Benefits       |        |   | Other Postretirement Benefits |  
|                                               |  | 2008                   |        |   | 2007                          |   |       | 2008 |  |   | 2007   |  
|                                               |  | (Dollars in Thousands) |       
|Change in benefit obligation                   |  |                        |        |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Benefit obligation at beginning of year        |  | $                      | 7,298  |   |                               | $ | 6,579 |      |  | $ | 1,037  |   |  | $ | 1,023  |  
|Service cost                                   |  |                        | 284    |   |                               |   | 255   |      |  |   | 15     |   |  |   | 15     |  
|Interest cost                                  |  |                        | 414    |   |                               |   | 368   |      |  |   | 58     |   |  |   | 57     |  
|Actuarial (gain) loss                          |  |                        | (494   | ) |                               |   | 240   |      |  |   | (79    | ) |  |   | (7     | )
|Benefits paid                                  |  |                        | (253   | ) |                               |   | (144  | )    |  |   | (47    | ) |  |   | (51    | )
|Benefit obligation at end of year              |  |                        | 7,249  |   |                               |   | 7,298 |      |  |   | 984    |   |  |   | 1,037  |  
|                                               |  |                        |        |  
|Change in plan asset                           |  |                        |        |   |                               |   |       |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at beginning of year |  |                        | 7,537  |   |                               |   | 7,058 |      |  |   |       |   |  |   |       |  
|Actual return on plan assets                   |  |                        | (1,770 | ) |                               |   | 323   |      |  |   |       |   |  |   |       |  
|Employer contribution                          |  |                        | 300    |   |                               |   | 300   |      |  |   | 47     |   |  |   | 51     |  
|Benefits paid                                  |  |                        | (253   | ) |                               |   | (144  | )    |  |   | (47    | ) |  |   | (51    | )
|Fair value of plan assets at end of year       |  |                        | 5,814  |   |                               |   | 7,537 |      |  |   |       |   |  |   |       |  
|Funded status                                  |  |                        | (1,435 | ) |                               |   | 239   |      |  |   | (984   | ) |  |   | (1,037 | )
|Unrecognized net actuarial (gain) loss         |  |                        | 3,959  |   |                               |   | 2,169 |      |  |   | (469   | ) |  |   | (418   | )
|Unrecognized prior service cost                |  |                        | (806   | ) |                               |   | (895  | )    |  |   |       |   |  |   |       |  
|Unrecognized transition obligation             |  |                        |       |   |                               |   |      |      |  |   | 221    |   |  |   | 277    |  
|Prepaid (accrued) benefit cost                 |  | $                      | 1,718  |   |                               | $ | 1,513 |      |  | $ | (1,232 | ) |  | $ | (1,178 | )



|                                         |  |                  |      |   |                               |   |      |      |  |   |      |   |  |   |      |  
|---------------------------------------- |  | ---------------- | ---- | - | ----------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                         |  | Pension Benefits |      |   | Other Postretirement Benefits |  
|Weighted-average assumptions as of 12/31 |  | 2008             |      |   | 2007                          |   |      | 2008 |  |   | 2007 |  
|Discount rate                            |  |                  | 6.16 | % |                               |   | 5.75 | %    |  |   | 6.16 | % |  |   | 5.75 | %
|Expected return on plan assets           |  |                  | 8.00 | % |                               |   | 8.00 | %    |  |   | N/A  |   |  |   | N/A  |  
|Rate of compensation increase            |  |                  | 3.00 | % |                               |   | 3.00 | %    |  |   | N/A  |   |  |   | N/A  |  
|                                         |  |                  |      |  
|Components of net periodic benefit cost  |  |                  |      |   |                               |   |      |      |  |   |      |   |  |   |      |  
|Service cost                             |  | $                | 284  |   |                               | $ | 255  |      |  | $ | 15   |   |  | $ | 15   |  
|Interest cost                            |  |                  | 414  |   |                               |   | 368  |      |  |   | 58   |   |  |   | 57   |  
|Expected return on plan assets           |  |                  | (607 | ) |                               |   | (562 | )    |  |   |     |   |  |   |     |  
|Amortization of prior service cost       |  |                  | (90  | ) |                               |   | (90  | )    |  |   |     |   |  |   |     |  
|Amortization of transition obligation    |  |                  |     |   |                               |   |     |      |  |   | 55   |   |  |   | 55   |  
|Recognized net actuarial (gain) loss     |  |                  | 94   |   |                               |   | 70   |      |  |   | (28  | ) |  |   | (28  | )
|Net periodic (benefit) cost              |  | $                | 95   |   |                               | $ | 41   |      |  | $ | 100  |   |  | $ | 99   |  



