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Exhibit 13

LOGO





FIRST CENTURY BANKSHARES, INC.



2010 Annual Report



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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 26, 2011, 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 |  |  | 21 | 

|                                  |  |  |    | 
|--------------------------------- |  |  | -- | 
|Consolidated Statements of Income |  |  | 22 | 

|                                                           |  |  |    | 
|---------------------------------------------------------- |  |  | -- | 
|Consolidated Statements of Changes in Stockholders Equity |  |  | 23 | 

|                                      |  |  |    | 
|------------------------------------- |  |  | -- | 
|Consolidated Statements of Cash Flows |  |  | 24 | 

|                                           |  |  |    | 
|------------------------------------------ |  |  | -- | 
|Notes to Consolidated Financial Statements |  |  | 25 | 

|                                                                        |  |  |    | 
|----------------------------------------------------------------------- |  |  | -- | 
|Managements Annual Report on Internal Control Over Financial Reporting |  |  | 50 | 

|                                                        |  |  |    | 
|------------------------------------------------------- |  |  | -- | 
|Report of Independent Registered Public Accounting Firm |  |  | 51 | 

|                    |  |  |    | 
|------------------- |  |  | -- | 
|Boards of Directors |  |  | 52 | 

|                            |  |  |    | 
|--------------------------- |  |  | -- | 
|Corporate and Bank Officers |  |  | 54 | 

|                                                    |  |  |            | 
|--------------------------------------------------- |  |  | ---------- | 
|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 2010.



First Century Bankshares, Inc. had earnings of $2,141,000 which was an increase from the $315,000 earned in 2009. On a per share basis,
earnings were $1.12 compared to $0.17 in 2009. This equated to a return on average assets (ROAA) of 0.51% and a return on average equity (ROAE) of 5.31%. Total assets as of December 31, 2010 were $407,989,000, compared to $408,387,000, or a
decrease of $398,000 or 0.1%. Management has been operating under a no growth strategy while continuing to focus on asset quality during 2010.



The Board of Directors and management have committed to a strategy that will reduce the levels of criticized and classified assets in a
planned and efficient manner. This includes looking at all options to improve our position in the non-performing categories and maximizing our recovery ratios. We are committed to timely identification of problems and having the proper risk rating
and reserve allocation for these assets. Management believes that timely identification of a problem credit, and working with our clients in these difficult times, is critical to our success. Although our level of nonperforming assets was higher at
year-end than we would like, we hope to see better trends within the portfolio as we move into 2011, particularly as it relates to our consumer and commercial real estate loans.



It is also important to note that our Company remains well
capitalized. As of December 31, 2010, total risk-based capital to risk weighted assets was 15.08%. The Tier 1 leverage ratio was at 9.00%. These percentages are well in excess of the regulatory minimums to be considered well capitalized of
10.00% and 5.00% respectively. We feel that in the current regulatory environment, as well as the current operating environment, being well capitalized is critically important to our shareholders and customers.



The provision for loan losses was $1,936,000 for 2010. This
was a significant decrease from $5,460,000 in 2009. Net charge offs for 2010 were $386,000 compared to $3,825,000 for 2009. Additional provisions of $1,550,000 were made in 2010 compared to $1,635,000 in 2009 increasing the allowance for loan
losses, as a response to increases in non-performing and impaired assets. At year end 2010, the allowance for loan losses as a percentage of total loans was at 2.26%. Management has continued to refine its internal risk rating process with more
emphasis being placed on cash flow of our borrowers. This has created a trend of movement within our loan portfolio, and we are seeing more downgraded assets as our customers operate in a very difficult economy.



As we move through 2011, we are committed to providing the
products and services that our customers need to be successful. We are doing this in a friendly and efficient manner, and we are pleased with the support of the communities we serve. We are hopeful for some regulatory stability in the coming year,
and we continue to monitor the regulatory environment in Washington D.C. We have particular interest in the development of the Consumer Financial Protection Agency and the implementation of the Dodd-Frank Act. It is critical to our success that we
are allowed to operate in an environment where we can be adequately compensated for the true costs associated with our products and services. We are also monitoring the actions of the Environmental Protection Agency, with particular interest on how
it affects the coal industry that is so vital to our region. We will keep you fully advised as we move forward. We welcome your comments and recommendations as we continue to face unprecedented challenges in the local and national economies.



Sincerely,



LOGO

Frank W. 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



|                                                           |  |                        |         |   |                        |   |        |                        |  |  |                |   |  |          |         |   |             |   |        |                |  |  |          |   |  |             |         |   |  |   |        |  |  |  |      |  
|---------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------------- | - | ------ | ---------------------- |  |  | -------------- | - |  | -------- | ------- | - | ----------- | - | ------ | -------------- |  |  | -------- | - |  | ----------- | ------- | - |  | - | ------ |  |  |  | ---- | -
|                                                           |  | 2010                   |         |   | 2009                   |   |        | 2008                   | 
|                                                           |  | (Dollars in Thousands) |         |   | (Dollars in Thousands) |   |        | (Dollars in Thousands) | 
|ASSETS:                                                    |  | AverageBalance         |         |   | Interest               |   |        | AverageRate            |  |  | AverageBalance |   |  | Interest |         |   | AverageRate |   |        | AverageBalance |  |  | Interest |   |  | AverageRate |        
|Interest-bearing deposits with banks                       |  | $                      | 16,112  |   |                        | $ | 23     |                        |  |  | 0.14           | % |  | $        | 5,921   |   |             | $ | 48     |                |  |  | 0.81     | % |  | $           | 6,296   |   |  | $ | 165    |  |  |  | 2.62 | %
|Securities available for sale and other equity securities: |  |                        |         |   |                        |   |        |                        |  |  |                |   |  |          |         |   |             |   |        |                |  |  |          |   |  |             |         |   |  |   |        |  |  |  |      |  
|U. S. Treasury securities                                  |  |                        |        |   |                        |   |       |                        |  |  |               |   |  |          |        |   |             |   |       |                |  |  |         |   |  |             | 746     |   |  |   | 35     |  |  |  | 4.69 | %
|U. S. Government agency securities                         |  |                        | 67,253  |   |                        |   | 2,084  |                        |  |  | 3.10           | % |  |          | 66,627  |   |             |   | 2,771  |                |  |  | 4.16     | % |  |             | 75,645  |   |  |   | 3,704  |  |  |  | 4.90 | %
|Other securities                                           |  |                        | 1,624   |   |                        |   | 23     |                        |  |  | 1.42           | % |  |          | 1,969   |   |             |   | 39     |                |  |  | 1.98     | % |  |             | 3,708   |   |  |   | 131    |  |  |  | 3.53 | %
|Total securities available for sale                        |  |                        | 68,877  |   |                        |   | 2,107  |                        |  |  | 3.06           | % |  |          | 68,596  |   |             |   | 2,810  |                |  |  | 4.10     | % |  |             | 80,099  |   |  |   | 3,870  |  |  |  | 4.83 | %
|Securities held to maturity:                               |  |                        |         |   |                        |   |        |                        |  |  |                |   |  |          |         |   |             |   |        |                |  |  |          |   |  |             |         |   |  |   |        |  |  |  |      |  
|State and municipal securities                             |  |                        | 20,652  |   |                        |   | 780    |                        |  |  | 3.78           | % |  |          | 18,467  |   |             |   | 705    |                |  |  | 3.82     | % |  |             | 17,978  |   |  |   | 686    |  |  |  | 3.82 | %
|Total securities held to maturity                          |  |                        | 20,652  |   |                        |   | 780    |                        |  |  | 3.78           | % |  |          | 18,467  |   |             |   | 705    |                |  |  | 3.82     | % |  |             | 17,978  |   |  |   | 686    |  |  |  | 3.82 | %
|Federal funds sold                                         |  |                        | 9,758   |   |                        |   | 17     |                        |  |  | 0.17           | % |  |          | 4,398   |   |             |   | 10     |                |  |  | 0.23     | % |  |             | 6,100   |   |  |   | 122    |  |  |  | 2.00 | %
|Loans                                                      |  |                        | 272,746 |   |                        |   | 14,355 |                        |  |  | 5.26           | % |  |          | 296,398 |   |             |   | 16,151 |                |  |  | 5.45     | % |  |             | 290,928 |   |  |   | 18,008 |  |  |  | 6.19 | %
|Total interest-earning assets                              |  |                        | 388,145 |   |                        | $ | 17,282 |                        |  |  | 4.45           | % |  |          | 393,780 |   |             | $ | 19,724 |                |  |  | 5.01     | % |  |             | 401,401 |   |  | $ | 22,851 |  |  |  | 5.69 | %
|Allowance for loan losses                                  |  |                        | (4,896  | ) |                        |   |        |                        |  |  |                |   |  |          | (2,944  | ) |             |   |        |                |  |  |          |   |  |             | (2,481  | ) |  |   |        |  |  |  |      |  
|Cash and due from banksdemand                             |  |                        | 10,852  |   |                        |   |        |                        |  |  |                |   |  |          | 11,105  |   |             |   |        |                |  |  |          |   |  |             | 10,685  |   |  |   |        |  |  |  |      |  
|Bank Premises and equipmentnet                            |  |                        | 13,339  |   |                        |   |        |                        |  |  |                |   |  |          | 13,968  |   |             |   |        |                |  |  |          |   |  |             | 14,434  |   |  |   |        |  |  |  |      |  
|Other assets                                               |  |                        | 14,232  |   |                        |   |        |                        |  |  |                |   |  |          | 9,026   |   |             |   |        |                |  |  |          |   |  |             | 10,556  |   |  |   |        |  |  |  |      |  
|TOTAL ASSETS                                               |  | $                      | 421,672 |   |                        |   |        |                        |  |  |                |   |  | $        | 424,935 |   |             |   |        |                |  |  |          |   |  | $           | 434,595 |   |  |   |        |  |  |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY:                      |  |                        |         |   |                        |   |        |                        |  |  |                |   |  |          |         |   |             |   |        |                |  |  |          |   |  |             |         |   |  |   |        |  |  |  |      |  
|Interest-bearing demand deposits                           |  | $                      | 83,688  |   |                        | $ | 156    |                        |  |  | 0.19           | % |  | $        | 80,032  |   |             | $ | 162    |                |  |  | 0.20     | % |  | $           | 75,056  |   |  | $ | 298    |  |  |  | 0.40 | %
|Savings deposits                                           |  |                        | 58,842  |   |                        |   | 134    |                        |  |  | 0.23           | % |  |          | 56,363  |   |             |   | 150    |                |  |  | 0.27     | % |  |             | 56,026  |   |  |   | 357    |  |  |  | 0.64 | %
|Time deposits                                              |  |                        | 163,859 |   |                        |   | 2,728  |                        |  |  | 1.66           | % |  |          | 172,108 |   |             |   | 4,334  |                |  |  | 2.52     | % |  |             | 183,041 |   |  |   | 6,820  |  |  |  | 3.73 | %
|Total interest-bearing deposits                            |  |                        | 306,389 |   |                        |   | 3,018  |                        |  |  | 0.99           | % |  |          | 308,503 |   |             |   | 4,646  |                |  |  | 1.51     | % |  |             | 314,123 |   |  |   | 7,475  |  |  |  | 2.38 | %
|Short-term debt                                            |  |                        | 19,711  |   |                        |   | 276    |                        |  |  | 1.40           | % |  |          | 20,627  |   |             |   | 278    |                |  |  | 1.35     | % |  |             | 21,560  |   |  |   | 341    |  |  |  | 1.58 | %
|Total interest-bearing liabilities                         |  |                        | 326,100 |   |                        |   | 3,294  |                        |  |  | 1.01           | % |  |          | 329,130 |   |             |   | 4,924  |                |  |  | 1.50     | % |  |             | 335,683 |   |  |   | 7,816  |  |  |  | 2.33 | %
|Demand deposits                                            |  |                        | 52,416  |   |                        |   |        |                        |  |  |                |   |  |          | 52,176  |   |             |   |        |                |  |  |          |   |  |             | 54,288  |   |  |   |        |  |  |  |      |  
|Other liabilities                                          |  |                        | 3,608   |   |                        |   |        |                        |  |  |                |   |  |          | 3,282   |   |             |   |        |                |  |  |          |   |  |             | 3,128   |   |  |   |        |  |  |  |      |  
|TOTAL LIABILITIES                                          |  |                        | 382,124 |   |                        |   |        |                        |  |  |                |   |  |          | 384,588 |   |             |   |        |                |  |  |          |   |  |             | 393,099 |   |  |   |        |  |  |  |      |  
|Stockholders equity                                       |  |                        | 39,548  |   |                        |   |        |                        |  |  |                |   |  |          | 40,347  |   |             |   |        |                |  |  |          |   |  |             | 41,496  |   |  |   |        |  |  |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                 |  | $                      | 421,672 |   |                        |   |        |                        |  |  |                |   |  | $        | 424,935 |   |             |   |        |                |  |  |          |   |  | $           | 434,595 |   |  |   |        |  |  |  |      |  
|Average rate paid to fund earning assets                   |  |                        |         |   |                        |   |        |                        |  |  | 0.85           | % |  |          |         |   |             |   |        |                |  |  | 1.25     | % |  |             |         |   |  |   |        |  |  |  | 1.95 | %
|NET INTEREST DIFFERENTIAL                                  |  |                        |         |   |                        | $ | 13,988 |                        |  |  | 3.60           | % |  |          |         |   |             | $ | 14,800 |                |  |  | 3.76     | % |  |             |         |   |  | $ | 15,035 |  |  |  | 3.75 | %

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 $150,000 in 2010, $496,000 in 2009 and $257,000 in 2008. Average balances of securities available for sale are reported at amortized cost; excludes pretax unrealized gains of $1,254,000 in
2010 and $1,563,000 in 2009 and pretax unrealized losses of $461,000 in 2008. Interest income on tax exempt securities is shown based on the actual yield.



VOLUME/RATE ANALYSIS



|                                                          |  |                                 |        |   |                        |   |        |                        |  |   |        |   |  |      |      |   |       |   |        |        |  |   |        |   |  |       |      |   |  |   |        |   |  |   |        |  
|--------------------------------------------------------- |  | ------------------------------- | ------ | - | ---------------------- | - | ------ | ---------------------- |  | - | ------ | - |  | ---- | ---- | - | ----- | - | ------ | ------ |  | - | ------ | - |  | ----- | ---- | - |  | - | ------ | - |  | - | ------ | -
|                                                          |  | Increase (Decrease) in Interest |       
|                                                          |  | 2010 vs. 2009                   |        |   | 2009 vs. 2008          |   |        | 2008 vs. 2007          | 
|                                                          |  | (Dollars in Thousands)          |        |   | (Dollars in Thousands) |   |        | (Dollars in Thousands) | 
|                                                          |  | Due to Change in (1)            |        |   | Due to Change in (1)   |   |        | Due to Change in (1)   | 
|Interest income on:                                       |  | Volume                          |        |   | Rate                   |   |        | Total                  |  |   | Volume |   |  | Rate |      |   | Total |   |        | Volume |  |   | Rate   |   |  | Total |     
|Loans                                                     |  | $                               | (1,267 | ) |                        | $ | (529   | )                      |  | $ | (1,796 | ) |  | $    | 318  |   |       | $ | (2,175 | )      |  | $ | (1,857 | ) |  | $     | (311 | ) |  | $ | (4,044 | ) |  | $ | (4,355 | )
|Securities available for sale and other equity securities |  |                                 | 10     |   |                        |   | (713   | )                      |  |   | (703   | ) |  |      | (513 | ) |       |   | (547   | )      |  |   | (1,060 | ) |  |       | (199 | ) |  |   | 308    |   |  |   | 109    |  
|Securities held to maturity                               |  |                                 | 83     |   |                        |   | (8     | )                      |  |   | 75     |   |  |      | 19   |   |       |   | 0      |        |  |   | 19     |   |  |       | 105  |   |  |   | (13    | ) |  |   | 92     |  
|Federal funds sold                                        |  |                                 | 11     |   |                        |   | (4     | )                      |  |   | 7      |   |  |      | (19  | ) |       |   | (93    | )      |  |   | (112   | ) |  |       | 178  |   |  |   | (112   | ) |  |   | 66     |  
|Interest-bearing deposits with banks                      |  |                                 | 49     |   |                        |   | (74    | )                      |  |   | (25    | ) |  |      | (6   | ) |       |   | (111   | )      |  |   | (117   | ) |  |       | 196  |   |  |   | (95    | ) |  |   | 101    |  
|TOTAL INTEREST INCOME                                     |  |                                 | (1,114 | ) |                        |   | (1,328 | )                      |  |   | (2,442 | ) |  |      | (201 | ) |       |   | (2,926 | )      |  |   | (3,127 | ) |  |       | (31  | ) |  |   | (3,956 | ) |  |   | (3,987 | )
|Interest expense on:                                      |  |                                 |        |   |                        |   |        |                        |  |   |        |   |  |      |      |   |       |   |        |        |  |   |        |   |  |       |      |   |  |   |        |   |  |   |        |  
|Interest-bearing demand deposits                          |  |                                 | 7      |   |                        |   | (13    | )                      |  |   | (6     | ) |  |      | 15   |   |       |   | (151   | )      |  |   | (136   | ) |  |       | 7    |   |  |   | (314   | ) |  |   | (307   | )
|Savings deposits                                          |  |                                 | 6      |   |                        |   | (22    | )                      |  |   | (16    | ) |  |      | 2    |   |       |   | (209   | )      |  |   | (207   | ) |  |       | (1   | ) |  |   | (240   | ) |  |   | (241   | )
|Time deposits                                             |  |                                 | (173   | ) |                        |   | (1,433 | )                      |  |   | (1,606 | ) |  |      | (341 | ) |       |   | (2,145 | )      |  |   | (2,486 | ) |  |       | (303 | ) |  |   | (1,487 | ) |  |   | (1,790 | )
|Short-term borrowings                                     |  |                                 | (13    | ) |                        |   | 11     |                        |  |   | (2     | ) |  |      | (14  | ) |       |   | (49    | )      |  |   | (63    | ) |  |       | 87   |   |  |   | (398   | ) |  |   | (311   | )
|TOTAL INTEREST EXPENSE                                    |  |                                 | (172   | ) |                        |   | (1,458 | )                      |  |   | (1,630 | ) |  |      | (338 | ) |       |   | (2,554 | )      |  |   | (2,892 | ) |  |       | (210 | ) |  |   | (2,439 | ) |  |   | (2,649 | )
|NET INTEREST INCOME                                       |  | $                               | (943   | ) |                        | $ | 131    |                        |  | $ | (812   | ) |  | $    | 137  |   |       | $ | (372   | )      |  | $ | (235   | ) |  | $     | 179  |   |  | $ | (1,517 | ) |  | $ | (1,338 | )

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



Page
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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; success and timing of loan workout strategy; the nature and extent of governmental
actions and reforms; continuing consolidation of the financial services industry; rapidly changing technology; and evolving financial industry standards.



Corporate Structure and Acquisitions



First Century Bankshares, Inc. (Corporation or Company) 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 was formed to conduct insurance activities; however, we ceased conducting insurance
activities during 2009. We are evaluating various options for the continued utilization of FCFSLLC to provide nontraditional financial 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



First
Century Bankshares, Inc.     Page 3



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estimates, assumptions and judgments to ascertain the valuation of assets, liabilities, commitments and contingencies reported in our financial statements and accompanying notes. These estimates,
assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial 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.



Greater detail regarding the determination of the adequacy of the allowance for loan losses is provided later in this Managements Discussion and
Analysis of Financial Condition and Results of Operations, as well as in Note 3 of Notes to Consolidated Financial Statements.



