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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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 March 15, 1996 was approximately $1,207,962.
There were 111,141 shares of common stock outstanding at March 15, 1996.
Documents incorporated by reference:
Certain portions of the definitive Proxy Statement for the 1996 Annual Meeting
of shareholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A are incorporated herein by reference in Part III.
Page 1 of pages. Exhibit Index appears on page ___________.
<PAGE>
CITY NATIONAL BANCSHARES CORPORATION
FORM 10-K
Table of Contents
Page
PART I
Item 1. Business..............................................................1
Item 2. Properties............................................................3
Item 3. Legal Proceedings.....................................................3
Item 4. Submission of Matters to a Vote of Security Holders...................3
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................................3
Item 6. Selected Financial Data...............................................4
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................5-16
Item 8. Financial Statements and Supplementary Data.......................17-35
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................35
PART III
Item 10. Directors and Executive Officers of Registrant.......................35
Item 11. Executive Compensation...............................................35
Item 12. Security Ownership of Certain Beneficial Owners and Management.......35
Item 13. Certain Relationships and Related Transactions.......................35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......36
Signatures....................................................................35
<PAGE>
1
Part I
Item 1. Business
City National Bancshares Corporation (the "Corporation" or "CNBC") is a New
Jersey corporation incorporated on January 10, 1983. At December 31, 1995, CNBC
had consolidated total assets of $114.8 million, total deposits of $100.9
million and total stockholders' equity of $7.1 million. Its only subsidiary is
City National Bank of New Jersey (the "Bank" or "CNB").
CNB is a national banking association chartered in 1973 under the laws of the
United States of America. CNB is minority owned and controlled and therefore
eligible to participate in certain federal government programs. CNB is a member
of the Federal Reserve Bank, the Federal Home Loan Bank and the Federal Deposit
Insurance Corporation. CNB provides a wide range of retail and commercial
banking services through two offices located in northern New Jersey. Deposit
services include savings and checking accounts, certificates of deposit and
money market and retirement accounts. The Bank also provides many forms of small
to medium size business financing, including revolving credit, credit lines,
term loans and all forms of consumer financing, including auto, home equity and
mortgage loans and maintains banking relationships with several major domestic
corporations.
CNB specializes in providing credit and deposit services to business and
individuals located within minority communities within New Jersey, particularly
in the Newark area.
During 1995, the Bank entered into an agreement with NatWest Bank to acquire a
branch office located in Newark, New Jersey. The transaction closed on March 8,
1996.
The Bank has no trust department.
Competition
The market for banking and bank related services is highly competitive. The Bank
competes with other providers of financial services such as other bank holding
companies, commercial saving banks, savings and loan associations, credit
unions, money market and mutual funds, mortgage companies, and a growing list of
other local, regional and national institutions which offer financial services.
Mergers between financial institutions within New Jersey and in neighboring
states have added competitive pressures. Competition is expected to intensify as
a consequence of interstate banking laws now in effect or that may be in effect
in the future. CNB competes by offering quality products and convenient services
at competitive prices. CNB regularly reviews its products and locations and
considers various branch acquisition prospects.
Management believes that as New Jersey's only African-American owned and
controlled Bank, it has a unique ability to provide commercial banking services
to that segment of the minority community.
Supervision and regulation
The banking industry is highly regulated. The following discussion summarizes
some of the material provisions of the banking laws and regulations affecting
City National Bancshares Corporation and City National Bank of New Jersey.
Regulatory matters
On January 21, 1992, the Bank entered into a Consent Order with the Office of
the Comptroller of the Currency ("OCC") which replaced and superceded the Cease
and Desist Order issued by the OCC in 1989. The Consent Order contained fewer
articles than the Cease and Desist Order, but required, among other things, that
the Bank continue to implement certain internal procedures and controls in the
areas of lending practices, asset quality and loan loss review and consumer
compliance and prohibited the Bank from declaring or paying any dividends
without prior notification to the OCC.
The Consent Order also required the Bank to achieve by April 30, 1992 a minimum
5% ratio of Tier I (core) capital to total assets. This was achieved by the
required date and as of December 31, 1994, the Bank remained in compliance.
In April 1994, the Bank was advised by the OCC that as a result of the Bank's
substantial compliance with the terms of the Consent Order, such Consent Order
was terminated as of March 30, 1994.
Bank holding company regulations
CNBC is a bank holding company within the meaning of the Bank Holding Company
Act (the "Act") of 1956, and as such, is supervised by the Board of Governors of
the Federal Reserve System (the "FRB").
<PAGE>
2
The Act prohibits CNBC, with certain exceptions, from acquiring ownership or
control of more than five percent of the voting shares of any company which is
not a bank and from engaging in any business other than that of banking,
managing and controlling banks or furnishing services to subsidiary banks. The
Act also requires prior approval by the FRB of the acquisition by CNBC of more
than five percent of the voting stock of any additional bank. The Act also
restricts the types of businesses, activities, and operations in which a bank
holding company may engage.
The Riegle-Neal Interstate Bank and Branching Efficiency Act of 1994 (the
"Branching Act") significantly changed interstate banking rules. Pursuant to the
Branching Act, a bank holding company will be able to acquire banks in states
other than its home state beginning September 29, 1995, regardless of applicable
state laws.
The Branching Act also authorizes banks to merge across state lines, thereby
creating interstate branches, beginning June 1, 1997. Under such legislation,
each state has the opportunity either to "opt out" of this provision, thereby
prohibiting interstate branching in such states, or to "opt in" at an earlier
time, thereby allowing interstate branching within that state prior to June 1,
1997. Furthermore, a state may "opt-in" with respect to de novo branching,
thereby permitting a bank to open new branches in a state in which the bank does
not already have a branch. Without de novo branching, an out-of-state bank can
enter the state only by acquiring an existing bank.
The New Jersey legislature is presently examining whether it will opt-in with
respect to earlier interstate banking and branching, as well as whether it will
authorize de novo branching and the entry into New Jersey of foreign banks.
Regulation of bank subsidiary
CNB is subject to the supervision of, and to regular examination by the Office
of the Comptroller of the Currency of the United States (the "OCC".)
Various laws and the regulations thereunder applicable to CNB impose
restrictions and requirement in many areas, including capital requirements, the
maintenance of reserves, establishment of new offices, the making of loans and
investments, consumer protection and other matters. There are various legal
limitations on the extent to which a bank subsidiary may finance or otherwise
supply funds to its holding company or its non-bank subsidiaries. Under federal
law, no bank subsidiary may, subject to certain limited exceptions, make loans
or extensions of credit to, or investments in the securities of, its parent or
nonbank subsidiaries of its parent (other than direct subsidiaries of such bank)
or, subject to broader exceptions, take their securities as collateral for loans
to any borrower. Each bank subsidiary is also subject to collateral security
requirements for any loans or extension of credit permitted by such exceptions.
CNBC is a legal entity separate and distinct from its subsidiary bank. CNBC's
revenues (on a parent company only basis) result from dividends paid to CNBC by
its subsidiary. Payment of dividends to CNBC by CNB, without prior regulatory
approval, is subject to regulatory limitations. Under the National Bank Act,
dividends may be declared only if, after payment thereof, capital would be
unimpaired and remaining surplus would equal 100% of capital. Moreover, a
national bank may declare, in any one year, dividends only in an amount
aggregating not more than the sum of its net profits for such year and its
retained net profits for the preceding two years. In addition, the bank
regulatory agencies have the authority to prohibit a bank subsidiary from paying
dividends or otherwise supplying funds to a bank holding company if the
supervising agency determines that such payment would constitute an unsafe or
unsound banking practice.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with the default of a commonly controlled FDIC-insured depository
institution or any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default, or deferred by the
FDIC. Further, under FIRREA, the failure to meet capital guidelines could
subject a banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including the termination of deposit insurance
by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities. In
addition, each federal banking agency has promulgated regulations, specifying
the levels at which a financial institution would be considered "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized", or "critically undercapitalized", and to take certain
mandatory and discretionary supervisory actions based on the capital level of
the institution.
<PAGE>
3
The OCC's regulations implementing these provisions of FDICIA provide that an
institution will be classified as "well capitalized" if it has a total
risk-based capital ratio of at least 10%, has a Tier 1 risk-based capital ratio
of at least 6%, has a Tier 1 leverage ratio of at least 5%, and meets certain
other requirements. An institution will be classified as "adequately
capitalized" if it has a total risk-based capital ratio of at least 8%, has a
Tier 1 risk-based capital ratio of at least 4%, and has Tier 1 leverage ratio of
at least 4%. An institution will be classified as "undercapitalized" if it has a
total risk-based capital ratio of less than 6%, has a Tier 1 risk-based capital
ratio of less than 3%, or has a Tier 1 leverage ratio of less than 3%. An
institution will be classified as "significantly undercapitalized" if it has a
total risk-based capital ratio of less than 6%, or a Tier I risk-based capital
ratio of less than 3%, or a Tier I leverage ratio of less than 3%. An
institution will be classified as "critically undercapitalized" if it has a
tangible equity to total assets ratio that is equal to or less than 2%. An
insured depository institution may be deemed to be in a lower capitalization
category if it receives an unsatisfactory examination.
Insured institutions are generally prohibited from paying dividends or
management fees if after making such payments, the institution would be
"undercapitalized". An "undercapitalized" institution also is required to
develop and submit to the appropriate federal banking agency a capital
restoration plan, and each company controlling such institution must guarantee
the institution's compliance with such plan.
Government policies
The earnings of the Corporation are affected not only by economic conditions,
but also by the monetary and fiscal policies of the United States and its
agencies, especially the Federal Reserve Board. The actions of the Federal
Reserve Board influence the overall levels of bank loans, investments and
deposits and also affect the interest rates charged on loans or paid on
deposits. The monetary policies of the Federal Reserve Board have had a
significant affect on the operating results of commercial banks in the past and
are expected to do so in the future. The nature and impact of future changes in
monetary and fiscal policies on the earnings of the Corporation cannot be
determined.
Employees
On December 31, 1995, CNBC and its subsidiary had 57 full-time equivalent
employees. Management considers relations with employees to be satisfactory.
Item 2. Properties
The corporate headquarters and main office as well as the operations and data
processing center of CNBC and CNB are located in Newark, New Jersey in a
building owned by CNB. In connection with the aforementioned branch acquisition,
the Bank leases its Hackensack office from the Resolution Trust Corporation, for
which no rent is payable for five years, after which the Bank will have the
opportunity to purchase the property.
The main office of the Bank is undergoing a major renovation which will be
completed in 1996.
Item 3. Legal Proceedings
There were no material pending legal proceedings to which CNBC of CNB were a
party.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1995, there were no matters submitted to
stockholders for a vote.
Part II
Item 5. Market For The Registrant's Common Equity and Related Stockholder
The Corporation's common stock, when publicly traded, is traded
over-the-counter. The common stock is not listed on any exchange and is not
quoted on the National Association of Securities Dealers' Automated Quotation
System. The last customer trade effected by a market maker was unsolicited and
occurred on November 2, 1990. No price quotations are currently published for
the common stock , nor is any market maker executing trades. No price quotations
were published during 1995.
At March 11, 1996, the Corporation had 1,925 common stockholders of record.
On May 1, 1995, the Corporation paid a cash dividend of $1.25 per share to
stockholders of record on March 31, 1995. Whether cash dividends on the common
stock will be paid in the future depends upon various factors, including the
earnings and financial condition of the Bank and the Corporation at the time.
Additionally, federal and state laws and regulations contain restrictions on the
ability of the Bank and the Corporation to pay dividends.
<PAGE>
4
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
=================================================================================================================================
Five-Year Summary
Dollars in thousands, except per share data 1995 1994 (1) 1993 1992 1991
=================================================================================================================================
Year-end Balance Sheet data:
<S> <C> <C> <C> <C> <C>
Total assets $114,410 $111,062 $74,786 $61,911 $51,536
Total loans 45,294 26,033 23,659 20,331 17,001
Reserve for possible loan losses 650 625 700 650 750
Investment securities 55,104 53,751 39,193 35,644 31,709
Total deposits 100,889 103,941 64,435 57,853 40,653
Long-term debt 1,749 249 249 249 269
Stockholders' equity 6,896 5,588 4,562 3,356 2,305
=================================================================================================================================
Income Statement data:
Interest income $ 7,470 $ 5,596 $ 4,509 $ 4,430 $ 4,768
Interest expense 2,829 2,068 1,469 1,513 2,143
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Net interest income 4,641 3,528 3,040 2,917 2,625
Provision (credit) for possible loan losses 486 (1,464) (23) 30 174
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Net interest income after provision (credit)
for possible loan losses 4,155 4,992 3,063 2,887 2,451
Noninterest income 1,363 1,375 898 508 708
Noninterest expense 4,245 3,645 3,019 2,829 2,930
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Income before income tax expense, cumulative
effect of accounting change 1,273 2,722 942 566 229
Income tax expense 471 998 168 205 149
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Net income before cumulative effect of
accounting change and extraordinary item 802 1,724 774 361 80
Cumulative effect of accounting change - - 206 - -
Extraordinary item - - - 194 142
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Net income $ 802 $ 1,724 $ 980 $ 555 $ 222
=================================================================================================================================
<FN>
(1) Includes the effects of a $1.6 million recovery of a loan that was charged
off in 1989, which is more fully discussed in "Management's discussion and
analysis of financial condition and results of operations."
</FN>
Per share data:
Income before cumulative effect of
accounting change and extraordinary item $ 7.22 $15.51 $ 7.88 $ 4.16 $ 1.37
Cumulative effect of accounting change and
extraordinary item - - 2.09 2.24 2.42
Net income per primary share 7.22 15.51 9.97 6.40 3.79
Net income per fully diluted share 6.53 13.90 8.86 6.40 3.79
Book value 62.05 50.28 41.05 34.30 35.58
Dividends 1.25 1.00 N/A N/A N/A
Average shares outstanding 111,141 111,141 98,267 86,738 58,673
Number of shares outstanding at year-end 111,141 111,141 111,141 97,841 64,795
Financial ratios:
Net income as a percentage of
average total assets .72% 1.66% 1.20% .81% .39%
Net income as a percentage of
average stockholders' equity 12.71 30.24 25.22 19.02 10.94
Stockholders' equity as a percentage of total assets 6.03 5.03 6.10 5.42 4.47
Dividend payout ratio 17.46 6.45 N/A N/A N/A
</TABLE>
<PAGE>
5
Item 7. Management's Discussion and Analysis Of Financial Condition and Results
Earnings performance
Net income in 1995 was $802,000 compared to $1,724,000 in 1994, which included
the benefit of a $1.6 million recovery of a loan that was charged off in 1989.
Returns on average stockholders'equity and average assets assets were 12.71% and
.72% in 1995 and 30.24% and 1.66% in 1994. Related earnings per share on a fully
diluted basis fell to $6.53 from $13.90. After giving effect to the
aforementioned nonrecurring recovery and netsecurities gains, operating earnings
increased 16% from $688,000 to $798,000.
The primary reason for the improved performance in operating earnings was an
increase in net interest income, which rose 31.5% compared to 1994. Offsetting
this improvement somewhat were higher costs associated with the operations of a
branch office acquired in May, 1994 from the Resolution Trust Corporation of a
failed savings and loan association, for a full year, a full year of salaries
and benefits attributable to additions to the management team made throughout
1994 in anticipation of future expansion, and the ongoing renovations of the
Bank's executive and main offices, along with the commencement of major
enhancements to the Bank's technology systems to improve customer service and
enhance efficiency.
Net interest income
Net interest income is the principal source of the Corporation's earnings and
represents the amounts by which the interest and fees earned on loans and other
interest earning assets exceeds the interest paid on the funding sources used to
finance those assets. An analysis of the components of net interest income is
facilitated when the income from tax-exempt investment securities is adjusted to
a taxable equivalent basis, placing tax-exempt assets on a comparable basis with
taxable interest earning assets.
On a fully taxable equivalent ("FTE") basis, net interest income rose from $3.6
million in 1994 to $4.7 million in 1995, while the related net interest margin
increased from 3.63% to 4.50%. These improvements resulted from a higher level
of interest earning assets, which averaged $104.4 million in 1995 compared to
$97.1 million in 1994. This growth occurred primarily from the use for an entire
year in 1995 of deposit proceeds resulting from the aforementioned branch
acquisition. The higher net interest margin resulted from a shift in the mix of
earning assets to loans from investment securities and short-term assets.
The yield on average interest earning assets rose 140 basis points in 1995 to
7.21% from 5.81% in 1994 due to the aforementioned emphasis on loan volume,
which more than offset the lower interest rate environment that existed during
1995.
Investments
Total investment securities averaged $57 million in 1995 compared to $50.9
million in 1994, an increase of $6.1 million, or 11.9%. Most of this increase
came from the proceeds received from the deposit assumption and were invested in
U.S. Government agency securities and mortgage backed securities.
In September 1994, the Bank transferred certain U.S. Government agency
securities, including structured notes, from the available for sale portfolio to
the held to maturity portfolio. Immediately prior to the transfer, these
securities had a book value of $6,437,000 and a market value of $5,933,000,
resulting in a gross unrealized loss totalling $504,000, or $302,000 net of tax.
This loss was being amortized by increasing the book values of the related
securities over their remaining maturities. At December 31, 1994, the securities
transferred had a book value of $5,967,000, with a related market value of
$5,834,000, including structured notes with book and related market values of
$4,113,000 and $4,025,000, respectively, with an additional gross unrealized
loss included in stockholders' equity of $473,000.
At December 31, 1994, the Bank held structured notes with a book value of
$11,019,000 and a related market value of $10,402,000, reflecting a gross
unrealized loss of $617,000. These notes include the aforementioned transferred
securities, part of which is included in the aforementioned $473,000 loss
included in stockholders' equity.
In December 1995, the Bank transferred $21.8 million of securities from the held
to maturity to the available for sale portfolio in accordance with the
provisions of the FASB Guide to Implementation of Statement No. 115, which
provided a one-time opportunity for banks to restructure the components of their
investment portfolio.
<PAGE>
6
At December 31, 1994, the gross unrealized loss on securities included in the
available for sale portfolio totalled $504,000, which at December 31, 1995 was
reduced to $135,000 due primarily to a decrease in interest rates. The held to
maturity portfolio had a gross unrealized loss of $2,460,000 at December 31,
1994 compared to $61,000 a year later. In addition to the lower interest rate
environment, this decrease also resulted from the removal during 1995 of three
structured notes, as discussed below, and the aforementioned transfer in 1995,
both of which allowed the Bank to eliminate a significant portion of the
unrealized loss that was being amortized when the portfolio was
marked-to-market.
After the 1995 transfer, there remained in the held to maturity portfolio one
security that had been transferred from available for sale in 1994. This
investment had a remaining gross unrealized loss included in stockholders'
equity of $112,000 at December 31, 1995.
Included in the 1995 transfer were all the structured notes previously included
in the 1994 transfer. These notes had a book value totalling $3,461,000 and a
related market value of $3,353,000 and a remaining gross unrealized loss
included in stockholders' equity of $224,000 at the time of the transfer.
At December 31, 1995, the structured note portfolio had a book value of
$8,209,000 and related market value of $8,003,000, reflecting a gross unrealized
loss of $206,000. The structured note portfolio consisted of twelve issues at
December 31, 1994, of which two were called during 1995 and one became
unstructured due to reaching its step-up limit. Of the nine remaining issues,
dual-index notes totalled $3,497,000 in book value, step-ups amounted to
$1,962,000 and deleveraged bonds totalled $2,750,000.
The dual-index notes are all indexed to a combination of long and short- term
rates, while the deleveraged notes are indexed to the ten-year Treasury.
Accordingly, the value of these securities could fluctuate depending on interest
rate movements. The step-ups have less interest rate risk since their yields
will increase over their remaining maturities.
Management believes that holding these securities will not have a significant
impact upon the financial condition or operations of the Corporation.
The composition of the investment portfolio between the held to maturity and the
available for sale changed significantly due primarily to the aforementioned
transfer. At December 31, 1994, the available for sale portfolio comprised 7.5%
of the total investment portfolio, while at December 31, 1995 the available for
sale portfolio represented 55.5%.
Information pertaining to the average weighted yields of investments in debt
securities at December 31, 1995 is presented below. Maturities of
mortgaged-backed securities included with U.S. Government agencies are based on
the maturity of the final scheduled payment. Such securities, which comprise
most of the balances shown as maturing beyond five years, generally amortize on
a monthly basis and are subject to prepayment. Taking into account such
contractual amortization and expected prepayments, a significant amount of
principal reduction on the aforementioned securities will occur within three
years:
Investment Securities Available for Sale
<TABLE>
<CAPTION>
Maturing After One Maturing After Five
Maturing Within Year But Within Years But Within Maturing After
One Year Five Years Ten Years Ten Years Total Total
Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $3,291 6.37% $ 2,773 6.52% $ - - % $ - - % $ 6,064 6.44%
U.S. Government agencies 997 4.84 11,681 5.48 - - 11,541 6.46 24,219 5.92
- ---------------------------------------------------------------------------------------------------------------------------------
Total book value $4,288 6.01% $14,454 5.68% $ - - % $11,541 6.46% $30,283 6.02%
=================================================================================================================================
</TABLE>
<PAGE>
7
Investment Securities Held to Maturity
<TABLE>
<CAPTION>
Maturing After One Maturing After Five
Maturing Within Year But Within Years But Within Maturing After
One Year Five Years Ten Years Ten Years Total Total
Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agencies - - $15,589 6.04% $4,204 6.95% $2,165 5.54% $21,958 6.16%
Obligations of states and
political subdivisions - - 558 7.45 1,978 6.76 - - 2,536 6.91
- ---------------------------------------------------------------------------------------------------------------------------------
Total book value $ - - $16,147 6.09% $6,182 6.89% $2,165 5.54% $24,494 6.24%
=================================================================================================================================
</TABLE>
Average yields are computed by dividing the annual interest, net of premium
amortization and including discount accretion, by the amortized cost of each
type of security outstanding at December 31, 1995. Average yields on obligations
of states and political subdivisions have been computed on a fully taxable
equivalent basis, using the statutory Federal income tax rate of 34%.
The average yield on the available for sale portfolio decreased from 6.28% in
1994 to 6.03% in 1995 reflecting the low yield on the short-term investments
transferred from the held to maturity portfolio in 1995, as well as the lower
rates securities purchased in 1995. This transfer also reduced the average
maturity of the portfolio, as maturities within five years comprised 61% of the
portfolio at December 31, 1995 compared to 30% a year earlier, while maturities
longer than ten years comprise 39% at December 31, 1995 compared to 70% a year
earlier.
The yield on the held to maturity portfolio rose from 5.89% in 1994 to 6.24% in
1995, reflecting the purchase during 1995 of higher coupon callable U.S.
Government agency securities. The average portfolio maturity shortened during
1995 as maturities falling within the first five years represented 65.9% of the
total held to maturity portfolio at December 31, 1995 compared to 57.2% a year
earlier.
<PAGE>
8
Consolidated Average Balance Sheet with Related Interest and Rates
<TABLE>
<CAPTION>
1995 1994
=================================================================================================================================
Average Average Average Average
Tax equivalent basisdollars in thousands Balance Interest Rate Balance Interest Rate
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Federal funds sold and securities purchased
under agreements to resell $ 4,948 $ 280 5.65% $18,867 $ 815 4.32%
Other short-term investments 3,334 192 5.75 - - -
Interest-bearing deposits with banks 170 10 6.09 - - -
Investment securities:
Taxable 1 54,468 3269 6.00 48,997 2,503 5.11
Tax-exempt 2,491 171 6.88 1,925 127 6.60
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Total investment securities 56,959 3,440 6.04 50,922 2,630 5.16
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Loans 2,3:
Commercial 14,598 1,202 8.23 15,799 1,037 6.56
Mortgage 24,000 2,365 9.85 10,926 1,106 10.12
Installment 374 40 10.70 593 51 8.60
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 38,972 3,607 9.26 27,318 2,194 8.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 104,383 7,529 7.21 97,107 5,639 5.81
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets:
Cash and due from banks 3,784 4,918
Net unrealized loss on investment securities
available for sale (297) (261)
Reserve for possible loan losses (729) (724)
Other assets 3,904 2,553
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest earning assets 6,662 6,486
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $111,045 $103,593
=================================================================================================================================
Liabilities and stockholders' equity Interest bearing liabilities:
Savings deposits 4 $ 36,818 726 1.97 $ 40,060 785 1.96
Time deposits 5 47,797 1,927 4.03 33,611 1,084 3.23
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 84,615 2,653 3.14 73,671 1,869 2.57
Short-term borrowings 2,780 156 5.63 4,306 179 4.16
Long-term debt 249 20 8.01 249 20 8.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 87,644 2,829 3.23 78,226 2,068 2.67
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest bearing liabilities:
Demand deposits 15,713 18,654
Other liabilities 1,378 1,012
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest bearing liabilities 17,091 19,666
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 6,310 5,701
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $111,045 $103,593
=================================================================================================================================
Net interest income (tax equivalent basis) 4,700 3.98 3,571 3.14
Tax equivalent basis adjustments 6 59 (43)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 4,641 $ 3,528
=================================================================================================================================
Average rate paid to fund interest earning assets 2.71 2.18
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income as a percentage of
interest earning assets (tax equivalent basis) 4.50% 3.63%
=================================================================================================================================
<FN>
1 Includes investment securities available for sale and held to maturity
2 Includes nonperforming loans
3 Includes loan fees of $197,000 and $109,000 in 1995 and 1994, respectively
4 Includes noninterest bearing deposits maintained by a state governmental
agency of $469,000 and $860,000 in 1995 and 1994, respectively
5 Includes noninterest bearing deposits maintained by corporations and U.S.
governmental agencies of $12,756,000 in 1995 and $4,144,000 in 1994
6 The tax equivalent adjustment was computed assuming a 34% statutory federal
income tax rate in 1995 and 1994
</FN>
</TABLE>
<PAGE>
9
The table below set forth, on a fully taxable basis, an analysis of the increase
(decrease) in net interest income resulting from the specific components of
income and expenses due to changes in volume and rate. Because of the numerous
simultaneous balance and rate changes, it is not possible to precisely allocate
such changes between balances and rates. Therefore, for purposes of this table,
changes which are not due solely to balance and rate changes are allocated to
rate.
<TABLE>
<CAPTION>
1995 Net Interest Income Increase 1994 Net Interest Income Increase
(Decrease) from 1994 due to (Decrease) from 1993 due to
In thousands Volume Rate Total Volume Rate Total
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans:
Commercial $(114) $394 $163 $354 $ (4) $350
Real estate 1,323 (181) 1,142 87 (19) 68
Installment (19) 8 (11) (4) (15) (19)
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 1,190 221 1,411 437 (38) 399
Taxable investment securities 280 486 766 523 (280) 243
Tax-exempt investment securities 37 7 44 157 (36) 121
Federal funds sold and securities
purchased under agreements to resell (601) 66 (535) 109 256 365
Other short-term investments 192 - 192 - - -
Interest-bearing deposits with banks 10 - 10 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 1,108 780 1,888 1,226 (98) 1,128
- ---------------------------------------------------------------------------------------------------------------------------------
Interest expense
Savings deposits 63 (4) 59 (224) 189 (35)
Time deposits (458) (385) (843) (313) (217) (530)
Short-term borrowings (86) 109 23 25 (59) (34)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense (481) (280) (761) (512) (87) (599)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $627 $500 $1,027 $714 $(185) $529
=================================================================================================================================
</TABLE>
Loans
Total loans averaged $39 million in 1995 compared to $27.3 million in 1994, an
increase of 46.5%. At December 31, 1995, total loans were $45.7 million, up
75.8% from $26 million at 1994 year-end. The largest increase occurred in
mortgage loans, where average volume in 1995 was $24 million, compared to $10.9
million in 1994, an increase of 120.1%.
This increase occurred as a result of the purchase in January 1995 of $11.5
million in seasoned residential mortgage loans from the Resolution Trust
Corporation. These loans consisted of one-to-four family loans located
throughout central New Jersey. Other than these loans, there was little growth
in the Bank's residential mortgage portfolio, as all its fixed-rate loans are
sold in the secondary market and there was a lesser demand for adjustable-rate
loans during 1995 due to the declining interest rate environment.
Loans originated for sale declined to $4.6 million in 1995 from $6.5 million in
1994. While the Bank originates Small Business Administration-guaranteed
commercial loans for sale, most loans originated for sale represent Housing and
Urban Development ("HUD") - guaranteed residential rehabilitation loans. The HUD
loans are more labor intensive than the conventional residential mortgage loans
that the Bank originated and sold during 1994, but are more profitable. Because
of the emphasis in 1995 on HUD loans, the volume declined, but gains and
commission on loan sales rose by 90.6%. Loans sold decreased, to $4.5 million in
1995 from $6.1 million in 1994. The Bank intends to expand its residential
mortgage lending program by moving into Federal Housing Administration ("FHA")
guaranteed home rehabilitation loans, which are sold to the FHA, as well as
utilizing the benefits of the Federal Home Loan Bank community development
financing programs.
At December 31, 1995, loans to churches totaled $6.3 million, representing
13.78% of total loans outstanding and are included with real estate loans.
Management does not believe that this loan concentration exposes the Corporation
to any unusual degree of risk.
The Bank generally secures its loans by obtaining primarily first liens on real
estate, both residential and commercial, and does virtually no asset-based
financing. Without additional side collateral, the Bank generally requires
maximum loan-to-value ratios of 70% for loan transactions secured by commercial
real estate.
<PAGE>
10
The Bank's primary market area consists of northern New Jersey, particularly
within the Newark area. The overall unemployment rate in the State of New Jersey
was 7.3% at the end of 1995 compared to a nationwide rate of 5.6%, which was
also the second highest rate of all industrialized states. In addition, several
major companies located in New Jersey have recently announced layoffs, which
will further affect the New Jersey economy.
While management believes that its loan portfolio is well secured and able to
withstand a downturn in economic conditions, its effects are being carefully
considered in making credit decisions in 1996.
Management is unaware of any significant potential problem loans at December 31,
1995. Maturities and interest sensitivities of loans Information pertaining to
maturities and the sensitivity to changes in interest rates of certain loan
categorizes at December 31, 1995 is presented below.
Due After One
Due in One Year Through Due After
In thousands Year or Less Five Years Five Years Total
================================================================
Commercial $ 15,335 $ 937 $ 2,015 $ 18,287
Real estate:
Construction 90 - - 90
Mortgage 2,923 19,013 4,436 26,355
- ----------------------------------------------------------------
Total $ 18,348 $ 19,940 $ 6,451 $ 44,739
================================================================
Loans at fixed
interest rates $ 1,703 $ 2,433 $ 1,734 $ 5,870
Loans at variable
Interest rates 16,645 17,507 4,717 38,872
- ----------------------------------------------------------------
Total $ 18,348 $ 19,940 $ 6,451 $ 44,739
================================================================
Summary of loan loss experience
Changes in the reserve for possible loan losses are summarized below.
Dollars in thousands 1995 1994
==============================================================
Balance, January 1 $625 $700
- --------------------------------------------------------------
Charge-offs:
Commercial loans 382 35
Real estate loans 163 103
Installment loans 14 22
- --------------------------------------------------------------
Total 559 160
- --------------------------------------------------------------
Recoveries:
Commercial loans 26 1,461
Real estate loans 54 48
Installment loans 18 40
- --------------------------------------------------------------
Total 98 1,549
- --------------------------------------------------------------
Net charge-offs (recoveries) 164 (1,389)
Provision (credit) for possible loan
losses charged to operations 486 (1,464)
- --------------------------------------------------------------
Balance, December 31 $650 $625
==============================================================
Net charge-offs (recoveries) as a
percentage of average loans 1.43% (5.34)%
Reserve for possible loan losses as
a percentage of loans 1.45 2.44
Reserve for possible loan losses as
a percentage of nonperforming loans 60.07 183.80
===============================================================
The reserve for possible loan losses is maintained at a level determined by
management to be adequate to provide for potential losses in the loan portfolio.
The reserve is increased by provisions charged to operations and recoveries of
loan charge-offs. The reserve is based on management's evaluation of the loan
portfolio and several other factors, including past loan loss experience, the
credit conditions of the borrower, the value of the underlying collateral,
business and economic conditions and the possibility that there may be potential
losses in the portfolio which cannot currently be identified.
Charge-offs rose from $160,000 in 1994 to $559,000 in 1995 as a result of the
charge-off, in the fourth quarter of 1995, of a loan that had been performing
until that time where credit quality rapidly eroded to the extent that
management considered the collection of the loan to be doubtful.
<PAGE>
11
During 1994, the Bank recovered $1.6 million as an insurance recovery for a loan
that was charged off in 1989. $175,000 was recorded as other income, while
$1,425,000, which represents the total amount of the loan charged off, was
recorded as a recovery to the reserve for possible loan losses.
