SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11535
CITY NATIONAL BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2434751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Broad Street, 07102
Newark, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 624-0865
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Common stock, par value $10 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of April 17, 1995 was approximately $1,448,840.
There were 111,141 shares of common stock outstanding at April 17, 1995.
<PAGE>
<TABLE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Income
<CAPTION>
Three months ended March 31,
Dollars in thousands, except per share data 1995 1994
<S> <C> <C>
Interest income
Interest and fees on loans $751 $467
Interest on Federal funds sold and securities
purchased under agreements to resell 156 69
Interest on deposits with banks 1 -
Interest and dividends on investment securities:
Taxable 802 525
Tax-exempt 26 11
Total interest income 1,736 1,072
Interest expense
Interest on deposits 619 307
Interest on short-term borrowings 49 31
Interest on long-term debt 5 5
Total interest expense 673 343
Net interest income 1,063 729
Provision (credit) for possible loan losses 122 (1,463)
Net interest income after provision (credit)
for possible loan losses 941 2,192
Other operating income
Service charges on deposit accounts 159 106
Other income 354 296
Net gain on sales of investment securities - 36
Total other operating income 513 438
Other operating expenses
Salaries and other employee benefits 589 402
Occupancy expense 16 29
Equipment expense 49 58
Other expenses 327 281
Total other operating expenses 981 770
Income before income tax expense 473 1,860
Income tax expense 175 545
Net income $298 $1,315
Net income per share
Primary: $2.68 $11.83
Fully diluted: $2.41 $10.54
Primary average shares outstanding 111,141 111,141
Fully diluted average shares outstanding 124,991 124,991
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Changes
in Stockholders' Equity
<CAPTION>
Net Unrealized
Loss on Invest-
Dollars in thousands, Common Retained ment Securities Treasury
except per share data Stock Surplus Earnings Available for Sale Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 $1,120 $886 $2,581 $ - $(25) $4,562
Net income - - 1,315 - - 1,315
Net unrealized loss
on investment - - - (52) - (52)
available for sale
Balance,
March 31, 1994 $1,120 $886 $3,896 $ (52) $(25) 5,825
Balance,
December 31, 1994 $1,120 $886 $4,194 $(587) $(25) $5,588
Net income - - 298 - - 298
Change in net
unrealized loss on - - - 104 - 104
investment securities
available for sale
Dividends declared ($1.25
per share) - - (137) - - (137)
Balance,
March 31, 1995 $1,120 $886 $4,353 $(483) $(25) $5,851
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet
<CAPTION>
March 31, December 31,
Dollars in thousands, except per share data 1995 1994
<S> <C> <C>
Assets
Cash and due from banks $11,048 $3,331
Federal funds sold - 23,800
Interest bearing deposits with banks 93 -
Investment securities available for sale 8,200 7,173
Investment securities held to maturity (Market
value of $50,237 at March 31, 1995 and
$44,118 at December 31,1994) 51,393 46,578
Loans held for sale 287 470
Loans 36,782 25,563
Less: Reserve for possible loan losses 750 625
Net loans 36,032 24,938
Premises and equipment 1,927 1,740
Accrued interest receivable 864 1,149
Other assets 686 1,883
Total assets $110,530 $111,062
Liabilities and Stockholders' Equity
Deposits:
Demand $14,402 $16,448
Savings 38,276 39,615
Time 48,169 47,878
Total deposits 100,847 103,941
Short-term borrowings 2,161 -
Accrued expenses and other liabilities 1,424 1,284
Long-term debt 249 249
Total liabilities 104,681 105,474
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value: Authorized 100, - -
Common stock, par value $10: Authorized 400,000 shares;
Issued 111,980 shares at 3/31/95 and 12/31/94
outstanding 111,141 shares at 3/31/95 and
12/31/94. 1,120 1,120
Surplus 886 886
Retained earnings 4,351 4,194
Less:
Net unrealized loss on investment securities
available for sale 483 587
Treasury stock, at cost - 839 shares 25 25
Total stockholders' equity 5,849 5,588
Total liabilities and stockholders' equity $110,530 $111,062
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
<CAPTION>
Three Months Ended March 31,
In thousands 1995 1994
<S> <C> <C>
Operating activities
Net income $298 $1,315
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 30 30