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s 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,           |        
|                                         |  | 2010                   |         |  | 2009 |   |         | 2008 |  |   | 2007    |  |  | 2006 |        
|                                         |  | (Dollars in Thousands) |        
|Commercial, financial and agricultural   |  | $                      | 29,102  |  |      | $ | 39,798  |      |  | $ | 44,966  |  |  | $    | 46,599  |  |  | $ | 49,111  | 
|Real estateconstruction and development |  |                        | 15,399  |  |      |   | 17,051  |      |  |   | 25,074  |  |  |      | 18,339  |  |  |   | 8,832   | 
|Real estatemortgage                     |  |                        | 196,711 |  |      |   | 208,570 |      |  |   | 204,686 |  |  |      | 209,221 |  |  |   | 213,185 | 
|Installment loans to individuals         |  |                        | 19,045  |  |      |   | 20,947  |      |  |   | 21,894  |  |  |      | 22,787  |  |  |   | 21,515  | 
|TOTAL LOANS OUTSTANDING                  |  | $                      | 260,257 |  |      | $ | 286,366 |      |  | $ | 296,620 |  |  | $    | 296,946 |  |  | $ | 292,643 | 



MATURITY SCHEDULE OF LOANS



|                                         |  |                                         |        |  |              |   |         |               |  |   |        |  |  |   |         | 
|---------------------------------------- |  | --------------------------------------- | ------ |  | ------------ | - | ------- | ------------- |  | - | ------ |  |  | - | ------- | 
|                                         |  | Remaining maturity at December 31, 2010 |       
|                                         |  | (Dollars in Thousands)                  |       
|                                         |  | 1 Year
or Less                          |        |  | 1 to 5
Years |   |         | After 5
Years |  |   | Total  | 
|Commercial, financial and agricultural   |  | $                                       | 21,489 |  |              | $ | 5,307   |               |  | $ | 2,306  |  |  | $ | 29,102  | 
|Real estateconstruction and development |  |                                         | 9,173  |  |              |   | 4,397   |               |  |   | 1,829  |  |  |   | 15,399  | 
|Real estatemortgage                     |  |                                         | 37,921 |  |              |   | 92,384  |               |  |   | 66,406 |  |  |   | 196,711 | 
|Installment loans to individuals         |  |                                         | 2,496  |  |              |   | 13,674  |               |  |   | 2,875  |  |  |   | 19,045  | 
|TOTAL                                    |  | $                                       | 71,079 |  |              | $ | 115,762 |               |  | $ | 73,416 |  |  | $ | 260,257 | 
|                                         |  |                                         |        | 
|With predetermined interest rates        |  | $                                       | 58,407 |  |              | $ | 108,007 |               |  | $ | 51,177 |  |  | $ | 217,591 | 
|With floating interest rates             |  |                                         | 12,672 |  |              |   | 7,755   |               |  |   | 22,239 |  |  |   | 42,666  | 
|TOTAL                                    |  | $                                       | 71,079 |  |              | $ | 115,762 |               |  | $ | 73,416 |  |  | $ | 260,257 | 



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 $26,109,000, or 9.1%, in 2010, following a 3.5% decrease of $10,254,000 in 2009. Competition in our market was very aggressive during 2010 for the acquisition of new loans as new, quality loan
opportunities were not prevalent. Our parti-cipation loan portfolio of approximately $44,000,000 remained level for the year. However, loan demand was down during 2010 in all of our local 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). During 2010 we originated and sold approximately $32,289,000 in long-term mortgages compared to approximately $50,281,000 during 2009. At December 31, 2010, the loan portfolio comprised 69.3% of total interest-earning assets as
compared to 76.3% of total interest-earning assets at December 31, 2009, and contributed 83.1% of total interest income in 2010, and 81.9% in 2009.



During 2010, our emphasis was balanced between managing credit quality issues including higher levels of nonperforming assets and seeking loan
opportunities from 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 maintain relationships with other community banks in Virginia and West Virginia to seek loan participation opportunities outside of our existing footprint. Consistent with our



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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 5.26% in
2010 compared to 5.45% in 2009. Earnings reflect pressure on the net interest margin arising from the continued emphasis on economic stimulus by the Federal Reserve during 2010 that has resulted in an extended period of lower interest rates, along
with higher levels of nonperforming assets. During 2009 we implemented interest rate floors in pricing our variable rate loans in order to establish a baseline of income from any given loan. We continued this strategy during 2010.



Our commercial loan portfolio is generally diversified and geographically
dispersed within the region of southern West Virginia and southwest Virginia. At December 31, 2010, we had loan concentrations of $22,458,000, or 56.2% of stockholders equity in loans to lessors of residential property, $19,873,000, or
49.7% of stockholders equity in loans to lessors of nonresidential property and $11,350,000, or 28.4% of stockholders equity in loans to land subdividers and developers. These concentrations are diversified by geography throughout our
market area.



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; however, 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. This area had
been less volatile than many areas of the country, however, during 2010, our local markets began to see negative effects of the national economy, particularly in the consumer housing and commercial real estate markets.



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 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 $46,229,000 at December 31, 2010, and $49,883,000 at December 31, 2009. This included $8,861,000 and $9,284,000 of commitments at December 31,
2010 and 2009, respectively, for our overdraft protection product. This also included unfunded loan commitments and unused lines of credit totaling $33,481,000 at December 31, 2010 and $36,326,000 at December 31, 2009. Additionally,
standby letters of credit totaled $3,887,000 at December 31, 2010, and $4,273,000 at December 31, 2009. 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, 2010. Further discussion of these commitments is included in Notes 9 and 10 to the Consolidated Financial Statements.



COMMITMENTS



|                                                                                |  |                        |        |  |                   |   |     |                    |  |   |                 |  |  |       |       |  |  |   |        | 
|------------------------------------------------------------------------------- |  | ---------------------- | ------ |  | ----------------- | - | --- | ------------------ |  | - | --------------- |  |  | ----- | ----- |  |  | - | ------ | 
|                                                                                |  | One Year
or Less       |        |  | One toThree
Years |   |     | Three toFive
Years |  |   | Over
Five
Years |  |  | Total |      
|Unused lines of credit                                                          |  | (Dollars in Thousands) |       
|Home equity lines                                                               |  | $                      | 15     |  |                   | $ | 255 |                    |  | $ | 756             |  |  | $     | 3,660 |  |  | $ | 4,686  | 
|Commercial real estate, construction andland development secured by real estate |  |                        | 18,856 |  |                   |   | 331 |                    |  |   | 225             |  |  |       | 1,530 |  |  |   | 20,942 | 
|Other unused commitments                                                        |  |                        | 16,714 |  |                   |   |    |                    |  |   |                |  |  |       |      |  |  |   | 16,714 | 
|Financial standby letters of credit                                             |  |                        | 3,887  |  |                   |   |    |                    |  |   |                |  |  |       |      |  |  |   | 3,887  | 



NONPERFORMING ASSETS AND LOAN LOSS ANALYSIS



|                                                            |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                            |  | Years Ended December 31, |        
|                                                            |  | 2010                     |         |   | 2009 |   |         | 2008 |  |   | 2007    |   |  | 2006 |        
|                                                            |  | (Dollars in Thousands)   |        
|Average amount of loans outstanding                         |  | $                        | 272,746 |   |      | $ | 296,398 |      |  | $ | 290,928 |   |  | $    | 295,451 |   |  | $ | 274,300 |  
|Allowance for loan losses:                                  |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance at beginning of the year                            |  | $                        | 4,325   |   |      | $ | 2,690   |      |  | $ | 2,455   |   |  | $    | 2,555   |   |  | $ | 2,661   |  
|Loans charged off                                           |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial, financial and agricultural                      |  |                          | 87      |   |      |   | 3,038   |      |  |   |        |   |  |      | 12      |   |  |   | 111     |  
|Real estateconstruction and development                    |  |                          | 14      |   |      |   | 310     |      |  |   |        |   |  |      | 92      |   |  |   |        |  
|Real estatemortgage                                        |  |                          | 169     |   |      |   | 302     |      |  |   | 113     |   |  |      | 33      |   |  |   | 132     |  
|Installment loans to individuals                            |  |                          | 283     |   |      |   | 296     |      |  |   | 302     |   |  |      | 283     |   |  |   | 342     |  
|TOTAL LOANS CHARGED OFF                                     |  |                          | 553     |   |      |   | 3,946   |      |  |   | 415     |   |  |      | 420     |   |  |   | 585     |  
|Loan recoveries                                             |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial, financial and agricultural                      |  |                          | 18      |   |      |   |        |      |  |   | 45      |   |  |      |        |   |  |   | 40      |  
|Real estatemortgage                                        |  |                          | 96      |   |      |   | 48      |      |  |   | 78      |   |  |      | 64      |   |  |   | 244     |  
|Installment loans to individuals                            |  |                          | 53      |   |      |   | 73      |      |  |   | 78      |   |  |      | 90      |   |  |   | 115     |  
|TOTAL LOAN RECOVERIES                                       |  |                          | 167     |   |      |   | 121     |      |  |   | 201     |   |  |      | 154     |   |  |   | 399     |  
|Net loans charged off                                       |  |                          | (386    | ) |      |   | (3,825  | )    |  |   | (214    | ) |  |      | (266    | ) |  |   | (186    | )
|Provision for loan losses                                   |  |                          | 1,936   |   |      |   | 5,460   |      |  |   | 449     |   |  |      | 166     |   |  |   | 80      |  
|BALANCE AT END OF THE YEAR                                  |  | $                        | 5,875   |   |      | $ | 4,325   |      |  | $ | 2,690   |   |  | $    | 2,455   |   |  | $ | 2,555   |  
|Ratio of net loans charged off to average loans outstanding |  |                          | 0.14    | % |      |   | 1.29    | %    |  |   | 0.07    | % |  |      | 0.09    | % |  |   | 0.07    | %
|                                                            |  |                          |         |   |     
|Provision for loan losses as a percent of loans             |  |                          | 0.71    | % |      |   | 1.84    | %    |  |   | 0.15    | % |  |      | 0.06    | % |  |   | 0.03    | %
|Allowance at year end as a percent of loans                 |  |                          | 2.26    | % |      |   | 1.51    | %    |  |   | 0.91    | % |  |      | 0.83    | % |  |   | 0.87    | %
|Nonperforming assets (at year end)                          |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Nonaccrual                                                  |  | $                        | 16,764  |   |      | $ | 6,780   |      |  | $ | 5,614   |   |  | $    | 1,211   |   |  | $ | 1,605   |  
|Pastdue ninety days or more and still accruing             |  |                          | 639     |   |      |   | 1,461   |      |  |   | 553     |   |  |      | 711     |   |  |   | 397     |  
|Troubled debt restructurings                                |  |                          | 904     |   |      |   | 989     |      |  |   | 311     |   |  |      | 198     |   |  |   | 272     |  
|Other real estate owned                                     |  |                          | 1,750   |   |      |   | 2,578   |      |  |   | 203     |   |  |      | 135     |   |  |   | 517     |  
|TOTAL NONPERFORMING ASSETS                                  |  | $                        | 20,057  |   |      | $ | 11,808  |      |  | $ | 6,681   |   |  | $    | 2,255   |   |  | $ | 2,791   |  
|Nonperforming assets/total loans                            |  |                          | 7.7     | % |      |   | 4.1     | %    |  |   | 2.3     | % |  |      | 0.8     | % |  |   | 1.0     | %
|Nonperforming assets/total assets                           |  |                          | 4.9     | % |      |   | 2.9     | %    |  |   | 1.6     | % |  |      | 0.5     | % |  |   | 0.7     | %



ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES



|                                         |  |                        |       |  |                                                  |  |        |        |  |   |                                                  |  |  |        |        |   |                                               |   |       |        |  |  |                                               |   |  |        |       |  |                                               |  |        |   |  |   |       |  |  |  |        |  
|---------------------------------------- |  | ---------------------- | ----- |  | ------------------------------------------------ |  | ------ | ------ |  | - | ------------------------------------------------ |  |  | ------ | ------ | - | --------------------------------------------- | - | ----- | ------ |  |  | --------------------------------------------- | - |  | ------ | ----- |  | --------------------------------------------- |  | ------ | - |  | - | ----- |  |  |  | ------ | -
|                                         |  | 2010                   |       |  | 2009                                             |  |        | 2008   |  |   | 2007                                             |  |  | 2006   |       
|                                         |  | (Dollars in Thousands) |      
|                                         |  | Amount                 |       |  | Percent of
Loans in Each Category to Total Loans |  |        | Amount |  |   | Percent of
Loans in Each Category to Total Loans |  |  | Amount |        |   | Percent ofLoans in EachCategory toTotal Loans |   |       | Amount |  |  | Percent ofLoans in EachCategory toTotal Loans |   |  | Amount |       |  | Percent ofLoans in EachCategory toTotal Loans | 
|Commercial, financial and agricultural   |  | $                      | 1,757 |  |                                                  |  | 11.40  | %      |  | $ | 752                                              |  |  |        | 13.90  | % |                                               | $ | 463   |        |  |  | 15.16                                         | % |  | $      | 523   |  |                                               |  | 15.69  | % |  | $ | 569   |  |  |  | 16.78  | %
|Real estateconstruction and development |  |                        | 284   |  |                                                  |  | 5.92   | %      |  |   | 939                                              |  |  |        | 5.95   | % |                                               |   | 382   |        |  |  | 8.45                                          | % |  |        | 76    |  |                                               |  | 6.18   | % |  |   | 19    |  |  |  | 3.02   | %
|Real estatemortgage                     |  |                        | 3,172 |  |                                                  |  | 75.58  | %      |  |   | 2,094                                            |  |  |        | 72.83  | % |                                               |   | 1,402 |        |  |  | 69.01                                         | % |  |        | 1,471 |  |                                               |  | 70.46  | % |  |   | 1,463 |  |  |  | 72.85  | %
|Installment loans to individuals         |  |                        | 588   |  |                                                  |  | 7.10   | %      |  |   | 508                                              |  |  |        | 7.32   | % |                                               |   | 426   |        |  |  | 7.38                                          | % |  |        | 348   |  |                                               |  | 7.67   | % |  |   | 361   |  |  |  | 7.35   | %
|Unallocated                              |  |                        | 74    |  |                                                  |  | N/A    |        |  |   | 32                                               |  |  |        | N/A    |   |                                               |   | 17    |        |  |  | N/A                                           |   |  |        | 37    |  |                                               |  | N/A    |   |  |   | 143   |  |  |  | N/A    |  
|TOTAL                                    |  | $                      | 5,875 |  |                                                  |  | 100.00 | %      |  | $ | 4,325                                            |  |  |        | 100.00 | % |                                               | $ | 2,690 |        |  |  | 100.00                                        | % |  | $      | 2,455 |  |                                               |  | 100.00 | % |  | $ | 2,555 |  |  |  | 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 $8,249,000, or 69.9%, to $20,057,000 at December 31, 2010, following an increase of $5,127,000, or 76.7%, to $11,808,000 at December 31, 2009. Nonperforming assets as a percentage of total assets
increased from 2.9% at December 31, 2009 to 4.9% at December 31, 2010. A large portion of the increase in nonperforming assets occurred in the fourth quarter of 2010. During the fourth quarter of 2010, two significant commercial
relationships were downgraded to nonaccrual status. One relationship of approximately $4,948,000 is associated with a real estate development in the Richmond, Virginia area. A recent appraisal of the development reflects a loan to value ratio of
approximately 40%. The other loan relationship of approximately $3,302,000 has real estate and other commercial collateral that is undergoing a liquidation effort by the borrower.



The increase in nonperforming assets during 2010 underscores
managements concerns that the deteriorating national economy is having a negative impact on the Companys local markets which had been insulated from many of the factors that resulted in higher unemployment and overall credit
deterioration in other parts of the country. We continue to monitor our loan portfolio in light of recent declining economic conditions.



The increase in nonperforming assets reflects efforts we made to more rapidly identify problem credits. During 2010, management focused efforts on
evaluating the Companys commercial real estate exposure to determine the potential impact on future earnings should conditions in this sector continue to deteriorate. 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. Once a loan is placed in nonaccrual status we apply payments that are received to reducing the outstanding principal balance. Interest income is only recognized after the borrower can demonstrate cash flow and the ability to amortize the
remaining debt, and, performs under the new arrangement for at least six payments. Nonaccrual loans were $16,764,000 at December 31, 2010, compared with $6,780,000 at December 31, 2009. Our holdings of other real estate owned decreased to
$1,750,000 at December 31, 2010, compared with $2,578,000 at December 31, 2009. Other real estate owned 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. During 2010, we monitored our loan portfolio with even more enhanced scrutiny
in order to identify potential deterioration. The allowance for loan losses was 2.26% of year-end loans at December 31, 2010 compared to 1.51% at December 31, 2009. 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.



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Specific reserves are recorded on impaired loans of $2,352,000 and $279,000 at December 31, 2010 and
2009, 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.



Our 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. The reserve for unfunded lending commitments was $10,000 at December 31, 2010 and 2009,
respectively. 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,           |       
|                                                   |  | 2010                   |        |  | 2009 |   |        | 2008 | 
|                                                   |  | (Dollars in Thousands) |       
|Securities available for sale:                     |  |                        |        |  |      |   |        |      |  |   |        | 
|U. S. Government agency securities                 |  | $                      | 55,808 |  |      | $ | 35,638 |      |  | $ | 42,004 | 
|U. S. Government agency mortgage-backed securities |  |                        | 17,634 |  |      |   | 25,202 |      |  |   | 29,878 | 
|Other securities                                   |  |                        |       |  |      |   |       |      |  |   | 967    | 
|TOTAL SECURITIES AVAILABLE FOR SALE                |  | $                      | 73,442 |  |      | $ | 60,840 |      |  | $ | 72,849 | 
|Securities held to maturity:                       |  |                        |        |  |      |   |        |      |  |   |        | 
|State, county and municipal securities             |  | $                      | 24,196 |  |      | $ | 19,076 |      |  | $ | 17,286 | 
|TOTAL SECURITIES HELD TO MATURITY                  |  | $                      | 24,196 |  |      | $ | 19,076 |      |  | $ | 17,286 | 



MATURITIES OF SECURITIES



The following table shows the contractual maturities of debt securities at December 31, 2010 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                 |  | $                      |      |  |                               |  |     |                               |  | $ | 37,164          |  |  |        | 2.02 | % |       | $ | 18,644 |        |  |  | 2.28  | % |  | $      |      |  |       |  |     |   |  | $ | 55,808 |  |  |  | 2.11 | %
|U. S. Government agency mortgage-backed securities |  |                        | 394   |  |                               |  | 5.02 | %                             |  |   | 2,648           |  |  |        | 4.87 | % |       |   | 10,762 |        |  |  | 4.24  | % |  |        | 3,830 |  |       |  | 3.59 | % |  |   | 17,634 |  |  |  | 4.21 | %
|TOTAL SECURITIES
AVAILABLE FOR SALE                |  | $                      | 394   |  |                               |  | 5.02 | %                             |  | $ | 39,812          |  |  |        | 2.21 | % |       | $ | 29,406 |        |  |  | 3.00  | % |  | $      | 3,830 |  |       |  | 3.59 | % |  | $ | 73,442 |  |  |  | 2.61 | %
|Securities held to maturity:                       |  |                        |       |  |                               |  |      |                               |  |   |                 |  |  |        |      |   |       |   |        |        |  |  |       |   |  |        |       |  |       |  |      |   |  |   |        |  |  |  |      |  
|State, county and municipal securities             |  | $                      | 1,350 |  |                               |  | 5.73 | %                             |  | $ | 5,236           |  |  |        | 5.70 | % |       | $ | 10,423 |        |  |  | 5.41  | % |  | $      | 7,187 |  |       |  | 5.43 | % |  | $ | 24,196 |  |  |  | 5.49 | %
|TOTAL SECURITIES
HELD TO MATURITY                  |  | $                      | 1,350 |  |                               |  | 5.73 | %                             |  | $ | 5,236           |  |  |        | 5.70 | % |       | $ | 10,423 |        |  |  | 5.41  | % |  | $      | 7,187 |  |       |  | 5.43 | % |  | $ | 24,196 |  |  |  | 5.49 | %



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



During 2010, securities, our second largest category of assets, increased by $17,722,000 or 22.2%. At December 31, 2010,
securities comprised 25.8% of total interest-earning assets compared to 21.3% of total interest-earning assets at December 31, 2009. Much of this in-



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crease was to utilize excess liquidity due to weak loan demand. 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.