Allocation of the reserve for possible loan losses
The reserve for possible loan losses has been allocated based on management's
estimates of the risk elements within the loan categories set forth below at
December 31:
1995 1994
===============================================================
Percentage Percentage
of Loan of Loan
Dollars in thousands Amount Category Amount Category
===============================================================
Commercial $ 175 .98% $ 83 .63%
Real estate 448 1.65 384 3.14
Installment 7 1.97 9 1.56
Unallocated 20 - 149 -
- --------------------------------------------------------------
Total $ 650 1.44% $ 625 2.39%
==============================================================
Nonperforming assets
Information pertaining to nonperforming assets at December 31 is summarized
below at December 31:
In thousands 1995 1994
================================================================
Nonperforming loans
Commercial $ 68 $ 17
Real estate 800 314
Installment 2 6
Lease financing receivables - 4
- ----------------------------------------------------------------
Total nonperforming loans 870 341
Other real estate owned 212 307
- ----------------------------------------------------------------
Total $1,082 $ 648
================================================================
The increase in nonperforming loans in 1995 resulted primarily from the addition
of one loan that management considers well-secured by a commercial property.
Deposits
Total deposits decreased from $103.9 million at December 31, 1994 to $100.9
million a year later, due to a decline in demand deposits. The Bank's deposit
levels may change significantly on a daily basis because deposit accounts
maintained by federal and state governmental agencies represent a significant
part of the Bank's deposits and are more volatile than commercial or or retail
deposits.
These municipal and U.S. Government deposits represent a substantial part of the
Bank's business, tend to have high balance relationships and comprise most of
the Bank's accounts with balances of $100,000 or more at December 31, 1995.
While local municipalities use the accounts for operating and short-term
investments purposes, the U.S. Government uses noninterest-bearing certificates
of deposit as compensating balances, representing a form of payment for services
provided. All the foregoing deposits require collateralization with readily
marketable U.S. Government securities. While the Bank issues certificates of
deposit to municipalities in amounts of $100,000 at rates which are competitive
with other institutions and somewhat more costly than other sources of deposits,
the overall cost of certificates of deposit of $100,000 or more is reduced by
the maintenance of the foregoing compensating balance accounts.
While the collateral maintenance requirements associated with the Bank's
municipal and U.S. Government account relationships might limit the ability to
readily dispose of investment securities used as such collateral, management
does not foresee any need for such disposal, and in the event of the loss of any
of these deposits, these securities are readily marketable.
Contributing to the decline in demand deposits were new federal tax deposit
regulations which went into effect on December 1, 1994, whereby large companies
began making their deposits directly to the U.S. Treasury Department rather than
through a commercial bank. As a result, at December 31, 1995, balances under
this tax deposit program totalled $89,000 compared to $3 million a year earlier.
To offset the loss of these deposits, the U.S. Treasury Department has deposited
a $9.5 million noninterest bearing time deposits with CNB, which will be repaid
over five years.
<PAGE>
12
Average deposits totalled $100.3 million in 1995, an 8.7% increase from $92.3
million in 1994, with almost all the growth occurring in savings and time
deposits. The branch acquisition contributed $14.7 million to the deposit
growth.
Certain corporations and governmental agencies maintain noninterest bearing
savings and time deposit accounts with the Bank as compensation for services
performed. In 1995, such balances averaged $469,000 and $12,756,000,
respectively, contributing 39 basis points to net interest income. In 1994,
these respective balances were $860,000 and $4,144,000, respectively,
contributing 23 basis points.
Short-term borrowings
Average short-term borrowings were lower in 1995 because of the greater
liquidity available from proceeds received with the branch acquisition.
Other operating income
Other operating income was $1.4 million in both 1995 and 1994. There were major
changes within the components, however, as service charges rose $216,000, or
44.8% due to a greater volume of service chargeable transactions. Other income
decreased $213,000, or 26.1%, due primarily to the aforementioned recording in
1994 of $175,000 associated with the loan loss recovery.
Other operating expenses
Other operating expenses, which include expenses other than interest, income
taxes and the provision for possible loan losses, totalled $4.2 million in 1995,
a 16.5% increase compared to 1994. Salaries and other employee benefits
comprised the largest portion of the increase, rising 23.7% from $2 million to
$2.5 million in 1995. The primary reason for the increase in overall operating
expenses was the operation of the acquired branch office for a full year.
Also contributing to the higher salary and benefit costs were the effects of
increased lending and administrative staff and annual merit increases.
Occupancy expense rose $30,000, or 24.4% from 1994 to 1995 due to higher
depreciation expense arising from the completion of the renovations to the
Bank's executive offices
Equipment expense increased $74,000, or 37% from 1994 to 1995 due primarily to
higher costs related to the aforementioned renovations.
Other operating expense was nominally higher in 1995 due primarily to lower
premiums for FDIC insurance coverage as well as the effectiveness of cost
containment measures instituted in early 1995. These reductions partially offset
the increased cost of operating the acquired branch for a full year.
Income tax expense
Income tax expense as a percentage of pre-tax income was 37%, relatively
unchanged from 36.7% in 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 deposit
and credit customers. Liquidity needs arise primarily to accommodate possible
deposit outflows and to meet borrowers' request for loans. Such needs can be
satisfied by investment and loan maturities and payments, along with the ability
to raise short-term funds from external sources.
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 Bank 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. The major
contribution during 1995 from operating activities to the Corporation's
liquidity came from proceeds from sales of loans originated for sale, amounting
to $4.6 million, while loans originated for sale represented the greatest use
from operating activities, totalling $4.6 million.
The purchase of loans from the Resolution Trust Corporation for $11.5 million
represented the largest use of funds for investing activities, while most of the
cash received from investing activities came from proceeds from maturities of
investment securities, which totalled $10.5 million.
The primary source of funds from financing activities resulted from an increase
in short-term borrowings of $3.7 million, while a reduction in deposits
represented the greatest use for financing activities.
<PAGE>
13
Effects of inflation
Inflation, as measured by the CPI, has been relatively steady during recent
years, advancing 2.8% in 1995, 2.7% in 1994 and 1993 and 2.9% in 1992.
The asset and liability structure of the Corporation and subsidiary bank differ
from that of an industrial company since its assets and liabilities fluctuate
over time based upon monetary policies and changes in interest rates. The growth
in earning assets, regardless of the effects of inflation, will increase net
income if the Corporation is able to maintain a consistent interest spread
between earning assets and supporting liabilities. In an inflationary period,
the purchasing power of these net monetary assets necessarily decreases.
However, changes in interest rates may have a more significant impact on the
Corporation's performance than inflation. While interest rates are affected by
inflation, they do not necessarily move in the same direction, or in the same
magnitude as the prices of other goods and services.
The impact of inflation on the future operations of the Corporation should not
be viewed without consideration of other financial and economic indicators, as
well as historical financial statements and the preceding discussion regarding
the Corporation's liquidity and asset and liability management.
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 an interest-bearing liability matures or
when its interest rate changes in a time period different from that of an
earning asset that it supports. While the Corporation does not match specific
assets and liabilities, total earning 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
interest sensitive gap. At any given point in time, the Corporation may be in an
asset-sensitive position, whereby its interest-sensitive assets exceed its
interest-sensitive liabilities or in a liability-sensitive position, whereby its
interest-sensitive liabilities exceed its interest-sensitive assets, depending
on management's judgment as to projected interest rate trends.
One measure of interest rate risk is the interest-sensitivity analysis, which
details the repricing differences for assets and liabilities for given periods.
The primary limitation of this analysis is that it is a static (i.e., as of a
specific point in time) measurement which does not capture risk that varies
nonproportionally with changes in interest rates. Because of this limitation,
the Corporation uses a simulation model as its primary method of measuring
interest rate risk. This model, because of its dynamic nature, forecasts the
effects of different patterns of rate movements and variances in the effects of
rate changes on the Corporations' mix of interest-sensitive assets and
liabilities.
<PAGE>
14
The following table presents the Corporation's interest rate sensitivity
position at December 31, 1995.
Interest-sensitivity analysis
<TABLE>
<CAPTION>
Interest Sensitivity Period
=================================================================================================================================
Daily Due After Due After Due After
Floating and Three Months Six Months Total One Year or
Due Within but Within But Within Within Noninterest-
In thousands Three Months Six Months One Year One Year sensitive Total
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold $ 6,950 $ - $ - $ 6,950 $ - $ 6,950
Interest-bearing deposits with banks 321 - - 321 - 321
Investment securities 16,937 2,025 6,484 25,446 29,792 55,238
Loans 16,922 1,270 4,849 23,041 22,628 45,669
- ---------------------------------------------------------------------------------------------------------------------------------
Total 41,130 3,295 11,333 55,758 52,420 108,178
- ---------------------------------------------------------------------------------------------------------------------------------
Sources of funds supporting interest-earning assets
Savings deposits (1) 22,812 - - 22,812 14,207 37,019
Time deposits 26,520 9,614 6,630 42,754 8,191 50,945
Short-term borrowings 3,661 - - 3,661 - 3,661
Long-term debt - - - - 1,749 1,749
Noninterest bearing sources - - - - 15,842 15,842
- ---------------------------------------------------------------------------------------------------------------------------------
Total 52,983 9,614 6,630 69,227 40,451 109,678
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitive gap (11,853) (6,319) 4,703 (13,469)
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap $(11,853) $(18,172) $(13,469) $(13,469)
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitive assets to interest
sensitive liabilities 77:1 .34:1 1.71:1 1.81:1
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitive assets
to interest sensitive liabilities .77:1 .71:1 .81:1 .81:1
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitivity gap as a percentage
of total assets (10.33)% (5.51)% 4.01% 11.74%
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap as a percentage
of total assets (10.33)% (26.17)% 11.74% 11.74%
=================================================================================================================================
<FN>
(1) Based on historical experience, management has classified passbook and
statement savings accounts as noninterest sensitive
</FN>
</TABLE>
At December 31, 1995, the Corporation had a cumulative one-year gap of $(13.5)
million, representing 11.74% of total assets and a ratio of .81:1. Utilizing the
dynamic simulation model, management believes that this amount would not result
in a significant change in net interest income should interest rates rise or
fall up to 300 basis points, which is the maximum change that management uses to
measure the Corporation's exposure to interest rate risk.
Capital
Capital adequacy is a measure of the amount of capital needed to support asset
growth. Minimum capital levels for banks and bank holding companies are
regulated by capital adequacy guidelines, which establish minimum capital
standards related to the level of assets and off-balance sheet exposures,
adjusted for credit risk. The guidelines categorize assets and off-balance sheet
items into four risk-weightings and require banking institutions to maintain a
minimum ratio of total capital to risk-weighted assets. Total capital consists
of the sum of a core (Tier I) and qualifying supplementary (Tier II) capital
elements. Tier I capital essentially is comprised of tangible stockholders'
equity for common stock and certain perpetual preferred stock, and Tier II
capital includes a portion of the reserve for possible loan losses, certain
qualifying subordinated long-term debt and preferred stock which does not
qualify as Tier I capital. The regulatory minimum for combined Tier I and Tier
II capital is 8% of risk-adjusted assets, with Tier II elements which qualify
for inclusion in total capital being limited to 100% of the total amount of Tier
I elements.
In addition to the risk-adjusted guidelines discussed above, banks and bank
holding companies are subject to certain leverage standards. Under these
guidelines, banks and bank holding companies are required to maintain as a
minimum leverage standard a Tier I capital-to-total assets ratio of 3%. Under
these guidelines, institutions operating at the 3% minimum are expected to have
<PAGE>
15
well diversified risk profiles, including no undue interest rate risk, excellent
asset quality, high liquidity and strong earnings. Institutions experiencing
growth or with high levels of risk would be expected to maintain Tier I capital
levels 100 to 200 basis points above the minimum.
The following table presents the consolidated and bank-only capital components
and related ratios at December 31:
Bank
Consolidated Only
========================================================================
Dollars in thousands 1995 1994 1995
========================================================================
Total stockholders' equity $ 6,896 $ 5,588 $ 8,591
Net unrealized loss on investment
securities available for sale 141 587 141
Disallowed intangibles (76) (85) (76)
- ------------------------------------------------------------------------
Tier 1 capital 6,961 6,090 8,656
- ------------------------------------------------------------------------
Qualifying long-term debt 1,749 249 -
Reserve for possible loan losses 516 412 516
- ------------------------------------------------------------------------
Tier 2 capital 2,265 661 563
- ------------------------------------------------------------------------
Total capital $ 9,226 $ 6,751 $ 9,172
========================================================================
Risk-adjusted assets $41,303 $32,997 $41,303
Total assets 114,410 111,062 114,410
- ------------------------------------------------------------------------
Risk-based capital ratios:
Tier 1 capital to
risk-adjusted assets 15.86% 18.46% 20.96%
Regulatory minimum 5.00 5.00 5.00
Total capital to risk-adjusted
assets 17.81 20.46 22.21
Regulatory minimum 8.00 8.00 8.00
Leverage ratio 6.27 5.48 7.80
Total stockholders' equity to
total assets 6.03 5.03 7.51
========================================================================
Results of operations - 1994 compared with 1993
Net income for 1994 rose to $1,724,000, or, on a fully diluted basis, $13.90 per
share compared to $568,000 , or $7.03 per share in 1993, due to a $1.6 million
insurance recovery of a loan charged off in 1989. Excluding the recovery along
with net security gains, net earnings from operations were $688,000, compared to
$476,000 in 1993, an increase of 44.5%. Higher net interest income was the
primarily reason for this increase, reflecting greater levels of interest
earning assets resulting from the May, 1994 branch acquisition.
While net interest income was higher, on a fully tax equivalent basis, the
related net interest margin decreased from 3.99% to 3.81% due primarily to a
more rate-sensitive deposit structure at the acquired branch.
Average deposits grew from $72 million in 1993 to $92.3 million in 1994, an
increase of 28%, due to the aforementioned branch acquisition. While proceeds
from the the deposit increase were spread over a number of interest earning
assets, the major growth was in taxable investment securities, which grew from
$39.1 million at December 31, 1993 to $53.7 million a year later.
Loan growth during 1994 was modest, although loans originated for sale rose from
$4.3 million in 1993 to $6.5 million in 1994 as the Bank expanded its
residential lending program under which these loans are sold in the secondary
market.
As a result of generally improved economic conditions in the Bank's market area
as well as improvements in the Bank's asset quality, management reduced the
reserve for possible loan losses from December 31, 1993 to December 31, 1994 by
recording a credit to the related provision of $1,464,000.
Other operating income
Other operating income rose $302,000, from $898,000 to $1.2 million in 1994,
primarily due to $339,000 of income earned from funds committed to loans to be
acquired from the Resolution Trust Corporation in connection with the branch
acquisition. Also contributing to this income were higher service fees earned
for acting as lead bank in a corporate line of credit syndication. Such fees
rose from $42,000 in 1993 to $158,000 in 1994.
Offsetting these increases was a reduction in net gain on sales of investment
securities, which fell from $353,000 in 1993 to $36,000 in 1994.
<PAGE>
16
Other operating expenses totalled $3.6 million in 1994, a 20.7% increase
compared to 1993. Salaries comprised the largest portion of the increase, rising
from $1.2 million to $1.6 million in 1994 due to the branch acquisition, annual
merit increases and the added cost of new hires, made primarily in anticipation
of an expansion in the Bank's lending activities.
Occupancy expense declined 19%, from $153,000 in 1993 to $123,000 in 1994 due
primarily to an increase in rental income from a building that was previously
used as a branch office which was subsequently converted to storage with the
remaining space leased to a commercial business.
Furniture and equipment expense declined 17%, from $241,000 in 1993 to $200,000
in 1994 due to a decrease in equipment rental expense resulting from the
purchase of data processing equipment that was being leased. Higher depreciation
expense on the purchased equipment partially offset this reduction.
Other operating expenses rose from $1.1 million in 1993 to $1.3 million in 1994,
a 19% increase. Expenses attributable to the new branch comprised $133,000 of
this increase. The balance occurred from increases in a broad range of expense
categories due primarily to a higher volume of operations, offset in part by
lower legal fees.
Income tax expense as a percentage of pre-tax income increased from 17.8% in
1993 to 36.7% in 1994. This increase was attributable to a decrease in 1993 in
the federal deferred tax valuation allowance along with higher levels of income
subject to state corporate income tax.
<PAGE>
17
Item 8. Financial Statements and Supplementary Data
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Year Ended December 31,
============================
Dollars in thousands, except per share data 1995 1994
====================================================================================================================================
<S> <C> <C>
Assets
Cash and due from banks (Note 2) ............................................................... $ 3,344 $ 3,331
Federal funds sold (Note 3) .................................................................... 6,950 23,800
Interest-bearing deposits with banks ........................................................... 321 --
Investment securities available for sale (Note 4) .............................................. 30,609 7,173
Investment securities held to maturity (Market value of $24,434
in 1995 and $44,118 in 1994) (Note 5) ................................................... 24,494 46,578
Loans held for sale (Note 1) ................................................................... 555 470
Loans (Note 6) ................................................................................. 44,739 25,563
Less: Reserve for possible loan losses (Note 7) ................................................ 650 625
-------- --------
Net loans ...................................................................................... 44,089 24,938
-------- --------
Premises and equipment (Note 8) ................................................................ 2,288 1,740
Accrued interest receivable .................................................................... 955 1,149
Other real estate owned ........................................................................ 212 307
Other assets (Note 9) .......................................................................... 593 1,576
-------- --------
Total assets ................................................................................... $114,410 $111,062
======== ========
Liabilities and Stockholders' Equity
Deposits:
Demand .................................................................................. $ 12,925 $ 16,448
Savings ................................................................................. 37,019 39,615
Time .................................................................................... 50,945 47,878
-------- --------
Total deposits (Note 10) ....................................................................... 100,889 103,941
Short-term borrowings (Note 11) ................................................................ 3,661 --
Accrued expenses and other liabilities ......................................................... 1,215 1,284
Long-term debt (Note 12) ....................................................................... 1,749 249
-------- --------
Total liabilities .............................................................................. 107,514 105,474
Commitments and contingencies (Note 21)
Stockholders' equity (Note18):
Preferred stock, no par value: Authorized 100,000 shares;
eight shares issued and outstanding in 1995 ..................................... 200 --
Common stock, par value $10: Authorized 400,000 shares;
outstanding 111,141 shares in 1995 and 1994 ..................................... 1,120 1,120
Surplus ................................................................................. 886 886
Retained earnings ....................................................................... 4,856 4,194
Less:
Net unrealized loss on investment securities available for sale .................. 141 587
Treasury stock, at cost - 839 shares ............................................. 25 25
-------- --------
Total stockholders' equity ..................................................................... 6,896 5,588
-------- --------
Total liabilities and stockholders' equity ..................................................... $114,410 $111,062
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
18
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Changes
in Stockholders' Equity
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Investment
Common Preferred Retained Securities Treasury
Dollars in thousands, except per share data Stock Surplus Stock Earnings Available for Sale Stock Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 ............................... $ 987 $ 793 $ -- $1,601 $ -- $ (25) $ 3,356
Net income ............................................... -- -- -- 980 -- -- 980
Proceeds from sale of common stock ....................... 133 93 -- -- -- -- 226
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1993 ............................... 1,120 886 -- 2,581 -- (25) 4,562
Net income ............................................... -- -- -- 1,724 -- -- 1,724
Net unrealized gain on investment securities upon ........ -- -- -- -- 68 -- 68
adoption of a change in accounting principles
Change in unrealized gain (loss) on investment ........... -- -- -- -- (655) -- (655)
securities available for sale
Dividends paid ($1.00 per share) ......................... -- -- -- (111) -- -- (111)
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1994 ............................... 1,120 886 -- 4,194 (587) (25) 5,588
Net income ............................................... -- -- -- 802 -- -- 802
Proceeds from sale of preferred stock .................... -- -- 200 -- -- -- 200
Change in unrealized gain (loss) on investment ........... -- -- -- -- 446 -- 446
securities available for sale
Dividends paid ($1.25 per share) ......................... -- -- -- (140) -- -- (140)
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1995 ............................... $1,120 $ 886 $ 200 $4,856 $ (141) $ (25) $ 6,896
======= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
19
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31,
====================================================
Dollars in thousands, except per share data 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C>
Interest income
Interest and fees on loans ................................................. $ 3,607 $ 2,194 $ 1,795
Interest on Federal funds sold and securities
purchased under agreements to resell ............................... 279 815 450
Interest on other short term investments ................................... 192 -- --
Interest on deposits with banks ............................................ 10 -- --
Interest and dividends on investment securities:
Taxable ............................................................ 3,269 2,503 2,260
Tax-exempt ......................................................... 113 84 4
--------- --------- ---------
Total interest income ...................................................... 7,470 5,596 4,509
--------- --------- ---------
Interest expense
Interest on deposits ....................................................... 2,653 1,869 1,304
Interest on short-term borrowings .......................................... 156 179 145
Interest on long-term debt ................................................. 20 20 20
--------- --------- ---------
Total interest expense ..................................................... 2,829 2,068 1,469
--------- --------- ---------
Net interest income ........................................................ 4,641 3,528 3,040
Provision (credit) for possible loan losses (Note 7) ....................... 486 (1,464) (23)
--------- --------- ---------
Net interest income after provision (credit)
for possible loan losses .......................................... 4,155 4,992 3,063
--------- --------- ---------
Other operating income
Service charges on deposit accounts ........................................ 711 484 401
Other income (Note 13) ..................................................... 642 855 144
Net gains on sales of investment securities (Notes 4 and 5) ................ 10 36 353
--------- --------- ---------
Total other operating income ............................................... 1,363 1,375 898
--------- --------- ---------
Other operating expenses
Salaries and other employee benefits (Note 15) ............................. 2,455 1,984 1,501
Occupancy expense (Note 8) ................................................. 153 123 153
Equipment expense (Note 8) ................................................. 274 200 241
Other expenses (Note 13) ................................................... 1,363 1,338 1,124
--------- --------- ---------
Total other operating expenses ............................................. 4,245 3,645 3,019
---------
Income before income tax expense and cumulative
effect of accounting change ........................................ 1,273 2,722 942
Income tax expense (Note 14) ............................................... 471 998 168
--------- --------- ---------
Income before cumulative effect of accounting change ....................... 802 1,724 774
Cumulative effect of accounting change (Note 14) ........................... -- -- 206
--------- --------- ---------
Net income ................................................................. $ 802 $ 1,724 $ 568
========= ========= =========
Net income per share (Note 18) Primary:
Income before cumulative effect of accounting change ....................... $ 7.22 $ 15.51 $ 7.88
Cumulative effect of accounting change ..................................... -- -- 2.09
--------- --------- ---------
Net income per share ....................................................... $ 7.22 $ 15.51 $ 9.97
========= ========= =========
Fully diluted:
Income before cumulative effect of accounting change ....................... $ 6.53 $ 13.90 $ 7.03
Cumulative effect of accounting change ..................................... -- -- 1.83
--------- --------- ---------
Net income per share ....................................................... $ 6.53 $ 13.90 $ 8.86
========= ========= =========
Primary average shares outstanding ......................................... 111,141 111,141 98,267
Fully diluted average shares outstanding ................................... 124,991 124,991 112,117
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
20
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C>
Operating activities
Net income ...................................................................... $ 802 $ 1,724 $ 980
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization ............................................... 191 120 90
Provision (credit) for possible loan losses ................................. 486 (1,464)
Amortization of premium, net of discount accretion
on investment securities ............................................... 151 423 297
Net gains on sales of investment securities ................................. (10) (36) (353)
Gains and commissions on loans held for sale ................................ (122) (64) (32)
Decrease (increase) in accrued interest receivable .............................. 194 (655) (35)
Deferred income tax expense ..................................................... 16 578 12
Decrease in other real estate owned ............................................. 95 -- --
Decrease (increase) in other assets ............................................. 984 (1,314) (89)
(Decrease) increase in accrued expenses and other liabilities .................. (369) 556 76
Premium paid on branch acquisition .............................................. -- (90) --
--------- --------- ---------
Net cash provided by (used in) operating activities ............................. 2,418 (222) 923
--------- --------- ---------
Investing activities
Loans originated for sale ....................................................... (4,594) (6,525) (4,344)
Proceeds from sale of loans held for sale ....................................... 4,631 6,118 4,376
Increase in loans ............................................................... (8,256) -- --
Purchase of loans from Resolution Trust Corporation ............................. (11,479) (2,370)
Increase in interest-bearing deposits with banks ................................ (321) -- --
Proceeds from recoveries of loans previously charged off ........................ 97 1,549 150
Proceeds from sales of investment securities available for sale ................. -- 2,382 10,032
Proceeds from calls of investment securities held to maturity ................... 2,170 -- --
Proceeds from maturities of investment securities available for sale,
including principal payments .............................................. 1,524 3,660 2,729
Proceeds from maturities of investment securities held to maturity,
including principal payments .............................................. 8,957 5,597 15,114
Purchases of investment securities available for sale ........................... (2,745) (10,484) (10,484)
Purchases of investment securities held to maturity ............................. (10,669) (17,315) (20,931)
Purchases of premises and equipment ............................................. (739) (737) (125)
--------- --------- ---------
Net cash used in investing activities ........................................... (21,424) (17,887) (6,840)
--------- --------- ---------
Financing activities
Deposits assumed in branch acquisition .......................................... -- 25,209 --
(Decrease) increase in deposits ................................................. (3,052) 14,297 6,582
Increase (decrease) in short-term borrowings .................................... 3,661 (5,000) 5,000
Proceeds from issuance of long-term debt ........................................ 1,500 -- --
Proceeds from issuance of common stock .......................................... -- -- 226
Proceeds from issuance of preferred stock ....................................... 200 -- --
Dividends paid .................................................................. (140) (111) --
--------- --------- ---------
Net cash provided by financing activities ....................................... 2,169 34,395 11,808
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ............................ (16,837) 16,286 5,891
Cash and cash equivalents at beginning of year .................................. 27,131 10,845 4,954
--------- --------- ---------
Cash and cash equivalents at end of year ........................................ $10,294 $27,131 $10,845
========= ========= =========
Cash paid during the year:
Interest ........................................................................ $ 2,719 $ 1,768 $ 1,442
Income taxes .................................................................... 991 102 5
Supplemental schedule for noncash investing activities:
Real estate acquired in settlement of loans ..................................... 212 307 --
Transfers of investment securities held to maturity
to (from) investment securities available for sale ....................... 21,836 (6,437) 3,998
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
21
Notes to Consolidated Financial Statements
Note 1 Summary of significant accounting policies
The accounting and reporting policies of City National Bancshares Corporation
(the "Corporation" or "CNBC") and its subsidiary City National Bank of New
Jersey (the "Bank" or "CNB") conform with generally accepted accounting
principles and to general practice within the banking industry. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities as of the date of the balance sheet and revenues and
expenses for the related periods. Actual results could differ significantly from
those estimates. The following is a summary of the more significant policies and
practices.
Principles of consolidation
The financial statements include the accounts of CNBC and its wholly-owned
subsidiary, CNB. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Cash and cash equivalents
For purposes of the presentation of the Statement of Cash Flows, Cash and cash
equivalents includes Cash and due from banks and Federal funds sold and
securities purchased under agreements to resell.
Investment securities held to maturity and investment securities available for
sale
On January 1, 1994, the Corporation adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". SFAS 115 addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities.
Investment securities are designated as held to maturity or available for sale
at the time of acquisition. Securities that the Corporation has the intent and
ability at the time of purchase to hold until maturity are designated as held to
maturity. Investment securities held to maturity are stated at cost and adjusted
for amortization of premiums to the earlier of maturity or call date and
accretion of discount to maturity.
Securities to be held for indefinite periods of time but not intended to be held
until maturity or on a long-term basis are classified as investment securities
available for sale. Securities held for indefinite periods of time include
securities that the Corporation intends to use as part of its interest
sensitivity management strategy and that may be sold in response to changes in
interest rates, resultant risk and other factors. Investment securities
available for sale are reported at fair market value, with unrealized gains and
losses reported as a separate component of stockholders' equity, net of deferred
tax. Gains and losses realized from the sales of securities available for sale
are determined using the specific identification method.
The Corporation holds in its investment portfolio mortgage-backed securities.
Such securities are subject to changes in the prepayment rates of the underlying
mortgages, which may affect both the yield and maturity of the securities.
Loans held for sale
Loans held for sale include residential mortgage loans originated with the
intent to sell. Loans held for sale are carried at the lower of aggregate cost
or fair value.
Loans
Loans are stated at the principal amounts outstanding, net of unearned discount
and deferred loan fees. Interest income is accrued as earned, based upon the
principal amounts outstanding. Loan origination fees and certain direct loan
origination costs, as well as unearned discount, are deferred and recognized
over the life of the loan revised for loan prepayments, as an adjustment to the
loan's yield. Recognition of interest on the accrual method is generally
discontinued when a loan contractually becomes 90 days or more past due or a
reasonable doubt exists as to the collectibility of the loan, unless such loans
are well-secured and in the process of collection. At the time a loan is placed
on a nonaccrual status, previously accrued and uncollected interest is generally
reversed against interest income in the current period. Interest on such loans,
if appropriate, is recognized as income when payments are received. A loan is
returned to an accrual status when factors indicating doubtful collectibility no
longer exist.
The Bank originates mortgage loans for sale. Premiums received from purchasers
on sales of conventional nonguaranteed one-to-four family mortgage loans are
recorded as income when received.
<PAGE>
22
Once the determination to sell a loan has been made, it is transferred to loans
held for sale and carried at the lower of remaining principal balance or market
value.
As of January 1, 1995, the Corporation adopted the provisions of Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment
of a Loan" and Statement No. 118 "Accounting by Creditors for Impairment of a
Loan Income Recognition and Disclosure". These statements require that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, at the loans's observable
market price of the fair value of the collateral if the loan is collateral
dependent.
The Corporation has defined the population of impaired loans to be all
nonaccrual loans of $100,000 or more considered by management to be inadequately
secured and subject to risk of loss. Impaired loans of $100,000 or more are
individually assessed to determine that the loan's carrying value does not
exceed the fair value of the underlying collateral or the present value of the
loan's expected future cash flows. Smaller balance homogeneous loans that are
collectively evaluated for impairment such as residential mortgage and
installment loans, are specifically excluded from the impaired loan portfolio.
Where impaired loans are carried at the present value of expected future cash
flows, any change in such value is included with the provision for possible loan
losses. There have been no impaired loans recorded during 1995.
Reserve for possible loan losses
A substantial portion of the Bank's loans are secured by real estate in New
Jersey particularly within the Newark area. Accordingly, as with most financial
institutions in the market area, the ultimate collectibility of a substantial
portion of the Bank's loan portfolio is susceptible to changes in market
conditions.
The reserve for possible loan losses is maintained at a level determined
adequate to provide for potential losses on loans. The reserve is increased by
provisions charged to operations and recoveries of loans previously charged off
and reduced by loan charge-offs. The reserve is based on management's evaluation
of the loan portfolio considering current economic conditions, the volume and
nature of the loan portfolio, historical loan loss experience and individual
credit and collateral situations.
Management believes that the reserve for possible loan losses is adequate. 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.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's reserve for possible loan
losses. Such agencies may require the Bank to increase the reserve based on
their judgment of information available to them at the time of their
examination.
Bank premises and equipment
Premises and equipment are stated at cost less accumulated depreciation based
upon estimated useful lives of 3 to 39 years, computed using the straight-line
method. Expenditures for maintenance and repairs are charged to operations as
incurred, while major replacements and improvements are capitalized. The net
asset values of assets retired or disposed of are removed from the asset
accounts and any related gains or losses are included in operations.
Other real estate owned
Other real estate owned acquired through foreclosure or deed in lieu of
foreclosure is carried at the lower of cost or fair value less estimated cost to
sell. When a property is acquired, the excess of the loan balance over the
estimated fair value is charged to the reserve for possible loan losses.
Operating results of other real estate owned, including rental income and
operating expenses, are included in "Other expenses".
Core deposit premiums
The premium paid for the acquisition of deposits in connection with the purchase
of a branch office is amortized on an accelerated basis over the ten-year
estimated useful life of the assumed deposit base.
Income taxes
Federal income taxes are based on currently reported income and expense after
the elimination of income which is exempt from Federal income tax. Such timing
differences include depreciation and the provision for possible loan losses.
<PAGE>
23
The Corporation adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes" as of January 1, 1993.
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
The Corporation previously provided for income taxes under Accounting Principles
Board Opinion No. 11, which provided for deferred income taxes on all
significant items of income and expenses that are recognized in different
periods for financial reporting and income tax purposes.
The cumulative effect of this change in the method of accounting for income
taxes has been included in the 1993 consolidated statement of income.
Net income per share
Primary income per share is calculated by dividing net income by the weighted
average number of shares outstanding. Shares issuable upon conversion of the
subordinate debentures have been excluded from the computation of primary income
per share as they are not considered to be common stock equivalents. On a fully
diluted basis, both net income and shares outstanding are adjusted to assume the
conversion of the convertible subordinate debentures from the date of issue.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 consolidated
financial statements in order to conform with the 1995 presentation.
Note 2 Restrictions on cash and due from banks
The Bank is required to maintain a reserve balance with the Federal Reserve Bank
based primarily on deposits levels. These reserve balances averaged $857,000 in
1995 and $1,120,000 in 1994.
Note 3 Federal funds sold and securities purchased under agreements to resell
At December 31, 1995 and 1994, there were no securities purchased under
agreements to resell, while the average balance during 1995 and 1994 was $0 and
$4,779,000, respectively. The maximum balance at any month-end during 1994 was
$15 million.