Provision (credit) for possible loan losses 122 (1,463)
Amortization of premium, net of discount
accretion on investment securities 25 170
Gain on sales of investment securities
available for sale - (36)
Gains and commissions on loans held for sale (28) (14)
Loans originated for sale (942) (1,750)
Proceeds from sales of loans held for sale 1,155 1,764
Increase (decrease) in accrued interest
receivable 285 (62)
Decrease (increase) in other assets 1,158 (46)
Increase in accrued expenses and other
liabilities 140 359
Net cash provided by operating activities 2,243 267
Investing activities
Increase in interest bearing deposits with banks (93) -
Decrease in loans 263 551
Purchase of loans from Resolution Trust
Corporation (11,479) -
Proceeds from sales of investment securities
available - 2,383
Proceeds from maturities of investment securities
available for sale, including principal
payments 95 469
Proceeds from maturities of investment securities
held to maturity, including principal payments 570 2,350
Purchases of investment securities available
for sale (975) (6,012)
Purchases of investment securities held to
maturity (5,420) (11,063)
Purchases of premises and equipment (217) (37)
Net cash used in investing activities (17,256) (11,359)
Financing activities
(Decrease) increase in deposits (3,094) 8,789
Increase (decrease) in short-term borrowings 2,161 (4,692)
Dividends declared (137) -
Net cash (used) provided by financing
activities (1,070) 4,097
Net decrease in cash and cash equivalents (16,083) (6,995)
Cash and cash equivalents at beginning of
period 27,131 10,845
Cash and cash equivalents at end of period $11,048 $3,850
Cash paid during the year:
Interest $611 $319
Income taxes 375 76
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CITY NATIONAL BANCSHARES CORPORATION
Notes to Consolidated Financial Statements (unaudited)
1. Principles of consolidation
The accompanying consolidated financial statements include the accounts of
City National Bancshares Corporation (the "Corporation") and its
subsidiary, City National Bank of New Jersey (the "Bank"). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
2. Basis of presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the financial statements
have been included. Operating results for the three months ended March 31,
1995 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1995.
3. Loans
The Corporation adopted the provisions of Statement of Financial Accounting
Standards Statement No. 114 "Accounting by Creditors for Impairment of a
Loan" as of January 1, 1995 and Statement No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure" resulting in
no material effect on its financial position or results of operations.
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of operations
Net income for the first quarter of 1995 was $298,000, compared to
$1,315,000 for the similar 1994 quarter, which included the benefits of a
$1.6 million recovery of a loan that was charged off in 1989. Return on
average stockholders' equity and average assets was 20.82% and 1.08% for the
1995 first quarter and 92.82% and 1.53% for the corresponding 1994 quarter.
Related earnings per share on a fully diluted basis fell to $2.41 from
$10.54. After giving effect to nonrecurring items in the first quarters of
both years, core earnings declined from $334,000 to $298,000, reflecting the
continued strategy City National Bancshares Corporation (the "Corporation)
and its wholly-owned subsidiary, City National Bank of New Jersey (the
"Bank") to invest for the future by adding experienced management to enable
the Corporation to move forward in its strategic plan to increase both the
size of and the services offered by the Bank.
Net interest income
Net interest income rose 45.8% from $729,000 to $1,063,000, as the net
interest margin on a tax equivalent basis increased from 3.68% to 4.28%.
A higher level of earning assets was the primary reason for the increase.
Average interest earning assets in the first quarter of 1995 rose to $102
million from $80.5 million in 1994. $15 million of this growth occurred
within the investment portfolio, while the loan portfolio averaged $9.6
million more. Although internal loan growth was relatively flat, the Bank
acquired $11.5 million in individual mortgages from the Resolution Trust
Corporation ("RTC") in connection with the acquisition of a branch of a
failed saving and loan association in May 1994.