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 $66,000 at December 31, 2010, compared to $340,000 at December 31, 2009. The held to maturity portfolio increased to $24,196,000 at December 31, 2010, from
$19,076,000 at December 31, 2009. State and municipal securities contained no individual issues in excess of 10% of stockholders equity.



Net gains of $47,000 and $138,000 were recognized in 2010 and 2009, respectively, from the sale of available for sale securities. For most of 2009 and the
first half of 2010, the Federal Reserve purchased agency mortgage backed securities as part of its economic stimulus efforts. This resulted in prices for these securities being artificially high compared to more normalized pricing. When the Federal
Reserve announced in December of 2009 that it would be stopping this program by mid 2010, we sold a limited number of agency mortgage backed securities in order to retain some of the gains resulting from these higher prices.



At December 31, 2009, we held no investments having continuous
unrealized loss positions for more than 12 months. At December 31, 2010, we had $202,000 in securities held to maturity having continuous unrealized loss positions for more than 12 months with gross unrealized losses of $3,000. As these losses
were due to fluctuations in interest rates and not attributable to deterioration in credit quality, we did not recognize any other-than-temporary impairment in 2010 or 2009.



Deposits



Deposits, our major source of funds, increased approximately $2,021,000 in 2010, following a decrease of $7,711,000 in 2009.
Noninterest-bearing deposits increased $1,508,000 in 2010, following a decrease of $8,050,000 in 2009. These changes in noninterest-bearing deposits demonstrate the effect of normal fluctuations within our commercial depositor base. The average rate
paid on interest-bearing deposits in 2010 was 0.99% and 1.51% in 2009. 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



|                                    |  |              |                        |  |              |  |       |              |  |   |         |  |  |        |       |  |      |   |         |  |  |  |       | 
|----------------------------------- |  | ------------ | ---------------------- |  | ------------ |  | ----- | ------------ |  | - | ------- |  |  | ------ | ----- |  | ---- | - | ------- |  |  |  | ----- | 
|                                    |  | 2010
Average |                        |  | 2009
Average |  |       | 2008
Average | 
|                                    |  | Amount       |                        |  | Rate         |  |       | Amount       |  |   | Rate    |  |  | Amount |       |  | Rate |  
|                                    |  |              | (Dollars in Thousands) | 
|Noninterestbearing demand deposits |  | $            | 52,416                 |  |              |  | N/A   |              |  | $ | 52,176  |  |  |        | N/A   |  |      | $ | 54,288  |  |  |  | N/A   | 
|Interestbearing demand deposits    |  |              | 83,688                 |  |              |  | 0.19% |              |  |   | 80,032  |  |  |        | 0.20% |  |      |   | 75,056  |  |  |  | 0.40% | 
|Savings deposits                    |  |              | 58,842                 |  |              |  | 0.23% |              |  |   | 56,363  |  |  |        | 0.27% |  |      |   | 56,026  |  |  |  | 0.64% | 
|Time deposits                       |  |              | 163,859                |  |              |  | 1.66% |              |  |   | 172,108 |  |  |        | 2.52% |  |      |   | 183,041 |  |  |  | 3.73% | 
|TOTAL AVERAGE DEPOSITS              |  | $            | 358,805                |  |              |  | 0.84% |              |  | $ | 360,679 |  |  |        | 1.29% |  |      | $ | 368,411 |  |  |  | 2.03% | 



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, 2010      |       
|                                                  |  | (Dollars in Thousands) |       
|Under 3 months                                    |  | $                      | 15,456 | 
|3 to 6 months                                     |  |                        | 11,699 | 
|6 to 12 months                                    |  |                        | 12,656 | 
|Over 12 months                                    |  |                        | 12,615 | 
|TOTAL CERTIFICATES OF DEPOSIT OF $100,000 OR MORE |  | $                      | 52,426 | 



SHORT-TERM BORROWED FUNDS



|                                                                           |  |                        |        |  |      |   |        |      |  |   |        | 
|-------------------------------------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                           |  | December 31,           |       
|                                                                           |  | 2010                   |        |  | 2009 |   |        | 2008 | 
|                                                                           |  | (Dollars in Thousands) |       
|Federal funds purchased and securities sold under agreements to repurchase |  | $                      | 11,431 |  |      | $ | 15,241 |      |  | $ | 22,632 | 
|Other borrowed funds                                                       |  |                        | 26     |  |      |   | 26     |      |  |   | 26     | 
|TOTAL BORROWED FUNDS                                                       |  | $                      | 11,457 |  |      | $ | 15,267 |      |  | $ | 22,658 | 



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:



|                                             |  |                        |        |  |      |   |        |      |  |   |        | 
|-------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                             |  | 2010                   |        |  | 2009 |   |        | 2008 | 
|                                             |  | (Dollars in Thousands) |       
|Average interest rates at December 31        |  |                        | 2.31%  |  |      |   | 1.71%  |      |  |   | 1.25%  | 
|Maximum amounts outstanding at any month-end |  | $                      | 19,973 |  |      | $ | 22,546 |      |  | $ | 24,778 | 
|Average daily amount outstanding             |  | $                      | 19,685 |  |      | $ | 20,601 |      |  | $ | 21,534 | 
|Weighted average interest rates              |  |                        | 1.40%  |  |      |   | 1.34%  |      |  |   | 1.58%  | 



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



Capital Resources



The total per share dividend for 2010 decreased to $0.60 per share from the
$0.96 per share paid in 2009. Cash dividends paid to stockholders during 2010 totaled $1,142,000 and $1,827,000 in 2009. During 2010, we maintained the regular dividend at $0.15 per share per quarter. This was a reflection of the lower earnings
environment for the year and the decline in trading prices for our stock. At the December 31, 2010 closing price of our stock, the current dividend reflects a dividend yield of approximately 5.00%.



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We are dependent upon dividends paid by FCBNA to fund dividends to the stockholders and to cover other
operating costs. Our board of directors considers historical financial performance, future prospects, and anticipated needs for capital in formulating the dividend payment policy. Future dividends are dependent upon our financial results, capital
requirements and general economic conditions.



One of our primary
objectives is to maintain a strong capital position. Stockholders equity increased $515,000 or 1.3% in 2010. This increase resulted primarily from an increase in retained earnings of $999,000. Additionally, during 2010 we did not repurchase
any treasury shares through our stock repurchase program. At December 31, 2010, we maintained 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.



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 $37,948,000 at December 31, 2010, or 13.82% of total risk-weighted assets, compared to $36,790,000 at
December 31, 2009, or 12.31% 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 $3,463,000 at December 31, 2010, and $3,734,000 at December 31, 2009, or 1.25% of total risk-weighted assets for both years. Our total consolidated risk-based capital was
$41,411,000 at December 31, 2010, or 15.08% of total risk-weighted assets, compared to $40,524,000, or 13.56% of total risk-weighted assets as of December 31, 2009. 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, 2010 and 2009, the Corporations leverage ratio was 9.00% and 8.92% respectively; therefore, we exceeded all current
minimum capital requirements.



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Asset and Liability Management and Interest Rate Sensitivity



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



Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds, on which rates
change daily, and loans that are tied to the prime rate differ considerably from long-term securities and fixed rate loans. Similarly, time deposits of $100,000 and over, NOW accounts and money market deposit accounts are much more interest rate
sensitive than traditional 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 have traditionally priced our commercial loans with variable rates tied to
the prime rate of interest. With the dramatic reduction in the prime rate at the end of 2008, we implemented interest rate floors during 2009 on new and renewed commercial loans. We continued this policy during 2010. This allowed us to retain a
portion of our interest income, but will ultimately delay the repricing opportunities for these loans until the prime rate rises above the floor rates on the loans. Also, with the potential for rising interest rates, our customers are requesting
fixed rate commitments for new and renewed loans. See the Analysis of Interest Rate Sensitivity Table on the following page for more information regarding our risk to changes in interest rates.



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, 2010 and 2009,
simulation indicated the impact of a 200 basis point increase in rates would result in an increase in net interest income of 3.3% and 4.9%, respectively. A 200 basis point decline in rates would result in a decrease in net interest income from an
unchanged rate environment of 7.3% and 9.0%, respectively, at December 31, 2010 and 2009. These changes fall within our policy limits for the maximum negative impact to net interest income from a change in interest rates. Because of the
historically low interest rate environment, we also evaluate various scenarios to determine the impact of more significant changes in interest rates. In response to regulatory guidance issued during 2010, we began monitoring the potential impact of
a 400 basis point increase in interest rates from the base case scenario. Our model reflects this would result in a 7.3% increase in net interest income.



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ANALYSIS OF INTEREST RATE SENSITIVITY



An analysis of interest rate sensitivity as of December 31, 2010 is shown below.



|                                                                    |  |                        |         |   |        |   |         |        |  |   |         |    |  |   |          |   |  |   |         | 
|------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------ | - | ------- | ------ |  | - | ------- | -- |  | - | -------- | - |  | - | ------- | 
|                                                                    |  | Months                 |         |   | Years  |   |         | Totals | 
|                                                                    |  | Less Than 3            |         |   | 3  12 |   |         | 1  5  |  |   | Over 5  |    | 
|                                                                    |  | (Dollars in Thousands) |         |   |        |  
|Investment securities                                               |  | $                      | 490     |   |        | $ | 1,254   |        |  | $ | 45,048  |    |  | $ | 52,418   |   |  | $ | 99,210  | 
|Federal funds sold and interest-bearingbalances with banks          |  |                        | 19,644  |   |        |   |        |        |  |   |        |    |  |   |         |   |  |   | 19,644  | 
|Loans                                                               |  |                        | 100,523 |   |        |   | 54,099  |        |  |   | 87,398  |    |  |   | 18,237   |   |  |   | 260,257 | 
|Interest-earning assets                                             |  |                        | 120,657 |   |        |   | 55,353  |        |  |   | 132,446 |    |  |   | 70,655   |   |  |   | 379,111 | 
|Time deposits                                                       |  |                        | 43,368  |   |        |   | 73,983  |        |  |   | 40,474  |    |  |   |         |   |  |   | 157,825 | 
|Other interest-bearing deposits                                     |  |                        | 17,975  |   |        |   |        |        |  |   | 129,485 |    |  |   |         |   |  |   | 147,460 | 
|Other interest-bearing liabilities                                  |  |                        | 11,431  |   |        |   |        |        |  |   |        |    |  |   | 26       |   |  |   | 11,457  | 
|Interest-bearing liabilities                                        |  |                        | 72,774  |   |        |   | 73,983  |        |  |   | 169,959 |    |  |   | 26       |   |  |   | 316,742 | 
|Interest sensitivity gap                                            |  | $                      | 47,883  |   |        | $ | (18,630 | )      |  | $ | (37,513 | )  |  | $ | 70,629   |   |  | $ | 62,369  | 
|Cumulative interest sensitivity gap                                 |  | $                      | 47,883  |   |        | $ | 29,253  |        |  | $ | (8,260  | )  |  | $ | 62,369   |   |  |   |         | 
|Ratio of interest-earning assets tointerest-bearing liabilities     |  |                        | 1.66    | x |        |   | 0.75    | x      |  |   | 0.78    | x  |  |   | 2,717.50 | x |  |   |         | 
|Ratio of cumulative interest sensitivitygap to total earning assets |  |                        | 12.63   | % |        |   | 7.72    | %      |  |   | (2.18   | )% |  |   | 16.45    | % |  |   |         | 



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 $6,678,000 of liquidity for the year ended December 31, 2010, compared to $4,261,000 in 2009. 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 2010, cash flows from financing activities decreased $2,931,000, primarily due to decreases in short-term borrowings of $3,810,000. We allowed for measured reductions in these items because of lower
loan demand. We still maintained pricing structures to retain longer term customer relationships.



A secondary source of liquidity comes from investing activities, principally the maturities of investment securities. With the low interest rate environment during 2010, maturities and calls of investment
securities were $67,128,000, compared to $50,282,000 in 2009. This rapid flow of liquidity allowed us to reallocate a portion of the available for sale portfolio into municipal securities which provided more relative value at various purchasing
opportunities during the year. As of December 31, 2010, we had approximately $8,377,000 of investment securities that had scheduled maturities within 36 months. Payments from mortgage-backed securities in excess of this amount, as well as
security calls while interest rates remain low, will provide additional cash flow for reinvestment.



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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 correspondent bank relationships. As of December 31, 2010, FCBNA had a maximum borrowing capacity exceeding $90,000,000 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, 2010, FCBNA owned $1,189,800 of stock and had no outstanding balance on an overnight
repo account. We had no other outstanding advances from the Federal Home Loan Bank of Pittsburgh as of December 31, 2010.



We also have federal funds lines of credit from two other correspondent banks totaling $8,700,000. There were no outstanding balances on either line at
December 31, 2010.



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, during 2009 and 2010 the Federal
Reserve was 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, 2010.



Income Statement Analysis



Earnings Overview



Net income for the two years ended December 31, 2010 and 2009, was
$2,141,000 and $315,000, respectively. On a per share basis, diluted net income was $1.12 in 2010 compared to $0.17 in 2009. Return on average equity was 5.31% in 2010 compared to 0.76% in 2009. Return on average assets for the year ended
December 31, 2010 was 0.51% compared to 0.07% in 2009. Earnings for 2010 primarily reflect the improvement in the provision for loan losses from 2009. We continued to have significant costs associated with our loan collection efforts in 2010.
Core earnings of the bank reflect the net interest margin as a percentage of average assets of 3.31% for 2010 and 3.47% for 2009.



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 2010.



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EARNINGS PER SHARE



|                                      |  |   |       |  
|------------------------------------- |  | - | ----- | -
|Net income per share  2009           |  | $ | 0.17  |  
|Increase (decrease) due to change in: |  |   |       |  
|Net interest income                   |  |   | (0.28 | )
|Provision for loan losses             |  |   | 1.20  |  
|Other operating income                |  |   | (0.03 | )
|Personnel expense                     |  |   | 0.08  |  
|Other expense                         |  |   | (0.02 | )
|Net income per share  2010           |  | $ | 1.12  |  



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 2010 net interest income decreased $812,000 or 5.5%. This followed a 1.6% decrease in 2009. Net interest income resulted in a net interest margin to average assets ratio of 3.31% for 2010, compared with 3.47%
for 2009.



For the year ended December 31, 2010, interest
income decreased $2,442,000, or approximately 12.4%, compared to a decrease of $3,127,000, or 13.7% for 2009. Interest on loans decreased $1,796,000 or 11.1% during 2010. Interest on securities decreased $628,000, or 17.9% for 2010, following an
increase of $1,041,000, or 22.8% for 2009. Interest income reflects a yield on average earnings assets of 4.45% for 2010, compared with 5.01% for 2009.



The decrease in interest income was accompanied by a decrease in interest expense of $1,630,000 or 33.1% for 2010. This followed a decrease in interest
expense of $2,892,000, or 37.0% for 2009. Interest expense reflects a cost on average interest-bearing liabilities of 1.01% for 2010, compared with 1.50% for 2009.



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 net interest income arising from the rapid
reduction in interest rates by the Federal Reserve in 2008 that has resulted in a long-term, low interest rate environment. We did implement a pricing strategy in 2009 that created interest floors on our variable rate loans. We are continuing this
strategy as we have renewals and other opportunities to reprice 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, reinvestment opportunities in the investment portfolio were not readily available at comparable rates as the maturing or called security.



Provision for Loan Losses



The most significant impact on our earnings in 2010 and 2009 was our
provision for loan losses. The provision for loan losses was $1,936,000 for 2010, compared to $5,460,000 for 2009, or an improvement of $3,524,000, or 64.5%. The provision for loan losses as a percentage of average loans was 0.71% for 2010, compared
with 1.84% for 2009. Charge-offs decreased $3,393,000 during 2010. We incurred a specific charge off of $2,750,000 related



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to one borrower during 2009 that reflects the majority of the difference. Additionally, recoveries of previous charge-offs were up $46,000, or 38.0% in 2010. The ratio of net charge offs to
average loans outstanding was 0.14% for 2010, compared with 1.29% for 2009. Additional reserves in excess of net charge-offs of $1,550,000 were added to the allowance for loan losses in 2010, compared to $1,635,000 for 2009. This reflects higher
levels of nonperforming and impaired loans at December 31, 2010.



Noninterest Income and Expense



Noninterest income net of securities gains and losses was essentially unchanged for 2010, decreasing $7,000 or 0.1%, following a $499,000 or 10.4%
increase in 2009. The largest component of noninterest income is service charges on deposit accounts. These fees decreased approximately $55,000 or 2.9% in 2010, following an increase of $77,000 or 4.2% in 2009. Fierce competition exists in our
local markets for free checking type products. However, the income from our overdraft protection product decreased during 2010 as customer usage decreased. The second largest component of noninterest income is fees from fiduciary
activities. Fees from fiduciary activities decreased $154,000, or 9.7%, during 2010 after being down $22,000, or 1.4% in 2009. The fluctuations in fiduciary fees are attributed to the timing of the receipt of fees from estate settlements, growth of
assets under management and changes in overall investment performance. Noninterest income in 2009 was also higher as we recognized a gain of $279,000 as we exited our insurance activities conducted through FCFSLLC.



Noninterest expense decreased $280,000, or 1.9% in 2010, following a 6.5%
increase in 2009. The most significant decrease in noninterest expense was for FDIC insurance premiums and special assessments. Our total expense for FDIC insurance was $606,000 in 2010 compared with $890,000 in 2009. We anticipate higher levels of
FDIC premiums for some time as the fund must rebuild its reserves due to the significant number of bank failures that occurred in 2010 and 2009. Most of this savings was offset by higher costs associated with loan collections. Loan collection
expense increased by $260,000, or 208.0%, again, reflecting the higher levels of nonperforming loans.



Personnel expense is the largest component of noninterest expense. Personnel expense decreased $235,000, or 3.4% in 2010, following an increase of 2.6% in 2009. Most of the decrease in 2010 was
attributable to lower personnel expenses as a result of managements efforts, which began in 2009, to modify the organizational structure of the Company through attrition and reallocation of workflow. Staffing reductions of 18 FTEs, or
approximately 10.5% of year-end 2008 total FTEs, have been achieved by this effort. For a discussion of our employee benefit programs, refer to Note 7 of the Notes to Consolidated Financial Statements, presented elsewhere in this report.



Premises and equipment expense increased 3.8% in 2010 reflecting
costs for deferred maintenance and higher utility costs from the severe winter weather we experienced in early 2010.



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Income Taxes



Our income tax provision for 2010 reflected net tax expense of $945,000, compared to a net tax benefit of $123,000 in 2009. This resulted in an effective
income tax rate of 30.6% for 2010 and (64.1%) for 2009. Income taxes computed at the statutory rate are reduced primarily by interest earned on state and municipal obligations. For a discussion of the Corporations tax position, refer to
Note 8 of the Notes to Consolidated Financial Statements, presented elsewhere in this report.