The aforementioned repurchase agreements were collateralized by U.S. Treasury
securities held for the benefit of the Bank at the Federal Reserve Bank.
Note 4 Investment securities available for sale
The amortized cost and market values as of December 31 of investment securities
available for sale were as follows:
Gross Gross
Amortized Unrealized Unrealized Market
1995 In thousands Cost Gains Losses Value
===============================================================
U.S. Treasury securities
and obligations of U.S.
government agencies$14,670 $ 276 $ 165 $14,781
Other securities:
Mortgage-backed 15,613 93 339 15,367
Equity securities 461 - - 461
- ---------------------------------------------------------------
Total $30,744 $ 369 $ 504 $30,609
===============================================================
Gross Gross
Amortized Unrealized Unrealized Market
1994 In thousands Cost Gains Losses Value
===============================================================
U.S. Treasury
securities $ 2,298 $ - $ 56 $ 2,242
Mortgage-backed
securities 5,379 - 448 4,931
- ---------------------------------------------------------------
Total $ 7,677 $ - $ 504 $ 7,173
===============================================================
At December 31, 1995, the Corporation held structured notes with a total
amortized cost of $4,459,000 and a related market value of $4,330,000,
reflecting gross unrealized depreciation of $129,000. There were no structured
notes in the available for sale portfolio at December 31, 1994. The Corporation
also held structured notes in the held to maturity portfolio at December 31,
1995 and December 31, 1994.
<PAGE>
24
The amortized cost and the market values of investments in debt securities
available for sale presented below as of December 31, 1995 are distributed by
contractual maturity, including mortgage-backed securities, which may have
shorter estimated lives as a result of prepayments of the underlying mortgages.
Amortized Market
In thousands Cost Value
==============================================================
Due within one year:
U.S. Treasury securities and obligations
of U.S. Government agencies $ 4,288 $ 4,281
Due after one year but within five years:
U.S. Treasury securities and obligations
of U.S. Government agencies 7,235 7,211
Mortgage-backed securities 7,219 7,209
Due after ten years:
U.S. Treasury securities and obligations
of U.S. Government agencies 3,147 3,289
Mortgage-backed securities 8,394 8,158
- --------------------------------------------------------------
Total $30,283 $30,148
==============================================================
There were no sales of investment securities available for sale during 1995.
During 1994, proceeds from the sale of investment securities available for sale
were $2,382,000. Gross gains of $36,000 were realized on these sales.
All interest and dividends on investment securities available for sale were
taxable in 1995, 1994 and 1993.
Investment securities available for sale having an amortized cost of $27,948,000
were pledged to secure public funds at December 31, 1995.
Note 5 Investment securities held to maturity
The book and market values as of December 31 of investment securities held to
maturity were as follows:
Gross Gross
Book Unrealized Unrealized Market
1995 In thousands Value Gains Losses Value
=================================================================
U.S. Treasury securities
and obligations of U.S.
Government agencies $12,124 $ 184 $ 79 $12,229
Obligations of state and
political subdivisions 2,536 26 18 2,544
Other securities:
Mortgage-backed 9,834 35 208 9,661
- -----------------------------------------------------------------
Total $24,494 $ 245 $ 305 $ 24,434
==================================================================
At December 31, 1995, the Corporation held structured notes with a total
amortized cost of $3,750,000 and a related market value of $3,673,000,
reflecting gross unrealized depreciation of $72,000. Comparable amounts as of a
year earlier were $11,019,000, $10,401,000 and $618,000, respectively.
Gross Gross
Book Unrealized Unrealized Market
1994 In thousands Value Gains Losses Value
==================================================================
U.S. Treasury securities
and obligations of U.S.
Government agencies $23,367 $ 12 $ 948 $22,431
Obligations of state and
political subdivisions 2,216 - 193 2,023
Other securities:
Mortgage-backed 20,725 - 1,331 19,394
Other debt 200 - - 200
Other equity 70 - - 70
- ------------------------------------------------------------------
Total $46,578 $ 12 $ 2,472 $44,118
==================================================================
<PAGE>
25
The book value and the market value of investment securities held to maturity
presented below as of December 31, 1995 are distributed by contractual maturity,
including mortgage-backed securities, which have shorter average lives as a
result of prepayment assumptions.
Book Market
In thousands Value Value
===============================================================
Due after one year but within five years:
U.S. Treasury securities and obligations
of U.S. Government agencies $ 8,620 $ 8,661
Mortgage-backed securities 6,969 6,978
Obligations of states and political
subdivisions 558 568
Due after five years but within ten years:
U.S. Treasury securities and obligations
of U.S. Government agencies 3,300 3,365
Mortgage-backed securities 904 890
Obligations of states and political
subdivisions 1,978 1,976
Due after ten years:
U.S. Treasury securities and obligations
of U.S. Government agencies 204 203
Mortgage-backed securities 1,961 1,793
- ---------------------------------------------------------------
Total $24,494 $24,434
===============================================================
There were no sales of securities held to maturity in 1995 or 1994, while
$2,170,000 of investment securities were called prior to maturity during 1995,
resulting in gains of $10,000.
Interest and dividends on investment securities held to maturity was as follows:
In thousands 1995 1994 1993
==============================================================
Taxable $ 2,594 $ 1,795 $ 1,642
Tax-exempt 113 84 4
- --------------------------------------------------------------
Total $ 2,707 $ 1,879 $ 1,646
==============================================================
Investment securities held to maturity having a book value of $16,758,000 were
pledged to secure public funds at December 31, 1995.
Note 6 Loans
Loans, net of unearned discount and net deferred origination fees and costs at
December 31 were as follows:
In thousands 1995 1994
==============================================================
Commercial $18,002 $13,079
Real estate 26,764 12,121
Installment 372 470
- --------------------------------------------------------------
Total loans 45,138 26,670
Less: Unearned income 399 107
- --------------------------------------------------------------
Loans $44,739 $25,563
==============================================================
Loans guaranteed by the Small Business Administration totalling $7,881,000 were
pledged as collateral for future borrowings under a note issued to the U.S.
Treasury Department at December 31, 1995. Such borrowings totalled $3,661,000 at
December 31, 1995.
Nonperforming loans include loans which are contractually past due 90 days or
more or on which interest income is still being accrued, renegotiated loans
whose terms have been modified due to the borrower's financial difficulties and
nonaccrual loans.
At December 31, nonperforming loans were as follows:
In thousands 1995 1994
==============================================================
Nonaccrual loans $ 839 $ 312
Loans with interest or principal 90
days or more past due and still accruing 31 29
- --------------------------------------------------------------
Total nonperforming loans $ 870 $ 341
==============================================================
<PAGE>
26
The effect of nonaccrual loans on income before taxes is presented below.
In thousands 1995 1994 1993
==============================================================
Interest income foregone $ 52 $ 68 $ 94
Interest income received (55) (90) (41)
- --------------------------------------------------------------
$ (3) $ (22) $ 53
==============================================================
At December 31, 1995, there were no commitments to lend additional funds to
borrowers for loans that were on nonaccrual or contractually past due in excess
of 90 days and still accruing interest.
A majority of the Bank's loan portfolio is concentrated in first mortgage loans
to borrowers in northern New Jersey, particularly within the Newark area. Its
borrowers' abilities to repay their obligations are dependent upon various
factors including the borrowers' income, net worth, cash flows generated by the
underlying collateral, the value of the underlying collateral and priority of
the Bank's lien on the related property. Such factors are dependent upon various
economic conditions and individual circumstances beyond the Bank's control.
Accordingly, the Bank may be subject to risk of credit losses.
The Bank believes its lending policies and procedures adequately minimize the
potential exposure to such risk and that adequate provisions for possible loan
losses are provided for all known and inherent risk.
Note 7 Reserve for possible loan losses
Transactions in the reserve for possible loan losses are summarized as follows:
In thousands 1995 1994 1993
==============================================================
Balance, January 1 $ 625 $ 700 $ 650
Provision (credit) for possible loan
losses 486 (1,464) (23)
Recoveries of loans previously
charged off 98 1,549 150
- --------------------------------------------------------------
1,209 785 777
Less: Charge-offs 559 160 77
- --------------------------------------------------------------
Balance, December 31 $ 650 $ 625 $ 700
==============================================================
Included in 1994 is the $1,425,000 recovery of a loan previously charged off in
1989, along with the related effects on the provision (credit) for possible loan
losses.
Note 8 Premises and equipment
A summary of premises and equipment at December 31 follows:
In thousands 1995 1994
- --------------------------------------------------------------
Land $ 240 $ 240
Premises 733 678
Furniture and equipment 1,091 879
Building improvements 1,341 892
- --------------------------------------------------------------
Total cost 3,405 2,689
Less: Accumulated depreciation
and amortization 1,117 949
- --------------------------------------------------------------
Net book value $2,288 $1,740
- --------------------------------------------------------------
Depreciation and amortization expense charged to operations amounted to
$191,000, $120,000, and $90,000 in 1995, 1994, and 1993, respectively.
Note 9 Other assets
At December 31, 1994, other assets included a $1,305,000 deposit with the
Resolution Trust Corporation representing a deposit on a residential mortgage
loan portfolio that the Bank was negotiating to purchase. The deposit was
applied when the loans were purchased in January, 1995.
<PAGE>
27
Note 10 Deposits
Deposits at December 31 are presented below.
In thousands 1995 1994
==============================================================
Noninterest bearing
Demand $ 12,925 $ 16,448
Savings 469 469
Time 11,319 12,898
- --------------------------------------------------------------
Total noninterest bearing deposits 24,713 29,815
- --------------------------------------------------------------
Interest bearing
Savings 36,550 39,146
Time 39,626 34,980
- --------------------------------------------------------------
Total interest bearing deposits 76,176 74,126
- --------------------------------------------------------------
Total deposits $100,889 $103,941
==============================================================
Time deposits issued in amounts of $100,000 or more have the following
maturities at December 31:
In thousands 1995 1994
==============================================================
Three months or less $20,265 $15,647
Over three months but within six months 3,085 1,008
Over six months but within twelve months 2,557 450
Over twelve months 5,760 9,340
- --------------------------------------------------------------
Total deposits $31,627 $26,445
==============================================================
Interest expense on certificates of deposits of $100,000 or more was $895,000,
$469,000 and $345,000 in 1995, 1994 and 1993, respectively.
Note 11 Short-term borrowings
Information regarding short-term borrowings at December 31 is presented below.
<TABLE>
<CAPTION>
Average Average Maximum
Interest Rate Balance Interest Balance
December 31 December 31 During Rate During at any
Dollars in thousands Balance Balance the Year the Year Month-end
=======================================================================================
<S> <C> <C> <C> <C> <C>
1995
Federal funds purchased and securities
sold under repurchase
agreements $ - -% $ 70 4.87% $2,000
Demand note issued
to the U.S. Treasury 3,661 5.37 2,710 5.61 7,541
- ---------------------------------------------------------------------------------------
Total $3,661 5.37% $2,780 5.63% $9,541
=======================================================================================
1994
Federal funds
purchased $ - -% $ 4 4.18% $ -
Demand note issued
to the U.S. Treasury - - 4,302 4.16 5,000
- ---------------------------------------------------------------------------------------
Total $ - - $4,306 4.16% $5,000
=======================================================================================
</TABLE>
The demand note, which has no stated maturity, issued by the Bank to the U.S.
Treasury Department is payable with interest at 25 basis points less than the
weekly average of the daily effective Federal Funds rate and is collateralized
by various investment securities held at the Federal Reserve Bank of New York
with a book value of $6,071,000, along with loans guaranteed by the Small
Business Administration totalling $7,881,000.
<PAGE>
28
Note 12 Long-term debt
In thousands 1995 1994
==============================================================
5.25% capital note, due December 28, 2005 $1,500 $ -
8.00% mandatory convertible debentures,
due July 1, 2003 249 249
- --------------------------------------------------------------
Total $1,749 $ 249
==============================================================
Interest is payable semiannually on January 15 and July 15 on the convertible
debentures. The debentures convert into CNBC common stock upon maturity and are
convertible by the holder at any time on or before the maturity, unless
previously redeemed by the Corporation into CNBC common stock at a conversion
price of $18.00 per share, subject to adjustment upon the occurrence of certain
events, including, among other things, the issuance of common stock as a per
share price of less than $18 or the issuance of rights or options to purchase
shares of common stock at a price of less than $18 per share.
The debentures are subordinate to all other indebtedness of the Corporation
except for indebtedness which by its terms is equal and not senior in right of
payment to the debentures. The debentures become immediately payable upon the
bankruptcy, insolvency or receivership of the Corporation. In the event of
default as to principal or interest, the Corporation is required upon the
request of the holder, to pay the unpaid principal balance along with any
accrued interest by issuing an amount of common stock at the conversion price in
exchange for the indebtedness, subject to the holder owning not more than 9.9%
of the total number of common shares outstanding when added to the shares
already held by the holder. The unpaid balance of principal, if any, after
conversion upon maturity, or an interest payment default is then payable in cash
upon maturity of the debenture and prior to maturity would continue to accrue
interest at an annual rate of 8% payable semiannually.
On December 29, 1995, the Corporation issued a $1.5 million capital note to a
subsidiary of a major insurance company, due December 28, 2005. Interest is
payable semiannually on June 30 and December 31, with principal payments
commencing semiannually in June, 2001.
The note agreement includes restrictive covenants including the creation of
liens on Bank assets, the sale of such assets and certain limitations on
investments and dividend payments and requires the maintenance of certain
capital levels and earning performance, asset quality and reserve for possible
loan loss ratios.
Under the most restrictive covenant, $923,000 was available for the payment of
dividends at December 31, 1995.
Note 13 Other operating income and expenses
The following table presents the major items of other operating income and
expenses:
In thousands 1995 1994 1993
==============================================================
Other operating income
Income from loans purchased from
Resolution Trust Corporation prior
to loan closing $ 198 $ 339 $ -
Unrecorded interest income collected
on loans charged off in 1989 - 175 -
Service fee income 162 158 42
Other operating expenses
Professional fees 181 234 277
FDIC deposit insurance 168 201 161
Stationery and supplies expense 115 147 87
Data processing 115 103 75
==============================================================
Income from loans purchased from the Resolution Trust Corporation ("RTC")
represents income earned from $1.3 million of funds which were committed to
loans acquired from the RTC in January 1995 in connection with a branch
acquisition, as well as interest on the difference between the amount of loans
committed and the aforementioned $1.3 million. This income was recorded because
of the RTC's agreement to compensate the Bank on the entire loan commitment
balance, whether or not the loans were purchased. The amounts were recorded as
other operating income because there were no earning assets for which to record
interest income.
<PAGE>
29
Note 14 Income taxes
The components of income tax expense are as follows:
In thousands 1995 1994 1993
==============================================================
Current
Federal $ 571 $ 413 $ 55
State 103 7 1
- --------------------------------------------------------------
Total current income tax expense 674 420 56
- --------------------------------------------------------------
Deferred
Federal (172) 407 148
State (31) 171 (36)
- --------------------------------------------------------------
Total deferred income tax expense (203) 578 112
- --------------------------------------------------------------
Total income tax expense 471 998 168
Deferred tax benefit on unrealized
loss on investment securities
available for sale 105 390 -
- --------------------------------------------------------------
$ 366 $ 608 $ 168
==============================================================
A reconciliation between income tax expense and the total expected federal
income tax is computed by multiplying pre-tax accounting income by the statutory
federal income tax rate is as follows:
In thousands 1995 1994 1993
==============================================================
Federal income tax at statutory
rate $ 433 $ 925 $ 320
Increase (decrease) in income tax
expense resulting from:
State income taxes, net of federal
benefit 48 118 (23)
Tax-exempt income (34) (26) (1)
Life insurance (7) - -
Decrease in federal valuation
allowance (1) - (97)
Other, net 32 (19) (31)
- ---------------------------------------------------------------
Total income tax expense $ 471 $ 998 $ 168
===============================================================
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at December 31 are as follows:
In thousands 1995 1994
===============================================================
Deferred tax assets
Unrealized loss on investment securities
available for sale $ 55 $ 390
State net operating loss carryforward - 13
Reserve for possible loan losses - -
Other 40 26
- ---------------------------------------------------------------
Total deferred tax assets 95 429
Less: Valuation allowance 7 8
- ---------------------------------------------------------------
Deferred tax asset 88 421
- ---------------------------------------------------------------
Deferred tax liabilities
Reserve for possible loan losses 343 537
Premises and equipment 14 20
Investment securities held to maturity 3 4
- --------------------------------------------------------------
Deferred tax liability 360 561
- --------------------------------------------------------------
Net deferred tax (liability) asset $(272) $(140)
==============================================================
The net deferred liability represents the anticipated federal and state tax
liability to be incurred in future years upon the utilization of the underlying
tax attributes comprising this balance. Management believes, based on current
estimates of future taxable earnings, that more likely than not there will be
sufficient taxable income in future years to realize the deferred tax asset.
The valuation allowance amounted to $74,000 at December 31, 1993 and $8,000 at
December 31, 1994 and 1995, decreasing by $1,000 and $66,000 in 1995 and 1994,
respectively.
The valuation allowance at December 31, 1995 is attributable to the state tax
benefit of deductible timing differences.
<PAGE>
30
Note 15 Employee benefit plans
In 1994, the Corporation established an employee savings plan under section
401(k) of the Internal Revenue Code covering all employees with at least six
months of service. Participants are allowed to make contributions to the plan by
salary reduction, up to 15% of total compensation. The Corporation provides
matching contributions of 25% of the first 4% of basic participant contribution
along with a 1% discretionary contribution, subject to a vesting schedule.
Contributions to the plan amounted to $36,000 in 1995 and $33,000 in 1994.
The aforementioned plan replaced a noncontributory retirement plan which was
terminated in 1994. Proceeds from the termination were rolled over into the
employee savings plan.
The Corporation awards profit sharing bonuses to its officers and employees
based on the achievement of certain performance objectives. Bonuses charged to
operating expense in 1995, 1994 and 1993 amounted to $119,000, $120,000 and
$70,000, respectively.
Note 16 Preferred stock
On December 28, 1995 the Corporation issued $200,000 of 6% noncumulative
perpetual preferred stock. Dividends are payable annually on February 28.
Note 17 Restrictions on subsidiary bank dividends
Subject to applicable law, the Board of Directors of the Bank and of the
Corporation may provide for the payment of dividends when it is determined that
dividend payments are appropriate, taking into account factors including net
income, capital requirements, financial condition, alternative investment
options, tax implications, prevailing economic conditions, industry practices,
and other factors deemed to be relevant at the time.
Because CNB is a national banking association, it is subject to regulatory
limitation on the amount of dividends it may pay to CNBC, CNB's sole
stockholder. Prior approval of the Office of the Comptroller of the Currency
("OCC") is required if the total dividends declared by the Bank in any calendar
year exceeds net profit, as defined, for that year combined with the retained
net profits from the preceding two calendar years.
Under this limitation, the Bank could declare dividends in 1996 without prior
OCC approval of up to $2,453,000 plus the Bank's net profit up to the date of
the declaration, subject to the restrictive covenants under long-term debt
agreements included in Note 12.
<PAGE>
31
Note 18 Net income per share
The following table summarizes the computation of net income per share.
In thousands, except per share data 1995 1994 1993
================================================================
Net income
Net income applicable to
primary common shares $ 802 $1,724 $ 980
Interest expense on convertible
subordinated debentures,
net of income taxes 13 13 13
- ----------------------------------------------------------------
Net income applicable to fully diluted
common shares $ 815 $1,737 $ 993
================================================================
Number of average shares
Primary 111,141 111,141 98,267
- ----------------------------------------------------------------
Fully diluted:
Average common shares
outstanding 111,141 111,141 98,267
Average convertible subordinate
debentures converted to
common shares 13,850 13,850 13,850
- ----------------------------------------------------------------
124,991 124,991 112,117
================================================================
Net income per share
Income before cumulative effect of
accounting change and
extraordinary item
Primary $ 7.22 $15.51 $ 7.88
Fully diluted 6.53 13.90 7.03
Cumulative effect of accounting change
Primary - - 2.09
Fully diluted - - 1.83
Net income
Primary 7.22 15.51 9.97
Fully diluted 6.53 13.90 8.86
================================================================
Note 19 Related party transactions
Various directors and executive officers of the Corporation and its subsidiary,
including organizations in which they are officers or have significant
ownership, were customers of, and had other transactions with the Bank in the
ordinary course of business during 1995 and 1994. Such transactions were on
substantially the same terms, including interest rates and collateral with
respect to loans, as those prevailing at the time of comparable transactions
with others. Further, such transactions did not involve more than the normal
risk of collectibility and did not include any unfavorable features. Total loans
to the aforementioned individuals and organizations amounted to $366,000 and
$191,000 at December 31, 1995 and 1994, respectively. The highest amount of such
indebtedness during 1995 and 1994 amounted to $375,000 and $191,000,
respectively. During 1995, $191,000 of new loans were made.
Note 20 Fair value of financial instruments
The fair value of financial instruments is the amount at which an asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced liquidation. Fair value estimates are made at a specific
point in time based on the type of financial instrument and relevant market
information.
Because no quoted market price exists for a significant portion of the
Corporation's financial instruments, the fair values of such financial
instruments are derived based on the amount and timing of future cash flows,
estimated discount rates, as well as management's best judgment with respect to
current economic conditions. Many of these estimates involve uncertainties and
matters of significant judgment and cannot be determined with precision.
The fair value information provided is indicative of the estimated fair values
of those financial instruments and should not be interpreted as an estimate of
the fair market value of the Corporation taken as a whole. The disclosures do
not address the value of recognized and unrecognized nonfinancial assets and
liabilities or the value of future anticipated business. In addition, tax
implications related to the realization of the unrealized gains and losses could
have a substantial impact on these fair value estimates and have not been
incorporated into any of the estimates.
<PAGE>
32
The following methods and assumptions were used to estimate the fair values of
significant financial instruments at December 31, 1995, the date on which the
Corporation adopted the provision of Statement of Financial Accounting Standards
No. 107 .
Cash and short-term investments
These financial instruments have relatively short maturities or no defined
maturities but are payable on demand, with little or no credit risk. For these
instruments, the carrying amounts represent a reasonable estimate of fair value.
Investment securities
Investment securities available for sale are reported at their fair values based
on quoted market prices. The fair values of investment securities held to
maturity were also based upon quoted market prices.
Loans
Fair values were estimated for performing loans by discounting the future cash
flows using market discount rates that reflect the credit and interest-rate risk
inherent in the loans. Fair value for significant nonperforming loans was based
on recent external appraisals of collateral securing such loans. If such
appraisals were not available, estimated cash flows were discounted employing a
rate incorporating the risk associated with such cash flows.
Deposit liabilities
The fair values of demand deposits, savings deposits and money market accounts
were the amounts payable on demand at December 31, 1995 and 1994. The fair value
of time deposits was based on the discounted value of contractual cash flows.
The discount rate was estimated utilizing the rates currently offered for
deposits of similar remaining maturities.
Short-term borrowings
For such short-term borrowings, the carrying amount was considered to be a
reasonable estimate of fair value.
Long-term debt
The fair value of long-term debt was estimated based on rates currently
available to the Corporation for debt with similar terms and remaining
maturities.
Commitments to extend credit and letters of credit
The estimated fair value of financial instruments with off-balance sheet risk is
not significant at December 31, 1995.
The following table presents the carrying amounts and fair values of financial
instruments at December 31, 1995:
Carrying Fair
In thousands Value Value
===============================================================
Financial assets:
Cash and short-term investments $10,615 $10,615
Investment securities available for sale 30,609 30,609
Investment securities held to maturity 24,495 24,434
Loans 44,644 43,064
Financial liabilities:
Deposits $100,889 $ 99,570
Short-term borrowings 3,661 3,661
Long-term debt 1,749 1,107
===============================================================
Note 21 Commitments and contingencies
In the normal course of business, the Corporation or its subsidiary may, from
time to time, be party to various legal proceedings relating to the conduct of
its business. In the opinion of management, the consolidated financial
statements will not be materially affected by the outcome of any pending legal
proceedings.
Note 22 Financial instruments with off-balance sheet risk
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include lines of credit, commitments to extend standby
letters of credit, and could involve, to varying degrees, elements of credit
risk in excess of the amounts recognized in the consolidated financial
statements.
<PAGE>
33
The Bank'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 represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments with credit
risk.
Commitments to extend credit are agreements to lend to a customer as long as
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 commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis, and the amount of collateral or other
security obtained is based on management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support borrowing arrangements and extend for up to one
year. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
Accordingly, collateral is generally required to support the commitment.
At December 31,1995 the Bank had mortgage commitments of $702,500, unused
corporate lines of credit of $11,600,000 and $1,650,000 of other loan
commitments.
The aforementioned commitments and credit lines are made at both fixed and
floating rates of interest based on the Bank's prime lending rate.
Note 23 Parent company information
Condensed financial statements of the parent company only are presented below.
Condensed Balance Sheet
December 31,
==============================================================
In thousands 1995 1994
==============================================================
Assets
Cash and cash equivalents $ 4 $ 4
Investment in subsidiary 8,143 5,833
Due from subsidiary 249 249
Other assets 11 10
- --------------------------------------------------------------
Total assets $8,655 $5,847
==============================================================
Liabilities and stockholders' equity
Other liabilities $ 10 $ 10
Long-term debt 1,749 249
- --------------------------------------------------------------
Total liabilities 1,759 259
Stockholders' equity 6,896 5,588
- --------------------------------------------------------------
Total liabilities and stockholders' equity $8,655 $5,847
==============================================================
Condensed Statement of Income
Year Ended December 31,
==============================================================
In thousands 1995 1994 1993
==============================================================
Income
Dividends from subsidiary $ 141 $ 112 $ -
Interest from subsidiary 20 20 20
- --------------------------------------------------------------
Total income 161 132 20
- --------------------------------------------------------------
Expenses
Interest expense 20 20 20
- --------------------------------------------------------------
Total expense 20 20 20
- --------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 141 112 -
Equity in undistributed income
of subsidiary 661 1,612 980
- --------------------------------------------------------------
Net income $ 802 $ 1,724 $ 980
==============================================================
<PAGE>
34
Condensed Statement of Cash Flows
Year Ended December 31,
=================================================================
In thousands 1995 1994 1993
=================================================================
Operating activities
Net income $ 802 $1,724 $ 980
Adjustments to reconcile net income
to cash from (used in) operating activities:
Equity in undistributed net income
of subsidiary (661) (1,612) (980)
Increase in other assets (1) - (8)
Increase in other liabilities - - 8
- -----------------------------------------------------------------
Net cash from operating activities 140 112 -
- -----------------------------------------------------------------
Investing activities
Capital contribution to subsidiary (1,700) - (226)
- ------------------------------------------------------------------
Net cash applied to investing
activities (1,700) - (226)
- ------------------------------------------------------------------
Financing activities
Proceeds from issuance of
long-term debt 1,500 - -
Proceeds from issuance of common stock - - 226
Proceeds from issuance of preferred
stock 200 - -
Dividends paid (140) (111) -
- -----------------------------------------------------------------
Net cash from (applied to) financing
activities 1,560 (111) 226
- -----------------------------------------------------------------
Increase in cash and cash equivalents - 1 -
Cash and cash equivalents at
beginning of year 4 3 3
- -----------------------------------------------------------------
Cash and cash equivalents at
end of year $ 4 $ 4 $ 3
=================================================================
Note 24 Summary of quarterly financial information (unaudited)
1995
- ------------------------------------------------------------------
Dollars in thousands, First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
==================================================================
Interest income $1,736 $1,850 $1,911 $1,973
Interest expense 673 681 728 747
- ------------------------------------------------------------------
Net interest income 1,063 1,169 1,183 1,226
Provision (credit) for
possible loan losses 122 (3) 32 335
Net gains (losses) on sales of
investment securities (1) - (1) 12
Other operating income 513 321 250 281
Other operating expenses 981 1,071 1,133 1,060
- ------------------------------------------------------------------
Income before income
tax expense 473 422 267 112
Income tax expense 175 156 90 50
- ------------------------------------------------------------------
Net income $ 298 $ 266 $ 177 $ 62
==================================================================
Net income per share
(primary) $2.68 $2.39 $1.59 $ .56
==================================================================
Net income per share
(fully diluted) $2.41 $2.13 $1.42 $ .57
==================================================================
<PAGE>
35
1994
- ------------------------------------------------------------------
Dollars in thousands, First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
==================================================================
Interest income $1,072 $1,403 $1,562 $1,559
Interest expense 343 487 548 690
- ------------------------------------------------------------------
Net interest income 729 916 1,014 869
Provision (credit) for
possible loan losses (1,463) 5 5 (11)
Net gains (losses) on sales of
investment securities 36 - - -
Other operating income 438 235 162 540
Other operating expenses 770 859 948 1,068
- ------------------------------------------------------------------
Income before income
taxes 1,860 287 223 352
Income tax expense 545 88 90 275
- ------------------------------------------------------------------
Net income $1,315 $ 199 $ 133 $ 77
==================================================================
Net income per share
(primary) $11.83 $ 1.79 $ 1.20 $ .69
==================================================================
Net income per share
(fully diluted) $10.54 $ 1.39 $ .79 $ .29
==================================================================
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure There were no changes in or disagreements with accounts
during 1994.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement for the Annual
Meeting of Stockholders to be held on June 8, 1995.
Item 11. Executive Compensation
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement.
Part IV
Financial statement schedules are omitted because they are not required or are
not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
<PAGE>
36
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following exhibits are incorporated herein by reference or are annexed to
this Annual Report:
(a) The required financial statements and the related independent auditor's
report are included in Item 8.
(b) The required exhibits are included as follows:
(3)(a) The Corporation's restated articles of incorporation are
incorporated herein by reference to exhibit (3)(d) of the
Corporation's Current Report on Form 8-K dated July 28, 1992.
(3)(b) Amendments to the Corporation's article of incorporation
relating to the Corporation's Non-cumulative Perpetual
Preferred Stock Series A.
(3)(c) Amendments to the Corporation's article of incorporation
relating to the Corporation's Non-cumulative Perpetual
Preferred Stock Series B.
(3)(d) The amended by-laws of the Corporation are incorporated herein
by reference to exhibit (3)(c) of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1991.
(4)(a) The debenture agreements between the Corporation and its
noteholders are incorporated herein by reference to exhibit
(4)(a) of the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993.
(4)(b) Note Agreement dated December 28, 1995 by and between the
Corporation and the Prudential Foundation.
(10)(a) The Employees' Profit Sharing Plan of City National Bank of
New Jersey is incorporated herein by reference to Exhibit (10)
of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1988.
(10)(b) The Employment Agreement among the Corporation, the Bank and
Louis E. Prezeau is incorporated herein by reference to
Exhibit (10)(b) of the Corporation's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1993.
(10)(c) Limited Branch Purchase and Assumption Agreement dated May 6,
1994 by and between the RTC and City National Bank of New
Jersey
(10)(d) Lease and Option Agreement dated May 6, 1994 by and between
the RTC and City National Bank of New Jersey
(10)(e) Minority Call Option Agreement dated May 6, 1994 by and
between the RTC and City National Bank of New Jersey
(10)(f) Indemnity Agreement dated May 6, 1994 by and between the RTC
and City National Bank of New Jersey (10)(g) The Order to
Cease and Desist issued by the Office of the Comptroller of
the Currency, dated May 23,
1989, with Stipulation and Consent to Issuance of an Order to
Cease and Desist is incorporated herein by reference to
Exhibit (28)(a) of the Corporation's Annual Report on Form
10-K for the year ended December 31, 1988.
(10)(h) The Capital Plan of City National Bank of New Jersey, dated
May 14, 1991, is incorporated herein by reference to Exhibit
(28)(b) of the Corporation's Current Report on Form 8-K dated
May 6, 1991.
(10)(i) The Amended and Restated Capital Plan, dated April 14, 1992 is
incorporated herein by reference to Exhibit (28)(c) of the
Corporation's Current Report on Form 8-K dated July 1, 1992.
(10)(j) The Consent Order issued by the Office of the Comptroller of
the Currency, dated January 21, 1992 is incorporated herein by
reference to Exhibit (28)(i) of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1991.
(10(k) Purchase and Assumption Agreement dated August 18, 1995 by and
between City National Bank of New Jersey and NatWest Bank N.A.
(11) Statement regarding computation of per share earnings. The
required information is included on page 24.
(12) Ratios have been computed using the average daily balances of
the respective asset, liability and stockholders' equity
accounts.
(13) Annual Report to security holders for the fiscal year ended
December 31, 1995.
(21) Subsidiaries of the registrant. The required information is
included on page 3.
(c) No reports on Form 8-K were filed during the quarter ended December 31,
1995.