The growth in the investment portfolio occurred primarily in U.S.
Government agency securities, which totalled $21.4 million at March 31,
1995 compared to $11 million a year earlier.
Deposits averaged $99.1 million for the first quarter of 1995 compared to
$75.5 million for the 1994 first quarter, an increase of $23.6 million.
Most of the deposit growth occurred in time deposits acquired in the
aforementioned branch acquisition.
Provision and reserve for possible loan losses
Changes in the reserve for possible loan losses are set forth below.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Balance at beginning of period $ 625 $ 700
Provision (credit) for possible
loan losses 122 (1,463)
Recoveries of previous charge-offs 14 1,486
----- -----
761 723
Less: Charge-offs 11 23
----- -----
Balance at end of period $ 750 $ 700
----- -----
</TABLE>
The higher provision in 1995 resulted from the $1,425,000 recovery of a
<PAGE>
loan that had been charged-off in 1989, along with a special charge of
$115,000, representing 1% of the balance of the loan portfolio acquired
from the RTC.
Management believes that the reserve for possible loan losses is adequate
based on an ongoing evaluation of the loan portfolio. This evaluation
includes consideration of past loan loss experience, the level and
composition of nonperforming loans, collateral adequacy, and general
economic conditions, including the effect of such conditions on particular
industries.
While management uses available information to determine the adequacy of
the reserve, future additions may be necessary based on changes in economic
conditions or in subsequently occurring events unforeseen at the time of
evaluation.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Reserve for possible loan losses
as a percentage of:
Total loans 2.04% 2.39% 2.44%
Total nonperforming loans 109.33 183.28 73.30
Total nonperforming assets
(nonperforming loans and OREO) 75.53 96.45 73.30
Net recoveries as a percentage of
average loans - 5.08 6.02
</TABLE>
Nonperforming loans
Nonperforming loans include loans on which the accrual of interest has been
discontinued or loans which are contractually past due 90 days or more as
to interest or principal payments on which interest income is still being
accrued. Nonaccrual loans include loans where principal or interest
payment are 90 days or more past due. Delinquent interest payments are
credited to income when received. The following table presents the
principal amounts of nonperforming loans past due 90 days or more and
accruing.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Nonaccrual loans
Commercial $ 20 $ 31 $ 22
Installment 3 6 -
Real estate 408 285 783
----- ----- -----
Total 431 312 805
Loans past due 90
or more and accruing
Commercial 88 - -
Installment - - 3
Real estate 167 29 147
----- ----- -----
Total 255 29 150
----- ----- -----
Total nonperforming loans $ 686 $ 341 $ 955
----- ----- -----
</TABLE>
Nonperforming assets are generally well secured by real estate and small
commercial buildings. It is the Bank's intent to move nonperforming loans
into other real estate owned ("OREO") as rapidly as possible and to dispose
of all OREO properties at the earliest possible date at prices considered
reasonable under the circumstances.
<PAGE>
Other operating income
Other operating income, including the results of investment securities
transactions, rose from $438,000 in the first quarter of 1994 to $513,000
in the first quarter of 1995. Service charges on deposit accounts rose
50%, from $106,000 to $159,000, due primarily due to a greater volume of
transactions subject to service charges.
Other income grew from $296,000 in the first quarter of 1994 to $354,000 in
the similar 1995 quarter, primarily as a result of $198,000 received from
the RTC representing earnings on funds allocated to purchase loans from the
RTC. Offsetting this income was a reduction of $175,000 from 1994,
representing a portion of the aforementioned $1.6 million loan loss
recovery.
Other operating expenses
Other operating expenses rose $770,000 in the 1994 first quarter to
$981,000 in the 1995 first quarter, due primarily to higher salaries and
other employee benefits expense. This category rose $187,000, or 46.5%
from 1994, as the Corporation added significantly to its lending management
in anticipation of expanding its lending efforts in addition to obtaining a
chief financial officer.
Occupancy expense fell from $29,000 to $16,000 reflecting higher income
earned on unused space.