RETURN ON EQUITY AND ASSETS



|                                                                                 |  |              |       |   |      |  |        |      |  |  |       |  
|-------------------------------------------------------------------------------- |  | ------------ | ----- | - | ---- |  | ------ | ---- |  |  | ----- | -
|                                                                                 |  | December 31, |      
|                                                                                 |  | 2010         |       |   | 2009 |  |        | 2008 | 
|Percentage of net income to:                                                     |  |              |       |   |      |  |        |      |  |  |       |  
|Average stockholders equity                                                     |  |              | 5.31  | % |      |  | 0.76   | %    |  |  | 8.96  | %
|Average total assets                                                             |  |              | 0.51  | % |      |  | 0.07   | %    |  |  | 0.85  | %
|Percentage of dividends declared per common share to net income per common share |  |              | 53.57 | % |      |  | 564.71 | %    |  |  | 57.51 | %
|Percentage of average stockholders equity to average total assets               |  |              | 9.38  | % |      |  | 9.49   | %    |  |  | 9.55  | %



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.



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 price for 2010 and 2009. Also presented below are the dividends paid for those respective years. The
number of stockholders of record on December 31, 2010, was 424 and outstanding shares totaled 1,903,120.



PER SHARE DATA BY QUARTER



|               |  |           |      |  |      |   |      |                   |  |   |       |  |  |      |       |  |     |   |       |  |  |   |       | 
|-------------- |  | --------- | ---- |  | ---- | - | ---- | ----------------- |  | - | ----- |  |  | ---- | ----- |  | --- | - | ----- |  |  | - | ----- | 
|               |  |           |      |  |      |   |      | Market Quotations | 
|               |  | Dividends |      |  | 2010 |   |      | 2009              | 
|Quarter        |  | 2010      |      |  | 2009 |   |      | High              |  |   | Low   |  |  | High |       |  | Low |  
|First Quarter  |  | $         | 0.15 |  |      | $ | 0.27 |                   |  | $ | 15.20 |  |  | $    | 13.05 |  |     | $ | 18.50 |  |  | $ | 13.50 | 
|Second Quarter |  |           | 0.15 |  |      |   | 0.27 |                   |  |   | 14.25 |  |  |      | 11.75 |  |     |   | 15.95 |  |  |   | 12.50 | 
|Third Quarter  |  |           | 0.15 |  |      |   | 0.27 |                   |  |   | 13.50 |  |  |      | 12.25 |  |     |   | 19.99 |  |  |   | 15.25 | 
|Fourth Quarter |  |           | 0.15 |  |      |   | 0.15 |                   |  |   | 12.50 |  |  |      | 10.10 |  |     |   | 17.34 |  |  |   | 13.70 | 



Page
18     First Century Bankshares, Inc.



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##### Table of Contents

Trust Asset Responsibility



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



LOGO



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



First
Century Bankshares, Inc.     Page 19



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##### Table of Contents

CONDENSED STATEMENTS OF FINANCIAL CONDITION

Statistical Summary, 2010  2006



|                                     |  |                                               |         |   |   |  |     |      |  |   |         |   |  |      |     |   |   |   |         |      |  |  |     |   |  |      |         |   |   |  |     |   |  |   |         |   |  |  |     |  
|------------------------------------ |  | --------------------------------------------- | ------- | - | - |  | --- | ---- |  | - | ------- | - |  | ---- | --- | - | - | - | ------- | ---- |  |  | --- | - |  | ---- | ------- | - | - |  | --- | - |  | - | ------- | - |  |  | --- | -
|                                     |  | December 31,                                  |        
|                                     |  | 2010                                          |         |   | % |  |     | 2009 |  |   | %       |   |  | 2008 |     |   | % |   |         | 2007 |  |  | %   |   |  | 2006 |         |   | % | 
|                                     |  | (Dollars in Thousands, Except Per Share Data) |        
|Loans                                |  | $                                             | 260,257 |   |   |  | 64  |      |  | $ | 286,366 |   |  |      | 70  |   |   | $ | 296,620 |      |  |  | 70  |   |  | $    | 296,946 |   |   |  | 68  |   |  | $ | 292,643 |   |  |  | 71  |  
|Securities                           |  |                                               | 99,210  |   |   |  | 25  |      |  |   | 81,551  |   |  |      | 20  |   |   |   | 91,770  |      |  |  | 22  |   |  |      | 102,349 |   |   |  | 24  |   |  |   | 88,127  |   |  |  | 22  |  
|Federal funds sold                   |  |                                               | 10,000  |   |   |  | 2   |      |  |   | 4,600   |   |  |      | 1   |   |   |   | 3,500   |      |  |  | 1   |   |  |      |        |   |   |  |    |   |  |   |        |   |  |  |    |  
|Interestbearing deposits with banks |  |                                               | 9,644   |   |   |  | 2   |      |  |   | 2,825   |   |  |      | 1   |   |   |   | 2,051   |      |  |  |    |   |  |      | 65      |   |   |  |    |   |  |   | 50      |   |  |  |    |  
|INTEREST-EARNING ASSETS              |  |                                               | 379,111 |   |   |  | 93  |      |  |   | 375,342 |   |  |      | 92  |   |   |   | 393,941 |      |  |  | 93  |   |  |      | 399,360 |   |   |  | 92  |   |  |   | 380,820 |   |  |  | 93  |  
|Cash and due from banks              |  |                                               | 9,225   |   |   |  | 2   |      |  |   | 9,917   |   |  |      | 2   |   |   |   | 10,908  |      |  |  | 3   |   |  |      | 13,462  |   |   |  | 3   |   |  |   | 10,162  |   |  |  | 2   |  
|Premises and equipment               |  |                                               | 13,070  |   |   |  | 3   |      |  |   | 13,566  |   |  |      | 3   |   |   |   | 14,354  |      |  |  | 3   |   |  |      | 13,385  |   |   |  | 3   |   |  |   | 12,202  |   |  |  | 3   |  
|Other assets                         |  |                                               | 12,458  |   |   |  | 3   |      |  |   | 13,887  |   |  |      | 4   |   |   |   | 9,181   |      |  |  | 2   |   |  |      | 10,127  |   |   |  | 3   |   |  |   | 10,319  |   |  |  | 3   |  
|Allowance for loan losses            |  |                                               | (5,875  | ) |   |  | (1  | )    |  |   | (4,325  | ) |  |      | (1  | ) |   |   | (2,690  | )    |  |  | (1  | ) |  |      | (2,455  | ) |   |  | (1  | ) |  |   | (2,555  | ) |  |  | (1  | )
|TOTAL ASSETS                         |  | $                                             | 407,989 |   |   |  | 100 |      |  | $ | 408,387 |   |  |      | 100 |   |   | $ | 425,694 |      |  |  | 100 |   |  | $    | 433,879 |   |   |  | 100 |   |  | $ | 410,948 |   |  |  | 100 |  
|Savings deposits                     |  | $                                             | 147,460 |   |   |  | 36  |      |  | $ | 137,027 |   |  |      | 33  |   |   | $ | 130,102 |      |  |  | 30  |   |  | $    | 126,653 |   |   |  | 29  |   |  | $ | 128,987 |   |  |  | 31  |  
|Time deposits                        |  |                                               | 157,825 |   |   |  | 39  |      |  |   | 167,745 |   |  |      | 41  |   |   |   | 174,331 |      |  |  | 41  |   |  |      | 191,197 |   |   |  | 44  |   |  |   | 183,916 |   |  |  | 45  |  
|Other interestbearing liabilities   |  |                                               | 11,457  |   |   |  | 3   |      |  |   | 15,267  |   |  |      | 4   |   |   |   | 22,658  |      |  |  | 5   |   |  |      | 27,708  |   |   |  | 7   |   |  |   | 12,674  |   |  |  | 3   |  
|INTEREST-BEARING LIABILITIES         |  |                                               | 316,742 |   |   |  | 78  |      |  |   | 320,039 |   |  |      | 78  |   |   |   | 327,091 |      |  |  | 76  |   |  |      | 345,558 |   |   |  | 80  |   |  |   | 325,577 |   |  |  | 79  |  
|Demand deposits                      |  |                                               | 47,056  |   |   |  | 11  |      |  |   | 45,548  |   |  |      | 11  |   |   |   | 53,598  |      |  |  | 13  |   |  |      | 44,905  |   |   |  | 10  |   |  |   | 44,452  |   |  |  | 11  |  
|Other liabilities                    |  |                                               | 4,220   |   |   |  | 1   |      |  |   | 3,344   |   |  |      | 1   |   |   |   | 3,640   |      |  |  | 1   |   |  |      | 3,011   |   |   |  | 1   |   |  |   | 2,487   |   |  |  | 1   |  
|TOTAL LIABILITIES                    |  |                                               | 368,018 |   |   |  | 90  |      |  |   | 368,931 |   |  |      | 90  |   |   |   | 384,329 |      |  |  | 90  |   |  |      | 393,474 |   |   |  | 91  |   |  |   | 372,516 |   |  |  | 91  |  
|STOCKHOLDERS EQUITY                 |  |                                               | 39,971  |   |   |  | 10  |      |  |   | 39,456  |   |  |      | 10  |   |   |   | 41,365  |      |  |  | 10  |   |  |      | 40,405  |   |   |  | 9   |   |  |   | 38,432  |   |  |  | 9   |  
|TOTAL LIABILITIES & EQUITY           |  | $                                             | 407,989 |   |   |  | 100 |      |  | $ | 408,387 |   |  |      | 100 |   |   | $ | 425,694 |      |  |  | 100 |   |  | $    | 433,879 |   |   |  | 100 |   |  | $ | 410,948 |   |  |  | 100 |  
|TOTAL DEPOSITS                       |  | $                                             | 352,341 |   |   |  |     |      |  | $ | 350,320 |   |  |      |     |   |   | $ | 358,031 |      |  |  |     |   |  | $    | 362,755 |   |   |  |     |   |  | $ | 357,355 |   |  |  |     |  
|BOOK VALUE PER SHARE                 |  | $                                             | 21.00   |   |   |  |     |      |  | $ | 20.73   |   |  |      |     |   |   | $ | 21.74   |      |  |  |     |   |  | $    | 21.16   |   |   |  |     |   |  | $ | 19.58   |   |  |  |     |  



SUMMARY OF OPERATIONS

Statistical Summary, 2010  2006



|                           |  |                                               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|-------------------------- |  | --------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                           |  | Years Ended December 31,                      |       
|                           |  | 2010                                          |        |   | 2009 |   |        | 2008 |  |   | 2007   |   |  | 2006 |       
|                           |  | (Dollars in Thousands, Except Per Share Data) |       
|Interest income            |  | $                                             | 17,282 |   |      | $ | 19,724 |      |  | $ | 22,851 |   |  | $    | 26,838 |   |  | $ | 24,193 |  
|Interest expense           |  |                                               | 3,294  |   |      |   | 4,924  |      |  |   | 7,816  |   |  |      | 10,465 |   |  |   | 8,012  |  
|NET INTEREST MARGIN        |  |                                               | 13,988 |   |      |   | 14,800 |      |  |   | 15,035 |   |  |      | 16,373 |   |  |   | 16,181 |  
|Provision for loan losses  |  |                                               | 1,936  |   |      |   | 5,460  |      |  |   | 449    |   |  |      | 166    |   |  |   | 80     |  
|Net credit margin          |  |                                               | 12,052 |   |      |   | 9,340  |      |  |   | 14,586 |   |  |      | 16,207 |   |  |   | 16,101 |  
|Noninterest income         |  |                                               | 5,332  |   |      |   | 5,430  |      |  |   | 4,793  |   |  |      | 4,785  |   |  |   | 4,584  |  
|Noninterest expense        |  |                                               | 14,298 |   |      |   | 14,578 |      |  |   | 13,683 |   |  |      | 13,875 |   |  |   | 13,796 |  
|INCOME BEFORE INCOME TAXES |  |                                               | 3,086  |   |      |   | 192    |      |  |   | 5,696  |   |  |      | 7,117  |   |  |   | 6,889  |  
|Provision for income taxes |  |                                               | 945    |   |      |   | (123   | )    |  |   | 2,011  |   |  |      | 2,429  |   |  |   | 2,400  |  
|NET INCOME                 |  | $                                             | 2,141  |   |      | $ | 315    |      |  | $ | 3,685  |   |  | $    | 4,688  |   |  | $ | 4,489  |  
|EARNINGS PER COMMON SHARE: |  |                                               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Basic                      |  | $                                             | 1.12   |   |      | $ | 0.17   |      |  | $ | 1.93   |   |  | $    | 2.40   |   |  | $ | 2.29   |  
|Diluted                    |  | $                                             | 1.12   |   |      | $ | 0.17   |      |  | $ | 1.93   |   |  | $    | 2.39   |   |  | $ | 2.28   |  
|Dividends per common share |  | $                                             | 0.60   |   |      | $ | 0.96   |      |  | $ | 1.11   |   |  | $    | 1.10   |   |  | $ | 1.05   |  
|Payout ratio               |  |                                               | 54     | % |      |   | 565    | %    |  |   | 58     | % |  |      | 46     | % |  |   | 46     | %



Page
20     First Century Bankshares, Inc.



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##### Table of Contents

Consolidated

Statements of Financial Condition



|                                                                                                                                                                                 |  |                                              |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                 |  | December 31,                                 |        
|                                                                                                                                                                                 |  | 2010                                         |         |   | 2009 |  
|ASSETS                                                                                                                                                                           |  | (Dollars in Thousands,Except Per Share Data) |        
|Cash and due from banks                                                                                                                                                          |  | $                                            | 9,225   |   |      | $ | 9,917   |  
|Interest-bearing balances with banks                                                                                                                                             |  |                                              | 9,644   |   |      |   | 2,825   |  
|Federal funds sold                                                                                                                                                               |  |                                              | 10,000  |   |      |   | 4,600   |  
|Securities available for sale                                                                                                                                                    |  |                                              | 73,442  |   |      |   | 60,840  |  
|Securities held to maturity (estimated fair value of $24,262 in 2010 and $19,416in 2009)                                                                                         |  |                                              | 24,196  |   |      |   | 19,076  |  
|Federal Home Loan Bank and Federal Reserve Bank Stock                                                                                                                            |  |                                              | 1,572   |   |      |   | 1,635   |  
|Loans                                                                                                                                                                            |  |                                              | 260,257 |   |      |   | 286,366 |  
|Less allowance for loan losses                                                                                                                                                   |  |                                              | 5,875   |   |      |   | 4,325   |  
|Net loans                                                                                                                                                                        |  |                                              | 254,382 |   |      |   | 282,041 |  
|Premises and equipment, net                                                                                                                                                      |  |                                              | 13,070  |   |      |   | 13,566  |  
|Other real estate owned                                                                                                                                                          |  |                                              | 1,750   |   |      |   | 2,578   |  
|Goodwill                                                                                                                                                                         |  |                                              | 5,183   |   |      |   | 5,183   |  
|Other assets                                                                                                                                                                     |  |                                              | 5,525   |   |      |   | 6,126   |  
|TOTAL ASSETS                                                                                                                                                                     |  | $                                            | 407,989 |   |      | $ | 408,387 |  
|                                                                                                                                                                                 |  |                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                             |  |                                              |         |   |      |   |         |  
|Deposits:                                                                                                                                                                        |  |                                              |         |   |      |   |         |  
|Noninterest-bearing                                                                                                                                                              |  | $                                            | 47,056  |   |      | $ | 45,548  |  
|Interest-bearing                                                                                                                                                                 |  |                                              | 305,285 |   |      |   | 304,772 |  
|Total deposits                                                                                                                                                                   |  |                                              | 352,341 |   |      |   | 350,320 |  
|Short-term borrowings                                                                                                                                                            |  |                                              | 11,457  |   |      |   | 15,267  |  
|Other liabilities                                                                                                                                                                |  |                                              | 4,220   |   |      |   | 3,344   |  
|TOTAL LIABILITIES                                                                                                                                                                |  |                                              | 368,018 |   |      |   | 368,931 |  
|Commitments and contingencies (see Notes 9 and 10)                                                                                                                               |  |                                              |         |   |      |   |         |  
|STOCKHOLDERS EQUITY                                                                                                                                                             |  |                                              |         |   |      |   |         |  
|Common stock - $1.25 par value; 10,000,000 shares authorized and2,000,000 shares issued at December 31, 2010 and 2009;1,903,120 shares outstanding at December 31,
2010 and 2009 |  |                                              | 2,500   |   |      |   | 2,500   |  
|Paid-in capital                                                                                                                                                                  |  |                                              | 757     |   |      |   | 757     |  
|Retained earnings                                                                                                                                                                |  |                                              | 40,726  |   |      |   | 39,727  |  
|Accumulated other comprehensive income (loss), net of tax                                                                                                                        |  |                                              | (1,732  | ) |      |   | (1,248  | )
|Treasury stock, at cost; 96,880 shares at December 31, 2010 and 2009                                                                                                             |  |                                              | (2,280  | ) |      |   | (2,280  | )
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                       |  |                                              | 39,971  |   |      |   | 39,456  |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                       |  | $                                            | 407,989 |   |      | $ | 408,387 |  



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



First
Century Bankshares, Inc.     Page 21



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##### Table of Contents

Consolidated

Statements of Income



|                                                                                      |  |                                              |           |  |      |   |           |  
|------------------------------------------------------------------------------------- |  | -------------------------------------------- | --------- |  | ---- | - | --------- | -
|                                                                                      |  | Years EndedDecember 31,                      |          
|                                                                                      |  | 2010                                         |           |  | 2009 |  
|INTEREST INCOME                                                                       |  | (Dollars in Thousands,Except Per Share Data) |          
|Interest and fees on loans                                                            |  | $                                            | 14,355    |  |      | $ | 16,151    |  
|Interest on balances with banks                                                       |  |                                              | 23        |  |      |   | 48        |  
|Interest and dividends from securities available for sale:                            |  |                                              |           |  |      |   |           |  
|Taxable                                                                               |  |                                              | 2,107     |  |      |   | 2,810     |  
|Interest and dividends from securities held to maturity:                              |  |                                              |           |  |      |   |           |  
|Taxable                                                                               |  |                                              | 56        |  |      |   | 27        |  
|Tax-exempt                                                                            |  |                                              | 724       |  |      |   | 678       |  
|Interest on federal funds sold                                                        |  |                                              | 17        |  |      |   | 10        |  
|TOTAL INTEREST INCOME                                                                 |  |                                              | 17,282    |  |      |   | 19,724    |  
|INTEREST EXPENSE                                                                      |  |                                              |           |  |      |   |           |  
|Interest on time certificates of $100,000 or more                                     |  |                                              | 829       |  |      |   | 1,193     |  
|Interest on other deposits                                                            |  |                                              | 2,189     |  |      |   | 3,453     |  
|Interest on federal funds purchased and securitiessold under agreements to repurchase |  |                                              | 274       |  |      |   | 275       |  
|Interest on other short-term borrowings                                               |  |                                              | 2         |  |      |   | 3         |  
|TOTAL INTEREST EXPENSE                                                                |  |                                              | 3,294     |  |      |   | 4,924     |  
|Net interest income                                                                   |  |                                              | 13,988    |  |      |   | 14,800    |  
|Provision for loan losses                                                             |  |                                              | 1,936     |  |      |   | 5,460     |  
|Net interest income after provision for loan losses                                   |  |                                              | 12,052    |  |      |   | 9,340     |  
|NONINTEREST INCOME                                                                    |  |                                              |           |  |      |   |           |  
|Income from fiduciary activities                                                      |  |                                              | 1,429     |  |      |   | 1,583     |  
|Service charges on deposit accounts                                                   |  |                                              | 1,846     |  |      |   | 1,901     |  
|Other noninterest income                                                              |  |                                              | 2,010     |  |      |   | 1,808     |  
|Securities gains (losses)                                                             |  |                                              | 47        |  |      |   | 138       |  
|TOTAL NONINTEREST INCOME                                                              |  |                                              | 5,332     |  |      |   | 5,430     |  
|NONINTEREST EXPENSE                                                                   |  |                                              |           |  |      |   |           |  
|Salaries, wages, and other employee benefits                                          |  |                                              | 6,682     |  |      |   | 6,917     |  
|Premises and equipment                                                                |  |                                              | 2,351     |  |      |   | 2,265     |  
|Data processing                                                                       |  |                                              | 989       |  |      |   | 917       |  
|FDIC assessments                                                                      |  |                                              | 606       |  |      |   | 890       |  
|Loan collection expense                                                               |  |                                              | 385       |  |      |   | 125       |  
|Legal fees                                                                            |  |                                              | 155       |  |      |   | 217       |  
|Advertising and public relations                                                      |  |                                              | 210       |  |      |   | 233       |  
|Postage                                                                               |  |                                              | 253       |  |      |   | 262       |  
|Supplies and printing                                                                 |  |                                              | 267       |  |      |   | 292       |  
|Other taxes                                                                           |  |                                              | 272       |  |      |   | 301       |  
|Other noninterest expense                                                             |  |                                              | 2,128     |  |      |   | 2,159     |  
|TOTAL NONINTEREST EXPENSE                                                             |  |                                              | 14,298    |  |      |   | 14,578    |  
|Income before income taxes                                                            |  |                                              | 3,086     |  |      |   | 192       |  
|Provision for income taxes                                                            |  |                                              | 945       |  |      |   | (123      | )
|NET INCOME                                                                            |  | $                                            | 2,141     |  |      | $ | 315       |  
|                                                                                      |  |                                             
|NET INCOME PER COMMON SHARE:                                                          |  |                                              |           |  |      |   |           |  
|Basic and diluted                                                                     |  | $                                            | 1.12      |  |      | $ | 0.17      |  
|                                                                                      |  |                                             
|AVERAGE SHARES OUTSTANDING:                                                           |  |                                              |           |  |      |   |           |  
|Basic and diluted                                                                     |  |                                              | 1,903,120 |  |      |   | 1,903,120 |  