<PAGE>
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, City National Bancshares Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized:
CITY NATIONAL BANCSHARES CORPORATION
By: /s/ Louis E. Prezeau By: /s/ Edward R. Wright
Louis E. Prezeau Edward R. Wright
President and Chief Chief Financial Officer
Executive Officer and Principal Accounting Officer)
Date: March 30, 1996 Date: March 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated. The undersigned hereby constitute
and appoint Louis E. Prezeau his true and lawful attorney in fact and agent,
with full power of substitution and resubstitution, to sign any and all
amendments to this report and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorney in fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he or she might or could in person, hereby ratifying and confirming all that
said attorney in fact and agent, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ Douglas E. Anderson Director March 21, 1996
Douglas E. Anderson Chairperson of the Board
/s/ Barbara Bell Director, March 21, 1996
Barbara Bell
/s/ Leon Ewing Director March 21, 1996
Leon Ewing
/s/ Eugene Giscombe Director March 21, 1996
Eugene Giscombe
/s/ Norman Jeffries Director March 21, 1996
Norman Jeffries
/s/ Louis E. Prezeau Director, March 21, 1995
Louis E. Prezeau President and Chief
Executive Officer
/s/ Lemar C. Whigham Director March 21, 1995
Lemar C. Whigham
<PAGE>
Exhibit (3)(b)
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
CITY NATIONAL BANCSHARES CORPORATION
TO: THE SECRETARY OF STATE
STATE OF NEW JERSEY
Pursuant to the provision of Section 14A:7-2(2) of the New Jersey Business
Corporation Act, the undersigned corporation executes the following Certificate
of Amendment to its Certificate of Incorporation.
1. The name of the corporation is City National Bancshares Corporation.
2. The following resolution, establishing and designating a series of
shares and fixing and determining the relative rights and preferences
thereof was duly adopted by the Board of Directors of the corporation on
the 22nd day of January, 1996, pursuant to authority vested in it by the
Certificate of Incorporation:
RESOLVED, pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the
Board of Directors does hereby classify 8 (eight) shares of preferred
stock of the Corporation as a class designated 6% Non-cumulative,
Perpetual Preferred stock, Series A and it is further
RESOLVED, a description of such 6% Non-cumulative, Perpetual Preferred
Stock, Series A, including the preferences and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions for redemption, all as set by the Board of
Directors of the Corporation, is set forth in the attached Certificate
of Designation Establishing the Series and Fixing the Powers,
Designations, Preferences and Relative, Participating, Optional and
Other Special Rights, and the Qualifications, Limitations and
Restrictions, of the 6% Non-cumulative Perpetual Preferred Stock, Series
A.
3. The resolution was adopted by the Board of Directors at a meeting duly
called and held on January 22, 1996, at which a quorum was present
throughout.
4. The Certificate of Incorporation of the corporation is amended so that
the designation and number of shares of each class and series acted upon
in the resolution, and the relative rights, preferences and limitations
of each such class and series are as stated in the resolution.
City National Bancshares Corporation
By: ______________________________________
Louis E. Prezeau, Sr., President & CEO
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1
CITY NATIONAL BANCSHARES CORPORATION
Certificate of Designation Establishing the Series and Fixing the
Powers, Designations, Preferences and Relative, Participating, Optional
and Other Special Rights, and the Qualifications, Limitations and
Restrictions, of the 6 % Noncumulative Perpetual Preferred Stock,
Series A
There is hereby established a new series of the preferred stock
("Preferred Stock") of City National Bancshares Corporation, a New Jersey
corporation ("Corporation"), to which the following powers, designations,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions, of the shares of such new
series of preferred stock shall apply:
1. Designation and Rank.
The series (this "Series") of shares of Preferred Stock shall be
designated as "6% Noncumulative Perpetual Preferred Stock, Series A" (the
"Series A Preferred Stock"), and each share of Series A Preferred Stock shall
have a liquidation value of $25,000 per share. Shares of Series A Preferred
Stock shall have a liquidation preference of $25,000 per share, plus an amount
per share equal to any dividends declared but unpaid, without interest.
The Series A Preferred Stock shall rank prior to common stock of all
classes (collectively, "Common Stock") of the Corporation and to all other
classes and series of equity securities of the Corporation now or hereafter
authorized, issued or outstanding (the Common Stock and such other classes and
series of equity securities of the Corporation are collectively referred to
herein as the "Junior Stock"), other than any class or series of equity
securities of the Corporation expressly designated as ranking on a parity with
(the "Parity Stock") or senior to (the "Senior Stock") the Series A Preferred
Stock as to dividend rights and rights upon liquidation, winding up or
dissolution of the Corporation. The Series A Preferred Stock shall be junior to
the creditors of the Corporation, including its depositors.
The number of shares of Series A Preferred Stock may be increased or
decreased from time to time by a vote of not less than a majority of the members
of the Board of Directors then in office, provided that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of any outstanding options, rights or warrants, if
any, to purchase shares of Series A Preferred Stock, or upon the conversion of
any outstanding securities issued by the Corporation convertible into shares of
Series A Preferred Stock.
2. Dividends.
(a) Payment of Dividends. Holders of shares of Series A Preferred Stock
shall be entitled to receive, if, when and as declared by the Board of
Directors, out of funds legally available therefor, noncumulative cash dividends
at an annual rate of 6% of the $25,000 liquidation preference per share ($1,500
per share per annum), and no more. Such noncumulative cash dividends shall be
payable, if declared, annually on February 28, in each year, or if such day is
not a business day, on the next business day (each such date, a "Dividend
Payment Date"). The first Dividend Payment Date shall be February 28, 1996. Each
declared dividend shall be payable to holders of record of the Series A
Preferred Stock as they appear on the stock books of the Corporation at the
close of business on such record date, not more than forty-five (45) calendar
days nor less than ten (10) calendar days preceding the Dividend Payment Date
therefor, as determined by the Board of Directors (each such date, a "Record
Date"). Annual dividend periods (each a "Dividend Period") shall commence on and
include the first day, and shall end on and include the last day, of the
calendar year that immediately precedes the calendar year in which the
corresponding Dividend Payment Date occursprovided, however, that the first
Dividend Period (the "Initial Dividend Period") shall commence on and include
the first day upon which a share of Series A Preferred Stock shall be issued and
shall end on and include December 31, 1995.
The amount of dividends payable on each share of the Series A Preferred
Stock for each full Dividend Period during which such share is outstanding shall
be $1,500. The amount of dividends payable for the Initial Dividend Period and
for any Dividend Period which, as to a share of Series A Preferred Stock
(determined by reference to the issuance date and the redemption or retirement
date thereof), is less than a full year shall be computed on the basis of a
360-day year composed of twelve (12) thirty (30) day months and the actual
number of days elapsed in the Initial Dividend Period or such Dividend Period.
<PAGE>
2
Holders of the Series A Preferred Stock shall not be entitled to any
interest, or any sum of money in lieu of interest, in respect of any dividend
payment or payments on the Series A Preferred Stock declared by the Board of
Directors which may be unpaid. Any dividend payment made on the Series A
Preferred Stock shall first be credited against the earliest declared but unpaid
cash dividend with respect to the Series A Preferred Stock.
(b) Dividends Noncumulative. The right of holders of Series A Preferred
Stock to receive dividends is noncumulative. Accordingly, if the Board of
Directors does not declare a dividend payable in respect of any Dividend Period,
holders of shares of Series A Preferred Stock shall have no right to receive a
dividend in respect of such Dividend Period, and the Corporation shall have no
obligation to pay a dividend in respect of such Dividend Period, whether or not
dividends are declared payable in respect of any future Dividend Period.
(c) Priority as to Dividends. No full dividends shall be declared or
paid or set apart for payment on any Parity Stock or Junior Stock for any
Dividend Period unless full dividends have been or contemporaneously are
declared and paid (or declared and a sum sufficient for the payment thereof set
apart for such payment) on the Series A Preferred Stock for such Dividend
Period. When dividends are not paid in full (or declared and a sum sufficient
for such full payment is not so set apart) for any Dividend Period on the Series
A Preferred Stock and any Parity Stock, dividends declared on the Series A
Preferred Stock and Parity Stock shall only be declared pro rata based upon the
respective amounts that would have been paid on the Series A Preferred Stock and
such Parity Stock had dividends been declared in full.
In addition to the foregoing restriction, the Corporation shall not
declare, pay or set apart funds for any cash dividends or other cash
distributions (other than in Common Stock or other Junior Stock) with respect to
any Common Stock or other Junior Stock of the Corporation or repurchase, redeem
or otherwise acquire, or set apart funds for repurchase, redemption or other
acquisition of, any Common Stock or other Junior Stock through a sinking fund or
otherwise, unless and until (i) the Corporation shall have paid full dividends
on the Series A Preferred Stock for the most recent preceding Dividend Period or
funds have paid over to the dividend disbursing agent of the Corporation for
payment of such dividends, and (ii) the Corporation has declared a cash dividend
on the Series A Preferred Stock for the current Dividend Period, and sufficient
funds have been paid over to the dividend disbursing agent for the Corporation
for the payment of such cash dividend for such current Dividend Period.
No dividend shall be paid or set aside for holders of Series A
Preferred Stock for any Dividend Period unless full dividends have been paid or
set aside for the holders of each class or series of equity securities of the
Corporation, if any, ranking prior to the Series A Preferred Stock as to
dividends for such Dividend Period.
(d) Any reference to "dividends" or "distributions" in this Section 2
shall not be deemed to include any distribution made in connection with any
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation.
3. Redemption
(a) General. Except as provided in paragraph 3(b) below, the shares of
Series A Preferred Stock are not subject to mandatory redemption by the holders
thereof, and, except as hereinafter provided in Section 3(c) below, are not
subject to redemption prior to December 31, 2000. On or after January 1, 2001,
shares of Series A Preferred Stock may be redeemed by the Corporation or its
successor or any acquiring or resulting entity with respect to the Corporation
(including by any parent or subsidiary of the Corporation, any such successor,
or any such acquiring or resulting entity), as applicable, at its option, in
whole or in part, at any time or from time to time, upon notice as provided in
subsection (c) of this Section 3, by resolution of the Board of Directors of the
Corporation or its successor or any acquiring or resulting entity with respect
to the Corporation (including by any parent or subsidiary of the Corporation,
any such successor, or any such acquiring or resulting entity), as applicable,
at a redemption price of $25,000 per share in cash, plus, in each case, an
amount in cash equal to all declared and unpaid dividends to the date fixed for
redemption, without interest plus the "redemption premium" set forth in Schedule
A.
The aggregate redemption price payable to each holder of record of
Series A Preferred Stock to be redeemed shall be rounded to the nearest cent
($0.01).
If less than all of the outstanding shares of Series A Preferred Stock
are to be redeemed, the Corporation will select those shares to be redeemed pro
rata, by lot or such other methods as the Board of Directors in its sole
discretion determines to be equitable. If redemption is being affected by the
Corporation, on and after the redemption date, dividends shall cease to accrue
on the shares of Series A Preferred Stock called for redemption, and they shall
<PAGE>
3
be deemed to cease to be outstanding, provided that the redemption price
(including any declared but unpaid dividends to the date fixed for redemption)
has been duly paid or provided for. If redemption is being effected by an entity
other than the Corporation, on and as of the redemption date such entity shall
be deemed to own the shares being redeemed for all purposes hereof provided that
the redemption price (including the amount of any declared but unpaid dividends
to the date fixed for redemption) has been duly paid or provided for.
(b) Change of Control. In addition to the redemption provisions of
subsection (a) above and not in lieu of or in substitution therefor, in the
event of a Change of Control, the Series A Preferred Stock shall be redeemable
at the option of the Corporation or its successor or any acquiring or resulting
entity with respect to the Corporation (including by any parent or subsidiary of
the Corporation, any such successor, or any such acquiring or resulting entity),
as applicable, in whole but not in part. Redemption of the Series A Preferred
Stock pursuant to this subsection (b) shall be effected by notice as provided in
subsection (c) of this Section 3, by resolution of the Board of Directors of the
Corporation or its successor or any acquiring or resulting entity with respect
to the Corporation (including by any parent or subsidiary of the Corporation,
any such successor, or any such acquiring or resulting entity), as applicable,
at the redemption price per share in cash as set forth in Schedule A, plus, in
each case, an amount in cash equal to all declared and unpaid dividends.
"Change of Control" means (a) a sale of all or substantially all of the
property and assets of the Corporation (other than a reorganization transaction
in which such properties and assets are transferred to a subsidiary of the
Corporation), (b) a reorganization, merger, consolidation or other transaction
or transactions (whether or not the Corporation is a party thereto and
specifically including, without limitation, open market purchases of securities)
as a result of which any person or entity or "group" of persons and/or entities
becomes the "beneficial owner" (as those terms are defined in and construed by
judicial authority under Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, as that Rule may be amended from time to time) of
securities representing at least 50% of the ordinary voting power of the
Corporation in the election of directors, (c) any event as a result of which
City National Bank of New Jersey (the "Bank") ceases to be owned and controlled
by the Corporation or (d) all or substantially all the assets of the Bank are
transferred to a party which is not an affiliate of the Corporation or the Bank.
If redemption is being effected by the Corporation, on and as of the
redemption date, dividends shall cease to accrue on the shares of Series A
Preferred Stock called for redemption, and they shall be deemed to cease to be
outstanding, provided that the redemption price (including any declared but
unpaid dividends to the date fixed for redemption) has been duly paid or
provided for. If redemption is being effected by an entity other than the
Corporation, on and as of the redemption date such entity shall be deemed to own
the shares being redeemed for all purposes of hereunder, provided that the
redemption price (including the amount of any declared but unpaid dividends to
the date fixed for redemption) has been duly paid or provided for.
(c) Notice of Redemption. Notice of any redemption, setting forth (i)
the date and place fixed for said redemption, (ii) the redemption price and
(iii) a statement that dividends on the shares of Series A Preferred Stock (A)
to be redeemed by the Corporation will cease to accrue on such redemption date,
or (B) to be redeemed by an entity other than the Corporation will thereafter
accrue solely for the benefit of such entity, shall be mailed, postage prepaid,
at least thirty (30) days, but not more than sixty (60) days, prior to said
redemption date to each holder of record of Series A Preferred Stock to be
redeemed at his or her address as the same shall appear on the stock books of
the Corporation. If less than all of the shares of Series A Preferred Stock
owned by such holder are then to be redeemed, such notice shall specify the
number of shares thereof that are to be redeemed and the numbers of the
certificates representing such shares. Notice of any redemption shall be given
by first class mail, postage prepaid. Neither failure to mail such notice, nor
any defect therein or in the mailing thereof, to any particular holder shall
affect the sufficiency of the notice or the validity of the proceedings for
redemption with respect to the other holders. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to have been duly given
whether or not the holder receives such notice.
If such notice of redemption shall have been so mailed, and if, on or
before the redemption date specified in such notice, all funds necessary for
such redemption shall have been set aside by the Corporation (or other entity as
provided in subsection (a) or (b) of this Section 3) separate and apart from its
other funds in trust for the account of the holders of shares of Series A
Preferred Stock to be redeemed (so as to be and continue to be available
therefor), then, on and after said redemption date, notwithstanding that any
certificate for shares of Series A Preferred Stock so called for redemption
shall not have been surrendered for cancellation or transfer, the shares of
Series A Preferred Stock (A) so called for redemption by the Corporation shall
be deemed to be no longer outstanding and all rights with respect to such shares
of Series A Preferred Stock so called for redemption shall forthwith cease and
<PAGE>
4
terminate, or (B) so called for redemption by an entity other than the
Corporation shall be deemed owned for all purposes hereof by such entity, except
in each case for the right of the holders thereof to receive, out of the funds
so set aside in trust, the amount payable on redemption thereof, but without
interest, upon surrender (and endorsement or assignment for transfer, if
required by the Corporation or such other entity) of their certificates.
In the event that holders of shares of Series A Preferred Stock that
shall have been redeemed shall not within two (2) years (or any longer period if
required by law) after the redemption date claim any amount deposited in trust
with a Corporation or trust company for the redemption of such shares, such
Corporation or trust company shall, upon demand and if permitted by applicable
law, pay over to the Corporation (or other entity that redeemed the shares) any
such unclaimed amount so deposited with it, and shall thereupon be relieved of
all responsibility in respect thereof, and thereafter the holders of such shares
shall, subject to applicable escheat laws, look only to the Corporation (or
other entity that redeemed the shares) for payment of the redemption price
thereof, but without interest from the date of redemption.
(d) Status of Shares Redeemed. Shares of Series A Preferred Stock
redeemed, purchased or otherwise acquired for value by the Corporation shall,
after such acquisition, have the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Corporation at any time as shares of
any series of Preferred Stock other than as shares of Series A Preferred Stock.
4. Liquidation Preference.
(a) Liquidating Distributions. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of shares of Series A Preferred Stock shall be entitled to receive
for each share thereof, out of the assets of the Corporation legally available
for distribution to shareholders under applicable law, or the proceeds thereof,
before any payment or distribution of the assets shall be made to holders of
shares of Common Stock or any other Junior Stock (subject to the rights of the
holders of any class or series of equity securities having preference with
respect to distributions upon liquidation and the Corporation's general
creditors, including its depositors), liquidating distributions in the amount of
$25,000 per share, plus an amount per share equal to any dividends declared but
unpaid, without interest.
If the amounts available for distribution in respect of shares of
Series A Preferred Stock and any outstanding Parity Stock are not sufficient to
satisfy the full liquidation rights of all of the outstanding shares of Series A
Preferred Stock and such Parity Stock, then the holders of such outstanding
shares shall share ratably in any such distribution of assets in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled , the holders of shares of Series A Preferred Stock will not be
entitled to any further participation in any liquidating distribution of assets
by the Corporation. All distributions made in respect of Series A Preferred
Stock in connection with such a liquidation, dissolution or winding up of the
Corporation shall be made pro rata to the holders entitled thereto.
(b) Consolidation, Merger or Certain Other Actions. Neither the
consolidation, merger or other business combination of the Corporation with or
into any other person, nor the sale of all or substantially all of the assets of
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 4.
5. Voting Rights.
Holders of shares of Series A Preferred Stock shall have no voting
rights.
6. No Conversion Rights.
The holders of shares of Series A Preferred Stock shall not have any
rights to convert such shares into shares of any other class or series of
capital stock or into any other securities of, or any interest in, the
Corporation.
7. No Sinking Fund.
No sinking fund shall be established for the retirement or redemption
of shares of Series A Preferred Stock.
8. Preemptive or Subscription Rights.
No holder of shares of Series A Preferred Stock shall have any
preemptive or subscription rights in respect of any shares of the Corporation
that may be issued.
<PAGE>
5
9. No other Rights.
The shares of Series A Preferred Stock shall not have any designations,
preferences or relative, participating, optional or other special rights except
as set forth herein, or as otherwise required by law.
10. Compliance with Applicable Law.
Declaration by the Board of Directors and payment by the Corporation of
dividends to holders of the Series A Preferred Stock and repurchase, redemption
or other acquisition by the Corporation (or another entity as provided in
subsections (a) and (b) of Section 3 hereof) of shares of Series A Preferred
Stock shall be subject in all respects to any and all restrictions and
limitations placed on dividends, redemptions or other distributions by the
Corporation (or any such other entity) under (i) laws, regulations and
regulatory conditions or limitations applicable to or regarding the Corporation
(or any such other entity) from time to time and (ii) agreements with federal
banking authorities with respect to the Corporation (or any such other entity)
from time to time in effect.
Signatures
Signed by: _____________________________ Date: __________________
Title: _____________________________
City National Bancshares Corporation
Exhibit (3)(c)
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
CITY NATIONAL BANCSHARES CORPORATION
TO: THE SECRETARY OF STATE
STATE OF NEW JERSEY
Pursuant to the provision of Section 14A:7-2(2) of the New Jersey Business
Corporation Act, the undersigned corporation executes the following Certificate
of Amendment to its Certificate of Incorporation.
1. The name of the corporation is City National Bancshares Corporation.
2. The following resolution, establishing and designating a series of
shares and fixing and determining the relative rights and preferences
thereof was duly adopted by the Board of Directors of the corporation on
the 27th day of February, 1996, pursuant to authority vested in it by
the Certificate of Incorporation:
RESOLVED, pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the
Board of Directors does hereby classify 10,000 shares of preferred stock
of the Corporation as a class designated 8% Non-cumulative, Perpetual
Preferred stock, Series Band it is further
RESOLVED, a description of such 8% Non-cumulative, Perpetual Preferred
Stock, Series B, including the preferences and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions for redemption, all as set by the Board of
Directors of the Corporation, is set forth in the attached Certificate
of Designation Establishing the Series and Fixing the Powers,
Designations, Preferences and Relative, Participating, Optional and
Other Special Rights, and the Qualifications, Limitations and
Restrictions, of the 8% Non-cumulative Perpetual Preferred Stock, Series
B.
3. The resolution was adopted by the Board of Directors at a meeting duly
called and held on February 27, 1996, at which a quorum was present
throughout.
4. The Certificate of Incorporation of the corporation is amended so that
the designation and number of shares of each class and series acted upon
in the resolution, and the relative rights, preferences and limitations
of each such class and series are as stated in the resolution.
City National Bancshares Corporation
By: ______________________________________
Louis E. Prezeau, Sr., President & CEO
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1
CITY NATIONAL BANCSHARES CORPORATION
Certificate of Designation Establishing the Series and Fixing the
Powers, Designations, Preferences and Relative, Participating, Optional
and Other Special Rights, and the Qualifications, Limitations and
Restrictions, of the 8 % Noncumulative Perpetual Preferred Stock,
Series B
There is hereby established a new series of the preferred stock
("Preferred Stock") of City National Bancshares Corporation, a New Jersey
corporation ("Corporation"), to which the following powers, designations,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions, of the shares of such new
series of preferred stock shall apply:
1. Designation and Rank.
The series (this "Series") of shares of Preferred Stock shall be
designated as "8% Noncumulative Perpetual Preferred Stock, Series B" (the
"Series B Preferred Stock"), and each share of Series B Preferred Stock shall
have a liquidation value of $25,000 per share. Shares of Series B Preferred
Stock shall have a liquidation preference of $25,000 per share, plus an amount
per share equal to any dividends declared but unpaid, without interest.
The Series B Preferred Stock shall rank prior to common stock of all
classes (collectively, "Common Stock") of the Corporation and to all other
classes and series of equity securities of the Corporation now or hereafter
authorized, issued or outstanding (the Common Stock and such other classes and
series of equity securities of the Corporation are collectively referred to
herein as the "Junior Stock"), other than any class or series of equity
securities of the Corporation expressly designated as ranking on a parity with
(the "Parity Stock") or senior to (the "Senior Stock") the Series B Preferred
Stock as to dividend rights and rights upon liquidation, winding up or
dissolution of the Corporation. The Series B Preferred Stock shall be junior to
the creditors of the Corporation, including its depositors.
The number of shares of Series B Preferred Stock may be increased or
decreased from time to time by a vote of not less than a majority of the members
of the Board of Directors then in office, provided that no decrease shall reduce
the number of shares of Series B Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of any outstanding options, rights or warrants, if
any, to purchase shares of Series B Preferred Stock, or upon the conversion of
any outstanding securities issued by the Corporation convertible into shares of
Series B Preferred Stock.
<PAGE>
2
2. Dividends.
(a) Payment of Dividends. Holders of shares of Series B Preferred Stock
shall be entitled to receive, if, when and as declared by the Board of
Directors, out of funds legally available therefor, noncumulative cash dividends
at an annual rate of 8% of the $25,000 liquidation preference per share ($2,000
per share per annum), and no more. Such noncumulative cash dividends shall be
payable, if declared, annually on February 28, in each year, or if such day is
not a business day, on the next business day (each such date, a "Dividend
Payment Date"). The first Dividend Payment Date shall be February 28, 1997. Each
declared dividend shall be payable to holders of record of the Series B
Preferred Stock as they appear on the stock books of the Corporation at the
close of business on such record date, not more than forty-five (45) calendar
days nor less than ten (10) calendar days preceding the Dividend Payment Date
therefor, as determined by the Board of Directors (each such date, a "Record
Date"). Annual dividend periods (each a "Dividend Period") shall commence on and
include the first day, and shall end on and include the last day, of the
calendar year that immediately precedes the calendar year in which the
corresponding Dividend Payment Date occursprovided, however, that the first
Dividend Period (the "Initial Dividend Period") shall commence on and include
the first day upon which a share of Series B Preferred Stock shall be issued and
shall end on and include December 31, 1996.
The amount of dividends payable on each share of the Series B Preferred
Stock for each full Dividend Period during which such share is outstanding shall
be $2,000. The amount of dividends payable for the Initial Dividend Period and
for any Dividend Period which, as to a share of Series B Preferred Stock
(determined by reference to the issuance date and the redemption or retirement
date thereof), is less than a full year shall be computed on the basis of a
360-day year composed of twelve (12) thirty (30) day months and the actual
number of days elapsed in the Initial Dividend Period or such Dividend Period.
Holders of the Series B Preferred Stock shall not be entitled to any
interest, or any sum of money in lieu of interest, in respect of any dividend
payment or payments on the Series B Preferred Stock declared by the Board of
Directors which may be unpaid. Any dividend payment made on the Series B
Preferred Stock shall first be credited against the earliest declared but unpaid
cash dividend with respect to the Series B Preferred Stock.
(b) Dividends Noncumulative. The right of holders of Series B Preferred
Stock to receive dividends is noncumulative. Accordingly, if the Board of
Directors does not declare a dividend payable in respect of any Dividend Period,
holders of shares of Series B Preferred Stock shall have no right to receive a
dividend in respect of such Dividend Period, and the Corporation shall have no
obligation to pay a dividend in respect of such Dividend Period, whether or not
dividends are declared payable in respect of any future Dividend Period.
<PAGE>
3
(c) Priority as to Dividends. No full dividends shall be declared or
paid or set apart for payment on any Parity Stock or Junior Stock for any
Dividend Period unless full dividends have been or contemporaneously are
declared and paid (or declared and a sum sufficient for the payment thereof set
apart for such payment) on the Series B Preferred Stock for such Dividend
Period. When dividends are not paid in full (or declared and a sum sufficient
for such full payment is not so set apart) for any Dividend Period on the Series
B Preferred Stock and any Parity Stock, dividends declared on the Series B
Preferred Stock and Parity Stock shall only be declared pro rata based upon the
respective amounts that would have been paid on the Series B Preferred Stock and
such Parity Stock had dividends been declared in full.
In addition to the foregoing restriction, the Corporation shall not
declare, pay or set apart funds for any dividends or other distributions (other
than in Common Stock or other Junior Stock) with respect to any Common Stock or
other Junior Stock of the Corporation or repurchase, redeem or otherwise
acquire, or set apart funds for repurchase, redemption or other acquisition of,
any Common Stock or other Junior Stock through a sinking fund or otherwise,
unless and until (i) the Corporation shall have paid full dividends on the
Series B Preferred Stock for the most recent preceding Dividend Period or funds
have paid over to the dividend disbursing agent of the Corporation for payment
of such dividends, and (ii) the Corporation has declared a cash dividend on the
Series B Preferred Stock for the current Dividend Period, and sufficient funds
have been paid over to the dividend disbursing agent for the Corporation for the
payment of such cash dividend for such current Dividend Period.
No dividend shall be paid or set aside for holders of Series B
Preferred Stock for any Dividend Period unless full dividends have been paid or
set aside for the holders of each class or series of equity securities of the
Corporation, if any, ranking prior to the Series B Preferred Stock as to
dividends for such Dividend Period.
(d) Any reference to "dividends" or "distributions" in this Section 2
shall not be deemed to include any distribution made in connection with any
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation.
3. Redemption
(a) General. Except as provided in paragraph 3(b) below, the shares of
Series B Preferred Stock are not subject to mandatory redemption by the holders
thereof, and, except as hereinafter provided in Section 3(c) below, are not
subject to redemption prior to December 31, 2000. On or after January 1, 2001,
shares of Series B Preferred Stock may be redeemed by the Corporation or its
successor or any acquiring or resulting entity with respect to the Corporation
(including by any parent or subsidiary of the Corporation, any such successor,
<PAGE>
4
or any such acquiring or resulting entity), as applicable, at its option, in
whole or in part, at any time or from time to time, upon notice as provided in
subsection (c) of this Section 3, by resolution of the Board of Directors of the
Corporation or its successor or any acquiring or resulting entity with respect
to the Corporation (including by any parent or subsidiary of the Corporation,
any such successor, or any such acquiring or resulting entity), as applicable,
at a redemption price of $25,000 per share in cash, plus, in each case, an
amount in cash equal to all declared and unpaid dividends to the date fixed for
redemption, without interest.
The aggregate redemption price payable to each holder of record of
Series B Preferred Stock to be redeemed shall be rounded to the nearest cent
($0.01).
If less than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, the Corporation will select those shares to be redeemed pro
rata, by lot or such other methods as the Board of Directors in its sole
discretion determines to be equitable. If redemption is being affected by the
Corporation, on and after the redemption date, dividends shall cease to accrue
on the shares of Series B Preferred Stock called for redemption, and they shall
be deemed to cease to be outstanding, provided that the redemption price
(including any declared but unpaid dividends to the date fixed for redemption)
has been duly paid or provided for. If redemption is being effected by an entity
other than the Corporation, on and as of the redemption date such entity shall
be deemed to own the shares being redeemed for all purposes hereof provided that
the redemption price (including the amount of any declared but unpaid dividends
to the date fixed for redemption) has been duly paid or provided for.
(b) Change of Control. In addition to the redemption provisions of
subsection (a) above and not in lieu of or in substitution therefor, in the
event of a Change of Control, the Series B Preferred Stock shall be redeemable
at the option of the Corporation or its successor or any acquiring or resulting
entity with respect to the Corporation (including by any parent or subsidiary of
the Corporation, any such successor, or any such acquiring or resulting entity),
as applicable, in whole but not in part. Redemption of the Series B Preferred
Stock pursuant to this subsection (b) shall be effected by notice as provided in
subsection (c) of this Section 3, by resolution of the Board of Directors of the
Corporation or its successor or any acquiring or resulting entity with respect
to the Corporation (including by any parent or subsidiary of the Corporation,
any such successor, or any such acquiring or resulting entity), as applicable,
at the liquidation value per share in cash, plus, in each case, an amount in
cash equal to all declared and unpaid dividends.
"Change of Control" means (a) a sale of all or substantially all of the
property and assets of the Corporation (other than a reorganization transaction
in which such properties and assets are transferred to a subsidiary of the
Corporation), (b) a reorganization, merger, consolidation or other transaction
<PAGE>
5
or transactions (whether or not the Corporation is a party thereto and
specifically including, without limitation, open market purchases of securities)
as a result of which any person or entity or "group" of persons and/or entities
becomes the "beneficial owner" (as those terms are defined in and construed by
judicial authority under Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, as that Rule may be amended from time to time) of
securities representing at least 50% of the ordinary voting power of the
Corporation in the election of directors, (c) any event as a result of which
City National Bank of New Jersey (the "Bank") ceases to be owned and controlled
by the Corporation or (d) all or substantially all the assets of the Bank are
transferred to a party which is not an affiliate of the Corporation or the Bank.
If redemption is being effected by the Corporation, on and as of the
redemption date, dividends shall cease to accrue on the shares of Series B
Preferred Stock called for redemption, and they shall be deemed to cease to be
outstanding, provided that the redemption price (including any declared but
unpaid dividends to the date fixed for redemption) has been duly paid or
provided for. If redemption is being effected by an entity other than the
Corporation, on and as of the redemption date such entity shall be deemed to own
the shares being redeemed for all purposes of hereunder, provided that the
redemption price (including the amount of any declared but unpaid dividends to
the date fixed for redemption) has been duly paid or provided for.
(c) Notice of Redemption. Notice of any redemption, setting forth (i)
the date and place fixed for said redemption, (ii) the redemption price and
(iii) a statement that dividends on the shares of Series B Preferred Stock (A)
to be redeemed by the Corporation will cease to accrue on such redemption date,
or (B) to be redeemed by an entity other than the Corporation will thereafter
accrue solely for the benefit of such entity, shall be mailed, postage prepaid,
at least thirty (30) days, but not more than sixty (60) days, prior to said
redemption date to each holder of record of Series B Preferred Stock to be
redeemed at his or her address as the same shall appear on the stock books of
the Corporation. If less than all of the shares of Series B Preferred Stock
owned by such holder are then to be redeemed, such notice shall specify the
number of shares thereof that are to be redeemed and the numbers of the
certificates representing such shares. Notice of any redemption shall be given
by first class mail, postage prepaid. Neither failure to mail such notice, nor
any defect therein or in the mailing thereof, to any particular holder shall
affect the sufficiency of the notice or the validity of the proceedings for
redemption with respect to the other holders. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to have been duly given
whether or not the holder receives such notice.
If such notice of redemption shall have been so mailed, and if, on or
before the redemption date specified in such notice, all funds necessary for
such redemption shall have been set aside by the Corporation (or other entity as
<PAGE>
6
provided in subsection (a) or (b) of this Section 3) separate and apart from its
other funds in trust for the account of the holders of shares of Series B
Preferred Stock to be redeemed (so as to be and continue to be available
therefor), then, on and after said redemption date, notwithstanding that any
certificate for shares of Series B Preferred Stock so called for redemption
shall not have been surrendered for cancellation or transfer, the shares of
Series B Preferred Stock (A) so called for redemption by the Corporation shall
be deemed to be no longer outstanding and all rights with respect to such shares
of Series B Preferred Stock so called for redemption shall forthwith cease and
terminate, or (B) so called for redemption by an entity other than the
Corporation shall be deemed owned for all purposes hereof by such entity, except
in each case for the right of the holders thereof to receive, out of the funds
so set aside in trust, the amount payable on redemption thereof, but without
interest, upon surrender (and endorsement or assignment for transfer, if
required by the Corporation or such other entity) of their certificates.