Income tax expense
Income tax expense decreased from $545,000 in the first quarter of 1994 to
$175,000 in the 1995 first quarter reflecting lower levels of taxable
income.
Federal funds sold
There were no Federal funds sold at March 31, 1995 compared to $23.8
million at 1994 year-end. The reduction reflected increases during the
first quarter in long-term earning assets as well as higher cash and due
from banks balances.
Investment securities available for sale
Investment securities available for sale rose from $7.2 million at December
31, 1994 to $8.2 million at March 31, 1995. Unrealized depreciation in the
portfolio dropped from $504,000 to $361,000 at those dates.
Investment securities held to maturity
Investment securities held to maturity increased from $46.6 million at 1994
year-end to $51.4 million at the end of the 1995 first quarter reflecting
the purchase during the quarter of primarily floating rate U.S. Government
agency securities. As a result of a flattening of the yield curve, the
unrealized depreciation in the held to maturity portfolio fell from
$2,460,000 at December 31, 1994 to $1,156,000 at the end of the 1995 first
quarter.
Loans
Loans held for sale decreased from $470,000 at December 31, 1994 to
$287,000 at March, 31, 1995 as loans originated for sale fell from $1.8
million during the 1994 first quarter to $942,000 in the 1995 first
<PAGE>
quarter. The increase in loans from $46.6 million at December 31, 1994 to
$51.4 million at March 31, 1995 resulted from the aforementioned loan
acquisition from the RTC.
Deposits
At March 31, 1995, deposits totalled $100.8 million compared to $103.9
million at the end of 1994, with most of the reduction attributable to
nonrecurring U.S. Treasury tax and loan deposits at December 31, 1994.
Liquidity
The liquidity position of the Corporation is dependent on the successful
management of its assets and liabilities so as to meet the needs of both
deposits and credit customers. Liquidity needs arise principally to
accommodate possible deposit outflows and to meet customers' request for
loans. Such needs can be satisfied by maturing loans and investments,
short-term liquid assets and the ability to raise short-term funds from
external sources.
The Corporation depends primarily on deposits as a source of funds and also
provides for a portion of its funding needs through short-term borrowings,
such as Federal funds purchased, securities sold under repurchase
agreements and borrowings under the U.S. Treasury tax and loan note option
program.
It is the responsibility of senior management to monitor and oversee all
activities relating to liquidity management and the protection of net
interest income from fluctuations in interest rates.
The major contribution for the first three months from operating activities
to the Corporation's liquidity came from a decrease in other assets,
reflecting the application by the RTC of a prepayment by the Corporation
towards the purchase of a package of loans. The primary use for operating
activities was for loans originated for sale, totalling $942,000 in the
first quarter of 1995.
Most of the cash received from investing activities came from proceeds from
maturities of investment securities held to maturity, which totalled
$570,000. The primary use for investing activities was the purchase of
investment securities held to maturity, which amounted to $5.4 million.
Interest rate sensitivity
The management of interest rate risk is also important to the profitability
of the Corporation. Interest rate risk arises when an earning asset
matures or when its interest rate changes in a time period different from
that of a supporting interest bearing liability, or when its interest rate
changes in a time period different from that of an interest earning asset
that it supports. While the Corporation does not match specific assets and
liabilities, total earnings assets and interest bearing liabilities are
grouped to determine the overall interest rate risk within a number of
specific time frames.
Interest sensitivity analysis attempts to measure the responsiveness of net
interest income to changes in interest rate levels. The difference between
interest sensitive assets and interest sensitive liabilities is referred to
as the interest sensitivity gap. At any given pain tin time, the
Corporation may be in an asset-sensitive position, whereby its
interest-sensitive asset exceeds its interest-sensitive liabilities or in a
liability-sensitive position, whereby its interest-sensitive liabilities
exceeds its interest-sensitive assets, depending on management's judgment
<PAGE>
as to projected interest rate trends.