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11. Post Employment Benefits (continued)



Included in Accumulated Other Comprehensive Income at December 31, 2008 are the following non-cash pretax charges which have not yet been
recognized in net periodic pension 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, 2009.



|                               |  |                                                           |       |   |                                                          |   |     |  
|------------------------------ |  | --------------------------------------------------------- | ----- | - | -------------------------------------------------------- | - | --- | -
|                               |  | Amt. recognized inAcc. Other Comp. Income at Dec 31,
2008 |       |   | Amount expectedto be charged to net periodiccost in 2009 |  
|Pension Benefits:              |  |                                                           |       |   |                                                          |   |     |  
|Net actuarial losses           |  | $                                                         | 3,959 |   |                                                          | $ | 216 |  
|Prior service cost             |  | $                                                         | (806  | ) |                                                          | $ | (90 | )
|                               |  |                                                          
|Other Postretirement Benefits: |  |                                                           |       |   |                                                          |   |     |  
|Net actuarial gains            |  | $                                                         | (469  | ) |                                                          | $ | (36 | )
|Transition obligation          |  | $                                                         | 221   |   |                                                          | $ | 55  |  



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



|          |  |                 |       |                             |   |    
|--------- |  | --------------- | ----- | --------------------------- | - | ---
|          |  | PensionBenefits |       | OtherPostretirementBenefits
|2009      |  | $               | 326   |                             | $ | 61 
|2010      |  | $               | 429   |                             | $ | 61 
|2011      |  | $               | 331   |                             | $ | 59 
|2012      |  | $               | 551   |                             | $ | 62 
|2013      |  | $               | 500   |                             | $ | 63 
|2014-2018 |  | $               | 3,368 |                             | $ | 325



The asset allocation for the defined
benefit pension plan for the years ended December 31, 2008 and 2007, by asset category, is as follows:



ASSET CATEGORY



|                  |  |                          |   |  |      |  
|----------------- |  | ------------------------ | - |  | ---- | -
|                  |  | Percentage ofPlan Assets |  
|                  |  | 2008                     |   |  | 2007 |  
|Equity securities |  | 64                       | % |  | 75   | %
|Debt securities   |  | 17                       |   |  | 13   |  
|Real estate       |  |                         |   |  | 2    |  
|Other             |  | 19                       |   |  | 10   |  
|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 65% equity securities, 25% fixed income securities, and 10%
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



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11. Post Employment Benefits (continued)



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. 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 2008 and 2007 and expects to do
so for 2009.



The Corporation maintains a qualified 401(k) retirement savings
plan. All employees age 21 and over are eligible to participate on a voluntary basis. Prior to 2008, pretax contributions up to a maximum of fifteen percent (15%) of salary, were matched fifty percent (50%) by the Corporation. For 2008,
the Corporation adopted a safe-harbor match of 100% up to 6% of compensation. Total amounts charged to operating expense for payments pursuant to this plan were approximately $253,000 in 2008 and $164,000 in 2007.



12. Income Taxes



The provision for income taxes consisted of the following:



|                                                    |  |                         |       |      |   |      
|--------------------------------------------------- |  | ----------------------- | ----- | ---- | - | -----
|                                                    |  | Years EndedDecember 31,
|Tax provision attributed to income from operations: |  | 2008                    |       | 2007
|Current:                                            |  | (Dollars in Thousands) 
|Federal                                             |  | $                       | 1,669 |      | $ | 1,824
|State                                               |  |                         | 309   |      |   | 379  
|Deferred expense (benefit)                          |  |                         | 33    |      |   | 226  
|PROVISION FOR INCOME TAX                            |  | $                       | 2,011 |      | $ | 2,429