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 Changes in Stockholders Equity



|                                                                                                                         |  |                                               |       |  |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------- | ----- |  | -------------- | - | --- | ---------------- |  | - | ------------------------------------------ | - |  | ------------- | ------ | - | ----- | - | ------ | - |  | - | ------ | -
|                                                                                                                         |  | CommonStock                                   |       |  | Paid-inCapital |   |     | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (loss) |   |  | TreasuryStock |        |   | Total |  
|                                                                                                                         |  | (Dollars in Thousands, Except Per Share Data) |      
|Balance at December 31, 2008                                                                                             |  | $                                             | 2,500 |  |                | $ | 757 |                  |  | $ | 41,239                                     |   |  | $             | (851   | ) |       | $ | (2,280 | ) |  | $ | 41,365 |  
|                                                                                                                         |  |                                               |       |  |                |  
|Comprehensive income:                                                                                                    |  |                                               |       |  |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|Net income                                                                                                               |  |                                               |      |  |                |   |    |                  |  |   | 315                                        |   |  |               |       |   |       |   |       |   |  |   | 315    |  
|Change in net unrealized gain (loss) on pension and postretirement benefits                                              |  |                                               |      |  |                |   |    |                  |  |   |                                           |   |  |               | 22     |   |       |   |       |   |  |   | 22     |  
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax
effect |  |                                               |      |  |                |   |    |                  |  |   |                                           |   |  |               | (419   | ) |       |   |       |   |  |   | (419   | )
|Total comprehensive income (loss)                                                                                        |  |                                               |      |  |                |   |    |                  |  |   | 315                                        |   |  |               | (397   | ) |       |   |       |   |  |   | (82    | )
|Cash dividends declared$0.96 per share                                                                                  |  |                                               |      |  |                |   |    |                  |  |   | (1,827                                     | ) |  |               |       |   |       |   |       |   |  |   | (1,827 | )
|Balance at December 31, 2009                                                                                             |  | $                                             | 2,500 |  |                | $ | 757 |                  |  | $ | 39,727                                     |   |  | $             | (1,248 | ) |       | $ | (2,280 | ) |  | $ | 39,456 |  
|                                                                                                                         |  |                                               |       |  |                |  
|Comprehensive income:                                                                                                    |  |                                               |       |  |                |   |     |                  |  |   |                                            |   |  |               |        |   |       |   |        |   |  |   |        |  
|Net income                                                                                                               |  | $                                             |      |  |                | $ |    |                  |  | $ | 2,141                                      |   |  | $             |       |   |       | $ |       |   |  | $ | 2,141  |  
|Change in net unrealized gain (loss) on pension and postretirement benefits                                              |  |                                               |      |  |                |   |    |                  |  |   |                                           |   |  |               | (212   | ) |       |   |       |   |  |   | (212   | )
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax
effect |  |                                               |      |  |                |   |    |                  |  |   |                                           |   |  |               | (272   | ) |       |   |       |   |  |   | (272   | )
|Total comprehensive income (loss)                                                                                        |  |                                               |      |  |                |   |    |                  |  |   | 2,141                                      |   |  |               | (484   | ) |       |   |       |   |  |   | 1,657  |  
|Cash dividends declared$0.60 per share                                                                                  |  |                                               |      |  |                |   |    |                  |  |   | (1,142                                     | ) |  |               |       |   |       |   |       |   |  |   | (1,142 | )
|Balance at December 31, 2010                                                                                             |  | $                                             | 2,500 |  |                | $ | 757 |                  |  | $ | 40,726                                     |   |  | $             | (1,732 | ) |       | $ | (2,280 | ) |  | $ | 39,971 |  



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



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##### Table of Contents

Consolidated

Statements of Cash Flows



|                                                                                                    |  |                         |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                    |  | Years EndedDecember 31, |        
|                                                                                                    |  | 2010                    |         |   | 2009 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                |  | (Dollars in Thousands)  |        
|Net income before adjustments to reconcile net income to net cash provided by operating
activities: |  | $                       | 2,141   |   |      | $ | 315     |  
|Provision for loan losses                                                                           |  |                         | 1,936   |   |      |   | 5,460   |  
|Depreciation and amortization                                                                       |  |                         | 867     |   |      |   | 902     |  
|Deferred income tax benefit                                                                         |  |                         | (697    | ) |      |   | (394    | )
|Securities gains                                                                                    |  |                         | (47     | ) |      |   | (138    | )
|Loss on equity securities carried at cost                                                           |  |                         |        |   |      |   | 168     |  
|Loss on disposal of fixed assets                                                                    |  |                         | 34      |   |      |   |        |  
|Loss (gain) on disposal of other real estate owned                                                  |  |                         | 24      |   |      |   | (6      | )
|Decrease in interest receivable                                                                     |  |                         | 241     |   |      |   | 259     |  
|Net investment amortization                                                                         |  |                         | 234     |   |      |   | 70      |  
|Net (increase) decrease in other assets                                                             |  |                         | 1,407   |   |      |   | (2,363  | )
|Net increase (decrease) in interest payable and other liabilities                                   |  |                         | 538     |   |      |   | (12     | )
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                           |  |                         | 6,678   |   |      |   | 4,261   |  
|                                                                                                    |  |                        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                |  |                         |         |   |      |   |         |  
|Purchases of securities held to maturity                                                            |  |                         | (6,998  | ) |      |   | (6,101  | )
|Purchases of securities available for sale                                                          |  |                         | (79,267 | ) |      |   | (41,332 | )
|Redemptions of Federal Home Loan Bank stock                                                         |  |                         | 63      |   |      |   |        |  
|Proceeds from maturities and calls of securities held to maturity                                   |  |                         | 1,835   |   |      |   | 4,285   |  
|Proceeds from maturities and calls of securities available for sale                                 |  |                         | 65,293  |   |      |   | 45,997  |  
|Proceeds from sales of securities available for sale                                                |  |                         | 792     |   |      |   | 6,770   |  
|Net decrease in loans                                                                               |  |                         | 25,875  |   |      |   | 3,918   |  
|Proceeds from disposal of other real estate owned                                                   |  |                         | 592     |   |      |   | 128     |  
|Acquisition of premises and equipment                                                               |  |                         | (405    | ) |      |   | (114    | )
|NET CASH PROVIDED BY INVESTING ACTIVITIES                                                           |  |                         | 7,780   |   |      |   | 13,551  |  
|                                                                                                    |  |                        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                |  |                         |         |   |      |   |         |  
|Net increase (decrease) in demand and savings deposits                                              |  |                         | 11,941  |   |      |   | (1,125  | )
|Net decrease in time deposits                                                                       |  |                         | (9,920  | ) |      |   | (6,586  | )
|Net decrease in short-term borrowings                                                               |  |                         | (3,810  | ) |      |   | (7,391  | )
|Cash dividends paid                                                                                 |  |                         | (1,142  | ) |      |   | (1,827  | )
|NET CASH USED BY FINANCING ACTIVITIES                                                               |  |                         | (2,931  | ) |      |   | (16,929 | )
|Net increase in cash and cash equivalents                                                           |  |                         | 11,527  |   |      |   | 883     |  
|Cash and cash equivalents at beginning of year                                                      |  |                         | 17,342  |   |      |   | 16,459  |  
|Cash and cash equivalents at end of year                                                            |  | $                       | 28,869  |   |      | $ | 17,342  |  
|                                                                                                    |  |                        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                   |  |                         |         |   |      |   |         |  
|Cash paid during the year for:                                                                      |  |                         |         |   |      |   |         |  
|Interest                                                                                            |  | $                       | 3,291   |   |      | $ | 5,049   |  
|Income taxes                                                                                        |  | $                       | 590     |   |      | $ | 1,050   |  
|                                                                                                    |  |                        
|SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS                                                    |  |                         |         |   |      |   |         |  
|Transfers of loans to other real estate owned                                                       |  | $                       | 698     |   |      | $ | 2,511   |  
|Internally financed sales of other real estate owned                                                |  | $                       | 850     |   |      | $ |        |  



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



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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. (FCBNA) and First Century Financial
Services, LLC (FCFSLLC), 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, 2010 and 2009, was approximately $304,000 and $401,000, 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



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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.



We identify
past due loans based on contractual terms on a loan by loan basis.



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, 2010 and 2009, the reserve for unfunded lending commitments was $10,000 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



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##### Table of Contents

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



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.



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, 2010 and 2009, the
Corporation serviced the home mortgage loans of approximately 1,300 borrowers. Loans are serviced for the Federal National Mortgage Association (Fannie Mae). As of December 31, 2010, the Corporation serviced loans with an aggregate principal amount
of approximately $127,066,000 compared to $119,391,000 at December 31, 2009. The average annual servicing fee on its servicing portfolio was 0.248% for 2010 and 0.246% for 2009. 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 2010 and 2009, the loan servicing function generated fees of approximately $303,000 and $274,000, respectively.



Other Real Estate Owned Other real estate owned includes
properties on which the Corporations subsidiary has foreclosed and taken title, or has taken possession of the collateral in-substance, but has not completed legal foreclosure proceedings. 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



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##### Table of Contents

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



extinguishments of liabilities. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This approach provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are
secured borrowings.



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, 2010 and 2009.



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.



The Corporation
classifies interest and penalties related to income tax assessments, if any, in interest expense or noninterest expense, respectively in the consolidated statements of operations. Tax years 2007 through 2009 are subject to examination by the
Internal Revenue Service and the West Virginia Department of Taxation. The Corporation has analyzed the tax positions taken or expected to be taken in its tax returns and has concluded it has no liability related to uncertain tax positions.



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 Accounting Standards Codification Topic 712, Compensation  Nonretirement Postemployment Benefits.



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##### Table of Contents

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





Recent Accounting Pronouncements



In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06, Improving
Disclosures about Fair Value Measurements, to amend FASB Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures. The amendments in this update require more robust disclosures about
(1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The
new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Adoption of the amendments in this update had no impact on the
Companys financial position or results of operations.



The
FASB issued ASU 2010-20 Disclosure about Credit Quality and the Allowance for Credit Losses in July 2010 to provide disclosures that facilitate financial statement users evaluation of (i) the nature of credit risk inherent in
the entitys portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, and (iii) the changes and reasons for those changes in the allowance for credit losses. An
entity should provide disclosures on two levels of disaggregation- portfolio segment and class of financing receivable. The disclosure requirements include, among other things, a roll-forward schedule of the allowance for credit losses as well as
information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 was effective for the entitys financial statements as of December 31, 2010, as related to end of a reporting period disclosure
requirement. Disclosures that relate to activity during a reporting period will be required for the entitys financial statements that include periods beginning on or after January 1, 2011. See Note 3 to these Consolidated Financial
Statements for the required disclosures at December 31, 2010.



2.
Securities



Securities available for sale at
December 31, 2010 and 2009 are summarized as follows:



|                                                  |  |                        |        |  |                      |   |       |                       |  |   |           |  |  |   |        | 
|------------------------------------------------- |  | ---------------------- | ------ |  | -------------------- | - | ----- | --------------------- |  | - | --------- |  |  | - | ------ | 
|                                                  |  | 2010                   |       
|                                                  |  | AmortizedCost          |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue | 
|                                                  |  | (Dollars in Thousands) |       
|                                                  |  |                        |        |  |                      |   |       |                       |  |   |           |  |  |   |        | 
|U.S. Government agency obligations                |  | $                      | 56,151 |  |                      | $ | 132   |                       |  | $ | 475       |  |  | $ | 55,808 | 
|U.S. Government agency mortgage-backed securities |  |                        | 16,844 |  |                      |   | 790   |                       |  |   |          |  |  |   | 17,634 | 
|TOTAL SECURITIES AVAILABLE FOR SALE               |  | $                      | 72,995 |  |                      | $ | 922   |                       |  | $ | 475       |  |  | $ | 73,442 | 
|                                                  |  | 2009                   |       
|                                                  |  | AmortizedCost          |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue | 
|                                                  |  | (Dollars in Thousands) |       
|U.S. Government agency obligations                |  | $                      | 35,533 |  |                      | $ | 221   |                       |  | $ | 116       |  |  | $ | 35,638 | 
|U.S. Government agency mortgage-backed securities |  |                        | 24,426 |  |                      |   | 787   |                       |  |   | 11        |  |  |   | 25,202 | 
|TOTAL SECURITIES AVAILABLE FOR SALE               |  | $                      | 59,959 |  |                      | $ | 1,008 |                       |  | $ | 127       |  |  | $ | 60,840 | 



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##### Table of Contents

2. Securities (continued)



Securities held to maturity at December 31, 2010 and 2009 are summarized
as follows:



|                                  |  |                        |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|--------------------------------- |  | ---------------------- | ------ |  | -------------------- | - | --- | --------------------- |  | - | --------- |  |  | - | ------ | 
|                                  |  | 2010                   |       
|                                  |  | AmortizedCost          |        |  | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | FairValue | 
|                                  |  | (Dollars in Thousands) |       
|State and municipal obligations   |  | $                      | 24,196 |  |                      | $ | 345 |                       |  | $ | 279       |  |  | $ | 24,262 | 
|TOTAL SECURITIES HELD TO MATURITY |  | $                      | 24,196 |  |                      | $ | 345 |                       |  | $ | 279       |  |  | $ | 24,262 | 
|                                  |  | 2009                   |       
|                                  |  | AmortizedCost          |        |  | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | FairValue | 
|                                  |  | (Dollars in Thousands) |       
|State and municipal obligations   |  | $                      | 19,076 |  |                      | $ | 378 |                       |  | $ | 38        |  |  | $ | 19,416 | 
|TOTAL SECURITIES HELD TO MATURITY |  | $                      | 19,076 |  |                      | $ | 378 |                       |  | $ | 38        |  |  | $ | 19,416 | 



Securities with an aggregate fair value of $34,551,000 at December 31, 2010 and $38,660,000 at December 31, 2009, were pledged to secure public
and trust deposits and for other purposes required or permitted by law, including approximately $11,431,000 at December 31, 2010 and $15,241,000 at December 31, 2009 pledged to secure repurchase agreements.



Gross gains of $47,000 were recognized on sales of available for sale
securities for the year ended December 31, 2010. Gross gains of $248,000 and gross losses of $110,000 were recognized on sales of available for sale securities for the year ended December 31, 2009.



The amortized cost and estimated fair value for securities available for sale
and securities held to maturity by contractual maturities at December 31, 2010 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                |  | $                      | 385    |  |           | $ | 394    |                              |  | $ | 9    |  
|Due after one year through five years  |  |                        | 39,856 |  |           |   | 39,812 |                              |  |   | (44  | )
|Due after five years through ten years |  |                        | 29,042 |  |           |   | 29,406 |                              |  |   | 364  |  
|Due after ten years                    |  |                        | 3,712  |  |           |   | 3,830  |                              |  |   | 118  |  
|TOTAL SECURITIES AVAILABLE FOR SALE    |  | $                      | 72,995 |  |           | $ | 73,442 |                              |  | $ | 447  |  
|                                       |  |                        |       
|                                       |  | AmortizedCost          |        |  | FairValue |   |        | Net
UnrealizedGains (Losses) | 
|                                       |  | (Dollars in Thousands) |       
|Due in one year or less                |  | $                      | 1,350  |  |           | $ | 1,363  |                              |  | $ | 13   |  
|Due after one year through five years  |  |                        | 5,236  |  |           |   | 5,394  |                              |  |   | 158  |  
|Due after five years through ten years |  |                        | 10,423 |  |           |   | 10,542 |                              |  |   | 119  |  
|Due after ten years                    |  |                        | 7,187  |  |           |   | 6,963  |                              |  |   | (224 | )
|TOTAL SECURITIES HELD TO MATURITY      |  | $                      | 24,196 |  |           | $ | 24,262 |                              |  | $ | 66   |  





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30     First Century Bankshares, Inc.



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2. Securities (continued)



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, 2010:



|                                    |  |                         |     |  |           |   |        |  |  |  |                    |  |  |                       |  |  |           |   |   |  |  |   |     | 
|----------------------------------- |  | ----------------------- | --- |  | --------- | - | ------ |  |  |  | ------------------ |  |  | --------------------- |  |  | --------- | - | - |  |  | - | --- | 
|                                    |  | 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 obligations  |  | $                       | 475 |  |           | $ | 23,862 |  |  |  |                    |  |  |                       |  |  |           | $ |  |  |  | $ |    | 
|Total securities available for sale |  | $                       | 475 |  |           | $ | 23,862 |  |  |  |                    |  |  |                       |  |  |           | $ |  |  |  | $ |    | 
|Securities held to maturity:        |  |                         |     |  |           |   |        |  |  |  |                    |  |  |                       |  |  |           |   |   |  |  |   |     | 
|Municipal securities                |  | $                       | 276 |  |           | $ | 8,506  |  |  |  |                    |  |  |                       |  |  |           | $ | 3 |  |  | $ | 202 | 
|Total securities held to maturity   |  | $                       | 276 |  |           | $ | 8,506  |  |  |  |                    |  |  |                       |  |  |           | $ | 3 |  |  | $ | 202 | 



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



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.



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, 2010.