In the event that holders of shares of Series B Preferred Stock that
shall have been redeemed shall not within two (2) years (or any longer period if
required by law) after the redemption date claim any amount deposited in trust
with a Corporation or trust company for the redemption of such shares, such
Corporation or trust company shall, upon demand and if permitted by applicable
law, pay over to the Corporation (or other entity that redeemed the shares) any
such unclaimed amount so deposited with it, and shall thereupon be relieved of
all responsibility in respect thereof, and thereafter the holders of such shares
shall, subject to applicable escheat laws, look only to the Corporation (or
other entity that redeemed the shares) for payment of the redemption price
thereof, but without interest from the date of redemption.
(d) Status of Shares Redeemed. Shares of Series B Preferred Stock
redeemed, purchased or otherwise acquired for value by the Corporation shall,
after such acquisition, have the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Corporation at any time as shares of
any series of Preferred Stock other than as shares of Series B Preferred Stock.
4. Liquidation Preference.
(a) Liquidating Distributions. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of shares of Series B Preferred Stock shall be entitled to receive
for each share thereof, out of the assets of the Corporation legally available
for distribution to shareholders under applicable law, or the proceeds thereof,
before any payment or distribution of the assets shall be made to holders of
shares of Common Stock or any other Junior Stock (subject to the rights of the
holders of any class or series of equity securities having preference with
respect to distributions upon liquidation and the Corporation's general
creditors, including its depositors), liquidating distributions in the amount of
$25,000 per share, plus an amount per share equal to any dividends declared but
unpaid, without interest.
<PAGE>
7
If the amounts available for distribution in respect of shares of
Series B Preferred Stock and any outstanding Parity Stock are not sufficient to
satisfy the full liquidation rights of all of the outstanding shares of Series B
Preferred Stock and such Parity Stock, then the holders of such outstanding
shares shall share ratably in any such distribution of assets in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled , the holders of shares of Series B Preferred Stock will not be
entitled to any further participation in any liquidating distribution of assets
by the Corporation. All distributions made in respect of Series B Preferred
Stock in connection with such a liquidation, dissolution or winding up of the
Corporation shall be made pro rata to the holders entitled thereto.
(b) Consolidation, Merger or Certain Other Actions. Neither the
consolidation, merger or other business combination of the Corporation with or
into any other person, nor the sale of all or substantially all of the assets of
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 4.
5. Voting Rights.
Holders of shares of Series B Preferred Stock shall have no voting
rights.
6. No Conversion Rights.
The holders of shares of Series B Preferred Stock shall not have any
rights to convert such shares into shares of any other class or series of
capital stock or into any other securities of, or any interest in, the
Corporation.
7. No Sinking Fund.
No sinking fund shall be established for the retirement or redemption
of shares of Series B Preferred Stock.
8. Preemptive or Subscription Rights.
No holder of shares of Series B Preferred Stock shall have any
preemptive or subscription rights in respect of any shares of the Corporation
that may be issued.
9. No other Rights.
The shares of Series B Preferred Stock shall not have any designations,
preferences or relative, participating, optional or other special rights except
as set forth herein, or as otherwise required by law.
<PAGE>
8
10. Compliance with Applicable Law.
Declaration by the Board of Directors and payment by the Corporation of
dividends to holders of the Series B Preferred Stock and repurchase, redemption
or other acquisition by the Corporation (or another entity as provided in
subsections (a) and (b) of Section 3 hereof) of shares of Series B Preferred
Stock shall be subject in all respects to any and all restrictions and
limitations placed on dividends, redemptions or other distributions by the
Corporation (or any such other entity) under (i) laws, regulations and
regulatory conditions or limitations applicable to or regarding the Corporation
(or any such other entity) from time to time and (ii) agreements with federal
banking authorities with respect to the Corporation (or any such other entity)
from time to time in effect.
Signatures
Signed by: _____________________________ Date: __________________
Title: _____________________________
City National Bancshares Corporation
Exhibit (4)(b)
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CITY NATIONAL BANCSHARES CORPORATION
$1,500,000
5.25% CAPITAL NOTES DUE DECEMBER 28, 2005
------------
NOTE AGREEMENT
------------
Dated as of December 28, 1995
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
1. AUTHORIZATION OF ISSUE OF NOTES.....................................-1-
2. PURCHASE AND SALE OF NOTES..........................................-1-
3. CONDITIONS OF CLOSING...............................................-1-
3A. Opinion of Company's Counsel...............................-1-
3B. Representations and Warranties; No Default.................-1-
3C. Permitted By Applicable Laws...............................-1-
3D. Purchase and Assumption Agreement..........................-1-
3E. Proceedings................................................-2-
4. PREPAYMENTS.........................................................-2-
4A. Required Prepayments.......................................-2-
4B. Partial Payments Pro Rata..................................-2-
4C. Retirement of Notes........................................-2-
5. AFFIRMATIVE COVENANTS...............................................-2-
5A. Financial Statements.......................................-3-
5B. Inspection of Property.....................................-3-
5C. Covenant to Secure Note Equally............................-3-
6. NEGATIVE COVENANTS..................................................-4-
6A. Unencumbered Assets........................................-4-
6B. Financial Maintenance Covenants............................-4-
6B(1). Capital Adequacy..................................-4-
6B(2). Asset Quality ....................................-4-
6B(3). Liquidity........................................-4-
6B(4). Earnings.........................................-4-
6C. Sale of Assets.............................................-4-
6D. Merger and Consolidation...................................-4-
6E. Restricted Investments ....................................-4-
6F. Restrictions on Subsidiaries...............................-5-
6G. Sale or Discount of Receivables............................-5-
6H. Transactions with Affiliates...............................-5-
6I. Restricted Payments........................................-5-
7. EVENTS OF DEFAULT...................................................-6-
7A. Acceleration...............................................-7-
7B. Rescission of Acceleration.................................-7-
7C. Notice of Acceleration or Rescission.......................-7-
7D. Other Remedies.............................................-7-
8. REPRESENTATIONS, COVENANTS AND WARRANTIES...........................-7-
8A. Organization...............................................-7-
8B. Financial Statements.......................................-8-
8C. Actions Pending............................................-8-
8D. Outstanding Debt...........................................-8-
8E. Title to Properties........................................-8-
8F. Taxes......................................................-8-
8G. Conflicting Agreements and Other Matters...................-8-
8H. Offering of Notes..........................................-8-
8I. Use of Proceeds............................................-9-
8J. ERISA......................................................-9-
8K. Governmental Consent.......................................-9-
8L. Environmental Compliance...................................-9-
8M. Disclosure.................................................-9-
9. REPRESENTATIONS OF THE PURCHASER....................................-9-
9A. Nature of Purchase........................................-10-
9B. Registration of Notes.....................................-10-
10. DEFINITIONS........................................................-10-
10B. Accounting Principles, Terms and Determinations...........-13-
11. MISCELLANEOUS......................................................-13-
11A. Note Payments.............................................-13-
11B. Expenses..................................................-14-
11C. Consent to Amendments.....................................-14-
11D. Form, Registration, Transfer and Exchange of Notes;
Lost Notes...............................................-14-
11E. Persons Deemed Owners; Participations.....................-14-
11F. Seal of Representations and Warranties; Entire Agreement..-15-
11G. Successors and Assigns....................................-15-
11H. Disclosure to Other Persons...............................-15-
11I. Notices...................................................-15-
11J. Payments Due on Non-Business Days.........................-15-
11K. Satisfaction Requirement..................................-16-
11L. Governing Law.............................................-16-
11M. Severability..............................................-16-
11N. Descriptive Headings......................................-16-
11O. Counterparts..............................................-16-
PURCHASER SCHEDULE
EXHIBIT A - FORM OF NOTE
<PAGE>
1
CITY NATIONAL BANCSHARES CORPORATION
900 Broad Street
News New Jersey 07102
As of December 28, 1995
The Prudential Foundation
751 Broad Street, 15th Floor
Newark, New Jersey 07102
Ladies and Gentlemen:
The undersigned, City National Bancshares Corporation (herein called
the "Company"), hereby agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the
issue of its capital notes in the aggregate principal amount of $1,500,000, to
be dated the date of issue thereof, to mature December 28, 2005, to bear
interest on the unpaid balance thereof from the date thereof until the principal
thereof shall have become due and payable at the rate of 5.25% per annum and on
overdue payments at the rate specified therein, and to be substantially in the
form of Exhibit A attached hereto. The term "Notes" as used herein shall include
each such capital note delivered pursuant to any provision of this Agreement and
each such capital note delivered in substitution or exchange for any other Note
pursuant to any such provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to you
and, subject to the terms and conditions herein set forth, you agree to purchase
Notes in the aggregate principal amount of $1,500,000 at 100% of such aggregate
principal amount. The Company will deliver to you, at the offices of Prudential
Capital Group, One Gateway Center, 11th Floor, Newark, New Jersey 07102, one or
more Notes registered in your name, evidencing the aggregate principal amount of
Notes to be purchased by you and in the denomination or denominations specified
in the Purchaser Schedule attached hereto, against payment of the purchase price
thereof by transfer of immediately available funds for credit to the City
National Bank of New Jersey, Account No#. 021201639 at Federal Reserve Bank of
New York, 33 Liberty Street, New York, New York 10045 on the date of closing,
which shall be December 29, 1995 or any other date on or before December 29,
1995 upon which the Company and you may mutually agree (herein called the
"closing" or the "date of closing").
3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the
Notes to be purchased by you hereunder is subject to the satisfaction, on or
before the date of closing, of the following conditions:
3A. Opinion of Company's Counsel. You shall have received from
Robinson, St. John & Wayne, special counsel for the Company, a favorable opinion
satisfactory to you and substantially in the form of Exhibit B attached hereto.
3B. Representations and Warranties; No Default. The representations and
warranties contained in paragraph 8 shall be true on and as of the date of
closing, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on the date of closing no Event of Default or
Default; and the Company shall have delivered to you an Officer's Certificate,
dated the date of closing, to both such effects.
3C. Purchase Permitted By Applicable Laws. The purchase of and payment
for the Notes to be purchased by you on the date of closing on the terms and
conditions herein provided I(including the use of the proceeds of such Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, section 5 of the Securities Act or Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and shall not
subject you to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and you shall have
received such certificates or other evidence as you may request to establish
compliance with this condition.
3D. Purchase and Assumption Agreement. The Purchase and Assumption
Agreement shall have been duly authorized and executed and delivered by the
parties thereto and you shall have received a fully executed counterpart
thereof.
<PAGE>
2
3E. Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to you, and you
shall have received all such counterpart originals or certified or other copies
of such documents as you may reasonably request.
4. PREPAYMENTS. The Notes shall be subject to prepayment only with
respect to the required prepayments specified in paragraph 4A.
4A. Required Prepayments. Until the Notes shall be paid in full, the
Company shall, on the date indicated below, apply to the prepayment of
the Notes, without premium, the amount opposite such date:
Date of Prepayment Amount
- ------------------ ------
June 30, 2001 and
December 31, 2001 $ 75,000
June 30, 2002 and
December 31, 2002 112,500
June 30, 2003 and
December 31, 2003 150,000
June 30, 2004
December 31, 2004 187,500
June 30, 2005 225,000
The remaining $225,000 principal amount of the Notes, together with interest
accrued thereon, shall become due on the maturity date of the Notes.
4B. Partial Payments Pro Rata. Upon any partial prepayment of the Notes
pursuant to paragraph 4A, the principal amount so prepaid shall be allocated to
all Notes at the time outstanding (including, for the purpose of this paragraph
4B only, all Notes prepaid or otherwise retired or purchased or otherwise
acquired by the Company or any of its Subsidiaries or Affiliates other than by
prepayment pursuant to paragraph 4A) in proportion to the respective outstanding
principal amounts thereof.
4C. Retirement of Notes. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than upon acceleration of
such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire,
directly or indirectly, Notes held by any holder unless the Company or such
Subsidiary or Affiliate shall have offered to prepay or otherwise retire or
purchase or otherwise acquire, as the case may be, the same proportion of the
aggregate principal amount of Notes held by each other holder of Notes at the
time outstanding upon the same terms and conditions. Any Notes so prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement, except as provided in paragraph 4B.
5. AFFIRMATIVE COVENANTS.
5A. Financial Statements. The Company covenants that it will
deliver to each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 32 days the
after the end each fiscal quarterly period (other than the last
quarterly period) in each fiscal year, consolidated reports of
condition and income (including supporting schedules), repared in
accordance with applicable federal regulatory guidelines and certified
by an authorized financial officer of the Company;
(ii) as soon as practicable and in any event within 50 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidating and consolidated statements
of income, stockholders' equity and cash flows of the Company and its
Subsidiaries for the period from the beginning of the current fiscal
year to the end of such quarterly period, and a consolidating and
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such quarterly period, setting forth in each case in
comparative form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail and satisfactory in form to the
Required Holder(s) and certified by an authorized financial officer of
the Company, subject to changes resulting from year-end adjustments;
<PAGE>
3
(iii) as soon as practicable and in any event within 95 days
after the end of each fiscal year, consolidating and consolidated
statements of income and cash flows and a consolidating statement of
stockholders' equity of the Company and its Subsidiaries for such year,
and a consolidating and consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year, setting forth in each case
in comparative form corresponding consolidated figures from the
preceding annual audit, with respect to the consolidating statements in
reasonable detail and satisfactory in form to the Required Holder(s)
and, as to the consolidated statements, reported on by independent
public accountants of recognized national standing selected by the
Company whose report shall be unqualified and without limitation as to
the scope of the audit and, as to the consolidating statements,
certified by an authorized financial officer of the Company;
(iv) promptly upon transmission thereof, copies of all such
financial statements, notices, reports and filings with the FDIC or the
OCC, to the extent not prohibited by law, (or any governmental body or
agency succeeding to the functions of the FDIC or OCC by operation of
law or change in designation by the Company as a federally regulated
entity), and, if applicable, copies of all such financial statements,
proxy statements, notices and reports as it shall send to its public
stockholders and copies of all registration statements (without
exhibits) and all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency succeeding to
the functions of the Securities and Exchange Commission);
(v) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants
in connection with any annual, interim or special audit made by them of
the books of the Company or any Subsidiary;
(vi) management letters and any material press releases; and
(vii) with reasonable promptness, such other financial data as
such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (ii) and
(iii) above, the Company will deliver to each Significant Holder (a) an
Officer's Certificate demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraphs
6A, 6B and 6C and stating that there exists no Event of Default or Default, or,
if any Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto. Together with each delivery of financial statements required by clause
(iii) above, the Company will deliver to each Significant Holder (a) a
certificate of such accountants stating that, in making the audit necessary for
their report on such financial statements, they have obtained no knowledge of
any Event of Default or Default, or, if they have obtained knowledge of any
Event of Default or Default, specifying the nature and period of existence
thereof. Such accountants, however, shall not be liable to anyone by reason of
their failure to obtain knowledge of any Event of Default or Default which would
not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards, and (b) a report, in such detail and form
satisfactory to the Required Holders, certified by the chief financial officer
of the Company specifying how the proceeds of the Notes are being utilized by
the Bank in furtherance of the Foundation's charitable purpose.
The Company also covenants that immediately after any Responsible Officer
obtains knowledge of an Event of Default or Default, it will deliver to each
Significant Holder an Officer's Certificate specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto.
5B. Inspection of Property. The Company covenants that it will permit
any Person designated by any Significant Holder in writing, at such Significant
Holder's expense, to visit and inspect any of the properties of the Company and
its Subsidiaries, to examine the corporate books and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the principal officers of the Company and its independent public accountants,
all at such reasonable times and as often as such Significant Holder may
reasonably request.
5C. Covenant to Secure Note Equally. The Company covenants that, if it
or any Subsidiary shall create or assume any Lien upon any of its property or
assets in violation of paragraph 6A, whether now owned or hereafter acquired,
(unless prior written consent to the creation or assumption thereof shall have
been obtained pursuant to paragraph 11C), it will make or cause to be made
effective provision whereby the Notes will be secured by such Lien equally and
ratably with any and all other Debt thereby secured so long as any such other
Debt shall be so secured:
6. NEGATIVE COVENANTS.
<PAGE>
4
6A. Unencumbered Assets. The Company covenants that it will at
all times maintain assets with a fair market value of $3,000,000, and will not
create, assume or suffer to exist any Lien upon any such assets.
6B. Financial Maintenance Covenants. The Company covenants that
it will not permit, at any time
6B(1). Capital Adequacy -- (a) Tier I Capital to be less than 5% of
Consolidated Total Assets or (b) the sum of Tier I Capital plus Tier II Capital
to be less than 12% of Risk Adjusted Assets;
6B(2). Asset Quality -- (a) Consolidated Non-Performing Loans to
exceed 1.40% of Consolidated Total Assets or (b) Consolidated Loss Reserve
Allowance to be less than 50% of Consolidated Non-Performing Loans;
6B(3). Liquidity -- the Liquidity Ratio to be less than 1.25 to 1; or
6B(4). Earnings -- (a) Return on Assets to be less than .50% or (b)
Return on Equity to be less than 10.5%.
6C. Sale of Assets. The Company covenants that it will not, and
will not permit any Subsidiary to, sell, lease, transfer or otherwise dispose (a
"Transfer") of any assets, except
(i) any Depository Institution may sell loans in the
ordinary course of business;
(ii) the Company or any Subsidiary may Transfer assets that,
in its good faith, reasonable judgment, have no further useful or
productive capacity, are fully used or depreciated, are obsolete or are
no longer necessary or productive in the ordinary course of the
Company's business;
(iii) Transfers between Subsidiaries and from any
Subsidiary to the Company; and
(iv) Sales of Investments permitted by paragraph 6E; and
(v) other Transfers if, after giving effect to such Transfer,
(a) no Default or Event of Default exist and (b) all assets Transferred
during the then current fiscal year would not (1) have an aggregate
book value, or, if higher, market value in excess of 10% of
Consolidated Tangible Net Worth at the end of the immediately
proceeding fiscal year or (2) have contributed more than 10% of
Consolidated Operating Profit for any of the three most recently
completed fiscal years, provided that in no event shall the aggregate
assets Transferred pursuant to this clause (iii) have a book value, or,
if higher, market value in excess of 20% of Consolidated Tangible Net
Worth.
6D. Merger and Consolidation. The Company covenants that it will
not, and will not permit any Subsidiary to, merge or consolidate with any Person
except, if no Default or Event of Default shall exist or result therefrom
(i) a Subsidiary may merge into the Company, if the
Company is the surviving corporation;
(ii) a Subsidiary may merge into any other Subsidiary; and
(iii) any Person may merge into the Company or any Subsidiary
if the Company or such Subsidiary is the surviving corporation.
6E. Restricted Investments. The Company covenants that is will not,
and will not permit any Subsidiary to, make any Investment except
(i) that the Company or any Subsidiary may make Investments
permitted by the Investment Policy adopted in December 1994 by the
board of directors of City National Bank of New Jersey, as it maybe
amended from time to time, provided that any amendment affecting the
quality standard or the limits per Investment category will not take
effect until 20 days after the holders of Notes shall have received a
copy of the revised Investment Policy and shall not have delivered to
the Company a written dissent to such amendment within such 20 day
period;
(ii) Investments in stocks, obligations or securities of a
Subsidiary or a corporation which immediately after such purchase
or acquisition will be a Subsidiary; and
(iii) Investments made in connection with the acquisition of
all or any part of loan portfolios, deposit taking activities, and
other banking functions from another person or any branch, agency or
instrumentality of the Federal government.
<PAGE>
5
6F. Restrictions on Subsidiaries. The Company covenants that it
will not, and will not permit any Subsidiary to,
(i) sell, assign, pledge or otherwise dispose of or part with
control of, any Debt owing to the Company or a Subsidiary, or any
shares of stock or other equity interest (or warrants, rights or
options to acquire stock of or other equity interest) in, any of its
Subsidiaries, except to the Company or a Subsidiary, provided that all
the stock and Debt of a Subsidiary may be sold as an entirety if all of
the assets of such Subsidiary could be sold pursuant to paragraph 6E;
(ii) in the case of any Subsidiary, (A) issue or sell any
shares of stock or equity interest (or warrants, rights or options to
acquire stock of or other equity interest) in such Subsidiary to any
Person, except to the Company or another Subsidiary, or (B) enter into,
or suffer to exist, any contract or agreement (including any charter
provision) that imposes restrictions on any Subsidiary's ability to pay
make any Restricted Payment.
6G. Sale or Discount of Receivables. Except as permitted under
paragraph 6C, the Company covenants that it will not, and will not permit any of
its Subsidiaries to, discount, pledge, sell with recourse or otherwise sell any
Receivable of the Company or any Subsidiary.
6H. Transactions with Affiliates. The Company covenants that it
shall not, and shall not permit any Subsidiary to, directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, in the ordinary course of business or
otherwise,
(i) any Affiliate of the Company; or
(ii) any Person owning, beneficially or of record, directly or
indirectly, equity securities or other shares or evidences of
beneficial interest of the Company aggregating 5% or more of all such
securities, shares and interest; or
(iii) any Person of which any Person described or coming
within the provisions of clause (i) or (ii) of this paragraph 6H shall
own, beneficially or of record, directly or indirectly, equity
securities or other shares or evidences of beneficial interest
aggregating 5% or more of all such securities, shares and interests;
except that (a) any such Person may be a director, officer or employee of the
Company or any Subsidiary and may be paid reasonable compensation and
participate in employee benefit plans in connection with his employment by the
Company or such Subsidiary, (b) any transaction permitted under paragraph 6E
shall be permitted under this paragraph 6H, (c) the Company may sell to, or
purchase from, any such Person shares of the Company's stock, and (d) such acts
and transactions prohibited by the foregoing provisions of this paragraph 6H may
be performed or engaged in if made upon terms not less favorable to the Company
than if no such relationship described in clauses (i), (ii), and (iii) above
existed.
6I. Restricted Payments. The Company covenants that it will not,
directly or indirectly, declare, order, pay, make or set apart any sum or
property for any Restricted Payment, except that the Company may make Restricted
Payments,
(i) on, cumulative perpetual preferred stock not to exceed
$125,000 in any fiscal year, provided that such Restricted Payment
shall not violate any law, rule or regulation applicable to the
Company,
(ii) on common stock not to exceed Excess Cash if,
immediately prior and after giving effect thereto,
(a) Tier I Capital of any Depository Institution
Subsidiary is not less than 5.0% of Consolidated Total Assets of such Depository
Institution Subsidiary; and
(b) the sum of Tier I Capital and Tier II
Capital is not less than 12% of Risk-Adjusted Assets; and
(iii) in either case, immediately prior and after giving
effect to any such Restricted Payment, no Default or Event of Default
would occur.
7. EVENTS OF DEFAULT.
<PAGE>
6
7A. Acceleration. If any of the following events shall occur and
be continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal
of any Note when the same shall become due, either by the terms thereof
or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest
on any Note for more than 5 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as
primary obligor or as guarantor or other surety) in any payment of
principal of or interest on any other obligation for money borrowed (or
any Capitalized Lease Obligation, any obligation under a conditional
sale or other title retention agreement, any obligation issued or
assumed as full or partial payment for property whether or not secured
by a purchase money mortgage or any obligation under notes payable or
drafts accepted representing extensions of credit) beyond any period of
grace provided with respect thereto, or the Company or any Subsidiary
fails to perform or observe any other agreement, term or condition
contained in any agreement under which any such obligation is created
(or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event
is to cause, or to permit the holder or holders of such obligation (or
a trustee on behalf of such holder or holders) to cause, such
obligation to become due (or to be repurchased by the Company or any
Subsidiary) prior to any stated maturity, provided that the aggregate
amount of obligations as to which such payment default shall occur and
be continuing or such failure or other event causing or permitting
acceleration (or resale to the Company or any Subsidiary) shall exceed
$100,000; or
(v) the Company fails to perform or observe any agreement
contained in paragraph 5A or paragraph 6; or
(vi) the Company fails to perform or observe any other
agreement, term or condition contained herein and such failure shall
not be remedied within 30 days after any Responsible Officer obtains
actual knowledge thereof; or
(vii) the Company or any Subsidiary makes an assignment for
the benefit of creditors or is generally not paying its debts as such
debts become due; or
(viii) any decree or order for relief in respect of the
Company or any Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law, whether now or
hereafter in effect (herein called the "Bankruptcy Law"), of any
jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession
by, a trustee, receiver, custodian, liquidator or similar official of
the Company or any Subsidiary, or of any substantial part of the assets
of the Company or any Subsidiary, or commences a voluntary case under
the Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a
Subsidiary) relating to the Company or any Subsidiary under the
Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and
the Company or such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein, or an order, judgment
or decree is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 30 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Subsidiary decreeing a split-up
of the Company or such Subsidiary which requires the divestiture of
assets representing a substantial part, or the divestiture of the stock
<PAGE>
7
of a Subsidiary whose assets represent a substantial part, of the
consolidated assets of the Company and its Subsidiaries (determined in
accordance with generally accepted accounting principles) or which
requires the divestiture of assets, or stock of a Subsidiary, which
shall have contributed a substantial part of the consolidated net
income of the Company and its Subsidiaries (determined in accordance
with generally accepted accounting principles) for any of the three
fiscal years then most recently ended, and such order, judgment or
decree remains unstayed and in effect for more than 60 days; or
(xiii) one or more final judgments in an aggregate amount in
excess of $100,000 is rendered against the Company or any Subsidiary
and, within 60 days after entry thereof, such judgment is not
discharged or execution thereof stayed pending appeal, or within 60
days after the expiration of any such stay, such judgment is not
discharged; or
(xiv) the Company or any ERISA Affiliate, in its capacity as
an employer under a Multiemployer Plan, makes a complete or partial
withdrawal from such Multiemployer Plan resulting in the incurrence by
such withdrawing employer of a withdrawal liability in an amount
exceeding $25,000;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company, (b)if such event is an Event of Default
specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the
Company, all of the Notes at the time outstanding shall automatically become
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or notice of any kind, all of which are
hereby waived by the Company, and (c) is such event is any other Event of
Default, the Required Holders may, their option, by notice in writing to the
Company, declare all of the Notes to be, and all of the Notes shall thereupon be
and become, immediately due and payable together with interest accrued thereon
with respect to each Note, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company.
7B. Rescission of Acceleration. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
7A, the Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest and, the principal of any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal at the rate specified in the Notes, (ii) the
Company shall not have paid any amounts which have become due solely by reason
of such declaration, (iii) all Events of Default and Defaults, other than
non-payment of amounts which have become due solely by reason of such
declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv)
no judgment or decree shall have been entered for the payment of any amounts due
pursuant to the Notes or this Agreement. No such rescission or annulment shall
extend to or affect any subsequent Event of Default or Default or impair any
right arising therefrom.
7C. Notice of Acceleration or Rescission. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
7D. Other Remedies. If any Event of Default or Default shall occur and
be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants as follows:
8A. Organization. The Company is a corporation duly organized and
existing in good standing under the laws of the State of New Jersey and each
Subsidiary is duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated.
<PAGE>
8
8B. Financial Statements. The Company has furnished you with the
following financial statements, identified by a principal financial officer of
the Company: (i) a consolidated balance sheet of the Company and its
Subsidiaries as at December 31 in each of the years 1992 to 1994, inclusive, and
consolidated statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for each such year, all reported on by December 31;
and (ii) a consolidated balance sheet of the Company and its Subsidiaries as at
September 30 in each of The years 1992 through 1995 and consolidated statements
of income, stockholders' equity and cash flows for the nine-month period ended
on each such date, prepared by the Company. Such financial statements (including
any related schedules and/or notes) are true and correct in all material
respects (subject, as to interim statements, to changes resulting from audits
and year-end adjustments), have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
involved and show all liabilities, direct and contingent, of the Company and its
Subsidiaries required to be shown in accordance with such principles. The
balance sheets fairly present the condition of the Company and its Subsidiaries
as at the dates thereof, and the statements of income, stockholders' equity and
cash flows fairly present the results of the operations of the Company and its
Subsidiaries and their cash flows for the periods indicated. There has been no
material adverse change in the business, condition (financial or otherwise) or
operations of the Company and its Subsidiaries-taken as a whole since December
31, 1994.
8C. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or administrative
or governmental body which might result in any material adverse change in the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole.
8D. Outstanding Debt. Neither the Company nor any of its
Subsidiaries has outstanding any Debt listed on Exhibit C attached hereto. There
exists no default under the provisions of Any instrument evidencing such Debt or
of any agreement relating thereto.
8E. Title to Properties. The Company has and each of its Subsidiaries
has good and indefeasible title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, including the properties and assets reflected in the
balance sheet as at December 31, 1994 referred to in paragraph 8B (other than
properties and assets disposed of in the ordinary course of business). All
leases necessary in any material respect for the conduct of the respective
businesses of the Company and its Subsidiaries are valid and subsisting and are
in full force and effect.
8F. Taxes. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns which, to the knowledge of the
officers of the Company, are required to be filed, and each has paid all taxes
as shown on such returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting principles.
8G. Conflicting Agreements and Other Matters. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement or subject to
any charter or other corporate restriction which materially and adversely
affects its business, property or assets, or financial condition. Neither the
execution nor delivery of this Agreement or the Notes, nor the offering,
issuance and sale of the Notes, nor fulfillment of nor compliance with the terms
and provisions hereof and of the Notes will conflict with, or result in a breach
of the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries pursuant to,
the charter or by-laws of the Company or any of its Subsidiaries, any award of
any arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment, decree, statute, law, rule or regulation to which
the Company or any of its Subsidiaries is subject. Neither the Company nor any
of its Subsidiaries is a party to, or otherwise subject to any provision
contained in, any instrument evidencing indebtedness of the Company or such
Subsidiary, any agreement relating thereto or any other contract or agreement
(including its charter) which limits the amount of, or otherwise imposes
restrictions on the incurring of, Debt of the Company of the type to be
evidenced by the Notes except as set forth in the agreements listed in Exhibit E
attached hereto.
8H. Offering of Notes. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
security of the Company from, or otherwise approached or negotiated with respect
<PAGE>
9
thereto with, any Person other than institutional investors, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction.
8I. Use of Proceeds. Neither the Company nor any Subsidiary owns
or has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System (herein called "margin stock"). The proceeds of sale of the Notes will be
invested in the Bank in the form of Tier I capital. None of such proceeds will
be used, directly or indirectly, for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any Indebtedness which was originally incurred
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning of such Regulation G. Neither the Company nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement or the
Notes to violate Regulation G, Regulation T or any other regulation of The Board
of Governors of the Federal Reserve System or to violate the Exchange Act, in
each case as in effect now or as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the
Pension Benefit Guaranty Corporation has been or is expected by the Company or
any ERISA Affiliate to be incurred with respect to any Plan (other than a
Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which
is or would be materially adverse to the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole.
Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred or
presently expects to incur any withdrawal liability under Title IV of ERISA with
respect to any Multiemployer Plan which is or would be materially adverse to the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole. The execution and delivery of this Agreement
and the issuance and sale of the Notes will be exempt from, or will not involve
any transaction which is subject to, the prohibitions of section 406 of ERISA
and will not involve any transaction in connection with which a penalty could be
imposed under section 502(i) of ERISA or a tax could be imposed pursuant to
section 4975 of the Code. The representation by the Company in the next
preceding sentence is made in reliance upon and subject to the accuracy of your
representation in paragraph 9B.
8K. Governmental Consent. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the date of closing with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the offering,
issuance, sale or delivery of the Notes or fulfillment of or compliance with the
terms and provisions hereof or of the Notes.
8L. Environmental Compliance. The Company and its Subsidiaries and all
of their respective properties and facilities have complied at all times and in
all respects with all federal, state, local and regional statutes, laws,
ordinances and judicial or administrative orders, judgments, rulings and
regulations relating to protection of the environment except, in any such case,
where failure to comply would not result in a material adverse effect on the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole.
8M. Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to you by or on behalf of the Company in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact peculiar to the Company or any of
its Subsidiaries which materially adversely affects or in the future may (so far
as the Company can now foresee) materially adversely affect the business,
property or assets, or financial condition of the Company or any of its
Subsidiaries and which has not been set forth in this Agreement or in the other
documents, certificates and statements furnished to you by or on behalf of the
Company prior to the date hereof in connection with the transactions
contemplated hereby. The financial projections provided by the Company are
reasonable based on the assumptions stated therein and the best information
available to the officers of the Company.
9. REPRESENTATIONS OF THE PURCHASER. You represent as follows:
<PAGE>
10
9A. Nature of Purchase. (a) You are not acquiring the Notes to be
purchased by you hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
disposition of your property shall at all times be and remain within your
control. (b) You further represent that you are an "accredited investor" as such
term is defined in Rule 501(a) under the Securities Act. You further represent
that you are knowledgeable, sophisticated and experienced in business and
financial matters and that you are able to bear the economic risks of your
investment in the Notes.