The components of deferred tax assets
and liabilities at December 31, 2008 and 2007 were as follows:



|                                                  |  |                        |        |   |      |   |        |  
|------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                                  |  | 2008                   |        |   | 2007 |  
|                                                  |  | (Dollars in Thousands) |       
|Allowance for loan losses                         |  | $                      | 747    |   |      | $ | 578    |  
|Retirement plans                                  |  |                        | 903    |   |      |   | 297    |  
|Other                                             |  |                        | 250    |   |      |   | 204    |  
|Gross deferred tax assets                         |  |                        | 1900   |   |      |   | 1,079  |  
|Depreciation                                      |  |                        | (396   | ) |      |   | (364   | )
|Goodwill                                          |  |                        | (1,110 | ) |      |   | (952   | )
|Unrealized gains on securities available for sale |  |                        | (577   | ) |      |   | (189   | )
|Other                                             |  |                        | (200   | ) |      |   | (186   | )
|Gross deferred tax liabilities                    |  |                        | (2,283 | ) |      |   | (1,691 | )
|NET DEFERRED TAX ASSET (LIABILITY)                |  | $                      | (383   | ) |      | $ | (612   | )







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12. Income Taxes (continued)



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



|                                                                       |  |                          |       |   |      |    |   |        |   |       |   |  |    |  
|---------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | -- | - | ------ | - | ----- | - |  | -- | -
|                                                                       |  | Years Ended December 31, |      
|                                                                       |  | 2008                     |       |   | 2007 |   
|                                                                       |  | (Dollars in Thousands)   |      
|                                                                       |  | Amount                   |       |   | %    |    |   | Amount |   |       | % | 
|Provision at statutory rate                                            |  | $                        | 1,937 |   |      | 34 |   |        | $ | 2,420 |   |  | 34 |  
|Tax-exempt interest income from certain investmentsecurities and loans |  |                          | (233  | ) |      | (4 | ) |        |   | (199  | ) |  | (3 | )
|State income tax expense, net of federal benefit                       |  |                          | 208   |   |      | 3  |   |        |   | 263   |   |  | 4  |  
|Other, net                                                             |  |                          | 99    |   |      | 2  |   |        |   | (55   | ) |  | (1 | )
|PROVISION FOR INCOME TAXES                                             |  | $                        | 2,011 |   |      | 35 |   |        | $ | 2,429 |   |  | 34 |  



13. 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.



14. 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 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.



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



The components of the Corporations off-balance sheet financial commitments at
December 31, 2008 and 2007 are as follows:



|                                                                                 |  |                        |        |      |   |       
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------
|                                                                                 |  | December 31,          
|                                                                                 |  | 2008                   |        | 2007
|Unused lines of credit                                                           |  | (Dollars in Thousands)
|Home equity lines                                                                |  | $                      | 4,517  |      | $ | 3,852 
|Commercial real estate, construction and land development secured by real estate |  |                        | 20,665 |      |   | 28,298
|Other unused commitments                                                         |  |                        | 23,004 |      |   | 29,631
|Total unused lines of credit                                                     |  | $                      | 48,186 |      | $ | 61,781
|Financial standby letters of credit                                              |  | $                      | 4,437  |      | $ | 4,136 



At both December 31, 2008 and
2007, the carrying amount and fair value of financial standby letters of credit was $4,000. Also, at December 31, 2008 and 2007, the Corporation had residential mortgage loan commitments outstanding of $3,700,000 and $1,528,000, respectively.
Derivative financial instruments related to these commitments at December 31, 2008 and 2007 were $29,000 and $10,000, 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, 2008, the Corporation had concentrations of $20,361,000, or 49.2% of stockholders equity in loans to lessors of residential real property,
$17,880,000, or 43.2% of stockholders equity in loans to lessors of nonresidential real property and $12,744,000, or 30.8% 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 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.