3. Loans and Allowance for Loan Losses



Loans at December 31, 2010 and 2009 consisted of the following:



|                         |  |                        |         |  |      |   |         | 
|------------------------ |  | ---------------------- | ------- |  | ---- | - | ------- | 
|                         |  | December 31,           |        
|                         |  | 2010                   |         |  | 2009 |  
|                         |  | (Dollars in Thousands) |        
|Commercial               |  | $                      | 29,102  |  |      | $ | 39,436  | 
|Commercialreal estate   |  |                        |         |  |      |   |         | 
|Construction             |  |                        | 8,462   |  |      |   | 8,315   | 
|Owner occupied           |  |                        | 52,289  |  |      |   | 69,056  | 
|Non-owner occupied       |  |                        | 51,378  |  |      |   | 47,793  | 
|Total commercial loans   |  |                        | 141,231 |  |      |   | 164,600 | 
|Consumer                 |  |                        | 19,045  |  |      |   | 21,028  | 
|Residential real estate  |  |                        | 93,044  |  |      |   | 92,786  | 
|Residential construction |  |                        | 6,937   |  |      |   | 7,952   | 
|Total consumer loans     |  |                        | 119,026 |  |      |   | 121,766 | 
|TOTAL LOANS              |  | $                      | 260,257 |  |      | $ | 286,366 | 



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3. Loans and Allowance for Loan Losses (continued)





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). These loans to related parties are summarized as follows:



|                             |  |                  |        |  
|---------------------------- |  | ---------------- | ------ | -
|                             |  | 2010             |       
|                             |  | ($ in Thousands) |       
|BALANCE AT BEGINNING OF YEAR |  | $                | 18,291 |  
|New loans                    |  |                  | 4,591  |  
|Repayments                   |  |                  | (9,455 | )
|BALANCE AT END OF YEAR       |  | $                | 13,427 |  



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.



6  Special Mention (OAEM)



A special mention asset has potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for
the asset or in the institutions credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Loans graded a 6 may be
experiencing adverse operating trends such as declining revenues or margins or an ill-proportioned balance sheet caused by increasing accounts receivable and/or inventory balances not supported by an increase in sales revenue. Other reasons
supporting this classification include adverse economic or market conditions, pending litigation or any other material structural weakness.



7  Substandard



Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are
normally graded 7 when they have unsatisfactory characteristics causing more than acceptable levels of risk. A loan graded 7 normally has one or more well-defined weakness that could jeopardize repayment of the debt. The following are examples of
situations that might cause a loan to be graded 7:



| |  |  | Cash flow deficiencies jeopardize future loan payments.
| | - |  | -------------------------------------------------------



| |  |  | Sale of non-collateral assets has become a primary source of loan repayment.
| | - |  | ----------------------------------------------------------------------------



| |  |  | The relationship has deteriorated to the point that sale of collateral is now the banks primary source of repayment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | The borrower is bankrupt, or for any other reason, future repayment is dependent on court action.
| | - |  | -------------------------------------------------------------------------------------------------



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3. Loans and Allowance for Loan Losses (continued)





8  Doubtful



Loans are graded 8 if they contain weakness so serious that collection or liquidation in full is questionable. An 8 classification will result in the loan being placed in non-accrual.



9  Loss



A 9 rating is assigned to loans considered uncollectible and
of such little value that their continuance as an active bank asset is not warranted. This rating does not mean that the asset has no recovery or salvage value, but rather that the asset should be charged off now, even though partial or full
recovery may be possible in the future.



The following table
presents loans by credit quality indicator at December 31, 2010.



|                         |  |                        |         |  |                |   |       |             |  |   |        |  |  |   |         | 
|------------------------ |  | ---------------------- | ------- |  | -------------- | - | ----- | ----------- |  | - | ------ |  |  | - | ------- | 
|                         |  | Pass                   |         |  | SpecialMention |   |       | Substandard |  |   | Total  | 
|                         |  | (Dollars in Thousands) |        
|Commercial               |  | $                      | 24,069  |  |                | $ | 918   |             |  | $ | 4,115  |  |  | $ | 29,102  | 
|CommercialReal Estate   |  |                        |         |  |                |   |       |             |  |   |        |  |  |   |         | 
|Construction             |  |                        | 3,514   |  |                |   | 0     |             |  |   | 4,948  |  |  |   | 8,462   | 
|Owner Occupied           |  |                        | 40,104  |  |                |   | 4,080 |             |  |   | 8,105  |  |  |   | 52,289  | 
|Non-Owner Occupied       |  |                        | 46,238  |  |                |   | 3,152 |             |  |   | 1,988  |  |  |   | 51,378  | 
|Consumer                 |  |                        | 18,614  |  |                |   | 148   |             |  |   | 283    |  |  |   | 19,045  | 
|Residential Real Estate  |  |                        | 86,446  |  |                |   | 1,497 |             |  |   | 5,101  |  |  |   | 93,044  | 
|Residential Construction |  |                        | 6,365   |  |                |   | 0     |             |  |   | 572    |  |  |   | 6,937   | 
|TOTAL                    |  | $                      | 225,350 |  |                | $ | 9,795 |             |  | $ | 25,112 |  |  | $ | 260,257 | 



Consumer loans consist of performing loans of $18,896,000 and nonperforming loans of $149,000 at December 31, 2010.



The following table presents loans by past due status at December 31,
2010.



|                         |  |                    |       |  |                    |   |       |                         |  |   |               |  |  |         |        |  |            |   |         |                                   |  |   |         |  |  |   |     | 
|------------------------ |  | ------------------ | ----- |  | ------------------ | - | ----- | ----------------------- |  | - | ------------- |  |  | ------- | ------ |  | ---------- | - | ------- | --------------------------------- |  | - | ------- |  |  | - | --- | 
|                         |  | 30-59 DaysPast Due |       |  | 60-89 DaysPast Due |   |       | 90 Days orMore Past Due |  |   | TotalPast Due |  |  | Current |        |  | TotalLoans |   |         | 90 Days PastDue and StillAccruing | 
|Commercial               |  | $                  | 338   |  |                    | $ | 919   |                         |  | $ | 543           |  |  | $       | 1,800  |  |            | $ | 27,302  |                                   |  | $ | 29,102  |  |  | $ |    | 
|CommercialReal Estate   |  |                    |       |  |                    |   |       |                         |  |   |               |  |  |         |        |  |            |   |         |                                   |  |   |         |  |  |   |     | 
|Construction             |  |                    | 4,948 |  |                    |   | 14    |                         |  |   |              |  |  |         | 4,962  |  |            |   | 3,500   |                                   |  |   | 8,462   |  |  |   | 65  | 
|Owner Occupied           |  |                    | 312   |  |                    |   | 2,374 |                         |  |   | 150           |  |  |         | 2,836  |  |            |   | 49,453  |                                   |  |   | 52,289  |  |  |   |    | 
|Non-Owner Occupied       |  |                    | 690   |  |                    |   | 968   |                         |  |   | 930           |  |  |         | 2,588  |  |            |   | 48,790  |                                   |  |   | 51,378  |  |  |   | 5   | 
|Consumer                 |  |                    | 389   |  |                    |   | 83    |                         |  |   | 91            |  |  |         | 563    |  |            |   | 18,482  |                                   |  |   | 19,045  |  |  |   | 44  | 
|Residential Real Estate  |  |                    | 2,428 |  |                    |   | 625   |                         |  |   | 1,183         |  |  |         | 4,236  |  |            |   | 88,808  |                                   |  |   | 93,044  |  |  |   | 525 | 
|Residential Construction |  |                    |      |  |                    |   | 21    |                         |  |   | 65            |  |  |         | 86     |  |            |   | 6,851   |                                   |  |   | 6,937   |  |  |   |    | 
|TOTAL                    |  | $                  | 9,105 |  |                    | $ | 5,004 |                         |  | $ | 2,962         |  |  | $       | 17,071 |  |            | $ | 243,186 |                                   |  | $ | 260,257 |  |  | $ | 639 | 







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3. Loans and Allowance for Loan Losses (continued)



The following table presents impaired loans at December 31, 2010.





|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|----------------------------------- |  | -------------- | ---------------------- |  | ---------------------- | - | ------ | ------------------- |  | - | --------------------- |  |  | ------------------------ | ------ |  |  | - | --- | 
|                                    |  | CarryingAmount |                        |  | UnpaidPrincipalBalance |   |        | AssociatedAllowance |  |   | AverageCarryingAmount |  |  | InterestIncomeRecognized |       
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|                                    |  |                | (Dollars in Thousands) | 
|With no related allowance recorded: |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Commercial                          |  | $              | 588                    |  |                        | $ | 838    |                     |  | $ |                      |  |  | $                        | 1,012  |  |  | $ |    | 
|Commercial Real Estate              |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Construction                        |  |                | 4,948                  |  |                        |   | 4,948  |                     |  |   |                      |  |  |                          | 4,883  |  |  |   | 140 | 
|Owner occupied                      |  |                | 2,356                  |  |                        |   | 2,356  |                     |  |   |                      |  |  |                          | 2,392  |  |  |   |    | 
|Nonowner occupied                   |  |                | 1,423                  |  |                        |   | 1,423  |                     |  |   |                      |  |  |                          | 1,428  |  |  |   |    | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Total Commercial                    |  | $              | 9,315                  |  |                        | $ | 9,565  |                     |  | $ |                      |  |  | $                        | 9,715  |  |  | $ | 140 | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Consumer                            |  | $              | 10                     |  |                        | $ | 10     |                     |  | $ |                      |  |  | $                        | 178    |  |  | $ |    | 
|Residential real estate             |  |                | 411                    |  |                        |   | 411    |                     |  |   |                      |  |  |                          | 434    |  |  |   |    | 
|Residential construction            |  |                | 452                    |  |                        |   | 452    |                     |  |   |                      |  |  |                          | 452    |  |  |   |    | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Total Consumer                      |  | $              | 873                    |  |                        | $ | 873    |                     |  | $ |                      |  |  | $                        | 1,064  |  |  | $ |    | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|                                    |  |                |                        |  |                       
|With an allowance recorded:         |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Commercial                          |  | $              | 2,615                  |  |                        | $ | 2,839  |                     |  | $ | 1,178                 |  |  | $                        | 4,260  |  |  | $ | 130 | 
|Commercial Real Estate              |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Owner occupied                      |  |                | 1,710                  |  |                        |   | 1,710  |                     |  |   | 734                   |  |  |                          | 1,717  |  |  |   | 62  | 
|Nonowner occupied                   |  |                | 550                    |  |                        |   | 550    |                     |  |   | 330                   |  |  |                          | 561    |  |  |   |    | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Total Commercial                    |  | $              | 4,875                  |  |                        | $ | 5,099  |                     |  | $ | 2,242                 |  |  | $                        | 6,538  |  |  | $ | 192 | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Consumer                            |  | $              | 62                     |  |                        | $ | 62     |                     |  | $ | 53                    |  |  | $                        | 76     |  |  | $ | 1   | 
|Residential real estate             |  |                | 1,639                  |  |                        |   | 1,639  |                     |  |   | 304                   |  |  |                          | 2,170  |  |  |   | 55  | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Total Consumer                      |  | $              | 1,701                  |  |                        | $ | 1,701  |                     |  | $ | 357                   |  |  | $                        | 2,246  |  |  | $ | 56  | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|                                    |  |                |                        |  |                       
|Total:                              |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Commercial                          |  | $              | 3,203                  |  |                        | $ | 3,677  |                     |  | $ | 1,178                 |  |  | $                        | 5,272  |  |  | $ | 130 | 
|Commercial Real Estate              |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Construction                        |  |                | 4,948                  |  |                        |   | 4,948  |                     |  |   |                      |  |  |                          | 4,883  |  |  |   | 140 | 
|Owner occupied                      |  |                | 4,066                  |  |                        |   | 4,066  |                     |  |   | 734                   |  |  |                          | 4,109  |  |  |   | 62  | 
|Nonowner occupied                   |  |                | 1,973                  |  |                        |   | 1,973  |                     |  |   | 330                   |  |  |                          | 1,989  |  |  |   |    | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Total Commercial                    |  | $              | 14,190                 |  |                        | $ | 14,664 |                     |  | $ | 2,242                 |  |  | $                        | 16,253 |  |  | $ | 332 | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Consumer                            |  | $              | 72                     |  |                        | $ | 72     |                     |  | $ | 53                    |  |  | $                        | 254    |  |  | $ | 1   | 
|Residential real estate             |  |                | 2,050                  |  |                        |   | 2,050  |                     |  |   | 304                   |  |  |                          | 2,604  |  |  |   | 55  | 
|Residential construction            |  |                | 452                    |  |                        |   | 452    |                     |  |   |                      |  |  |                          | 452    |  |  |   |    | 
|                                    |  |                |                        |  |                        |   |        |                     |  |   |                       |  |  |                          |        |  |  |   |     | 
|Total Consumer                      |  | $              | 2,574                  |  |                        | $ | 2,574  |                     |  | $ | 357                   |  |  | $                        | 3,310  |  |  | $ | 56  | 





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3. Loans and Allowance for Loan Losses (continued)





The following table presents nonaccrual loans, accruing loans past due 90 days or more, and restructured loans at December 31:



|                                        |  |                        |        |  |      |   |       | 
|--------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ----- | 
|                                        |  | 2010                   |        |  | 2009 |  
|                                        |  | (Dollars in Thousands) |       
|Nonaccrual loans                        |  | $                      | 16,764 |  |      | $ | 6,780 | 
|Accruing loans past due 90 days or more |  |                        | 639    |  |      |   | 1,461 | 
|Restructured loans (accruing)           |  |                        | 904    |  |      |   | 989   | 



The following table presents the composition of nonaccrual loans at December 31, 2010 and 2009.



|                         |  |                        |        |  |      |   |       | 
|------------------------ |  | ---------------------- | ------ |  | ---- | - | ----- | 
|                         |  | December 31,           |       
|                         |  | 2010                   |        |  | 2009 |  
|                         |  | (Dollars in Thousands) |       
|Commercial               |  | $                      | 3,203  |  |      | $ | 1,252 | 
|CommercialReal Estate   |  |                        |        |  |      |   |       | 
|Construction             |  |                        | 4,948  |  |      |   | 749   | 
|Owner Occupied           |  |                        | 4,066  |  |      |   | 1,864 | 
|Non-Owner Occupied       |  |                        | 1,973  |  |      |   | 1,322 | 
|Total Commercial Loans   |  |                        | 14,190 |  |      |   | 5,187 | 
|Consumer                 |  |                        | 72     |  |      |   | 279   | 
|Residential Real Estate  |  |                        | 2,050  |  |      |   | 1,314 | 
|Residential Construction |  |                        | 452    |  |      |   |      | 
|Total Consumer Loans     |  |                        | 2,574  |  |      |   | 1,593 | 
|TOTAL NONACCRUAL LOANS   |  | $                      | 16,764 |  |      | $ | 6,780 | 



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. Commercial loans with an aggregate loan balance in excess of $250,000 that meet one or more of the following
conditions require the completion of a Problem Loan Report and an impairment analysis by the responsible lender. The conditions are as follows:



| | a. | Commercial loans graded OAEM, Substandard, Doubtful or Loss
| | -- | -----------------------------------------------------------

| | b. | Commercial loan in non-accrual status
| | -- | -------------------------------------

| | c. | Commercial loans deemed impaired
| | -- | --------------------------------

| | d. | Commercial loans past due greater than 90 days
| | -- | ----------------------------------------------

| | e. | Trouble debt restructures
| | -- | -------------------------

| | f. | Other mitigating circumstances i.e. bankruptcy, death of borrower/guarantor, etc.
| | -- | ---------------------------------------------------------------------------------



The loans specified on the loan watch list have been assigned a
classification that is intended to be representative of the degree of risk associated with that particular loan(s). An on-going three-year migration analysis of the pools of loans graded OAEM, Substandard, Doubtful and Loss as compared to their
historical charge-offs is completed annually. This three year average percentage is then applied to the respective loan pool.



The remaining portfolio is segregated into loan pools consisting of commercial loans, commercial real estate owner occupied loans, commercial real estate
non-owner occupied loans, commercial construction and land development loans, residential real estate loans,



First
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3. Loans and Allowance for Loan Losses (continued)



residential construction loans and consumer loans. The historical net charge-off percentage of each category is compiled for ten successive years. This data is then used to establish an average
charge off percentage for each category.



Also, we review
concentrations of credit, classes of loans and pledged collateral to determine the existence of any deterioration. In addition, we consider 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.



An analysis of changes in the allowance for loan losses for 2010 and 2009 is as follows:



|                                           |  |                          |       |   |      |   |        |  
|------------------------------------------ |  | ------------------------ | ----- | - | ---- | - | ------ | -
|                                           |  | Years Ended December 31, |      
|                                           |  | 2010                     |       |   | 2009 |  
|                                           |  | (Dollars in thousands)   |      
|BALANCE AT BEGINNING OF YEAR               |  | $                        | 4,325 |   |      | $ | 2,690  |  
|Provision for loan losses                  |  |                          | 1,936 |   |      |   | 5,460  |  
|Recoveries on loans previously charged off |  |                          | 167   |   |      |   | 121    |  
|Loans charged off                          |  |                          | (553  | ) |      |   | (3,946 | )
|BALANCE AT END OF YEAR                     |  | $                        | 5,875 |   |      | $ | 4,325  |  



The following table presents the allocation of the allowance for loan losses at December 31, 2010.



|                                      |  |            |       |  |                       |   |       |          |  |   |                        |  |  |                         |       |  |             |   |     |       |  |   |    |  |  |   |       | 
|------------------------------------- |  | ---------- | ----- |  | --------------------- | - | ----- | -------- |  | - | ---------------------- |  |  | ----------------------- | ----- |  | ----------- | - | --- | ----- |  | - | -- |  |  | - | ----- | 
|                                      |  | Commercial |       |  | CommercialReal Estate |   |       | Consumer |  |   | ResidentialReal Estate |  |  | ResidentialConstruction |       |  | Unallocated |   |     | Total | 
|Reserve ending balance:               |  | $          | 1,758 |  |                       | $ | 1,966 |          |  | $ | 588                    |  |  | $                       | 1,206 |  |             | $ | 283 |       |  | $ | 74 |  |  | $ | 5,875 | 
|Individually evaluated for Impairment |  | $          | 1,199 |  |                       | $ | 1,039 |          |  | $ | 1                      |  |  | $                       | 110   |  |             | $ | 3   |       |  | $ | 0  |  |  | $ | 2,352 | 
|Collectively evaluated for Impairment |  | $          | 559   |  |                       | $ | 927   |          |  | $ | 587                    |  |  | $                       | 1,096 |  |             | $ | 280 |       |  | $ | 74 |  |  | $ | 3,523 | 



4. Premises and Equipment



Premises and equipment at December 31, 2010 and 2009 consisted of the following:



|                              |  |                        |        |  |      |   |        | 
|----------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                              |  | December 31,           |       
|                              |  | 2010                   |        |  | 2009 |  
|                              |  | (Dollars in Thousands) |       
|Land                          |  | $                      | 2,552  |  |      | $ | 2,552  | 
|Buildings and improvements    |  |                        | 15,756 |  |      |   | 15,691 | 
|Equipment and fixtures        |  |                        | 6,395  |  |      |   | 6,321  | 
|Total                         |  |                        | 24,703 |  |      |   | 24,564 | 
|Less accumulated depreciation |  |                        | 11,633 |  |      |   | 10,998 | 
|NET PREMISES AND EQUIPMENT    |  | $                      | 13,070 |  |      | $ | 13,566 | 



Depreciation charged to operating expense amounted to $867,000 in 2010 and $902,000 in 2009.



Page
36     First Century Bankshares, Inc.



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##### Table of Contents

4. 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 $109,000 in 2011, $111,000 in 2012, $109,000 in 2013, $96,000 in 2014 and $45,000 in 2015. Total net rent expense included in the
accompanying consolidated financial statements was $91,000 in 2010 and $85,000 in 2009.