9B. Registration of Notes. You acknowledge that if you desire to sell
or otherwise dispose of all or any of the Notes, you will deliver to the Company
an opinion of counsel, which may be in-house counsel, reasonably satisfactory in
form and substance to the Company that an exemption from registration under the
Securities Act and any applicable state laws is available. Upon original
issuance thereof and until such time as the same is no longer required under the
applicable requirements of the Securities Act, the Notes (and all securities
issued and exchanged thereof or substitution thereof) shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
APPLICABLE STATE BLUE SKY LAW. THEY MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF REGISTRATION OR ANY EXEMPTION
THEREFROM UNDER SAID ACT OR ANY APPLICABLE STATE BLUE SKY LAW,
NOR MAY THEY BE SOLD OR TRANSFERRED UNLESS CITY NATIONAL
BANCSHARES CORPORATION HAS BEEN PRESENTED WITH AN OPINION OF
COUNSEL (WHICH MAY BE IN-HOUSE COUNSEL) REASONABLY
SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT IS AVAILABLE."
10. DEFINITIONS. For the purpose of this Agreement, the terms
defined in the introductory sentence and in paragraphs 1 and 2 shall have the
respective meanings specified therein, and the following terms shall have the
meanings specified with respect thereto below:
"Affiliate" shall mean any Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with, the
Company, except a Subsidiary. A Person shall be deemed to control a corporation
if such Person possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract or otherwise.
"Average Assets" shall mean, on the date of determination, the
average daily assets of the Company and its consolidated Subsidiaries determined
in accordance with GAAP.
"Average Equity" shall mean, on any date of determination, the
average daily consolidated net worth of the Company and its Subsidiaries
determined, in accordance with GAAP.
"Bank" shall mean City National Bank of New Jersey, a national
banking association and wholly-owned Subsidiary of the Company.
"Bankruptcy Law" shall have the meaning specified in clause
(viii) of paragraph 7A.
"Capitalized Lease" shall mean any lease under which the
obligation to make rental payments thereunder constitutes a Capitalized Lease
Obligation.
"Capitalized Lease Obligation" shall mean any rental
obligation which, under generally accepted accounting principles, would be
required to be capitalized on the books of the Company or any Subsidiary, taken
at the amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Consolidated Loss Reserve Allowance" shall mean the
consolidated loss reserve allowance of the Company and its Subsidiaries
determined in accordance with the Company's underwriting standards or as
required by law or any regulatory agency.
"Consolidated Operating Profit" shall mean, for any period,
consolidated net income of the Company and its Subsidiaries for such period,
plus all amounts deducted in calculating consolidated net income in respect of:
(i) net interest expense (including amortization of debt
discount and imputed interest on Capitalized Lease Obligations) on Debt,
(ii) taxes imposed on or measured by income or excess
profit, and
<PAGE>
11
(iii) all charges for depreciation of fixed assets and
amortization of intangibles, all determined in accordance with GAAP.
"Consolidated Non-Performing Means" shall mean Restructured
Assets or loans made by the Company and its Subsidiaries which are not accruing
or in which either a scheduled principal payment, interest payment or other
anticipated economic return is past due for more than 90 days after the date
originally scheduled for such payment.
"Consolidated Tangible Net Worth" shall mean the aggregate
amount of (a) capital stock (less any treasury stock, capital stock subscribed
and unissued and other contra-equity accounts), (b) surplus, and (c) retained
earnings of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, excluding any (i) intercompany transactions, (ii) the
net book value of all assets which would be treated as intangible under
generally accepted accounting principles, and (iii) the cumulative amount of any
net write-up of asset values after the date of the audit immediately preceding
the date of closing.
"Consolidated Total Assets" shall mean the aggregate amount of
assets carried on the books of the Company, on a consolidated basis after
eliminating all intercompany items, in accordance with GAAP.
"Debt" shall mean, without duplication, (a) indebtedness of
the Company and each Subsidiary for borrowed money payable within one year of
the date of creation, (b) all indebtedness of the Company and each Subsidiary,
including Capitalized Lease Obligations and other obligations, in each case to
the extent required to be listed as a liability on a consolidated balance sheet
under GAAP (other than deferred taxes, deferred credit and reserves, deferred
compensation obligations and "other noncurrent liabilities," listed as such or
that would be required to be listed as such on the consolidated balance sheet of
the Company), in each case, having a final maturity of more than one year from
the date of creation thereof (or which is renewable or extendable for a period
or periods more than one year from the date of creation), (c) indebtedness
secured by a Lien on property owned by the Company or any Subsidiary, whether or
not such indebtedness has been assumed by the Company or any Subsidiary, and (d)
all Guarantees of the Company or any Subsidiary.
"Depository Institution Subsidiary" shall mean the Bank and
any federal or state chartered banking institution in which all of the capital
stock is owned, directly or indirectly by the Company.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall mean any corporation which is a member
of the same controlled group of corporations as the Company within the meaning
of section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"Event of Default" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "Default" shall mean
any of such events, whether or not any such requirement has been satisfied.
"Excess Cash" shall mean, at any time, the sum of consolidated
net income of the Company and its Subsidiaries, determined in accordance with
GAAP, for the immediately preceding four consecutive full fiscal quarters minus
the sum of (a) all regularly scheduled amortization of Debt, and (b) all
regularly scheduled and anticipated accrued interest on Debt (including
amortization of Debt discount and imputed interest on Capitalized Leases) for
the immediately succeeding four consecutive full fiscal quarters.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"FDIC" shall mean the Federal Deposits Insurance Corporation
or any successor agency thereto.
"GAAP" shall mean generally accepted accounting principles.
"Government Securities" shall mean securities issued by the
United States Treasury or any United States government agency.
"Guarantee" shall mean, with respect to any Person, any direct
or indirect liability, contingent or otherwise, of such Person with respect to
any indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect of
which such Person is otherwise directly or indirectly liable, including, without
<PAGE>
12
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
"Investment" shall mean any loans or advances to, or purchases
or acquisitions of the securities or obligations of, any Person or the
assumption of any liability of another Person, other than loans made or
purchased by a Depository Institution in the ordinary course of business, and
the acquisition of securities arising from therefrom.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"Liquid Assets" shall mean, without duplication, the Company's
and its each Subsidiaries' consolidated cash and cash equivalents, other short
term Investments, securities available for sale, Government Securities, loans
fully guaranteed by the Small Business Administration, excluding Federal Funds
purchased and securities sold subject to repurchase obligations and reserves of
the Company and each Subsidiary required by the Federal Reserve Bank.
"Liquidity Ratio" shall mean the ratio of Liquid Assets over
Volatile Liabilities.
"Multiemployer Plan" shall mean any Plan which is a
"multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA).
"OCC" shall mean the Office of the Comptroller of the Currency
or any successor agency thereto.
"Officer's Certificate" shall mean a certificate signed in the
name of the Company by its President, one of its Vice Presidents or its
Treasurer.
"Person" shall mean and include an individual, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"Plan" shall mean any "employee pension benefit plan" (as such
term is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"Purchase and Assumption Agreement" shall mean the Purchase
and Assumption Agreement, dated as of August 18, 1995, between NatWest Bank N.A.
and City National Bank of New Jersey.
"Receivables" shall mean any accounts, contracts rights and
other form of obligation for the payment of money arising out of the lending of
money, the sale of goods or the rendering of services by the Company or any
Subsidiary.
"Required Holder(s)" shall mean the holder or holders of at
least 51% of the aggregate principal amount of the Notes from time to time
outstanding.
"Responsible Officer" shall mean the chief executive officer,
chief operating officer, chief financial officer or chief accounting officer of
the Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"Restricted Payments" shall mean (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of the Company now or hereafter outstanding, except a dividend payable solely in
shares of stock of the Company or options, rights or warrants to acquire stock
<PAGE>
13
of the Company, and (ii) any redemption, retirement, purchase or other
acquisition, direct or indirect, of any shares of any class of stock of the
Company now or hereafter outstanding, or of any warrants, rights or options to
acquire any such shares, except to the extent that the consideration therefor
consists solely of shares of stock of the Company or warrants, rights or options
to acquire such shares or is funded solely from the proceeds of the
substantially concurrent sale of any of the foregoing.
"Restructured Asset" shall mean any loan in any Person made by
the Company or any Subsidiary in which the Company or any Subsidiary has agreed
to a change in any payment term, including, (a) a change in maturity, principal
amount, or allocation of any mandatory or scheduled prepayment or repayment with
respect to principal of, (b) the rate or payment date with respect to interest
on, or (c) a change in any term reducing the anticipated economic return of such
loan.
"Return on Assets" shall mean the consolidated net income of
the Company and its Subsidiaries, determined in accordance to GAAP, over Average
Assets.
"Return on Equity" shall mean the consolidated net income of
the Company and its Subsidiaries, determined in accordance to GAAP, over Average
Equity.
"Risk Adjusted Assets" shall mean as defined in 12 CFR ss. 2,
Part 3, App. A.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Significant Holder" shall mean (i) you, so long as you shall
hold (or be committed under this Agreement to purchase) any Note, or (ii) any
other holder of at least 5% of the aggregate principal amount of the Notes from
time to time outstanding.
"Subsidiary" shall mean (a) any corporation, all of the stock
of every class of which, except directors' qualifying shares, shall, at the time
as of which any determination is being made, be owned by the Company either
directly or indirectly through Subsidiaries and (b) any Depository Institution
Subsidiary.
"Tier I Capital" shall have the meaning specified in 12 CFR
ss. 2, Part 3, App. A.
"Tier II Capital" shall have the meaning specified in 12 CFR
ss. 2, Part 3, App. A.
"Transferee" shall mean any direct or indirect transferee of
all or any part of any Note purchased by you under this Agreement.
"Volatile Liabilities" shall mean the Company's and each
Subsidiaries' consolidated total deposits payable to federal and state agencies
and municipalities, tax and loan note option account, excluding insurance
premiums payable to the FDIC.
"Voting Stock" shall mean, with respect to any corporation,
any shares of stock of such corporation whose holders are entitled under
ordinary circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
10B. Accounting Principles, Terms and Determinations. All references in
this Agreement to "generally accepted accounting principles" shall be deemed to
refer to generally accepted accounting principles in effect in the United States
at the time of application thereof. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles, applied on a basis consistent with the
most recent audited consolidated financial statements of the Company and its
Subsidiaries delivered pursuant to clause (iii) of paragraph 5A or, if no such
statements have been so delivered, the most recent audited financial statements
referred to in clause (i) of paragraph 8B.
11. MISCELLANEOUS.
11A. Note Payments. The Company agrees that, so long as you shall hold
any Note, it will make payments of principal of, interest on such Note, which
comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to your account or accounts as specified in the Purchaser Schedule
<PAGE>
14
attached hereto, or such other account or accounts in the United States as you
may designate in writing, notwithstanding any contrary provision herein or in
any Note with respect to the place of payment. You agree that, before disposing
of any Note, you will make a notation thereon (or on a schedule attached
thereto) of all principal payments previously made thereon and of the date to
which interest thereon has been paid. The Company agrees to afford the benefits
of this paragraph 11A to any Transferee which shall have made the same agreement
as you have made in this paragraph 11A.
11B. Expenses. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save you and any
Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by you or such Transferee in connection with and any
subsequent proposed modification of, or proposed consent under, this Agreement,
whether or not such proposed modification shall be effected or proposed consent
granted, and (ii) the costs and expenses, including attorneys' fees, incurred by
you or such Transferee in enforcing (or determining whether or how to enforce)
any rights under this Agreement or the Notes or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the transactions contemplated hereby or by reason of your or
such Transferee's having acquired any Note, including without limitation costs
and expenses incurred in any bankruptcy case. The obligations of the Company
under this paragraph 11B shall survive the transfer of any Note or portion
thereof or interest therein by you or any Transferee and the payment of any
Note.
11C. Consent to Amendments. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note, or change the principal of, or the rate or time of payment of interest
on any Note, or affect the time, amount or allocation of any prepayments, or
change the proportion of the principal amount of the Notes required with respect
to any consent, amendment, waiver or declaration. Each holder of any Note at the
time or thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and the holder of any
Note nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note. As used herein and
in the Notes, the term "this Agreement" and references thereto shall mean this
Agreement as it may from time to tune be amended or supplemented.
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes.
The Notes are issuable as registered notes without coupons in denominations of
at least $500,000, except as may be necessary to reflect any principal amount
not evenly divisible by $500,000. The Company shall keep at its principal office
a register in which the Company shall provide for the registration of Notes and
of transfers of Notes. Upon surrender for registration of transfer of any Note
at the principal office of the Company, the Company shall, at its expense,
execute and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes which the holder making the
exchange is entitled to receive. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. Persons Deemed Owners; Participations. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the Company
shall not be affected by notice to the contrary. Subject to the preceding
<PAGE>
15
sentence, the holder of any Note may from time to time grant participations in
such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion, provided that any such
participation shall be in a principal amount of at least $100,000.
11F. Survival of Representations and Warranties; Entire Agreement. All
representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by you of any Note or
portion thereof or interest therein and the payment of any Note, and may be
relied upon by any Transferee, regardless of any investigation made at any time
by or on behalf of you or any Transferee. Subject to the preceding sentence,
this Agreement and the Notes embody the entire agreement and understanding
between you and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
11G. Successors and Assigns. All covenants and other agreements in this
Agreement contained by or on behalf of either of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. Disclosure to Other Persons. Each holder of Notes agrees to
maintain the confidentiality of the Confidential Information in accordance with
procedures adopted by such holder of Notes in good faith to protect confidential
information of third parties delivered to such holder of Notes, except that, the
Company acknowledges that the holder of any Note may deliver copies of any
financial statements and other documents delivered to such holder, and disclose
any other information disclosed to such holder, by or on behalf of the Company
or any Subsidiary in connection with or pursuant to this Agreement to (i) such
holder's directors, officers, employees, agents and professional consultants,
(ii) any other holder of any Note, (iii) any Person to which such holder offers
to sell such Note or any part thereof, (iv) any Person to which such holder
sells or offers to sell a participation in all or any part of such Note, (v) any
Person from which such holder offers to purchase any security of the Company,
(vi) any federal or state regulatory authority having jurisdiction over such
holder, (vii) the National Association of Insurance Commissioners or any similar
organization or (vii) any other Person to which such delivery or disclosure may
be necessary or appropriate (a) in compliance with any law, rule, regulation or
order applicable to such holder, (b) in response to any subpoena or other legal
process or informal investigative demand or (c) in connection with any
litigation to which such holder is a party. Prior to the delivery of
Confidential Information to any Person by any holder of Notes pursuant to
clauses (iii), (iv) or (v) of this paragraph 11H, such Person shall agree in
writing (which shall be addressed and delivered to the Company and such holder)
to be bound by the provisions of this paragraph 11H. For purposes of this
paragraph 11H, "Confidential Information" means information delivered to any
holder of Notes by or on behalf of the Company or any Subsidiary during any
inspection pursuant to paragraph 5B or in connection with the transaction
contemplated by or otherwise pursuant to this Agreement that is proprietary in
nature and that was clearly marked or labeled, when received by such holder, as
being confidential information of the Company or such Subsidiary, that such term
does not include information that (a) was publicly known or otherwise known to
such holder or any person acting on such holder's behalf, (b) subsequently
becomes publicly known through no act or omission by such holder, (c) otherwise
becomes known to such holder other than through disclosure by the Company or any
Subsidiary, or (d) constitutes financial statements delivered to such holder
under paragraph 5A that are otherwise publicly available.
11I. Notices. All written communications provided for hereunder shall
be sent by first class mail or nationwide overnight delivery service (with
charges prepaid) and (i) if to you, addressed to you at the address specified
for such communications in (he Purchaser Schedule attached hereto, or at such
other address as you shall have specified to the Company in writing, (ii) if to
any other holder of any Note, addressed to such other holder at such address as
such other holder shall have specified to the Company in writing or, if any such
other holder shall not have so specified an address to the Company, then
addressed to such other holder in care of the last holder of such Note which
shall have so specified an address to the Company, and (iii) if to the Company,
addressed to it at 900 Broad Street, Newark, New Jersey, 07102, Attention:
President and the Chief Financial Officer, or at such other address as the
Company shall have specified to the holder of each Note in writing; provided,
however, that any such communication to the Company may also, at the option of
the holder of any Note, be delivered by any other means either to the Company at
its address specified above or to any officer of the Company.
11J. Payments Due on Non-Business Days. Anything in this Agreement
or the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall be included in the computation of
the interest payable on such Business Day.
<PAGE>
16
11K. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to you or to the Required Holder(s), the
determination of such satisfaction shall be made by you or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
11L. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the law
of the State of New Jersey.
11M. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11N. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement between the
Company and you.
Very truly yours,
CITY NATIONAL BANCSHARES
CORPORATION
By:_____________________________
Louis E. Prezeau
President
The foregoing Agreement is hereby accepted as of the date first above written.
THE PRUDENTIAL FOUNDATION
By:____________________________
Gabriella Coleman
President
<PAGE>
17
PURCHASER SCHEDULE
Aggregate Principal Amount
THE PRUDENTIAL FOUNDATION $1,500,000
(1) All payments on account of Notes held by such purchaser shall be made
by wire transfer of immediately available funds for credit to:
Account No. 001-57-942
Morgan Guaranty Trust Company of New York
23 Wall Street New York, New York 10015
(ABA No.: 021-000-238)
Each such wire transfer shall set forth the name of the Fund, and a
reference to "$1,500,000 5.25% Capital Notes, due December 28, 2005,
Security No. !INV 5296:" and in each case, the due date and application
(as among principal and interest) of the payment being made.
(2) Address for all notices relating to payments:
The Prudential Foundation
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attention: Private Placement Portfolio
Management, Manager
(3) Address for all other communications and notices:
The Prudential Foundation
751 Broad Street,
15th Floor
Newark, New Jersey 07102
Attention: Social Investment Unit
(4) Recipient of telephonic prepayment notices:
Manager, Asset Management Unit
(201) 802-6429
(201) 802-8055 (facsimile)
(5) Tax Identification No.: 22-1211670
<PAGE>
18
EXHIBIT A
[FORM OF NOTE]
CITY NATIONAL BANCSHARES CORPORATION
5.25% CAPITAL NOTE DUE DECEMBER _, 2005
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
APPLICABLE STATE BLUE SKY LAW. THEY MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF REGISTRATION OR ANY EXEMPTION
THEREFROM UNDER SAID ACT OR ANY APPLICABLE STATE BLUE SKY LAW,
NOR MAY THEY BE SOLD OR TRANSFERRED UNLESS CITY NATIONAL
BANCSHARES CORPORATION HAS BEEN PRESENTED WITH AN OPINION OF
COUNSEL (WHICH MAYBE IN-HOUSE COUNSEL) REASONABLY SATISFACTORY
TO IT THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT IS AVAILABLE.
No.__ [Date]
$1,500,000
FOR VALUE RECEIVED, the undersigned, CITY NATIONAL BANCSHARES
CORPORATION (herein called the "Company"), a corporation organized and existing
under the laws of the State of New Jersey, hereby promises to pay to THE
PRUDENTIAL FOUNDATION, or registered assigns, the principal sum of ONE MILLION
FIVE HUNDRED THOUSAND DOLLARS on December 31, 2005, with interest (computed on
the basis of a 360-day year--30 day month) (a) on the unpaid balance thereof at
the rate of 5.25% per annum from the date hereof, payable semiannually on the
___ day of June and December in each year, commencing with the December __ next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest payable semiannually as aforesaid
(or, at the option of the registered holder hereof, on demand), at a rate per
annum from time to time equal to 2.0% over the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time in New
York City as its Prime Rate.
Payments of principal of and interest on this Note are to be made at
the main office of Morgan Guaranty Trust Company of New York in New York City or
at such other place as the holder hereof shall designate to the Company in
writing, in lawful money of the United States of America.
This Capital Note is one of a series of Capital Notes (herein called
the "Notes") issued pursuant to a Note Agreement, dated as of December 28, 1995
(herein called the "Agreement"), between the Company and The Prudential
Foundation and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note is intended to be performed in the State of New Jersey and
shall be construed and enforced in accordance with the law of such State.
CITY NATIONAL BANCSHARES
CORPORATION
By_____________________________
President
By______________________________
Treasurer
CONFORMED COPY
Exhibit (10)(k)
PURCHASE AND ASSUMPTION AGREEMENT
dated as of August 18, 1995
between
NATWEST BANK N.A.
and
CITY NATIONAL BANK OF NEW JERSEY
Relating to the branch of
NatWest Bank N.A.
located in
Newark, New Jersey
<PAGE>
TABLE OF CONTENTS
ARTICLE I
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
Section
1.01 Effective Date...............................................1
1.02 Transfer of Assets and Consideration Therefor................1
1.03 Purchase of Account Loans and Loans; Servicing Agreement;
Post Closing Adjustment......................................2
1.04 Obligations of the Seller on the Effective Date..............3
1.05 Operating Agreements.........................................4
1.06 Assignment and Assumption Agreement..........................5
1.07 Certain Transitional Matters.................................5
1.08 Indemnification..............................................5
1.09 Prorata Adjustment of Branch Expenses........................6
1.10 Taxes....................................................... 6
1.11 IRAs and Keogh Plans.........................................7
1.12 Notices Regarding Operating Agreements.......................7
1.13 Consents to Transfer of Operating Agreements.................7
1.14 Notice to Branch Customers...................................7
1.15 ATM Machine..................................................7
ARTICLE II
REPRESENTATIONS. WARRANTIES AND COVENANTS OF THE SELLER
2.01 Corporate Organization and Powers............................7
2.02 No Violation.................................................7
2.03 Corporate Authority; Governmental Consents...................8
2.04 Binding Effect; Enforceability...............................8
2.05 Governmental Notices.........................................8
2.06 Finders or Brokers...........................................8
2.07 Deposit Liabilities..........................................8
3.02 No Violation.................................................8
3.03 Corporate Authority; Governmental Consents...................9
3.04 Binding Effect; Enforceability...............................9
3.05 Governmental Notices.........................................9
3.06 Finders or Brokers...........................................9
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE EFFECTIVE DATE
4.01 Continuation of Business; Compliance with Law................9
ARTICLE V
CLOSING OBLIGATIONS OF PARTIES
PRIOR TO AND AFTER EFFECTIVE DATE
5.01 Time and Place of Closing....................................9
5.02 Full Access..................................................9
5.03 Requirements of Regulatory Authorities......................10
5.04 Application for Approval to Effect Purchase of
Assets and Assumption of Liabilities and to Operate Branch..10
5.05 No Use of Seller's Name; Change of Name at the Branch.......10
5.06 Further Assurances; Payment of Title and Real Estate
Transfer Costs............................................10
5.07 Right to Intervene..........................................10
5.08 Retained Assets.............................................10
5.09 Tax Allocation..............................................10
5.10 [Intentionally Omitted].....................................10
ARTICLE VI
CONDITIONS TO PURCHASER'S OBLIGATIONS
6.01 Representations and Warranties True; Obligations Performed..11
6.02 Transfer Documents; Payment of Net Consideration............11
6.03 Evidence of Corporate Action; Status Certificate............11
6.04 Opinion of Seller's Counsel.................................11
ARTICLE VII
CONDITIONS TO THE SELLER'S OBLIGATIONS
7.01 Representations and Warranties True; Obligations Performed..11
7.02 Assignment and Assumption Agreement; Bulk Assignment of
Loans.....................................................12
7.03 Evidence of Corporate Action: Status Certificate............12
7.04 Opinion of Purchaser's Counsel..............................12
ARTICLE VIII
CONDITIONS TO SELLER'S AND PURCHASER'S OBLIGATIONS
8.01 Approval of Governmental Authorities........................12
8.02 Absence of Litigation.......................................12
<PAGE>
ARTICLE IX
TERMINATION
9.01 Methods of Termination......................................12
9.02 Automatic Termination.......................................12
9.03 Procedure Upon Termination; Effect of Termination...........12
ARTICLE X
MISCELLANEOUS PROVISIONS
10.01 Confidentiality.............................................13
10.02 Hiring of Employees.........................................13
10.03 Amendment and Modification; Entire Agreement................14
10.04 Successors and Assigns......................................14
10.05 Counterparts................................................14
10.06 Headings....................................................15
10.08 Payment of Expenses.........................................15
10.09 Choice of Law; Jurisdiction; Consent to Arbitration.........15
10.10 Addresses for Notice etc....................................16
10.11 No Third Party Beneficiaries................................16
10.12 Public Announcements........................................16
Schedules
Schedule 1 Schedule of Real Estate Encumbrances Relating to the Real
Estate and Other Assets(Section 1.02(a)(i))
Schedule 2 Schedule of Furniture, Fixtures and Equipment to be sold to
the Purchaser (Section 1.02(a)(ii))
Schedule 3 Schedule of Furniture, Fixtures and Equipment to be retained
by Seller (Section 1.02(a)(ii))
Schedule 4 Schedule of Rights and Preferences of the Preferred Stock
(Section 1.02(b))
Schedule 5 Schedule of Operating Agreements (Section 1.02(c))
Schedule 6 Schedule of Deposit Liabilities (Section 1.02(c))
Schedule 7 Schedule of Account Loans (Section 1.03(a))
Schedule 8 Schedule of Loans (Section 1.03(a))
Schedule 9 Schedule of Excluded Employees (Section 10.02(a))
Exhibits
Exhibit A Form of Servicing Agreement (Section 1.03(a))
Exhibit B Form of Bill of Sale (Section 1.04(b)(i))
Exhibit C Form of Deed (Section 1.04(b)(ii))
Exhibit D-1 Form of Bulk Assignment of Loans (Section 1.04(b)(iii))
Exhibit D-2 Form of Assignment of Mortgage (Section 1.04(d))
Exhibit E Form of Assignment and Assumption Agreement (Section 1.06)
Exhibit F-1 Form of Seller's Compliance Certificate (Section 6.01(c))
Exhibit F-2 Form of Seller's Counsel Opinion (Section 6.04)
Exhibit G-1 Form of Purchaser's Compliance Certificate (Section 7.01(c))
Exhibit G-2 Form of Purchaser's Counsel Opinion (Section 7.04)
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PURCHASE AND ASSUMPTION AGREEMENT
(Southside Branch)
AGREEMENT made as of the 18th day of August, 1995, between
NatWest Bank N.A., a national banking association having its principal office at
10 Exchange Place Centre, Jersey City, New Jersey 07302 (the "Seller") and City
National Bank of New Jersey, a national banking association having its principal
office at 900 Broad Street, Newark, New Jersey 07102 (the "Purchaser");
WHEREAS, the Seller wishes to sell substantially all of the
assets of the branch office operated by it at 1074-1080 Bergen Street, Newark,
New Jersey (the "Branch") and to transfer certain liabilities relating to the
operations of the Branch; and
WHEREAS, the Purchaser wishes to buy such assets and assume
Such liabilities;
NOW, THEREFORE, IN CONSIDERATION of the premises, of the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is agreed as
follows:
ARTICLE I
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
1.01 Effective Date.
Except as otherwise provided herein, the closing date
(hereinafter termed the "Effective Date") shall be the date on which the closing
(the "Closing") of this transaction shall occur, which shall be a Friday and
shall be a date mutually acceptable to the Seller and the Purchaser, within five
(5) business days after the date on which all of the conditions set forth in
this Agreement shall have been satisfied or shall have been waived, or such
other time or date as the parties hereto may specify by agreement set forth in
writing, but not less than thirty (30) days after the date the Office of the
Comptroller of the Currency (the "OCC") or any other legally required regulatory
authority approves the transactions contemplated herein, or such fewer number of
days as required by such regulatory approval. The transfer of assets and
assumption of liabilities of the Branch, as set forth in this Agreement, shall
become effective, and the risk of loss in respect thereof shall pass to the
Purchaser, as of the close of business of the Branch on the Effective Date.
1.02 Transfer of Assets and Consideration Therefor.
(a) Subject to the terms and conditions of this Agreement,
Seller will sell, assign, transfer, convey and deliver to the Purchaser, on the
Effective Date:
(i) all of its right, title and interest in the real estate pertaining to the
Branch which is described on Schedule I attached hereto and made a part of this
Agreement, together with all improvements thereon and subject to the
encumbrances set forth and described on Schedule 1 (the "Real Estate");
(ii) all of its right, title and interest in and to the furniture, fixtures and
equipment located at the Branch and used in the operation of the Branch, which
is set forth on Schedule 2 attached hereto, other than the furniture, fixtures
and equipment specified in Schedule 3 attached hereto (the furniture, fixtures
and equipment transferred by the Seller to the Purchaser pursuant to this
Agreement are collectively the "Furniture and Fixtures");
(iii) all of its right, title and interest in, to and under the Account Loans
and the Loans (as defined herein); and
(iv) cash (including, cash on hand at the Branch on the Effective Date) in
an amount sufficient to further and fully offset the Liabilities (as defined
herein) assumed by the Purchaser after giving effect to the offset of such
Liabilities as more fully set forth in Section 1.04(c) hereof. (The assets
referred to in clauses (ii) through (iv) above are hereinafter collectively, the
"Other Assets").
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(b) On the Effective Date, subject to the terms and conditions
of this Agreement, in consideration for the aforesaid sale of the Real Estate,
there will be issued to the Seller or its designee, 20 shares of non-voting
preferred stock (the "Preferred Stock") in City National Bancshares Corporation
(the "Issuer") having the rights and preferences set forth on Schedule 4
attached hereto and valued at $500,000 (the "Real Estate Consideration"), which
in all respects shall be satisfactory to the Seller. The Purchaser heretofore
has made an inspection of' and has requested that the Seller make certain
repairs at, the Branch. In lieu of such repairs, on the Effective Date, the
Seller shall make available to the Purchaser cash in the amount of $115,000 (the
"Repairs Cash") to be used by the Purchaser to make Branch repairs after the
Effective Date. The Seller makes no representation or warranty of any kind,
express or implied, regarding the condition of the Branch or the Real Estate.
Additionally, the Purchaser's indemnity obligations set forth in Section 1.08(b)
hereof shall include, without limitation, any loss incurred by the Seller as a
result of the Purchaser's failure to make Branch repairs or maintain the Branch
in compliance with all applicable laws, rules and regulations.
(c) On the Effective Date, subject to the terms and conditions
of this Agreement, and in consideration for the sale of the Other Assets (i) the
Purchaser will assume and agree to pay, perform and discharge all deposit
liabilities (as defined herein) of the Seller which are reflected on the books
and records of the Seller as deposit liabilities of the Branch on the Effective
Date including, without limitation, interest accrued on the deposit liabilities
as of the Effective Date together with the obligation to pay interest in respect
of the deposit liabilities from and after the Effective Date; and (ii) the
Purchaser will assume and thereafter fully and timely perform and discharge all
of the liabilities and obligations of the Seller with respect to the Real
Estate, the Other Assets, the Branch and all agreements relating thereto
including, without limitation, agreements relating to the deposit liabilities
(as defined below) and all leases and other agreements (collectively, the
"Operating Agreements") listed on Schedule 5 attached hereto (the liabilities
and obligations described in this subsection (c) together with the Deposit
Liabilities (as defined below) are collectively, the "Liabilities").
As used in this Agreement, the term "Deposit Liabilities"
shall mean (i) all demand deposits, negotiable order of withdrawal accounts and
other transaction accounts reflected on the books and records of the Seller
relating to the Branch, not including certified checks, money orders and other
official cashier or teller checks which are outstanding and unpaid as of the
Effective Date, (ii) all time and savings deposits, including money market
deposit accounts, statement savings accounts, deposits maintained in connection
with IRAs and Keogh Plans (except as excluded pursuant to Section 1.11 hereof,
certificates of deposit, and escrow or rental security deposits reflected on the
books and records of the Seller relating to the Branch, other than escrow or
rental security deposits relating to loans or other assets not assumed by the
Purchaser, (iii) all liabilities for unpaid interest accrued in accordance with
generally accepted accounting principles on any of the Deposit Liabilities
listed above together with the obligation to pay interest in respect of such
Deposit Liabilities from after the Effective Date, and (iv) all uncollected
items included in depositors' balances and credited on the books and records of
the Seller relating to the Branch subject to final collection; provided, that
the term "Deposit Liabilities" shall not include any deposit relating to a loan
originating at the Branch which is not transferred to the Purchaser pursuant to
this Agreement. The Deposit Liabilities shall have an aggregate value as of the
Effective Date as set forth on Schedule 6 hereto.
(d) The Purchaser shall obtain the benefit of and shall bear
the risk of all items (as defined herein) relating to the Deposit Liabilities
which are in transit as of the close of business on the Effective Date. As used
in this Agreement, the term "items" shall have the meaning ascribed thereto in
Article 4 of the New Jersey Uniform Commercial Code.
1.03 Purchase of Account Loans and Loans; Servicing Agreement;
Post Closing Adjustment.
(a) The Purchaser shall have the option to purchase on the
Effective Date certain loans reflected on the books and records of the Seller.