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



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, 2008 and 2007
were as follows:



|                                                      |  |                        |         |                        |   |                     |  |                |         |  |   |        
|----------------------------------------------------- |  | ---------------------- | ------- | ---------------------- | - | ------------------- |  | -------------- | ------- |  | - | -------
|                                                      |  | 2008                   |         | 2007                  
|                                                      |  | EstimatedFair Value    |         | CarryingAmount         |   | EstimatedFair Value |  | CarryingAmount
|                                                      |  | (Dollars in Thousands) |         | (Dollars in Thousands)
|Assets:                                               |  |                        |         |                        |   |                     |  |                |         |  |   |        
|Cash and due from banks                               |  | $                      | 16,459  |                        | $ | 16,459              |  | $              | 13,527  |  | $ | 13,527 
|Securities available for sale                         |  |                        | 72,849  |                        |   | 72,849              |  |                | 82,763  |  |   | 82,763 
|Securities held to maturity                           |  |                        | 17,444  |                        |   | 17,286              |  |                | 18,176  |  |   | 18,156 
|Federal Home Loan Bank and Federal Reserve Bank stock |  |                        | 1,635   |                        |   | 1,635               |  |                | 1,430   |  |   | 1,430  
|Net loans                                             |  |                        | 306,707 |                        |   | 293,930             |  |                | 298,924 |  |   | 294,491
|                                                      |  |                        |         |                       
|Liabilities:                                          |  |                        |         |                        |   |                     |  |                |         |  |   |        
|Noninterest-bearing deposits                          |  |                        | 53,598  |                        |   | 53,598              |  |                | 44,905  |  |   | 44,905 
|Deposits with no stated maturities                    |  |                        | 130,102 |                        |   | 130,102             |  |                | 126,653 |  |   | 126,653
|Deposits with stated maturities                       |  |                        | 178,167 |                        |   | 174,331             |  |                | 193,502 |  |   | 191,197
|Short-term borrowings                                 |  |                        | 22,658  |                        |   | 22,658              |  |                | 27,708  |  |   | 27,708 



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.



The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures pursuant to SFAS No. 157,
Fair Value Measurements. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record at fair value other assets on a nonrecurring basis. These
nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.



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14. Financial Instruments, Concentrations and Fair Values (continued)



Fair Value Hierarchy



Under SFAS 157, the Corporation groups assets and liabilities at fair value in three levels, based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:



Level 1  Valuation is based upon quoted prices for identical instruments traded in active markets.



Level 2  Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that
are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.



Level 3  Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable
assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.



Following is a description of valuation methodologies used for assets and liabilities
recorded at fair value.



Investment Securities Available-for-Sale:



Investment securities available-for-sale are recorded at fair value on
a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of
future cash flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions.



Loans:



The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that
payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS
114, Accounting by Creditors for Impairment of a Loan, (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, recent appraisal value and /or tax assessed value, liquidation
value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2008, substantially all
of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require



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14. Financial Instruments, Concentrations and Fair Values (continued)



classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the
Corporation records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price,
the Corporation records the impaired loan as nonrecurring Level 3.



Foreclosed
Assets / Repossessions:



Foreclosed assets and repossessions are
adjusted to fair value upon transfer of the loans to foreclosed assets and repossessions. Subsequently, foreclosed asset and repossessions are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices,
appraised values of the collateral or managements estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the foreclosed
asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the
foreclosed asset or repossession as nonrecurring Level 3.



The following table
presents information about the Companys assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to
determine such fair value.



|                                                      |  |  |     |   |                             |  |  |                                                     |   |                                                              |  |  |     |   |                                             |  |  |   |   |                                        
|----------------------------------------------------- |  |  | --- | - | --------------------------- |  |  | --------------------------------------------------- | - | ------------------------------------------------------------ |  |  | --- | - | ------------------------------------------- |  |  | - | - | ---------------------------------------
|                                                      |  |  |     |   |                             |  |  | Fair Value Measurements at December 31, 2008, Using
|Description                                           |  |  |     |   | Fair ValueDecember 31, 2008 |  |  |                                                     |   | Quoted Prices inActive Marketsfor Identical Assets (Level 1) |  |  |     |   | Significant OtherObservableInputs (Level 2) |  |  |   |   | SignificantUnobservableInputs (Level 3)
|Assets and liabilities measured on a recurring basis: |  |  |     |   |                             |  |  |                                                     |   |                                                              |  |  |     |   |                                             |  |  |   |   |                                        
|Available-for-sale securities                         |  |  |     | $ | 72,849                      |  |  |                                                     | $ |                                                             |  |  |     | $ | 72,849                                      |  |  |   | $ |                                       
|Total                                                 |  |  |     | $ | 72,849                      |  |  |                                                     | $ |                                                             |  |  |     | $ | 72,849                                      |  |  |   | $ |                                       
|                                                      |  |  |     |   |                             |  |  |                                                     |   |                                                              |  |  |     |   |                                             |  |  |   |   |                                        
|Assets and liabilities measured                       |  |  |     |   |                             |  |  |                                                     |   |                                                              |  |  |     |   |                                             |  |  |   |   |                                        
|on a nonrecurring basis:                              |  |  |     |   |                             |  |  |                                                     |   |                                                              |  |  |     |   |                                             |  |  |   |   |                                        
|Impaired loans                                        |  |  |     | $ | 5,163                       |  |  |                                                     | $ |                                                             |  |  |     | $ | 5,163                                       |  |  |   | $ |                                       
|Foreclosures and repossessions                        |  |  | 231 |   |                             |  |  |                                                    |   |                                                              |  |  | 231 |   |                                             |  |  | 
|Total                                                 |  |  |     | $ | 5,394                       |  |  |                                                     | $ |                                                             |  |  |     | $ | 5,394                                       |  |  |   | $ |                                       