5. Deposits



Deposits at December 31, 2010 and 2009 were as follows:



|                                            |  |                        |         |  |      |   |         | 
|------------------------------------------- |  | ---------------------- | ------- |  | ---- | - | ------- | 
|                                            |  | December 31,           |        
|                                            |  | 2010                   |         |  | 2009 |  
|                                            |  | (Dollars in Thousands) |        
|Individuals, partnerships and corporations: |  |                        |         |  |      |   |         | 
|Demand deposits                             |  | $                      | 44,638  |  |      | $ | 43,100  | 
|Time and savings deposits                   |  |                        | 288,581 |  |      |   | 291,216 | 
|U.S. Government                             |  |                        | 18      |  |      |   | 17      | 
|States and political subdivisions           |  |                        | 17,634  |  |      |   | 13,820  | 
|Due to banks                                |  |                        | 171     |  |      |   | 322     | 
|Certified and official checks               |  |                        | 1,299   |  |      |   | 1,845   | 
|TOTAL DEPOSITS                              |  | $                      | 352,341 |  |      | $ | 350,320 | 



The scheduled maturities of time deposits at December 31, 2010 were as follows:



|                    |  |                        |         | 
|------------------- |  | ---------------------- | ------- | 
|                    |  | (Dollars in Thousands) |        
|2011                |  | $                      | 116,951 | 
|2012                |  |                        | 20,660  | 
|2013                |  |                        | 11,810  | 
|2014                |  |                        | 1,403   | 
|2015                |  |                        | 6,541   | 
|Thereafter          |  |                        | 460     | 
|TOTAL TIME DEPOSITS |  | $                      | 157,825 | 



Time deposits include certificates of deposit issued in amounts of $100,000 or more totaling approximately $52,426,000 and $52,978,000 at
December 31, 2010 and 2009, respectively. At December 31, 2010, deposits of executive officers, directors and their related interests were $6,053,000.



6. 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, |     
|                                                                                                    |  | 2010                    |      |   | 2009 |  
|Unrealized gains (losses) on pension and postretirement benefit obligations arising during the year |  | $                       | (338 | ) |      | $ | 35   |  
|Unrealized gains on available for sale securities arising during the year                           |  |                         | (387 | ) |      |   | (530 | )
|Reclassification adjustment for gains included in net income                                        |  |                         | (47  | ) |      |   | (138 | )
|Other comprehensive income (loss) before tax                                                        |  |                         | (772 | ) |      |   | (633 | )
|Income tax benefit related to other comprehensive income                                            |  |                         | 288  |   |      |   | 236  |  
|Other comprehensive income (loss), net of tax                                                       |  | $                       | (484 | ) |      | $ | (397 | )



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7. 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.



The following table outlines the changes in the Corporations
postemployment benefit plan obligations, assets and funded status for the years ended December 31, 2010 and 2009, and the assumptions and components of net periodic benefit costs for the two years in the period ended December 31, 2010.



|                                                  |  |                        |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------- |  | ---------------------- | ------ | - | ----------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                  |  | Pension Benefits       |        |   | Other
Postretirement
Benefits |  
|                                                  |  | 2010                   |        |   | 2009                          |   |        | 2010 |  |   | 2009   |  
|                                                  |  | (Dollars in Thousands) |       
|Change in projected benefit obligation            |  |                        |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Projected benefit obligation at beginning of year |  | $                      | 7,987  |   |                               | $ | 7,249  |      |  | $ | 1,008  |   |  | $ | 984    |  
|Service cost                                      |  |                        | 317    |   |                               |   | 295    |      |  |   | 15     |   |  |   | 14     |  
|Interest cost                                     |  |                        | 446    |   |                               |   | 436    |      |  |   | 57     |   |  |   | 59     |  
|Actuarial (gain) loss                             |  |                        | 701    |   |                               |   | 482    |      |  |   | (43    | ) |  |   | (5     | )
|Benefits paid                                     |  |                        | (722   | ) |                               |   | (475   | )    |  |   | (44    | ) |  |   | (44    | )
|Projected benefit obligation at end of year       |  |                        | 8,729  |   |                               |   | 7,987  |      |  |   | 993    |   |  |   | 1,008  |  
|Change in plan asset                              |  |                        |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at beginning of year    |  |                        | 6,468  |   |                               |   | 5,814  |      |  |   |       |   |  |   |       |  
|Actual return on plan assets                      |  |                        | 681    |   |                               |   | 829    |      |  |   |       |   |  |   |       |  
|Employer contribution                             |  |                        | 300    |   |                               |   | 300    |      |  |   | 44     |   |  |   | 44     |  
|Benefits paid                                     |  |                        | (722   | ) |                               |   | (475   | )    |  |   | (44    | ) |  |   | (44    | )
|Fair value of plan assets at end of year          |  |                        | 6,727  |   |                               |   | 6,468  |      |  |   |       |   |  |   |       |  
|Funded status                                     |  |                        | (2,002 | ) |                               |   | (1,519 | )    |  |   | (993   | ) |  |   | (1,008 | )
|Unrecognized net actuarial (gain) loss            |  |                        | 4,172  |   |                               |   | 3,859  |      |  |   | (447   | ) |  |   | (438   | )
|Unrecognized prior service cost                   |  |                        | (627   | ) |                               |   | (716   | )    |  |   |       |   |  |   |       |  
|Unrecognized transition obligation                |  |                        |       |   |                               |   |       |      |  |   | 111    |   |  |   | 166    |  
|Prepaid (accrued) benefit cost                    |  | $                      | 1,543  |   |                               | $ | 1,624  |      |  | $ | (1,329 | ) |  | $ | (1,280 | )



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38     First Century Bankshares, Inc.



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##### Table of Contents

7. Post Employment Benefits (continued)





The defined benefit pension plans
accumulated benefit obligation was $8,420,000 at December 31, 2010, and $7,682,000 at December 31, 2009.



|                                        |  |                  |      |   |                               |   |      |      |  |   |      |   |  |   |      |  
|--------------------------------------- |  | ---------------- | ---- | - | ----------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                        |  | Pension Benefits |      |   | Other
Postretirement
Benefits |  
|Actuarial assumptions                   |  | 2010             |      |   | 2009                          |   |      | 2010 |  |   | 2009 |  
|Discount rate                           |  |                  | 5.13 | % |                               |   | 5.75 | %    |  |   | 5.27 | % |  |   | 5.78 | %
|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                            |  | $                | 317  |   |                               | $ | 295  |      |  | $ | 15   |   |  | $ | 14   |  
|Interest cost                           |  |                  | 446  |   |                               |   | 436  |      |  |   | 57   |   |  |   | 59   |  
|Expected return on plan assets          |  |                  | (511 | ) |                               |   | (463 | )    |  |   |     |   |  |   |     |  
|Amortization of prior service cost      |  |                  | (90  | ) |                               |   | (90  | )    |  |   |     |   |  |   |     |  
|Amortization of transition obligation   |  |                  |     |   |                               |   |     |      |  |   | 55   |   |  |   | 55   |  
|Recognized net actuarial (gain) loss    |  |                  | 219  |   |                               |   | 216  |      |  |   | (34  | ) |  |   | (35  | )
|Net periodic benefit cost               |  | $                | 381  |   |                               | $ | 394  |      |  | $ | 93   |   |  | $ | 93   |  



Included in Accumulated Other Comprehensive Income at December 31, 2010 and 2009 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, 2011.



|                               |  |                                                           |       |   |                                                         |   |       |                                                          |  |   |     |  
|------------------------------ |  | --------------------------------------------------------- | ----- | - | ------------------------------------------------------- | - | ----- | -------------------------------------------------------- |  | - | --- | -
|                               |  | Amt. recognized inAcc.
Other Comp. Income at Dec 31, 2010 |       |   | Amt. recognized inAcc. OtherComp. Incomeat Dec 31, 2009 |   |       | Amount expectedto be charged
to net periodiccost in 2011 | 
|Pension Benefits:              |  |                                                           |       |   |                                                         |   |       |                                                          |  |   |     |  
|Net actuarial losses           |  | $                                                         | 4,172 |   |                                                         | $ | 3,859 |                                                          |  | $ | 254 |  
|Prior service cost             |  | $                                                         | (627  | ) |                                                         | $ | (716  | )                                                        |  | $ | (90 | )
|                               |  |                                                           |      
|Other Postretirement Benefits: |  |                                                           |       |   |                                                         |   |       |                                                          |  |   |     |  
|Net actuarial gains            |  | $                                                         | (447  | ) |                                                         | $ | (438  | )                                                        |  | $ | (39 | )
|Transition obligation          |  | $                                                         | 111   |   |                                                         | $ | 166   |                                                          |  | $ | 55  |  



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



|          |  |                 |       |  |                             |   |     | 
|--------- |  | --------------- | ----- |  | --------------------------- | - | --- | 
|          |  | PensionBenefits |       |  | OtherPostretirementBenefits |  
|2011      |  | $               | 350   |  |                             | $ | 56  | 
|2012      |  | $               | 647   |  |                             | $ | 57  | 
|2013      |  | $               | 488   |  |                             | $ | 58  | 
|2014      |  | $               | 393   |  |                             | $ | 57  | 
|2015      |  | $               | 418   |  |                             | $ | 56  | 
|2016-2020 |  | $               | 3,098 |  |                             | $ | 295 | 



The asset allocation for the defined benefit pension plan for the years ended December 31, 2010 and 2009, by asset category, is as follows:



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##### Table of Contents

7. Post Employment Benefits (continued)





ASSET CATEGORY



|                  |  |                          |     |   |      |  |     |  
|----------------- |  | ------------------------ | --- | - | ---- |  | --- | -
|                  |  | Percentage ofPlan Assets |    
|                  |  | 2010                     |     |   | 2009 | 
|Equity securities |  |                          | 75  | % |      |  | 67  | %
|Debt securities   |  |                          | 20  |   |      |  | 24  |  
|Real estate       |  |                          | 1   |   |      |  | 2   |  
|Other             |  |                          | 4   |   |      |  | 7   |  
|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 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 following table presents fair value information about the Companys
defined benefit pension plan assets by asset category as of December 31, 2010.



|                                                      |  |                             |       |  |                                                               |   |       |                                              |  |   |                                          |  |  |   |   | 
|----------------------------------------------------- |  | --------------------------- | ----- |  | ------------------------------------------------------------- | - | ----- | -------------------------------------------- |  | - | ---------------------------------------- |  |  | - | - | 
|                                                      |  |                             |       |  | Fair Value Measurementsat December 31, 2010, Using:           |  
|Description                                           |  | Fair Value
December 31,2010 |       |  | Quoted Prices
in Active Marketsfor Identical Assets (Level 1) |   |       | Significant OtherObservable Inputs (Level 2) |  |   | SignificantUnobservable
Inputs
(Level 3) | 
|Equity securities                                     |  | $                           | 3,438 |  |                                                               | $ | 3,438 |                                              |  | $ |                                         |  |  | $ |  | 
|Indexed funds                                         |  |                             | 2,143 |  |                                                               |   | 2,143 |                                              |  |   |                                         |  |  |   |  | 
|Debt securities                                       |  |                             | 353   |  |                                                               |   |      |                                              |  |   | 353                                      |  |  |   |  | 
|Preferred stocks                                      |  |                             | 298   |  |                                                               |   |      |                                              |  |   | 298                                      |  |  |   |  | 
|Real estate mortgages                                 |  |                             | 83    |  |                                                               |   |      |                                              |  |   | 83                                       |  |  |   |  | 
|Other investments, includes cash and cash equivalents |  |                             | 412   |  |                                                               |   | 412   |                                              |  |   |                                         |  |  |   |  | 
|Total                                                 |  | $                           | 6,727 |  |                                                               | $ | 5,993 |                                              |  | $ | 734                                      |  |  | $ |  | 



Equity securities and indexed funds: Valued at the closing prices reported on the active market on which the individual securities are traded.



All other investments: Valued at fair value based on models that consider
criteria such as dealer quotes, available trade date, issuer credit worthiness, and bond and swap yield curves.



The Corporation made discretionary contributions of $300,000 to the pension plan in 2010 and 2009 and expects to do so for 2011.



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##### Table of Contents

7. Post Employment Benefits (continued)





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. In 2008, the Corporation adopted a safe-harbor match of 100% up to 6% of compensation. This was the same match percentage for 2009 and 2010. Total amounts charged to operating expense for payments pursuant to this plan were
approximately $234,000 in 2010 and $246,000 in 2009.



8. Income Taxes



The provision for income taxes consisted of the
following:



|                                                    |  |                         |       |   |      |   |      |  
|--------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ---- | -
|                                                    |  | Years EndedDecember 31, |      
|Tax provision attributed to income from operations: |  | 2010                    |       |   | 2009 |  
|Current:                                            |  | (Dollars in Thousands)  |      
|Federal                                             |  | $                       | 1,361 |   |      | $ | 204  |  
|State                                               |  |                         | 281   |   |      |   | 67   |  
|Deferred expense (benefit)                          |  |                         | (697  | ) |      |   | (394 | )
|PROVISION FOR INCOME TAXES                          |  | $                       | 945   |   |      | $ | (123 | )



The components of deferred tax assets and liabilities at December 31, 2010 and 2009 were as follows:



|                                                  |  |                        |        |   |      |   |        |  
|------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                                  |  | 2010                   |        |   | 2009 |  
|                                                  |  | (Dollars in Thousands) |       
|Allowance for loan losses                         |  | $                      | 2,091  |   |      | $ | 1,258  |  
|Retirement plans                                  |  |                        | 1,118  |   |      |   | 942    |  
|Other                                             |  |                        | 121    |   |      |   | 177    |  
|Gross deferred tax assets                         |  |                        | 3,330  |   |      |   | 2,377  |  
|Depreciation                                      |  |                        | (280   | ) |      |   | (323   | )
|Goodwill                                          |  |                        | (1,428 | ) |      |   | (1,269 | )
|Unrealized gains on securities available for sale |  |                        | (167   | ) |      |   | (328   | )
|Other                                             |  |                        | (240   | ) |      |   | (227   | )
|Gross deferred tax liabilities                    |  |                        | (2,115 | ) |      |   | (2,147 | )
|NET DEFERRED TAX ASSET                            |  | $                      | 1,215  |   |      | $ | 230    |  



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



|                                                                       |  |                          |       |   |      |  |    |        |  |   |      |   |  |  |      |  
|---------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- |  | -- | ------ |  | - | ---- | - |  |  | ---- | -
|                                                                       |  | Years Ended December 31, |      
|                                                                       |  | 2010                     |       |   | 2009 | 
|                                                                       |  | (Dollars in Thousands)   |      
|                                                                       |  | Amount                   |       |   | %    |  |    | Amount |  |   | %    |  
|Provision at statutory rate                                            |  | $                        | 1,049 |   |      |  | 34 |        |  | $ | 65   |   |  |  | 34   |  
|Tax-exempt interest income from certain investmentsecurities and loans |  |                          | (273  | ) |      |  | (9 | )      |  |   | (252 | ) |  |  | (131 | )
|Nondeductible capital losses                                           |  |                          |      |   |      |  |   |        |  |   | 47   |   |  |  | 25   |  
|State income tax expense, net of federal benefit                       |  |                          | 120   |   |      |  | 4  |        |  |   | 14   |   |  |  | 7    |  
|Other, net                                                             |  |                          | 49    |   |      |  | 2  |        |  |   | 3    |   |  |  | 1    |  
|PROVISION FOR INCOME TAXES                                             |  | $                        | 945   |   |      |  | 31 |        |  | $ | (123 | ) |  |  | (64  | )



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##### Table of Contents

9. 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.



10. 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.



The
components of the Corporations off-balance sheet financial commitments at December 31, 2010 and 2009 are as follows:



|                                                                                 |  |                        |        |  |      |   |        | 
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                                                                                 |  | December 31,           |       
|                                                                                 |  | 2010                   |        |  | 2009 |  
|Unused lines of credit                                                           |  | (Dollars in Thousands) |       
|Home equity lines                                                                |  | $                      | 4,686  |  |      | $ | 4,098  | 
|Commercial real estate, construction and land
development secured by real estate |  |                        | 20,942 |  |      |   | 21,110 | 
|Other unused commitments                                                         |  |                        | 16,714 |  |      |   | 20,402 | 
|Total unused lines of credit                                                     |  | $                      | 42,342 |  |      | $ | 45,610 | 
|Financial standby letters of credit                                              |  | $                      | 3,887  |  |      | $ | 4,273  | 



At December 31, 2010 and 2009, the carrying amount and fair value of financial standby letters of credit was $3,000 and $6,000, respectively. Also, at December 31, 2010 and 2009, the Corporation
had residential mortgage loan commitments outstanding of $2,843,000 and $1,995,000, respectively. Derivative financial instruments related to these commitments at December 31, 2010 and 2009 were $60,000 and $32,000, 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



Page
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##### Table of Contents

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



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, 2010, the Corporation had concentrations of $22,458,000,
or 56.2% of stockholders equity in loans to lessors of residential real property, $19,873,000, or 49.7% of stockholders equity in loans to lessors of nonresidential real property and $11,350,000, or 28.4% of stockholders equity in
loans to land subdividers and developers. These concentrations are diversified by geography throughout the Mid-Atlantic region.



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



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



The estimated fair value and the recorded book balances at December 31, 2010 and 2009 were as follows:



|                                                      |  |                        |         |  |                        |   |         |                     |  |   |                |  |  |   |         | 
|----------------------------------------------------- |  | ---------------------- | ------- |  | ---------------------- | - | ------- | ------------------- |  | - | -------------- |  |  | - | ------- | 
|                                                      |  | 2010                   |         |  | 2009                   |  
|                                                      |  | EstimatedFair Value    |         |  | CarryingAmount         |   |         | EstimatedFair Value |  |   | CarryingAmount | 
|                                                      |  | (Dollars in Thousands) |         |  | (Dollars in Thousands) |  
|Assets:                                               |  |                        |         |  |                        |   |         |                     |  |   |                |  |  |   |         | 
|Cash and cash equivalents                             |  | $                      | 28,869  |  |                        | $ | 28,869  |                     |  | $ | 17,342         |  |  | $ | 17,342  | 
|Securities available for sale                         |  |                        | 73,442  |  |                        |   | 73,442  |                     |  |   | 60,840         |  |  |   | 60,840  | 
|Securities held to maturity                           |  |                        | 24,262  |  |                        |   | 24,196  |                     |  |   | 19,416         |  |  |   | 19,076  | 
|Federal Home Loan Bank and Federal Reserve Bank stock |  |                        | 1,572   |  |                        |   | 1,572   |                     |  |   | 1,635          |  |  |   | 1,635   | 
|Net loans                                             |  |                        | 264,533 |  |                        |   | 254,382 |                     |  |   | 292,380        |  |  |   | 282,041 | 
|                                                      |  |                        |         | 
|Liabilities:                                          |  |                        |         |  |                        |   |         |                     |  |   |                |  |  |   |         | 
|Noninterest-bearing deposits                          |  | $                      | 47,056  |  |                        | $ | 47,056  |                     |  | $ | 45,548         |  |  | $ | 45,548  | 
|Deposits with no stated maturities                    |  |                        | 147,460 |  |                        |   | 147,460 |                     |  |   | 137,027        |  |  |   | 137,027 | 
|Deposits with stated maturities                       |  |                        | 158,730 |  |                        |   | 157,825 |                     |  |   | 169,093        |  |  |   | 167,745 | 
|Short-term borrowings                                 |  |                        | 11,457  |  |                        |   | 11,457  |                     |  |   | 15,267         |  |  |   | 15,267  | 



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



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



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. 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.



Fair Value Hierarchy



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.



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





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. 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, 2010, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral
require 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.