At March 31, 1995, the Corporation had a cumulative one-year gap of a
negative $9.3 million, representing 8.4% of total assets compared to a
positive $9.3 million gap at December 31, 1994. The change occurred
primarily as a result of increases in long-term earning assets.
If the weighted average interest rates in effect at March 31, 1995
increased by 1%, annual net interest income would fall by $93,000 since in
a rising rate environment, interest-sensitive liabilities will reprice
faster than assets. A 1% decrease in the weighted average interest rates
would improve net interest income by $90,000.
The Corporation is presently refining its interest rate sensitivity
management methods to give effect to variations in interest rate changes
depending on the asset and liability mix.
Capital
Stockholders' equity amounted to $5.8 million at March 31, 1995 compared to
$5.6 million at December 31, 1994. Stockholders' equity as a percentage of
total assets was 5.29% at March 31, 1995, while the leverage ratio was
5.65%, which compares with existing guidelines established by the Federal
Reserve Bank for bank holding companies of 3%.
Risk-based capital ratios are expressed as a percentage of risk-adjusted
assets, and relate capital to the risk factors of a bank's asset base,
including off-balance sheet risk exposures. Various weighings are assigned
to different asset categories as well as off-balance sheet exposures
depending on the risk associated with each. In general, less capital is
required for less risk.
At March 31, 1995, the Corporation's core capital (Tier 1) and total (Tier
1 plus Tier 2) risked-based capital ratios were 18.17% and 20.16%,
respectively.
PART II Other information
Item 6a. Exhibits
(11) Statement re computation of per share earnings
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CITY NATIONAL BANCSHARES CORPORATION
(Registrant)
May 12, 1995 __________________________
Edward R. Wright
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
City National Bancshares Corporation
Computation of Earnings Per Common Share on a
Primary & Fully Diluted Basis
In thousands, except per share data
<CAPTION>
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Net Income
Net income applicable to
primary common shares $298 $1,315
Interest expense on convertible
subordinated debentures, net of income tax 3 3
Net income applicable to fully
diluted common shares $301 $1,318
Number of average shares
Primary 111,141 111,141
Fully diluted:
Average common shares outstanding 111,141 111,141
Average convertible subordinated debentures
converted to common shares 13,850 13,850
124,991 124,991
Net income per share
Primary $2.68 $11.83
Fully diluted 2.41 10.54
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> QTR-1 QTR-1
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> MAR-31-1995 MAR-31-1994
<CASH> 11048 3331
<INT-BEARING-DEPOSITS> 93 0
<FED-FUNDS-SOLD> 0 23800
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 8200 7173
<INVESTMENTS-CARRYING> 51393 46578
<INVESTMENTS-MARKET> 50237 44118
<LOANS> 37069 26033
<ALLOWANCE> 750 625
<TOTAL-ASSETS> 110530 111062
<DEPOSITS> 100847 103941
<SHORT-TERM> 2161 0
<LIABILITIES-OTHER> 1424 1284
<LONG-TERM> 249 249
<COMMON> 2006 2006
0 0
0 0
<OTHER-SE> 3843 3582
<TOTAL-LIABILITIES-AND-EQUITY> 110530 111062
<INTEREST-LOAN> 751 467
<INTEREST-INVEST> 984 605
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 1736 1072
<INTEREST-DEPOSIT> 619 307
<INTEREST-EXPENSE> 54 36
<INTEREST-INCOME-NET> 673 343
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 0 36
<EXPENSE-OTHER> 981 770
<INCOME-PRETAX> 473 1860
<INCOME-PRE-EXTRAORDINARY> 473 1860
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 298 1315
<EPS-PRIMARY> 2.68 11.83
<EPS-DILUTED> 2.41 10.54
<YIELD-ACTUAL> 0696 0540
<LOANS-NON> 431 805
<LOANS-PAST> 255 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 025 000
<ALLOWANCE-OPEN> 625 700
<CHARGE-OFFS> 11 23
<RECOVERIES> 14 1485
<ALLOWANCE-CLOSE> 750 700
<ALLOWANCE-DOMESTIC> 530 511
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 220 189
</TABLE>