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15. 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, 2008,
retained net profits for the years 2008 and 2007, which were free of such regulatory restrictions, aggregated approximately $2,465,000.



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, 2008, that the Corporation and its subsidiary meet all capital adequacy requirements to which they are subject.



As of December 31, 2008, 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, 2008:                  |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Total Capital (to Risk Weighted Assets):  |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Consolidated                              |  | $      | 40,843 |       | 13.30                        | % |        | 3                                                             | $24,574 |  | 3 | 8.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 39,394 |       | 12.84                        | % |        | 3                                                             | $24,546 |  | 3 | 8.00   | % |       | 3 | $30,683 |  | 3 | 10.00 | %
|Tier I Capital (to Risk Weighted Assets): |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Consolidated                              |  | $      | 38,143 |       | 12.42                        | % |        | 3                                                             | $12,287 |  | 3 | 4.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 36,694 |       | 11.96                        | % |        | 3                                                             | $12,273 |  | 3 | 4.00   | % |       | 3 | $18,410 |  | 3 | 6.00  | %
|Tier I Capital (to Average Assets):       |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|Consolidated                              |  | $      | 38,143 |       | 8.93                         | % |        | 3                                                             | $17,087 |  | 3 | 4.00   | % |       |   |         |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 36,694 |       | 8.60                         | % |        | 3                                                             | $17,073 |  | 3 | 4.00   | % |       | 3 | $21,341 |  | 3 | 5.00  | %



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15. Regulatory Matters (continued)



|                                          |  |        |        |       |                              |   |        |                                                               |         |  |   |        |   |       |   |         |  |   |       |  
|----------------------------------------- |  | ------ | ------ | ----- | ---------------------------- | - | ------ | ------------------------------------------------------------- | ------- |  | - | ------ | - | ----- | - | ------- |  | - | ----- | -
|                                          |  | 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  | %



16. Parent Company Financial Data



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



STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                      |  |  |  |                        |        |   |      |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  |  |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                      |  |  |  | December 31,           |       
|                                                                                                                      |  |  |  | 2008                   |        |   | 2007 |  
|Assets:                                                                                                               |  |  |  | (Dollars in Thousands) |       
|Cash                                                                                                                  |  |  |  | $                      | 387    |   |      | $ | 232    |  
|Investment in subsidiaries at equity                                                                                  |  |  |  |                        | 40,399 |   |      |   | 39,651 |  
|Other assets                                                                                                          |  |  |  |                        | 839    |   |      |   | 714    |  
|TOTAL ASSETS                                                                                                          |  |  |  | $                      | 41,625 |   |      | $ | 40,597 |  
|Liabilities:                                                                                                          |  |  |  |                        |        |   |      |   |        |  
|Other liabilities                                                                                                     |  |  |  | $                      | 260    |   |      | $ | 192    |  
|TOTAL LIABILITIES                                                                                                     |  |  |  |                        | 260    |   |      |   | 192    |  
|Stockholders Equity:                                                                                                 |  |  |  |                        |        |   |      |   |        |  
|Common stock$1.25 par value; 10,000,000 shares authorized and 2,000,000 shares issued at December 31, 2008 and
2007; |  |  |  |                        |        |   |      |   |        |  
|1,903,120 shares outstanding at December 31, 2008, and                                                                |  |  |  |                        |        |   |      |   |        |  
|1,909,792 shares outstanding at December 31, 2007;                                                                    |  |  |  |                        | 2,500  |   |      |   | 2,500  |  
|Paid-in capital                                                                                                       |  |  |  |                        | 757    |   |      |   | 772    |  
|Retained earnings                                                                                                     |  |  |  |                        | 40,388 |   |      |   | 39,277 |  
|Treasury stock, at cost; 96,880 shares at December 31, 2008, and 90,208 shares at
December 31, 2007                   |  |  |  |                        | (2,280 | ) |      |   | (2,144 | )
|TOTAL STOCKHOLDERS EQUITY                                                                                            |  |  |  |                        | 41,365 |   |      |   | 40,405 |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                            |  |  |  | $                      | 41,625 |   |      | $ | 40,597 |  