Such loans shall consist of: (i) loans of the Seller (whether or not reflected
on the books and records of the Seller as originating at the Branch) which are
secured by Deposit Liabilities maintained at the Branch and set forth on
Schedule 7 attached hereto; (ii) loans reflected on the books and records of the
Seller as originating at the Branch created by writing a check or similar
instrument on a deposit account maintained at the Branch with respect to which
the Seller has established a line of credit and creating an overdraft on such
deposit account and set forth on Schedule 7 (the loans referred to in clause (i)
and (ii) above are hereinafter collectively, the "Account Loans"); (iii) loans
which are more fully described on Schedule 8 attached hereto (the "Special
Loans"); and (iv) residential mortgages set forth on Schedule 8 (the "Mortgage
Loans") underwritten in accordance with FNMA/FHLMC credit guidelines which will
not, in any one case (A) have original principal amounts in excess of $400,000,
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(B) have loan to value ratios in excess of 80% unless covered by private
mortgage insurance, (C) as to fixed rate loans, have initial terms in excess of
15 years, or (D) be secured by real property located outside the State of New
Jersey (the Special Loans and the Mortgage Loans are collectively, the "Loans").
The Loans shall be transferred by the Seller to the Purchaser on a servicing
retained basis. The Seller or an affiliate of the Seller (in its capacity as
Servicer, the "Servicer") shall continue to service the Loans after the
Effective Date pursuant to a servicing agreement (the "Servicing Agreement") in
the form of Exhibit A attached hereto. If the Purchaser does not purchase any
Account Loan of the type set forth herein then the related Deposit Liabilities
will not be transferred to the Purchaser pursuant to this Agreement.
(b) The Real Estate and the Other Assets shall be sold and
transferred by the Seller and purchased by the Purchaser "as is" and without any
representation or warranty whatsoever. All Account Loans and Loans (and any
notes, other evidences of indebtedness or security instruments associated
therewith) transferred to the Purchaser on the Effective Date shall be
transferred "as is" and without recourse and without any warranties or
representations whatsoever except as expressly and specifically stated in
clauses (i), (ii) and (iii) of the third sentence of subsection 1.03(d) below.
The Seller hereby disclaims any representation and warranty in respect of the
Account Loans and the Loans regarding (i) the collectability thereof or the
creditworthiness of any obligor with respect thereto, or (ii) any insolvency
proceeding instituted in respect of any such obligor. The Purchaser hereby
confirms that the Account Loans and the Loans shall be purchased based upon the
Purchaser's independent credit analysis in respect thereof and a review of such
agreements, instruments and documents as the Purchaser deems necessary in order
to make its determination regarding such purchase.
(c) The purchase price for each Loan shall be an amount equal
to the unpaid principal balance of' and accrued and unpaid interest on, such
Loan as of the Effective Date adjusted to the market value of the Loans as of
the Effective Date. The purchase price for each Account Loan shall be an amount
equal to the unpaid principal balance of' and accrued and unpaid interest on,
such Account Loan as of the Effective Date. The aggregate purchase price for all
Account Loans and Loans as set forth in the final Schedules 7 and 8 referred to
in subsection 1.03 (d) below shall be paid by offsetting such aggregate purchase
price in the manner set forth in Section 1.04(c) below.
(d) Not later than five (5) days prior to the Effective Date,
the Seller shall deliver to the Purchaser a final Schedule 7 listing the Account
Loans, specifying the name of the depositor and the outstanding principal
balance of such Account Loan. Not later than five (5) days prior to the
Effective Date, the Seller shall deliver to Purchaser a final Schedule 8 listing
the Loans, specifying the borrower, the initial principal amount, the current
interest rate, the unpaid principal amount, the loan number, and whether the
interest rate is fixed or adjustable. The Seller warrants that (i) all Loans
listed in such final schedule will be existing loans, made by Seller or a
predecessor in interest of Seller, (ii) unless otherwise specified in such final
schedule, the Seller has not delivered or received any written notice of default
or any written notice that any borrower is asserting any defenses or
counterclaims with respect to such borrower's Loan, and (iii) the information
listed in such schedule will be true, complete and correct, including any
information necessary to make the information included therein not materially
misleading. The Seller will update such information at all times prior to the
Effective Date as necessary to keep the schedule from becoming materially
misleading as to any Loan or as to all the Loans in the aggregate. The values
set forth on the final Schedules 7 and 8 relating to the Account Loans and Loans
and delivered by the Seller to the Purchaser pursuant to this subsection 1.03(d)
shall be used for purposes of the Closing on the Effective Date. Adjustments to
such values in respect of the period of time between the date of the value set
forth on such final Schedules 7 or 8, as the case may be, and the Effective Date
including, without limitation, the adjustment of the Loans to market value as of
the Effective Date shall be made by the Seller and the Purchaser within ten (10)
days following the Effective Date. The net balance due to the Seller or the
Purchaser as a result of such adjustment and the prorata adjustments pursuant to
Section 1.09 hereof shall be made to the applicable party by wire transfer of
immediately available funds on the tenth (10th) day following the Effective
Date.
1.04 Obligations of the Seller on the Effective Date.
On the Effective Date, the Seller will:
(a) deliver to the Purchaser at the Branch such of the
assets purchased as shall be capable of physical delivery including, without
limitation, all keys to the Branch;
(b) execute and deliver to the Purchaser:
(i) a bill of sale substantially in the form attached hereto as Exhibit B (the
"Bill of Sale");
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(ii) a bargain and sale deed without covenant substantially ii' the form
attached hereto as Exhibit C (the "Deed");
(iii) a bulk assignment of the Loans substantially in the form attached
hereto as Exhibit D-1 (the "Bulk Assignment of Loans"), which shall also be
executed by the Purchaser, thereby evidencing its receipt of ownership of the
Loans;
(c) make available to the Purchaser cash in immediately
available funds equal to (x) the sum of (i) the aggregate value of the Deposit
Liabilities as of the Effective Date (net of cash on hand at the Branch at the
close of business on the Effective Date) plus (ii) the aggregate amount of
payments due to be paid in respect of the Operating Agreements to the extent
such payments relate to periods prior to the Effective Date less (y) the sum of
(i) the purchase price for the Account Loans and the Loans set forth in the
final Schedules 7 and 8 referred to in Section I .03 above, (ii) the aggregate
amount of prepaid expenses in respect of the Branch to the extent such
prepayments relate to periods after the Effective Date, (iii) the amount of
Federal Deposit Insurance Corporation ("FDIC") insurance premiums paid and
payable by the Seller in respect of the Deposit Liabilities to the extent such
premiums relate to periods including the Effective Date or any period of time
thereafter, and (iv) the amount allocable to the Furniture and Fixtures set
forth on Schedule 2;
(d) subject to the terms of the Servicing Agreement, assign
and deliver to the Servicer all documents and records held by the Seller with
respect to any Loan being acquired by the Purchaser including, but not limited
to (i) the original note endorsed in blank without recourse, (ii) the original
recorded mortgage, (iii) the original assignment of mortgage (a copy of which
shall be delivered to Purchaser), in blank, in the form of Exhibit D-2 annexed
hereto (in each case an "Assignment of Mortgage") suitable for recording but not
recorded, (iv) the original title insurance policy, and (v) the original
mortgage insurance certificate, if applicable;
(e) deliver to the Purchaser (by means of leaving such records
at the Branch) such of the following records pertaining to the Deposit
Liabilities to be assumed by the Purchaser as exist and are available (in the
form existing whether original documentation or microfilm reproduction), except
where the Purchaser waives expressly and in writing compliance with any document
delivery contemplated hereby:
(i) Signature cards, orders and contracts
between the Seller and Branch depositors relating to the Deposit Liabilities to
be assumed by the Purchaser pursuant hereto, and records of similar character;
(ii) Deposit slips and cancelled checks or
withdrawal orders representing charges to depositors;
(iii) Records of accounts;
(iv) The form of rules and regulations applicable
to the Branch and other documents of similar character relating to the Deposit
Liabilities to be assumed by the Purchaser hereunder; and, if the Purchaser
acquires any Account Loans, all files and records pertaining to such Account
Loans. The Purchaser shall, and shall require any successors or assigns or
purchasers to whom Purchaser may sell any of the assets or liabilities purchased
and assumed pursuant hereunder to, preserve and safely keep, for as long as may
be required by applicable law (but in no event less than the applicable statute
of limitations for any claim or suit which may be asserted or commenced in
respect of the assets and liabilities purchased and assumed hereunder), all of
the files, books of account, and records referred to in this subsection 1.04 (e)
and the Purchaser will permit the Seller and its representatives to inspect and
make extracts from or copies of' any such files, books of account, or records,
during regular business hours upon reasonable notice to the Purchaser, and at
the expense of the Seller, as shall be reasonably necessary to the Seller or its
counsel for purposes of their records.
(f) Notwithstanding the foregoing, the Seller shall retain
after the Effective Date all books and records relating to the Branch which, in
accordance with its normal banking practice, are not kept at the Branch together
with copies of documents delivered pursuant to subsection 1.04(e) above.
1.05 Operating Agreements.
(a) On the Effective Date, the Seller shall assign, transfer
and deliver to the Purchaser the Operating Agreements, except where the
Purchaser waives expressly and in writing compliance with any document delivery
contemplated hereby.
(b) The Purchaser shall assume and discharge, in the usual
course of banking business, the liabilities, duties and obligations of the
Seller, from and after the Effective Date, with respect to each of the Operating
Agreements, subject to the provisions of such Operating Agreements.
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1.06 Assignment and Assumption Agreement.
To evidence (i) the assignment by the Seller of all of its
right, title and interest in, to and under the Account Loans and the Operating
Agreements and any other agreements, instruments and documents evidencing the
Liabilities; and (ii) the assumption by the Purchaser of the Seller's
performance and payment obligations in respect of the Liabilities after the
Effective Date, the Seller and the Purchaser will execute, on the Effective
Date, an assignment and assumption agreement substantially in the form of
Exhibit E attached hereto (the "Assignment and Assumption Agreement").
1.07 Certain Transitional Matters.
Following the Effective Date:
(a) The Purchaser shall pay in accordance with law all
properly drawn and presented checks, drafts and withdrawal orders presented to
the Purchaser by mail, over its counters, through any check clearing house or
otherwise, by depositors whose Deposit Liabilities are assumed by the Purchaser,
whether drawn on the checks, withdrawal or draft forms provided by the Seller,
or by the Purchaser, and in all other respects to discharge, in the usual course
of the banking business, the duties and obligations of the Seller with respect
to the balances due and owing to the depositors whose Deposit Liabilities are
assumed by the Purchaser. The Purchaser's obligation to honor checks, withdrawal
or draft forms provided by the Seller and carrying its imprint and properly
presented to the Purchaser shall expire on the later of (i) the date upon which
the Purchaser may, under applicable law, refuse to pay such check, withdrawal or
draft; or (ii) the close of business on the 210th business day following the
Effective Date.
(b) The Seller shall cooperate with the Purchaser and take all
reasonable steps requested by the Purchaser to ensure that, with respect to
checks or drafts drawn against customer accounts included in Deposit Liabilities
assumed by Purchaser, each such item that is coded for presentment to the Seller
or to any bank for the account of the Seller is available for delivery to the
Purchaser's messenger at such time and place as the parties shall agree. The
Seller shall be under no obligation with respect to any such items after their
delivery.
(c) The Purchaser agrees, at its cost and expense, as soon as
reasonably possible after the Effective Date, but in no event more than thirty
(30) days thereafter, to notify depositors of the Purchaser's assumption of
their Deposit Liabilities and to furnish each depositor of an assumed Deposit
Liability with checks on the forms of the Purchaser, with instructions to
utilize the Purchaser's checks and to destroy unused checks of the Seller as of
the Effective Date. In addition, the Purchaser agrees to notify the FDIC of the
Purchaser's assumption of the Deposit Liabilities in the form and manner
specified in Part 307 of the FDIC's regulations (12 C.F.R. Part 307(1989)).
(d) The Purchaser agrees to pay to the Seller, not later than
the start of the fifth (5th) business day after demand by the Seller, an amount
equal to the amount of any uncollected item in respect of a Deposit Liability
assumed by Purchaser which is returned after the Effective Date as not
collected.
(e) If the balance due on any Account Loan purchased pursuant
hereto has been reduced by the Seller as a result of a payment of an item
received prior to the Effective Date, which item is returned after the Effective
Date as uncollected, the asset value represented by the Account Loan transferred
shall be correspondingly increased and an amount in cash equal to such increase
shall be paid by the Purchaser to the Seller after the Effective Date no later
than five (5) business days after demand therefor by the Seller.
(f) If the Seller receives after the Effective Date any
payment in respect of principal or interest on an Account Loan that has been
purchased by the Purchaser pursuant hereto, the Seller shall promptly (and in
any event within five (5) business days after receipt thereof) remit such
payment to the Purchaser.
1.08 Indemnification.
(a) The Seller shall indemnify, hold harmless and defend
Purchaser from and against all claims, losses, liabilities, demands and
obligations, including reasonable legal fees and expenses, real estate, sales
and use, social security and unemployment taxes and other taxes payable by the
Seller pursuant to Section 1.10 hereof and the tax filings referred to in
Section 5.09 hereof all accounts payable and operating expenses (including
salaries, rents, and utility charges) which Purchaser may receive, suffer or
incur as a result of or in connection with (i) any breach of the Seller's
covenants under this Agreement, or of any representation or warranty made by the
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Seller or any of its officers under this Agreement or in any certificate
delivered by the Seller or any of its officers to the Purchaser hereunder, (ii)
operations and transactions relating to the Branch and occurring prior to the
Effective Date, and (iii) any actions, suits or proceedings arising out of
operations at the Branch prior to the Effective Date. The Purchaser will give
the Seller written notice of a threatened or pending claim, action, suit or
proceeding within twenty (20) calendar days (except in the case where the
Purchaser's first notice is its receipt of (A) an order to show cause in which
case such time for giving notice shall be at least one (1) day prior to the
return date thereof' or (B) the summons and complaint commencing a legal action
in which case such notice shall be given promptly but in any event within ten
(10) days) of its learning about such threatened or pending claim, action, suit
or proceeding, together with a statement of facts known to it regarding such
threatened or pending claim, action, suit or proceeding. In connection with any
such third party claim, the Seller may, at its expense, select counsel
reasonably satisfactory to the Purchaser for the purpose of defending any such
third party claim. The Seller will be given the Purchaser's full cooperation and
assistance in maintaining the defense of such claim. The Seller shall not be
liable for any amounts in settlement of a claim, action, suit or proceeding as
described above if such settlement is effected without the Seller's written
consent, which consent shall not be unreasonably withheld. It is understood that
the obligations of the Seller under this subsection 1.08 (a) shall survive the
Effective Date.
(b) The Purchaser shall indemnify, hold harmless and defend
the Seller from and against all claims, losses, liabilities, demands and
obligations, including reasonable legal fees and expenses, real estate, sales
and use, social security and unemployment taxes and other taxes payable by the
Purchaser pursuant to Section 1.10 hereof and the tax filings referred to in
Section 5.09 hereof' all accounts payable and operating expenses (including
salaries, rents and utility charges) which the Seller may receive, suffer or
incur as a result of or in connection with (i) the failure of the Purchaser to
duly discharge (in accordance with all applicable leases, agreements, laws,
rules or regulations) the duties, liabilities and obligations of the Seller
assumed by the Purchaser pursuant to this Agreement, (ii) any breach of the
Purchaser's covenants under this Agreement, or of any representation or warranty
made by the Purchaser or any of its officers in this Agreement or in any
certificate delivered by the Purchaser or any of its officers to the Seller
hereunder, (iii) operations and transactions relating to the Branch and
occurring on or after the Effective Date and (iv) any actions, suits or
proceedings arising out of operations at the Branch on or after the Effective
Date. The Seller will give the Purchaser written notice of a threatened or
pending claim, action, suit or proceeding within twenty (20) calendar days
(except in the case where the Seller's first notice is its receipt of (A) an
order to show cause in which case such time for giving notice shall be a least
one (1) day prior to the return date thereof' or (B) the summons and complaint
commencing a legal action, in which case such notice shall be given promptly but
in any event within ten (10) days) of its learning about such threatened or
pending claim, action, suit or proceeding, together with a statement of facts
known to it regarding such threatened or pending claim, action, suit or
proceeding. In connection with any such third party claim, the Purchaser may, at
its expense, select counsel reasonably satisfactory to the Seller for the
purpose of defending any such third party claim. The Purchaser will be given the
Seller's full cooperation and assistance in maintaining the defense of such
claim. The Purchaser shall not be liable for any amounts in settlement of a
claim, action, suit or proceeding as described above if such settlement is
effected without the Purchaser's written consent, which consent shall not be
unreasonably withheld. It is understood that the obligations of the Purchaser
under this subsection 1.08 (b) shall survive the Effective Date.
1.09 Prorata Adjustment of Branch Expenses.
All rents, real property taxes, utility payments and similar
expenses relating to the Branch together with other expenses relating to the
Branch including, without limitation, FDIC insurance premiums at the rate paid
and payable by the Seller and all charges under Operating Agreements, shall be
prorated between the parties as of the close of business of the Branch on the
Effective Date.
1.10 Taxes.
(a) All transfer taxes imposed as a result of the sale of the
Real Estate shall be payable by the Seller. All sales/use taxes imposed as a
result of the sale of the Other Assets shall be payable by the Purchaser. Any
other excise taxes on Real Estate and Other Assets that are payable or arise as
a result of this Agreement or the consummation of the transactions contemplated
by this Agreement shall be shared equally by Purchaser and Seller, whether or
not such taxes are imposed, under applicable law, upon Purchaser or Seller.
(b) The Purchaser shall prepare and timely file all bulk sales
tax returns required in connection with the transactions contemplated hereunder
and shall pay all taxes due in connection therewith.
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(c) Commencing on the Effective Date and at all times
thereafter, the Purchaser shall comply with all reporting and withholding
requirements under applicable law in respect of interest on Deposit Liabilities
and the Seller shall have no further obligation or liability in respect thereof.
1.11 IRAs and Keogh Plans.
Within such period prior to the Effective Date as is required
by applicable law, regulation or contractual obligation, the Seller shall, at
its cost and expense, resign as trustee or custodian of each IRA and Keogh plan
to be acquired by the Purchaser for which plan the Seller serves as trustee or
custodian. The Seller shall use its best efforts to cause the Purchaser to be
appointed as successor trustee or custodian for each such IRA and Keogh Plan.
Any deposit under any IRA or Keogh plan for which the Purchaser is not appointed
successor trustee or custodian shall be excluded from the Deposit Liabilities.
1.12 Notices Regarding Operating Agreements.
The Seller shall give all notices and take all other
appropriate actions, including actions required by applicable law, in connection
with the Seller's assignment of and the Purchaser's assumption of the
Liabilities with respect to the Operating Agreements and such notice shall be
prepared in consultation with the Purchaser.
1.13 Consents to Transfer of Operating Agreements.
In connection with the transfer and assignment of the
Operating Agreements to the Purchaser, the Seller shall, to the extent required
by the applicable Operating Agreements, make its best efforts to obtain all
consents of third parties necessary to consummate the transactions contemplated
hereunder or to prevent a breach or default under any such Operating Agreements.
If the Seller is unable to obtain a required consent under any Operating
Agreement, the Seller shall cooperate with the Purchaser to obtain for the
Purchaser, at the Purchaser's cost, the benefits under such Operating Agreement,
including enforcement of any and all rights of the Seller against the other
party or parties thereto.
1.14 Notice to Branch Customers.
Subject to the imposition by the OCC or any other regulatory
agency of a shorter period of time within which the Closing must take place, at
least thirty (30) days prior to the Effective Date, all customers of the Branch
shall be notified of the transactions contemplated hereby to the extent
applicable to such customers; aided, that no such notice shall be given unless
both the Purchaser and the Seller shall consent to the text and timing of such
notice prior to its release.
1.15 ATM Machine.
On or prior to the Effective Date, the Seller shall have
installed at the Branch an automatic teller machine ("ATM Machine"). The ATM
Machine shall operate in a manner sufficient to permit Branch customers to
effect banking transactions similar to those effected by other automatic teller
machines owned and operated by the Seller, but Seller makes no warranty, and
shall have no obligation in respect of' the operation or condition of the ATM
Machine after the Effective Date.
ARTICLE II
REPRESENTATIONS. WARRANTIES AND COVENANTS OF THE SELLER
The Seller hereby represents, warrants and covenants to the Purchaser
as follows:
2.01 Corporate Organization and Powers.
The Seller was duly organized and is validly existing and in
good standing under the laws of the United States of America. The Seller has the
corporate power and authority to own its properties, to execute, deliver and
perform this Agreement and all other instruments and documents it is required to
execute hereunder, to effect the transactions contemplated hereby and carry on
its business as presently conducted. The Seller is a member of the Federal
Reserve System. The Seller's deposits are insured by the FDIC.
2.02 No Violation.
Neither the execution and delivery of this Agreement, nor the
consummation of this sale, will violate or conflict with, or constitute a
default under (i) the Articles of Association or Bylaws of the Seller, (ii) any
provision of any agreement or any other restriction of any kind to which the
Seller is a party or by which the Seller is bound or (iii) any statute, law,
decree, rule, regulation or order of any governmental authority once the
governmental consents referred to in this Agreement are obtained.
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2.03 Corporate Authority; Governmental Consents.
The execution and delivery of this Agreement, and the
consummation of the transactions contemplated by this Agreement, have been duly
authorized by the Executive Committee of the Board of Directors of the Seller.
No further corporate authorization on the part of the Seller, and no additional
corporate consent or approval is necessary to consummate the transactions
contemplated hereby. No consent, waiver, approval or other authorization of' or
registration, declaration or filing with, any court, governmental agency or
commission is required for the valid execution and delivery by the Seller of
this Agreement, or for the validity or enforceability of this Agreement against
the Seller or for the payment of any amounts by the Seller hereunder, other than
those that have been or will be applied for on or prior to the Effective Date.
2.04 Binding Effect; Enforceability.
This Agreement constitutes, and, upon its execution by the
Seller, each of the Bill of Sale, the Assignment and Assumption Agreement, the
Deed, the Bulk Assignment of Loans and the Assignments of Mortgage will
constitute, the legal, valid and binding obligations of the Seller, enforceable
against the Seller in accordance with their respective terms, except as such
enforceability maybe limited by judicial discretion, applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, relating to or affecting the enforcement of creditors' rights
generally, or by principles of equity.
2.05 Governmental Notices.
The Seller has not received notice from any federal or state
governmental agency indicating that it would oppose or not grant or issue any
consent or approval required with respect to the transactions contemplated by
this Agreement.
2.06 Finders or Brokers.
The Seller has not dealt with any broker, finder or other
intermediary in connection with this Agreement or the transactions contemplated
hereby.
2.07 Deposit Liabilities.
To the best of the Seller's knowledge (a) the amounts set
forth on Schedule 6 are the current balances in the accounts representing the
Deposit Liabilities; and (b) the existing signature cards relating to accounts
representing Deposit Liabilities reflect the current owners of such accounts.
2.08 Limitation of Warranties.
Except as may be expressly and specifically represented or
warranted in this Agreement by the Seller, the Seller makes no representations
or warranties whatsoever implied or otherwise with regard to any asset being
transferred to the Purchaser, or liability or obligation being assumed by the
Purchaser.
ARTICLE III
REPRESENTATIONS. WARRANTIES AND COVENANTS OF THE PURCHASER
The Purchaser hereby represents, warrants and covenants to the
Seller as follows:
3.01 Corporate Organization: Preferred Stock.
The Purchaser is a national bank duly organized, validly
existing and in good standing under the laws of the United States. The Purchaser
has the corporate power and authority to own its properties, to execute, deliver
and perform this Agreement and all other instruments and documents it is
required to execute hereunder, to effect the transaction contemplated hereby and
to carry on its business as presently conducted and as proposed to be conducted
at the Branch from and after the Effective Date. The Purchaser is a member of
the Federal Reserve System. The Purchaser's deposits are insured by the FDIC.
The Preferred Stock has been validly issued, is fully paid and non-assessable
and has the rights and preferences set forth in Schedule 4.
3.02 No Violation.
Neither the execution and delivery of this Agreement, nor the
consummation of this sale, will violate or conflict with, or constitute a
default under (i) the Charter or the By-laws of the Purchaser, (ii) any
provision of any agreement or any other restriction of any kind to which the
Purchaser is a party or by which the Purchaser is bound, or (iii) any statute,
law, decree, rule regulation or order of any governmental authority once the
governmental consents referred to in this Agreement are obtained.
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9
3.03 Corporate Authority; Governmental Consents.
The execution and delivery of this Agreement, and the
consummation of the transactions contemplated by this Agreement, have been duly
authorized by the Board of Directors and, in respect of the issuance of the
Preferred Stock and to the extent necessary, the Board of Directors and the
shareholders of the Issuer. No further corporate authorization on the part of
the Purchaser or the Issuer, and no additional corporate consent or approval is
necessary to consummate the transactions contemplated hereby. No consent,
waiver, approval or other authorization of' or registration, declaration or
filing with, any court, governmental agency or commission is required for the
valid execution and delivery by the Purchaser of this Agreement, or for the
validity or enforceability of this Agreement against the Purchaser or for the
payment of any amounts by the Purchaser hereunder, other than those that have
been or will be applied for on or prior to the Effective Date.
3.04 Binding Effect; Enforceability.
This Agreement constitutes, and, upon its execution by the
Purchaser, the Assignment and Assumption Agreement and the Bulk Assignment of
Loans will constitute, the legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their respective
terms, except as such enforceability may be limited by judicial discretion,
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, relating to or affecting the enforcement of
creditors' rights generally, or by principles of equity.
3.05 Governmental Notices.
The Purchaser has not received notice from any federal or
state governmental agency indicating that it would oppose or not grant or issue
any consent or approval required with respect to the transactions contemplated
by this Agreement.
3.06 Finders or Brokers.
The Purchaser has not dealt with any broker, finder or other
intermediary in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE EFFECTIVE DATE
Pending the Effective Date, and except as otherwise consented
to by the Purchaser:
4.01 Continuation of Business; Compliance with Law.
The Seller will carry on the business of the Branch in the
ordinary course of the business as conducted as of the date hereof except for
activities or transactions contemplated by this Agreement and will comply in all
respects with laws pertaining to the business and operation of the Branch.
ARTICLE V
CLOSING OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE DATE
5.01 Time and Place of Closing.
The closing of the purchase and assumption contemplated by
this Agreement shall take place at 10:00 A.M. on the Effective Date at the
offices of the Seller at 10 Exchange Place Centre, Jersey City, New Jersey.
Notwithstanding the actual time of closing, the purchase, sale, assignments,
assumptions and transfers made at closing shall be effective as of the close of
business of the Branch on the Effective Date.
5.02 Full Access.
Prior to the Effective Date, the Seller shall afford to the
officers and authorized representatives of the Purchaser during normal business
hours and upon reasonable notice, reasonable access to the Branch and to the
properties, books and records pertaining to the Branch, and shall permit the
Purchaser to make, at the sole cost and expense of the Purchaser, extracts from
and copies of such books and records, and the officers of the Seller will
furnish the Purchaser with such additional financial and operating data and
other information as to its business and properties at the Branch as the
Purchaser shall from time to time reasonably request and as shall be available,
including, without limitation, information required for inclusion in all
governmental applications necessary to effect the transactions contemplated by
this Agreement. Nothing in this Section 5.02 shall be deemed to require the
Seller to breach any obligation of confidentiality. The Purchaser shall treat
all information so obtained by it as confidential in accordance with Section
10.01 hereof.
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5.03 Requirements of Regulatory Authorities.
The Seller shall cooperate with the Purchaser in all
reasonable respects in obtaining the regulatory approvals necessary to effect
the transactions contemplated by this Agreement and to notify any regulatory
authorities of such transactions, to the extent the Seller is required to do so.
5.04 Application for Approval to Effect Purchase of
Assets and Assumption of Liabilities and to Operate Branch.
The Purchaser shall prepare and file, with the assistance of
the Seller, as soon as practicable (but not later than 30 days following the
date of this Agreement) all applications required by law or regulation with the
appropriate Federal and/or State regulatory authorities for approval to effect
the transactions contemplated by this Agreement, and the parties hereto shall,
if required by applicable statute or regulation, publish appropriate notice of
such transaction. The parties agree to use their good faith efforts to obtain
such approval and the Purchaser further agrees to pursue the application in a
diligent manner and on a priority basis. The Purchaser agrees that it shall pay
the regulatory authority application fees, if any. The Purchaser shall (i)
furnish to the Seller a copy of the public portion of each application proposed
to be filed by the Purchaser with any Federal or State regulatory authority in
connection with this Agreement or the consummation of the transactions
contemplated hereby, and a copy of any portion of such application which relates
to or contains information obtained from the Seller, (ii) notify the Seller,
promptly after it files each application or notice required by law or regulation
for the consummation of the transactions contemplated hereby, of the date of
such filing and (iii) furnish to the Seller, promptly after receipt thereof by
the Purchaser, a copy of each regulatory consent or approval required for the
consummation of the transactions contemplated hereby.
5.05 No Use of Seller's Name; Change of Name at the Branch.
From and after the Effective Date, the Purchaser shall not use
any name, trademark, trade name, service mark, logo or symbol of the Seller and,
to the extent not previously effected by the Seller, the Purchaser shall
promptly change all signs and other identifying names, logos and marks on all
facilities relating to the Branch to reflect its transfer to the Purchaser and
shall discontinue the use of documents and instruments (including checks)
bearing the name of the Seller. It is understood and agreed that the Seller is
not transferring to the Purchaser any right, title or interest in or to, or any
right or license to use, any name, trademark, trade name, service mark, logo or
symbol of the Seller.
5.06 Further Assurances; Payment of Title and Real Estate Transfer
Costs.
Each party hereby agrees to execute and deliver such
instruments and take such other actions as the other party may reasonably
request in order to carry out the transactions contemplated by this Agreement.
The Purchaser shall be responsible for the cost of examining title to and
surveys of the Real Estate transferred to the Purchaser pursuant hereto and of
recording any real estate documents delivered by the Seller pursuant hereto, and
any other costs or expenses related to any of the foregoing.
5.07 Right to Intervene.
In the event that any litigation is instituted against the
Purchaser under or in connection with this Agreement, the Seller shall have the
right at its sole and absolute discretion to intervene in such litigation and
the Purchaser does hereby consent to such intervention.
5.08 Retained Assets.
The Seller shall remove from the Branch within ten (10) days
after the Effective Date, all of the assets of the Seller not sold by it to the
Purchaser pursuant hereto, and the Purchaser shall allow the Seller reasonable
access to the Branch to allow such assets to be removed.
5.09 Tax Allocation.
For federal income tax purposes, Purchaser and Seller shall report the
transactions contemplated by this Agreement in a manner consistent with the
Internal Revenue Code of 1986, as amended or superseded. The Purchaser and the
Seller each shall prepare and timely file all Internal Revenue Service forms and
all requisite state and local forms required to be filed by either or both of
them with respect to the purchase and assumption under this Agreement.
5.10 [Intentionally Omitted].
ARTICLE VI
CONDITIONS TO PURCHASER'S OBLIGATIONS
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Each and every obligation of the Purchaser under this
Agreement to be performed on or before the Effective Date shall be subject to
the satisfaction, not later than the Effective Date, of the following
conditions:
6.01 Representations and Warranties True; Obligations Performed.
(a) The representations and warranties made by the Seller in
this Agreement shall be true at and as of the Effective Date as though such
representations and warranties were made at and as of such time, except for any
changes permitted by the terms hereof or consented to by the Purchaser.
(b) The Seller shall have performed and complied with all
obligations and agreements required by this Agreement to be performed or
complied with by it on or before the Effective Date.
(c) The Seller shall have delivered to the Purchaser a
certificate of a Senior Vice President, dated the Effective Date, certifying to
the fulfillment of all of the foregoing conditions, which certificate shall be
substantially in the form of Exhibit F- 1 annexed hereto.
(d) On the Effective Date, the heating, plumbing, air
conditioning and electrical systems at the Branch will be in as good operating
condition as they were on the date of this Agreement, reasonable wear and tear
excepted. The Purchaser has the right to inspect such systems within 30 days
prior to the Effective Date to determine their condition; provided, that, Seller
shall bear no responsibility for any repairs deemed necessary by the Purchaser
as a result of such inspection.
(e) The Purchaser shall have received from the appropriate
regulatory authorities unconditional approval (i) of this transaction and (ii)
to operate the Branch. For purposes of this subparagraph, "unconditional
approval" shall mean an approval which does not require divestiture or cessation
of any current operation or business of Purchaser or impose any other condition
or requirement which divestiture, condition or requirement the Purchaser, in its
reasonable judgment, considers to be materially burdensome.
6.02 Transfer Documents; Payment of Net Consideration.
The Seller shall have executed and delivered to the Purchaser
the Bill of Sale, the Assignment and Assumption Agreement, the Deed, the Bulk
Assignment of Loans and the Assignments of Mortgage and shall have made
available to the Purchaser the Repairs Cash together with cash in immediately
available funds in the amount determined pursuant to Section 1.04(c) hereof.
6.03 Evidence of Corporate Action; Status Certificate.
The Purchaser shall have received copies of all resolutions
adopted by the executive committee of the Seller's board of directors
authorizing this Agreement and the transactions contemplated hereby, duly
certified by the Seller's Secretary as of the Effective Date together with a
status certificate relating to the Seller issued by the OCC and dated within 7
days prior to the Effective Date.