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





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, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.



|                                                         |  |                             |        |  |                                                               |   |   |                                              |  |   |                                          |  |  |   |   | 
|-------------------------------------------------------- |  | --------------------------- | ------ |  | ------------------------------------------------------------- | - | - | -------------------------------------------- |  | - | ---------------------------------------- |  |  | - | - | 
|                                                         |  |                             |        |  | Fair Value Measurementsat December 31, 2010, Using:           |  
|Description                                              |  | Fair Value
December 31,2010 |        |  | Quoted Prices
in Active Marketsfor Identical Assets (Level 1) |   |   | Significant OtherObservable Inputs (Level 2) |  |   | SignificantUnobservable
Inputs
(Level 3) | 
|Assets and liabilities measured on a recurring basis:    |  |                             |        |  |                                                               |   |   |                                              |  |   |                                          |  |  |   |   | 
|Available-for-sale securities                            |  | $                           | 73,442 |  |                                                               | $ |  |                                              |  | $ | 73,442                                   |  |  | $ |  | 
|Total                                                    |  | $                           | 73,442 |  |                                                               | $ |  |                                              |  | $ | 73,442                                   |  |  | $ |  | 
|                                                         |  |                             |        |  |                                                               |   |   |                                              |  |   |                                          |  |  |   |   | 
|Assets and liabilities measured on a nonrecurring basis: |  |                             |        |  |                                                               |   |   |                                              |  |   |                                          |  |  |   |   | 
|Impaired loans                                           |  | $                           | 14,165 |  |                                                               | $ |  |                                              |  | $ | 14,165                                   |  |  | $ |  | 
|Foreclosures and repossessions                           |  |                             | 1,768  |  |                                                               |   |  |                                              |  |   | 1,768                                    |  |  |   |  | 
|Total                                                    |  | $                           | 15,933 |  |                                                               | $ |  |                                              |  | $ | 15,933                                   |  |  | $ |  | 



|                                                         |  |                              |        |  |                                                              |   |   |                                              |  |   |                                          |  |  |   |   | 
|-------------------------------------------------------- |  | ---------------------------- | ------ |  | ------------------------------------------------------------ | - | - | -------------------------------------------- |  | - | ---------------------------------------- |  |  | - | - | 
|                                                         |  |                              |        |  | Fair Value Measurements
at December 31, 2009, Using          |  
|Description                                              |  | Fair Value
December 31,
2009 |        |  | Quoted Pricesin Active Marketsfor Identical Assets
(Level 1) |   |   | Significant OtherObservable Inputs (Level 2) |  |   | SignificantUnobservable
Inputs (Level
3) | 
|Assets and liabilities measured on a recurring basis:    |  |                              |        |  |                                                              |   |   |                                              |  |   |                                          |  |  |   |   | 
|Available-for-sale securities                            |  | $                            | 60,840 |  |                                                              | $ |  |                                              |  | $ | 60,840                                   |  |  | $ |  | 
|Total                                                    |  | $                            | 60,840 |  |                                                              | $ |  |                                              |  | $ | 60,840                                   |  |  | $ |  | 
|                                                         |  |                              |        |  |                                                              |   |   |                                              |  |   |                                          |  |  |   |   | 
|Assets and liabilities measured on a nonrecurring basis: |  |                              |        |  |                                                              |   |   |                                              |  |   |                                          |  |  |   |   | 
|Impaired loans                                           |  | $                            | 6,907  |  |                                                              | $ |  |                                              |  | $ | 6,907                                    |  |  | $ |  | 
|Foreclosures and repossessions                           |  |                              | 2,609  |  |                                                              |   |  |                                              |  |   | 2,609                                    |  |  |   |  | 
|Total                                                    |  | $                            | 9,516  |  |                                                              | $ |  |                                              |  | $ | 9,516                                    |  |  | $ |  | 



11. 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,
2010, FCBNA had negative retained net profits for the years 2010 and 2009, of approximately $438,000.



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11. Regulatory Matters (continued)





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, 2010, that the Corporation and its subsidiary meet all capital adequacy requirements to which they are subject.



As of December 31, 2010, 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, 2010:                  |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Total Capital (to Risk Weighted Assets):  |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Consolidated                              |  | $      | 41,411 |  |                              |  | 15.08 | %                                                             |  | 3 | $21,970 |  |  | 3      | 8.00 | % |       |   |         |  |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 40,029 |  |                              |  | 14.61 | %                                                             |  | 3 | $21,917 |  |  | 3      | 8.00 | % |       | 3 | $27,396 |  |  | 3 | 10.00 | %
|Tier I Capital (to Risk Weighted Assets): |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Consolidated                              |  | $      | 37,948 |  |                              |  | 13.82 | %                                                             |  | 3 | $10,985 |  |  | 3      | 4.00 | % |       |   |         |  |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 36,574 |  |                              |  | 13.35 | %                                                             |  | 3 | $10,958 |  |  | 3      | 4.00 | % |       | 3 | $16,438 |  |  | 3 | 6.00  | %
|Tier I Capital (to Average Assets):       |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Consolidated                              |  | $      | 37,948 |  |                              |  | 9.00  | %                                                             |  | 3 | $16,874 |  |  | 3      | 4.00 | % |       |   |         |  |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 36,574 |  |                              |  | 8.68  | %                                                             |  | 3 | $16,848 |  |  | 3      | 4.00 | % |       | 3 | $21,060 |  |  | 3 | 5.00  | %



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11. Regulatory Matters (continued)





|                                          |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|----------------------------------------- |  | ------ | ------ |  | ---------------------------- |  | ----- | ------------------------------------------------------------- |  | - | ------- |  |  | ------ | ---- | - | ----- | - | ------- |  |  | - | ----- | -
|                                          |  | Actual |        |  | For CapitalAdequacy Purposes |  |       | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions | 
|                                          |  | Amount |        |  | Ratio                        |  |       | Amount                                                        |  |   | Ratio   |  |  | Amount |      |   | Ratio |  
|As of December 31, 2009:                  |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Total Capital (to Risk Weighted Assets):  |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Consolidated                              |  | $      | 40,524 |  |                              |  | 13.56 | %                                                             |  | 3 | $23,901 |  |  | 3      | 8.00 | % |       |   |         |  |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 38,980 |  |                              |  | 13.07 | %                                                             |  | 3 | $23,850 |  |  | 3      | 8.00 | % |       | 3 | $29,813 |  |  | 3 | 10.00 | %
|Tier I Capital (to Risk Weighted Assets): |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Consolidated                              |  | $      | 36,790 |  |                              |  | 12.31 | %                                                             |  | 3 | $11,950 |  |  | 3      | 4.00 | % |       |   |         |  |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 35,246 |  |                              |  | 11.82 | %                                                             |  | 3 | $11,925 |  |  | 3      | 4.00 | % |       | 3 | $17,888 |  |  | 3 | 6.00  | %
|Tier I Capital (to Average Assets):       |  |        |        |  |                              |  |       |                                                               |  |   |         |  |  |        |      |   |       |   |         |  |  |   |       |  
|Consolidated                              |  | $      | 36,790 |  |                              |  | 8.92  | %                                                             |  | 3 | $16,495 |  |  | 3      | 4.00 | % |       |   |         |  |  |   |       |  
|First Century Bank, N.A.                  |  | $      | 35,246 |  |                              |  | 8.55  | %                                                             |  | 3 | $16,481 |  |  | 3      | 4.00 | % |       | 3 | $20,602 |  |  | 3 | 5.00  | %



12. Parent Company Financial Data



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



STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                                                                                      |  |  |  |  |                        |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  | ---------------------- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                                                                      |  |  |  |  | December 31,           |  
|                                                                                                                                                                                      |  |  |  |  | 2010                   |   |        | 2009 | 
|Assets:                                                                                                                                                                               |  |  |  |  | (Dollars in Thousands) |  
|Cash                                                                                                                                                                                  |  |  |  |  |                        | $ | 183    |      |  | $ | 247    |  
|Investment in subsidiaries at equity                                                                                                                                                  |  |  |  |  |                        |   | 39,096 |      |  |   | 38,566 |  
|Other assets                                                                                                                                                                          |  |  |  |  |                        |   | 1,175  |      |  |   | 672    |  
|TOTAL ASSETS                                                                                                                                                                          |  |  |  |  |                        | $ | 40,454 |      |  | $ | 39,485 |  
|Liabilities:                                                                                                                                                                          |  |  |  |  |                        |   |        |      |  |   |        |  
|Other liabilities                                                                                                                                                                     |  |  |  |  |                        | $ | 483    |      |  | $ | 29     |  
|TOTAL LIABILITIES                                                                                                                                                                     |  |  |  |  |                        |   | 483    |      |  |   | 29     |  
|Stockholders Equity:                                                                                                                                                                 |  |  |  |  |                        |   |        |      |  |   |        |  
|Common stock$1.25 par value; 10,000,000 shares authorized and 2,000,000 shares issued at December 31, 2010 and 2009;
and 1,903,120 shares outstanding at December 31, 2010, and 2009 |  |  |  |  |                        |   | 2,500  |      |  |   | 2,500  |  
|Paid-in capital                                                                                                                                                                       |  |  |  |  |                        |   | 757    |      |  |   | 757    |  
|Retained earnings                                                                                                                                                                     |  |  |  |  |                        |   | 38,994 |      |  |   | 38,479 |  
|Treasury stock, at cost; 96,880 shares at December 31, 2010 and 2009                                                                                                                  |  |  |  |  |                        |   | (2,280 | )    |  |   | (2,280 | )
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                            |  |  |  |  |                        |   | 39,971 |      |  |   | 39,456 |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                            |  |  |  |  |                        | $ | 40,454 |      |  | $ | 39,485 |  



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12. Parent Company Financial Data (continued)





|                                                                |  |                         |       |   |      |   |        |  
|--------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ------ | -
|STATEMENTS OF INCOME                                            |  |                         |       |   |      |   |        |  
|                                                                |  | Years EndedDecember 31, |      
|                                                                |  | 2010                    |       |   | 2009 |  
|                                                                |  | (Dollars in Thousands)  |      
|Income:                                                         |  |                         |       |   |      |   |        |  
|Dividends from subsidiary bank                                  |  | $                       | 1,220 |   |      | $ | 1,830  |  
|TOTAL INCOME                                                    |  |                         | 1,220 |   |      |   | 1,830  |  
|Expenses:                                                       |  |                         |       |   |      |   |        |  
|Other                                                           |  |                         | 150   |   |      |   | 134    |  
|TOTAL EXPENSES                                                  |  |                         | 150   |   |      |   | 134    |  
|Applicable income taxes (benefits)                              |  |                         | (57   | ) |      |   | (55    | )
|Income before equity in undistributednet income of subsidiaries |  |                         | 1,127 |   |      |   | 1,751  |  
|Equity in undistributed net income of subsidiaries              |  |                         | 1,014 |   |      |   | (1,436 | )
|NET INCOME                                                      |  | $                       | 2,141 |   |      | $ | 315    |  



STATEMENT OF CASH FLOWS



|                                                                                 |  |                         |        |   |      |   |        |  
|-------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                                                 |  | Years EndedDecember 31, |       
|                                                                                 |  | 2010                    |        |   | 2009 |  
|Cash flows from operating activities                                             |  | (Dollars in Thousands)  |       
|Net income                                                                       |  | $                       | 2,141  |   |      | $ | 315    |  
|Adjustments to reconcile net income to net cashprovided by operating activities: |  |                         |        |   |      |   |        |  
|Equity in undistributed net income of subsidiary                                 |  |                         | (1,014 | ) |      |   | 1,436  |  
|Other adjustments, net                                                           |  |                         | (49    | ) |      |   | (64    | )
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                        |  |                         | 1,078  |   |      |   | 1,687  |  
|Cash flows from financing activities                                             |  |                         |        |   |      |   |        |  
|Cash dividends paid                                                              |  |                         | (1,142 | ) |      |   | (1,827 | )
|NET CASH USED BY FINANCING ACTIVITIES                                            |  |                         | (1,142 | ) |      |   | (1,827 | )
|Net increase (decrease) in cash                                                  |  |                         | (64    | ) |      |   | (140   | )
|Cash at January 1,                                                               |  |                         | 247    |   |      |   | 387    |  
|Cash at December 31,                                                             |  | $                       | 183    |   |      | $ | 247    |  



First
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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.



Management conducted an evaluation of the effectiveness of our system of
internal control over financial reporting as of December 31, 2010 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, 2010, First Century Bankshares, Inc.s internal control over financial reporting was effective.



Date: March 10, 2011



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



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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, 2010 and 2009, 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, 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, 2010 and 2009, and the results of its
operations and its cash flows for 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

March 15, 2011





First
Century Bankshares, Inc.     Page 51



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##### Table of Contents

Boards of

Directors





FIRST CENTURY BANKSHARES, INC.



|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                      |  |                                                                                                                                            |  |                                                                                                                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|J. Richard Chambers CEO and
Managing Member J.R. Chambers and Associates, LLC 
W. Paul Cole, Jr. President, Cole
Chevrolet-Cadillac  B. L. Jackson, Jr. Retired, Former President First National Bank of Bluefield |  | Robert M. Jones, Jr., MD
Physician; Vice Chairman, First Century
Bankshares, Inc.  Samuel V. Jones, CPA
Hodges, Jones and Mabry, P.C. 
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. |  | Frank W. Wilkinson President and
Chief Executive Officer First Century Bankshares, Inc.First Century Bank, N.A.  R. W. Wilkinson Chairman
of the Board First Century Bankshares, Inc. First Century Bank, N.A.



FIRST CENTURY BANK, N.A.



|                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                      |  |                                                                                                                                            |  |                                                                                                                                                                                                               
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|C. Scott Briers
President, Briers, Inc.
 J. Richard Chambers CEO and Managing Member J.R. Chambers and Associates, LLC
 W. Paul Cole, Jr. President, Cole Chevrolet-Cadillac  B. L. Jackson, Jr.
Retired, Former President First National Bank of
Bluefield |  | Robert M. Jones, Jr., MD
Physician; Vice Chairman, First Century
Bankshares, Inc.  Samuel V. Jones, CPA
Hodges, Jones and Mabry, P.C. 
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. |  | Frank W. Wilkinson President and
Chief Executive Officer First Century Bankshares, Inc.First Century Bank, N.A.  R. W. Wilkinson Chairman
of the Board First Century Bankshares, Inc. First Century Bank, N.A.



FIRST CENTURY BANK, N.A.

WYOMING COUNTY OPERATIONS ADVISORY BOARD



|                                                                          |  |                                                                                |  |                                                                                                                 |  |                                                                                                                                                             
|------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Michelle Brown, DDS Oceana Dental
Center  Tom Evans, Jr.
Private Investor |  | Lynn Daniels Vice
President Wyoming County Operations
First Century Bank, N.A. |  | Frank W. Wilkinson President and
Chief Executive Officer First Century Bankshares, Inc.First Century Bank, N.A. |  | Dennis Worrell Partner, Worrell
Exxon & Owner, D & T Car Wash 
R. W. Wilkinson Chairman of the Board
First Century Bankshares, Inc. First Century
Bank, N.A.



Page
52     First Century Bankshares, Inc.



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##### Table of Contents

Boards of

Directors



FIRST CENTURY BANK, N.A.

WYTHE COUNTY OPERATIONS ADVISORY BOARD



---



|                                                                                                 |  |                                                                                   |  |                                                                                                               |  |                                                                                              
|------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------
|Robert T. Dupuis
President, P & T Products, Inc.
 Samuel V. Jones, CPA
Hodges, Jones & Mabry, PC |  | Garrett L. LittleVice President, Wythe
County Operations First Century Bank,
N.A. |  | Frank W. WilkinsonPresident and Chief ExecutiveOfficer
First Century Bankshares, Inc.First Century Bank, N.A. |  | R. W. Wilkinson Chairman
of the Board First Century Bankshares, Inc. First Century Bank, N.A.



FIRST CENTURY BANK, N.A.

SUMMERS COUNTY OPERATIONS ADVISORY BOARD



---



|                                                                         |  |                                                                                |  |                                                                                                                                                                                                 |  |                                                                                             
|------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------
|C. Scott Briers
President, Briers, Inc.  James S. Kerr Owner
Kerr Realty |  | David L. Parmer
Attorney at Law 
Bob Richmond Retired, First Century Bank
N.A. |  | Bill J. KeatonVice President,
Summers County Operations First Century Bank
N.A.  Frank W. Wilkinson
President and Chief ExecutiveOfficer First
Century Bankshares, Inc.First Century Bank, N.A. |  | R. W. WilkinsonChairman of the Board
First Century Bankshares, Inc. First Century
Bank, 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 |  | Carl D. Bowman Assistant Vice President & City Executive Raleigh County
First Century Bank, N.A. 
Senator D. Richard Browning
West Virginia Senate |  | R. Woodrow Duba
General Manager Beaver Coal Company, Limited Frank W. Wilkinson
President and Chief Executive Officer First
Century Bankshares, Inc.First Century Bank, N.A. |  | R. W. Wilkinson Chairman of the Board First Century Bankshares, Inc.
First Century Bank, N.A.





First
Century Bankshares, Inc.     Page 53



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##### Table of Contents

Corporate and

Bank Officers





FIRST CENTURY BANKSHARES, INC.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|R. W. Wilkinson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Robert M. Jones, Jr., MD                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | W. E. Albert                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | J. Ronald Hypes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Chairman of the Board                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Vice Chairman of the Board                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Assistant Secretary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Treasurer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Frank W. Wilkinson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | President and Chief Executive Officer, Secretary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|FIRST CENTURY BANK, N.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|ADMINISTRATION
 R. W. Wilkinson
Chairman of the Board 
Frank W. Wilkinson President & Chief Executive 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 Vice President Human
Resources  Michael G.
Scott IT Manager 
Deborah L. Bowman Marketing Director  Matthew W. Barnett BSA/Security Officer  BRANCH
ADMINISTRATION 
Bill J. Keaton Vice President, Summers County Operations  Garrett L. Little Vice President, Wythe County Operations  Lynn Daniels Vice President Wyoming County Operations |  | Carl D. Bowman Assistant Vice President & City Executive Raleigh County  Brenda G. Davidson Branch Manager & Loan Officer, Bluefield, Virginia Office  Karen R. Kidd Branch Manager/ Assistant Cashier, College Avenue Office  Sandra K. Taylor Branch Manager & Lender, Pineville Office
 Wanda Blair
Branch Manager & Loan Officer,
Fort Chiswell Office 
Kathy L. Peters Assistant Vice President,Teller Manager 
Linda C. Hamer Customer Service Manager  Stephanie Bailey Branch Manager & Loan Assistant,
Oceana Office 
Linda C. Rider IRA Coordinator  Sharon Cole Assistant Cashier Hinton Office  Nancy M. Cales Assistant Cashier Hinton Office |  | LOANS 
Jeffery L. Forlines Senior Vice President, Chief Credit Officer
 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
Vice President, Loans,
Princeton-Springhaven Drive Office
 Rick D. Blevins
Assistant Vice President, Loans, Princeton
Office  
Vicky C. Eggleston Consumer Loan Officer, Wytheville Office  Charles E. Lester Collections Officer  Jean F. Stanley Assistant Cashier, Princeton Office  Janet L. Whitten Assistant Cashier  Margot A. Bower Mortgage Loan Officer Beckley Office  Anna Abbey 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 & Executive Trust Officer
 Julie H. Johnson
Vice President & Senior Trust
Officer  Drew E.
Porter Vice President & Trust Officer 
Mary A. Musser Trust Officer  Mary Sue Anderson Assistant Trust Officer



Page
54     First Century Bankshares, Inc.



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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 Peppers 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