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16. Parent Company Financial Data (continued)



|                                                                |  |                         |       |   |      |   |       |  
|--------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | -
|                                                                |  |                        
|STATEMENTS OF INCOME                                            |  |                         |       |   |      |   |       |  
|                                                                |  | Years EndedDecember 31, |      
|                                                                |  | 2008                    |       |   | 2007 |  
|                                                                |  | (Dollars inThousands)   |      
|Income:                                                         |  |                         |       |   |      |   |       |  
|Dividends from subsidiary bank                                  |  | $                       | 2,565 |   |      | $ | 3,520 |  
|Other income                                                    |  |                         |      |   |      |   |      |  
|TOTAL INCOME                                                    |  |                         | 2,565 |   |      |   | 3,520 |  
|Expenses:                                                       |  |                         |       |   |      |   |       |  
|Other                                                           |  |                         | 136   |   |      |   | 157   |  
|TOTAL EXPENSES                                                  |  |                         | 136   |   |      |   | 157   |  
|Applicable income taxes (benefits)                              |  |                         | (51   | ) |      |   | (60   | )
|Income before equity in undistributednet income of subsidiaries |  |                         | 2,480 |   |      |   | 3,423 |  
|Equity in undistributed net income of subsidiaries              |  |                         | 1,205 |   |      |   | 1,265 |  
|NET INCOME                                                      |  | $                       | 3,685 |   |      | $ | 4,688 |  



STATEMENT OF CASH FLOWS



|                                                                                 |  |                         |        |   |      |   |        |  
|-------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                                                 |  | Years EndedDecember 31, |       
|                                                                                 |  | 2008                    |        |   | 2007 |  
|Cash flows from operating activities                                             |  | (Dollars in Thousands)  |       
|Net income                                                                       |  | $                       | 3,685  |   |      | $ | 4,688  |  
|Adjustments to reconcile net income to net cashprovided by operating activities: |  |                         |        |   |      |   |        |  
|Equity in undistributed net income of subsidiary                                 |  |                         | (1,205 | ) |      |   | (1,265 | )
|Other adjustments, net                                                           |  |                         | (58    | ) |      |   | (27    | )
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                        |  |                         | 2,422  |   |      |   | 3,396  |  
|Cash flows from investing activities                                             |  |                         |        |   |      |   |        |  
|Investment in subsidiary                                                         |  |                         |       |   |      |   |       |  
|NET CASH USED BY INVESTING ACTIVITIES                                            |  |                         |       |   |      |   |       |  
|Cash flows from financing activities                                             |  |                         |        |   |      |   |        |  
|Purchase of treasury stock                                                       |  |                         | (161   | ) |      |   | (1,365 | )
|Cash received from stock option exercise                                         |  |                         | 10     |   |      |   | 75     |  
|Cash dividends paid                                                              |  |                         | (2,116 | ) |      |   | (2,136 | )
|NET CASH USED BY FINANCING ACTIVITIES                                            |  |                         | (2,267 | ) |      |   | (3,426 | )
|Net increase (decrease) in cash                                                  |  |                         | 155    |   |      |   | (30    | )
|Cash at January 1,                                                               |  |                         | 232    |   |      |   | 262    |  
|Cash at December 31,                                                             |  | $                       | 387    |   |      | $ | 232    |  



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##### Table of Contents

17. Subsequent Events



On February 27, 2009, the Federal Deposit Insurance Corporation (FDIC) announced plans for a special assessment of 20 basis points of total assessable
deposits to aid in restoring reserves to the Deposit Insurance Fund. This will be assessed as of June 30, 2009. The Corporation is participating in efforts by the industry to encourage the FDIC to reduce or delay the implementation of this
assessment. Should the assessment be levied as proposed, it will mean a significant reduction in pre-tax income to the Corporation for 2009.



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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, 2008 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, 2008, 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, 2009



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



First Century Bankshares, Inc.     Page 49



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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, 2008 and 2007,
and the related consolidated statements of income, changes in stockholders equity, and cash flows for the years then ended. 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. An audit also includes 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, 2008 and 2007, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.



/s/ Brown, Edwards & Company, L.L.P.



CERTIFIED PUBLIC ACCOUNTANTS



Bluefield, West Virginia

February 20, 2009





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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 
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  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 51



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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  Eric Deaton Chief Executive
OfficerWythe County Community Hospital |  | Robert T. Dupuis President, P & T Products, Inc.  Samuel V. Jones, CPA Hodges, Jones & Mabry, PC |  | W. Edward SmithVice President, Wythe County Operations First Century Bank, N.A.  Frank W. Wilkinson President & Chief OperatingOfficer, First Century Bank, N.A.,Secretary, First CenturyBankshares, Inc. |  | R. W. WilkinsonPresident & ChiefExecutive Officer, FirstCentury Bankshares, Inc., Chairman & Chief ExecutiveOfficer, First CenturyBank, 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. KeatonVice President, Summers County Operations First Century Bank N.A.  Frank W. Wilkinson President & Chief
OperatingOfficer, First Century Bank, N.A.,Secretary, First CenturyBankshares, Inc. |  | R. W. WilkinsonPresident & ChiefExecutive Officer, FirstCentury Bankshares, Inc., Chairman & Chief ExecutiveOfficer, First CenturyBank, N.A.



FIRST CENTURY BANK, N.A.

RALEIGH COUNTY OPERATIONS ADVISORY BOARD



---



|                                                                                                                                         |  |                                                                                                                                                                                          |  |                                                                                                                                              |  |                                                                                                              
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------
|Thomas S. Acker Executive Director Forward Southern West Virginia  William H. Baker Chairman of the Board Forward Southern West Virginia |  | R. Woodrow Duba General Manager Beaver Coal Company, Limited  Frank W. Wilkinson President & Chief Operating Officer, First Century Bank, N.A.,Secretary, First
Century Bankshares, Inc. |  | R. W. WilkinsonPresident & ChiefExecutive Officer, First CenturyBankshares, Inc., Chairman & Chief ExecutiveOfficer, First CenturyBank, N.A. |  | L. Mori WilliamsVice President andRegional Executive,Princeton and Beckley
OperationsFirst Century Bank, N.A.





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Officers



FIRST CENTURY BANKSHARES, INC.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 
|R. W. Wilkinson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Frank W. Wilkinson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Secretary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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 BSA/Security Officer  BRANCH ADMINISTRATION  L. Mori
Williams Vice President & Regional
ExecutivePrinceton and BeckleyOperations  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 Assistant Vice
President,Teller Manager  Linda C.
Hamer Customer Service Manager  Michelle L. Beck Assistant Vice
President, Princeton Office  Stephanie Bailey Assistant Branch
Manager, Oceana Office  Brian S. Bowman Assistant Vice
President,Branch Manager Beckley Office  Linda C. Rider IRA Coordinator  Sharon Cole Assistant
Cashier Hinton Office  Nancy M. Cales Assistant
Cashier Hinton Office  Rita Goodman Customer Service 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  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 |  | Margot A. Bower Mortgage Loan Officer  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  Drew E. Porter Vice President &
Trust Officer  Mary A. Musser
Trust Officer  Mary Sue Anderson Assistant Trust
Officer



First Century Bankshares, Inc.     Page 53



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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



1826 Harper
Road

Beckley, WV 25801

(304) 255-4560