6.04 Opinion of Seller's Counsel.
The Seller shall have delivered to the Purchaser the opinion
of Seller's counsel (which may be in-house counsel) in the form of Exhibit F-2
annexed hereto.
ARTICLE VII
CONDITIONS TO THE SELLER'S OBLIGATIONS
Each and every obligation of the Seller under this Agreement
to be performed on or before the Effective Date shall be subject to the
satisfaction, not later than the Effective Date, of the following conditions:
7.01 Representations and Warranties True; Obligations Performed.
(a) The representations and warranties made by the Purchaser
in this Agreement shall be true at and as of the Effective Date as though such
representations and warranties were made at and as of such time, except for any
changes permitted by the terms hereof or consented to by the Seller.
(b) The Purchaser shall have performed and complied with all
obligations and agreements required by this Agreement to be performed or
complied with by it on or before the Effective Date.
(c) The Purchaser shall have delivered to the Seller a
certificate of its President or a Senior Vice President, dated the Effective
Date, certifying to the fulfillment of both of the foregoing conditions, which
certificate shall be substantially in the form of Exhibit G-l annexed hereto.
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7.02 Assignment and Assumption Agreement; Bulk Assignment of Loans.
The Purchaser shall have executed and delivered to the Seller
the Assignment and Assumption Agreement and the Bulk Assignment of Loans.
7.03 Evidence of Corporate Action: Status Certificate.
The Seller shall have received copies of all resolutions
adopted by the Purchaser's board of directors in connection with this Agreement
and the Issuer's board of directors and, if applicable, shareholders in
connection with the issuance of the Preferred Stock, each duly certified by the
applicable entity's Secretary as of the Effective Date together with a status
certificate relating to the Purchaser issued by the OCC, and a good standing
certificate issued by the New Jersey Secretary of State relating to the Issuer,
each dated within 7 days prior to the Effective Date.
7.04 Opinion of Purchaser's Counsel.
The Purchaser shall have delivered to the Seller the opinion
of Purchaser's counsel in the form of Exhibit G-2 annexed hereto.
ARTICLE VIII
CONDITIONS TO SELLER'S AND PURCHASER'S OBLIGATIONS
Each and every obligation of the parties under this Agreement
to be performed on or before the Effective Date shall be subject to the
satisfaction, on or before the Effective Date, of the following conditions:
8.01 Approval of Governmental Authorities.
All required licenses, approvals, orders, notices and consents
of any relevant state or federal regulatory authorities shall have been obtained
and all necessary conditions, including the consent of the State of New Jersey
Division of Taxation in respect of the Purchaser's bulk sales tax filing made
pursuant to Section 1.l0 hereof and all other legally required waiting or
protest periods, relating to such licenses, approvals, orders, notices, and
consents shall have been fully satisfied.
8.02 Absence of Litigation.
On the Effective Date, no action, suit or proceeding shall be
pending or threatened (i) against the Seller or the Purchaser which, if
adversely determined, would materially and adversely affect the business of the
Branch or (ii) against either party which, if adversely determined, would
materially and adversely affect this transaction.
ARTICLE IX
TERMINATION
9.01 Methods of Termination. This Agreement may be terminated:
(a) At any time prior to the Effective Date by the mutual
agreement of the Purchaser and the Seller; or
(b) On or prior to the Effective Date (i) by the Purchaser if
any of the conditions provided for in Article VI of this Agreement shall not
have been satisfied or waived in writing by the Purchaser or (ii) by the Seller
if any of the conditions provided for in Article VII of this Agreement shall not
have been satisfied or waived in writing by the Seller or (iii) by either party
if any of the conditions provided for in Article VIII shall not have been
satisfied or waived in writing by both parties.
In the event of termination of the Agreement by either party
pursuant to this Section 9.01, written notice thereof shall forthwith be given
to the other party, and this Agreement shall terminate immediately upon receipt
of such notice, unless an extension is consented to by the party or parties
having the right to terminate.
9.02 Automatic Termination.
Unless otherwise agreed by the Purchaser and the Seller, if
the purchase, sale and assumption contemplated hereby is not consummated on or
prior to March 29, 1996, this Agreement shall terminate, and the purchase, sale,
and assumption contemplated hereby shall be abandoned, automatically and without
action on the part of either party, on such date.
9.03 Procedure Upon Termination; Effect of Termination.
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(a) If this Agreement is terminated as provided in Section
9.01 or 9.02 hereof' each party will redeliver all documents, work papers and
other materials of the other party relating to this transaction, whether
obtained before or after the execution hereof' to the party which furnished the
same.
(b) No termination of this Agreement under this Article IX
shall release either party hereto from any liability to, or obligation to
indemnify, the other party hereto arising out of' in connection with, or
otherwise relating to, directly or indirectly, such party's breach or default of
such party's covenants, agreements, duties or obligations hereunder.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.01 Confidentiality.
Until the Effective Date, and if for any reason the sale
contemplated hereby is not effected, then at all times thereafter, each of the
parties will, and will cause its respective agents and representatives to, keep
confidential, and will not use for any purpose except presentment to its Board
of Directors, any and all information ("Information") furnished to it by the
other party heretofore or in the course of negotiations. In the event that a
closing under this Agreement does not take place, each of the parties will, upon
the written request of the other party return to such requesting party, or
destroy (and, if requested, certify destruction of), all information in whatever
form, including computer memory, and any documents, instruments, work papers and
other materials (and all copies thereof) containing Information submitted by
such requesting party or any of its agents or representatives to the other party
or any of its agents or representatives, except Information which has been made
part of the minutes of its Board of Directors or committees thereof.
However, nothing herein shall preclude either party from
disclosing any Information: (i) that is in the public domain at the time of such
party's receipt thereof other than as a result of such party's dissemination
thereof in violation of the terms hereof and which is free of any obligations of
confidentiality; (ii) that such party has acquired otherwise than from the other
party, its agents or representatives and which is received free of any
obligations of confidentiality; (iii) in connection with seeking required
regulatory approvals; or (iv) if required by law; provided, however, that in the
event that either party or their respective agents or representatives become
legally compelled (by any regulatory authority, deposition, interrogatory,
request for documents, subpoena, civil investigation demand, or similar process
or legal requirement) to disclose any of the Information, such party will
provide the other party with prior written notice of such requirement so that
the other party may seek a protection order or other appropriate remedy and/or
waive compliance with the provisions hereof. In the event that such protective
order or other remedy is not obtained, or that the other party waives compliance
with the provisions hereof' such party will furnish only that portion of the
Information that such party is advised by counsel is legally required and such
party will exercise its best efforts to obtain a reliable assurance that
confidential treatment will be afforded such Information.
10.02 Hiring of Employees.
(a) The Purchaser shall offer employment to all employees of
the Seller in good standing at the Branch other than those identified as
excluded employees in Schedule 9 attached hereto (the "Excluded Employees"), if
any, on substantially the same terms and conditions of their current employment
including eligibility and coverage under employee benefit plans. The Seller will
not change the position and/or compensation of any Branch employee who is not an
Excluded Employee prior to the Effective Date, other than ordinary scheduled
salary increases. Employment by the Purchaser of the employees hired by the
Purchaser (in each case, an "Acquired Employee") will commence upon the close of
business at the Branch on the Effective Date. Termination by the Seller of the
Acquired Employees will be effective at the close of business at the Branch on
the Effective Date. The Purchaser will not discharge any of the Acquired
Employees for three (3) months after the Effective Date, except for cause.
(b) All accruals under the Seller's retirement plan and
contributions under the Seller's savings plan in respect of Acquired Employees
shall cease as of the close of business on the Effective Date for obligations
which had accrued prior to the Effective Date. On the Effective Date, the Seller
shall discontinue participation of the Acquired Employees in such plans. The
Purchaser shall cause its tax-qualified employee benefit plans to be amended to
provide that, in the case of an Acquired Employee, service for all periods of
employment with the Seller (or any affiliate thereof or with other entities as
provided under such plan) shall be credited for purposes of determining
eligibility to participate and vesting and benefit entitlement (but not for
purposes of benefit accruals) for purposes of such plans. The Purchaser and
Seller agree to cause the transfer of assets and liabilities attributable to the
Acquired Employees under the Seller's savings plan to the Purchaser's savings
plan, as soon as practicable following the Effective Date.
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(c) The Acquired Employees shall cease to be participants in
all of the Seller's other benefit plans as of the Effective Date except as
otherwise provided in this Section 10.2(c). On the Effective Date, the Seller
shall discontinue such participation. Except as may be required by applicable
law, from and after the Effective Date, the Seller (a) shall have no
responsibility to, and shall not, provide any benefits or coverage to Acquired
Employees, or their dependents, under any Seller's benefit plan and (b) shall
have no responsibility for, and shall not process, any claims filed under the
Seller's benefit plan by the Acquired Employees, or their dependents, with
respect to matters or events occurring after the Effective Date. The Seller
shall be responsible for all, and the Purchaser shall have no obligation or
liability for any, claims filed by Acquired Employees under the Seller's benefit
plans with respect to events occurring prior to the Effective Date. The Acquired
Employees shall become participants in the Purchaser's benefit plans on the
Effective Date and the Purchaser shall make all amendments necessary to provide
for such participants. Except as may be required by applicable law, the
Purchaser shall (a) waive any eligibility requirements based on length of
service for coverage under the Purchaser's benefit plans, and (b) waive or
eliminate any pre-existing condition provision or limitation in any of the
Purchaser's medical or major medical plan covering the Acquired Employees.
(d) If an Acquired Employee's employment with the Purchaser is
involuntarily terminated after the Effective Date other than for cause, the
Purchaser shall pay such individual an amount of severance pay equal to
severance pay such Acquired Employee would have received under the severance pay
policies, plans or arrangements maintained by the Seller for all of its
employees as if the Acquired Employee had been involuntarily terminated
immediately prior to the Effective Date.
(e) The Purchaser shall credit each Acquired Employee with the
period of employment with the Seller for purposes of determining the annual
vacation leave of such Acquired Employee after the Effective Date. The Purchaser
shall give each Acquired Employee credit for the employee's accrued vacation as
of the Effective Date and shall permit the Acquired Employee to take any
vacation as scheduled with the Seller, except that the Purchaser may reschedule
any such vacation if necessary for the convenience of the Purchaser's business.
(f) Notwithstanding anything in this Agreement to the contrary
(a) the Seller and the Purchaser shall retain the right to amend in any respect
or to terminate in whole or in part any of their benefit plans in accordance
with the provisions of such plans and applicable law; provided, however, that
such amendments shall not deprive the Acquired Employees of the benefits
afforded under the provisions of Sections 10.02 (b) and (c) hereof' (b) nothing
contained in this Agreement shall obligate or commit the Seller or the Purchaser
to continue any benefit plan with respect to services performed after the
Effective Date or to maintain in effect any such plan, or any similar plan or
any level or type of benefits, (c) the representations, warranties and
undertakings contained in this Agreement shall be binding solely on the parties
to this Agreement, and no other persons shall have any third party beneficiary
or other right hereunder, (d) in the event that the Closing does not take place
or this Agreement is terminated or rescinded, the rights and benefits of the
Acquired Employees under all benefit plans of the Seller shall not be affected
in any degree by this Agreement, and the nonforfeitable interest of the Acquired
Employees in benefits under the Seller's retirement plan and the Seller's
savings plan shall be governed by such plans.
(g) For a period of twenty-four (24) months following the
Effective Date, the Purchaser shall not, and shall use its best efforts to cause
its affiliates not to, directly solicit or seek to employ any Excluded Employee;
aided, however, that nothing herein contained shall prohibit the Purchaser or
any of its affiliates from advertising generally any employment opportunities or
from hiring any persons who respond to such general advertising or who otherwise
seek employment without inducement from the Purchaser or its affiliates.
10.03 Amendment and Modification; Entire Agreement.
This Agreement may be amended or modified only by a written
instrument signed by all the parties hereto. This Agreement constitutes the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions of the parties in connection therewith not referred
to herein including, without limitation, the letter of intent dated December 10,
1993 between the Purchaser and the Seller.
10.04 Successors and Assigns.
This Agreement and all of the provisions hereof shall be
binding upon, and inure to the benefit of' the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either of
the parties hereto without the prior written consent of the other party hereto.
10.05 Counterparts.
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This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.06 Headings.
The headings of the Sections and Articles of this Agreement
arc inserted for convenience only and shall not constitute a part hereof.
10.07 Waiver.
Any condition to a party's obligations hereunder may be waived by such party,
but such waiver shall be effective only if in writing and signed by an
authorized officer of such party. No waiver of any provision of this Agreement
shall be deemed to constitute a waiver of any other provision hereof or any
subsequent breach or default (whether or not similar) nor shall any such waiver
constitute a continuing waiver.
10.08 Payment of Expenses.
Each party hereto shall pay its own expenses and costs in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, except
as stated otherwise herein. Notwithstanding the foregoing, any expenses, fees,
and costs necessary for any approvals of the appropriate Federal and/or State
regulatory authorities or for any notice to depositors or other customers of the
Branch of the assumption by the Purchaser of the Deposit Liabilities and other
duties, liabilities and obligations of the Seller provided for in this Agreement
(other than approvals or notices required by applicable laws, regulations or
regulatory authorities to be obtained or given by the Seller) shall be paid by
the Purchaser.
10.09 CHOICE OF LAW; JURISDICTION; CONSENT TO ARBITRATION.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF NEW JERSEY APPLICABLE TO
AGREEMENTS ENTERED INTO THEREIN WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF.
(b) (i) SUBJECT TO THE PROVISIONS OF SUBSECTION 10.09(b)(ii)
BELOW, EITHER PARTY HERETO MAY SEEK TO ENFORCE ANY RIGHT HEREUNDER OR SEEK
DAMAGES AGAINST THE OTHER PARTY BY REASON OF ANY BREACH OF THIS AGREEMENT OR ANY
MATTER OR THING RELATING THERETO BY COMMENCING A CIVIL ACTION AT LAW OR IN
EQUITY. IN THE EVENT OF SUCH LITIGATION OR SUCH ACTION THE PARTIES HERETO
EXPRESSLY AND IRREVOCABLY CONSENT TO PERSONAL JURISDICTION OF ANY COURT OF THE
STATE OF NEW JERSEY.
(ii) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SUBSECTION
10.09(b)(i) ABOVE, THE PARTIES MAY, SOLELY UPON JOINT WRITTEN CONSENT, AGREE TO
SUBMIT ANY CLAIM HEREUNDER TO, AND THEREBY COMMENCE, BINDING ARBITRATION BEFORE
A THREE ARBITRATOR PANEL PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION
ASSOCIATION (THE "AAA"). EACH PARTY HERETO SHALL SELECT ONE ARBITRATOR. THE
THIRD ARBITRATOR SHALL BE SELECTED BY THE JOINT AGREEMENT OF SELLER AND
PURCHASER. IF THE SELLER AND PURCHASER HAVE NOT SELECTED A THIRD ARBITRATOR WHO
IS MUTUALLY ACCEPTABLE WITHIN TEN (10) DAYS AFTER THE DATE OF SUCH JOINT WRITTEN
CONSENT, THE THIRD ARBITRATOR SHALL BE SELECTED BY THE AAA. UPON CONFIRMATION
AND ENTRY OF JUDGMENT, ANY AWARD RENDERED BY THE ARBITRATORS SHALL BE CONCLUSIVE
AND BINDING UPON THE PARTIES HERETO; PROVIDED, HOWEVER, THAT ANY SUCH AWARD
SHALL BE ACCOMPANIED BY A WRITTEN OPINION OF THE ARBITRATORS GIVING THE SPECIFIC
FACTUAL AND LEGAL REASONS FOR THE AWARD. THIS PROVISION FOR ARBITRATION SHALL BE
SPECIFICALLY ENFORCEABLE BY THE PARTIES AND THE DECISION OF THE ARBITRATORS IN
ACCORDANCE HEREWITH SHALL BE FINAL AND BINDING AND THERE SHALL BE NO RIGHT OF
APPEAL THEREFROM. EACH PARTY SHALL PAY ITS OWN EXPENSES OF ARBITRATION AND THE
EXPENSES OF THE ARBITRATORS SHALL BE EQUALLY SHARED; PROVIDED, HOWEVER, THAT IF
IN THE OPINION OF THE ARBITRATORS ANY CLAIM FOR INDEMNIFICATION OR ANY DEFENSE
OR OBJECTION THERETO WAS UNREASONABLE, THE ARBITRATORS MAY ASSESS, AS PART OF
THEIR AWARD, ALL OR ANY PART OF THE ARBITRATION EXPENSES OF THE OTHER PARTY
(INCLUDING REASONABLE ATTORNEYS' FEES) AND OF THE ARBITRATOR AGAINST THE PARTY
RAISING SUCH UNREASONABLE CLAIM, DEFENSE OR OBJECTION. SHOULD THE PARTIES FAIL
TO CONSENT TO ARBITRATION, THE PROVISIONS OF 10.09(b)(i) ABOVE SHALL GOVERN.
10.10 Addresses for Notice etc.
All notices, requests, demands and other communications
provided for hereunder and under the related documents shall be in writing
(including telecopies and telegraphic communications) and mailed (by registered
or certified mail, return receipt requested), telecommunicated, telegraphed or
delivered to the applicable party at its address indicated below:
If to the Seller:
<PAGE>
16
Mr. Lawrence Nicholls
Senior Vice President
NatWest Bank N.A.
10 Exchange Place
Jersey City, New Jersey 07302
With a copy to:
Kenneth L. Spangler, Esq.
Senior Vice President - Law
National Westminster Bancorp Inc.
10 Exchange Place
Jersey City, New Jersey 07302
if to the Purchaser:
Louis E. Prezeau
President and Chief Executive Officer
City National Bank of New Jersey
900 Broad Street
Newark, New Jersey 07102
with a copy to:
Lee Albanese, Esq.
Robinson, St. John & Wayne
2 Penn Plaza East
Newark, New Jersey 07108
or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party complying as to
delivery with the terms of this Section. Any notice, request, demand or
other communication given pursuant to the provisions of this Agreement
shall be deemed to have a delivered by hand, on the date actually
delivered, if sent by mail, three days after being deposited in the
mail, postage prepaid, and, if telecommunicated or telegraphed, when
sent.
10.11 No Third Party Beneficiaries.
Each party hereto intends that this Agreement shall not
benefit or create any right or action in or on behalf of any person or entity
other than the parties hereto.
10.12 Public Announcements.
All releases and statements to the press and/or media
concerning this Agreement ant transaction and the financial terms contemplated
hereby, shall be subject to the prior written the Seller and the Purchaser,
except as may be required by applicable law, rule or regulation.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers as of the date
first written above.
NATWEST BANK N.A.
By:________________________________
Name:
Title:
CITY NATIONAL BANK OF NEW JERSEY
By:________________________________
Title:
EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Cith National Bancshares Corporation
Computation of Earnings Per Common Share on a
Primary & Fully Diluted Basis
In thousands, except per share data
December 31,
1995 1994
Net Income
Net Income applicable to primary
common shares ................................. $ 802 $ 1,724
Interest expense on convertible
subordinated debentures, net of .............. 13 13
income tax
Net income applicable to fully
diluted common shares ........................ 815 1,737
Number of average shares
Primary .......................................... 111,141 111,141
Fully diluted:
Average common shares
outstanding ................................ 111,141 111,141
Average convertible
subordinated ............................... 13,850 13,850
debentures converted to
common shares .............................. 124,991 124,991
Net income per share
Primary .......................................... $ 7.23 $ 15.51
Fully diluted .................................... 6.52 13.90
CITY NATIONAL BANCSHARES CORPORATION
900 Broad Street
Newark, New Jersey 07102
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on Thursday, May 23, 1996
Notice is hereby given that the Annual Meeting (the "Meeting") of Stockholders
of City National Bancshares Corporation (the "Corporation") will be held at City
National Bank of New Jersey (the "Bank"), located at 900 Broad Street, Newark,
New Jersey, on Thursday, May 23, 1996, at 6:00 p.m. for the purpose of
considering and voting upon the following matters:
(1) The election of three directors named in the accompanying
Proxy Statement to serve as directors until their successors
are elected and qualified.
(2) Ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending December 31,
1996.
(3) Such other business as shall properly come before the Meeting,
or any adjournments thereof.
Stockholders of record at the close of business on April 16, 1996 are entitled
to notice of and to vote at the meeting. Each share of such stock is entitled to
one vote. Whether or not you will attend the Meeting, it is suggested that you
execute and return the enclosed proxy to the Corporation. You may revoke your
proxy at any time prior to the exercise of the proxy by delivering to the
Corporation a later dated proxy or by delivering a written notice of revocation
to the Corporation prior to or at the meeting.
For a period of 10 days prior to the meeting, a stockholders' list will be kept
at the Corporation's principal office and shall be available for inspection by
stockholders during normal business hours. A stockholder list shall be present
and available for inspection at the Meeting.
The Corporation's Proxy Statement and its 1995 Annual Report to Stockholders
accompany this Notice.
By order of the Board of Directors
Lemar C. Whigham
Newark, New Jersey Secretary
April 23, 1996
<PAGE>
1
PROXY STATEMENT
CITY NATIONAL BANCSHARES CORPORATION
900 Broad Street
Newark, NJ 07102
SOLICITATION OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of Directors
of City National Bancshares Corporation (the "Corporation") for use at the
Annual Meeting (the "Meeting") of Stockholders to be held on Thursday, May 23,
1996, at 6:00 p.m., at City National Bank of New Jersey, located at 900 Broad
Street, Newark, New Jersey or at any adjournment thereof.
Voting and revocability of proxy
A form of proxy is enclosed for use at the meeting if a stockholder is unable to
attend in person. Each proxy may be revoked at any time before its exercise by
giving written notice to the Secretary of the Corporation. A subsequently dated
proxy will, if properly presented, revoke a prior proxy. Any stockholder may
attend the meeting and vote in person whether or not a proxy has previously been
turned in. Where a choice or abstention is specified in the form of proxy with
respect to a matter being voted upon, the shares represented by proxy will be
voted in accordance with such specification. If a proxy is signed but no
specification is given, the shares will be voted for the director nominees named
herein and in favor of the proposals set forth in the Notice of Annual Meeting
of Stockholders.
Only holders of record of the Corporation's common stock at the close of
business on April 16, 1996 (the "Record Date"), are entitled to notice of, and
to vote at, the Annual Meeting. At the close of business on the Record Date,
there were outstanding and entitled to vote, 111,141 shares of common stock,
each of which is entitled to one vote. A majority of the outstanding shares of
common stock will constitute a quorum for the purposes of the Meeting.
For purposes of counting votes, abstentions will be treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum, but as unvoted for purposes of determining the approval of this proposal
by the stockholders. If a broker or nominee indicates that it does not have
discretionary authority to vote on this Proposal as to certain shares, those
shares will be counted for general quorum purposes but will not be considered as
present and entitled to vote with respect to this proposal.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information with respect to each person
known to the Corporation, to be a beneficial owner of more than five percent of
the Corporation's common stock as of March 15, 1996.
Name and Address of Number of Percentage of Total
Beneficial Owner Shares Shares Outstanding
- -------------------------------------------------------------------------------
Louis E. Prezeau 10,020(1) 8.78%
85-27 Edgerton Blvd.
Jamaica Estates, NY 11432
Carolyn Whigham 8,485 7.63
580 Martin Luther King Blvd.
Newark, NJ 07102
Lemar C. Whigham 8,172 7.35
34 Mountain Way
West Orange, NJ 07052
United Negro College Fund, Inc. 6,800 6.12
500 East 62nd Street
New York, NY 10021
Eugene Giscombe 6,500 5.85
1825 Park Avenue
New York, NY 10035
(1) Includes unexercised stock options to acquire 3,000 shares of common stock
and 540 shares held by his sons, 40 shares held by his daughter and 100
shares held by his wife.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Corporation is divided into three classes of
approximately equal size. Directors are elected for three-year terms on a
staggered basis, so that the term of office of one class will expire each year
at the Annual Meeting of Stockholders when a successor is elected and qualified
and the terms of office of the other classes will extend for additional periods
of one and two years, respectively.
<PAGE>
2
Vote Required
The affirmative vote of the holders of a plurality of the shares of common stock
of the Corporation, present in person or by proxy, and entitled to vote at the
Meeting is required to elect the directors.
Stockholders will elect three directors at the Meeting to serve until the 1999
Annual Meeting of Stockholders. The table below identifies the three nominees as
well as the other directors whose terms of the office extend as indicated. It is
intended that the proxies will be voted for the aforementioned nominees, or if
any of these nominees is unable or declines to serve as director at the time of
election, for any substitute nominee selected by the Board of Directors of the
Corporation. The Board has no reason to believe that any of the nominees will be
unable or unwilling to serve if elected.
Information is presented below as of March 12, 1996, as to age, business
experience, the number of shares of City National Bancshares Corporation
beneficially owned and the period during which each director has served on the
Board of City National Bancshares Corporation and City National Bank of New
Jersey (the "Bank") as well as the number of shares of such common stock
beneficially owned by all "named" officers.
<TABLE>
<CAPTION>
Name of Director Age Director Term Business Experience Number of Percentage of
Since Ends Shares Total Shares
Outstanding
- --------------------------- ------ ----------- -------- -------------------------------------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Anderson 46 1989 1996 Senior Vice President, Chase Manhattan 225 *
Bank
Barbara Bell 45 1995 1998 President Amelior 60 *
Foundation
Leon Ewing (2) 67 1973 1997 President, Ewing Bonding Agency 1,820 1.64%
Eugene Giscombe 55 1991 1996 President, Giscombe Henderson, Inc. 6,500 5.85
(property management firm)President, 103
East 125th Street Corporation (property
holding company)
Norman Jeffries 55 1989 1998 CPA, Accountant 174 *
Louis E. Prezeau 53 1989 1996 President and Chief Executive Officer, 10,020(3) 8.78
City National Bank of New Jersey and City
National Bancshares Corporation
Lemar C. Whigham 52 1989 1998 President, L & W Enterprises (vending 8,172 7.35
machine operations)
Directors and executive 28,747 25.19(1)
officers as a group (9
persons)
<FN>
(1) The number of shares of common stock used in calculating the percentage of
total shares owned includes 111,141 shares of common stock outstanding as of
March 15, 1996 plus 3,000 purchasable pursuant to unexercised options.
(2) Includes 1,570 shares held by Mr. Ewing individually and 50 shares held
jointly with his wife.
(3) Includes unexercised stock options to acquire 3,000 shares of common stock
and 540 shares held by his sons, 40 shares held by his daughter and 100 shares
held by his wife.
* Less than 1%
</FN>
</TABLE>
Committees of the Board of Directors
All directors of the Corporation are also directors of the Bank. Regular
meetings of the Corporation and the Bank are held monthly. Additional meetings
are held when deemed necessary. In addition to meeting as a group to review the
Corporation's business, certain members of the Board also devote their time and
talents to certain standing committees. Because the Board of Directors of the
Corporation has no committees, their functions were fulfilled by the committees
of the Board of Directors of the Bank. Messrs. Anderson and Prezeau serve as
ex-officio members of all committees except for the Audit/Examining Committee.
Committee members, other than ex-officio members and principal functions of each
committee are set forth below.
The Audit/Examining Committee of which Mr. Jeffries is chairperson, also consist
of Messrs. Ewing and Whigham, meets with the independent accountants, reviews
significant auditing and accounting matters, reviews the adequacy of the system
of internal controls, and reviews examination reports of national and federal
regulatory agencies and independent accountants.
The Loan and Discount Committee, of which Mr. Anderson is chairperson, also
consists of Messrs. Ewing, Jeffries, Giscombe, Jeffries, Prezeau and Whigham and
Ms. Bell, reviews all loan policy changes and loans approved by management, and
approves loans over specific amounts.
<PAGE>
3
The Investment Committee, of which Mr. Prezeau is chairperson, also consists of
Messrs. Anderson, Ewing, Giscombe, and Whigham, reviews all investment policy
changes, along with purchases and sales.
The Personnel/Director and Management Review Committee, of which Mr. Giscombe is
chairperson, also consists of Messrs. Ewing, Jeffries and Whigham and Ms. Bell,
deals in broad terms with personnel matters and reviews director and officer
compensation.
The Building and Grounds Committee, of which Mr. Ewing is chairperson, also
consists of Messrs. Giscombe, Prezeau and Whigham, meets to consider branch
expansion and matters concerning Corporation premises.
During 1995, the Board of Directors held 12 regular monthly meetings and one
special Board meetings. A quorum was present at all meetings. No incumbent
director attended fewer than 75% of the meetings held by the Board. In addition,
during 1995, the Audit/Examining Committee held four meetings, the Loan and
Discount Committee held 12 meetings, the Investment Committee held four
meetings, the Personnel/Director and Management Review Committee held three
meetings and the Building and Grounds Committee held one meeting.
Each director of the Corporation receives an annual retainer of $1,500 and a
$350 fee for each board meeting attended except for the Chairperson, who
receives $500, and the Secretary who receives $450. Audit Committee members
receive $150 for each meeting attended, while members of other committees
receive $125 for each committee meeting attended, except for the chairperson,
who receives $175 for each committee other than the Loan and Discount Committee,
for which the chairperson fee is $225.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Chief Executive Officer
and the only other executive officer with annual compensation in excess of
$100,000 during 1995.
Summary compensation table
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
Name and Other Options/
Principal Position Year Salary Bonus Compensation(1) SARs (number of shares)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louis E. Prezeau 1995 $125,000 $ 30,000 $ 6,733 (2)
President and Chief Executive Officer, 1994 125,000 18,000 7,223 (2) -
City National Bancshares Corporation 1993 125,000 38,804 7,110 (2) 3,000
and City National Bank of New Jersey
<FN>
(1) Perquisites and other personal benefits paid to any named executive officer did not exceed the lesser of $50,000 or 10% of the
annual salary and bonus reported in the table for that individual and are, therefore, not presented.
(2) Includes payments made under the Corporation's profit sharing plan of
$2,813, $3,327, and $3,250 in 1995, 1994 and 1993, respectively, and
insurance premiums paid on a life insurance policy on the life of Mr.
Prezeau of $3,920, $3,896 and $3,860 in 1995, 1994 and 1993, respectively.
(3) Represents payments made under the Corporation's profit sharing plan.
</FN>
</TABLE>
Set forth below are the executive officers of the Corporation or the Bank.
<TABLE>
<CAPTION>
In Office
Name Age Since Office and Business Experience
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Louis E. Prezeau 53 1989 President and Chief Executive Officer, City National Bancshares Corporation
and City National Bank of New Jersey
Stanley Weeks 39 1994 Senior Vice President and Senior Lending Officer City National Bank of New
Jersey1984-1994, Vice President, First Fidelity Bank, N.A.
Edward R. Wright 50 1994 Senior Vice President and Chief Financial Officer, City National Bancshares
Corporation and City National Bank of New Jersey1978-1994, Executive Vice
President and Chief Financial Officer, Rock Financial Corporation
</TABLE>
Stock options
There were no stock options granted in 1995.
The following table sets forth information as to the value of unexercised stock
options held by all executive officers at year-end 1995. No options were
exercised during 1995.
<PAGE>
4
Aggregate fiscal year-end stock option values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
Name December 31, 1995 (1) at December 31, 1995 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Louis E. Prezeau 3,000 $9,000
<FN>
(1) All unexercised options are immediately exercisable.
(2) Represents the difference between the market price of City National
Bancshares Corporation common stock and the exercise prices of the
options at December 31, 1995. The market price as of March 15, 1996
represents the last known trade price of the Corporation's common stock
on March 7, 1995. Actual values which may be realized upon any exercise
of stock options will be based on the market price of the Corporation's
common stock at the time of such exercise and thus are dependent upon
future performance of the Corporation's common stock.
</FN>
</TABLE>
Employment agreements
The Corporation has an employment agreement with Mr. Prezeau expiring May 23,
1997 which provides for an annual base salary of $125,000 in addition to
performance and other bonuses payable in either cash or common stock of the
Corporation.
The agreement also grants Mr. Prezeau the option to purchase at any time during
his employment up to 3,000 shares of the Corporation's common stock at an option
price of $15.00 per share, subject to adjustments for certain events, such as
stock dividends and splits.
The agreement also provides that Mr. Prezeau may terminate his employment if
there is a change in control of the Corporation which does not receive prior
approval from the Corporation's Board of Directors or if the stockholders of the
Corporation fail to elect Mr. Prezeau as a director of the Corporation at any
time during which his employment agreement remains in effect. In these
instances, Mr. Prezeau is entitled to accrued but unpaid salary and bonus. In
the event Mr. Prezeau's employment is terminated by the Corporation and the Bank
without cause, or Mr. Prezeau's employment expires and the Corporation and the
Bank fail to renew the employment agreement on substantially the same terms, Mr.
Prezeau is entitled to received an amount equal to his then current annual
salary.
TRANSACTIONS WITH MANAGEMENT
A director of the Corporation had a loan with the Bank in 1995. This loan was on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable loans with others and did not involve more
than the normal risk of collectability or present other unfavorable features.
The Bank may have similar transactions in the future.
PROPOSAL 2
APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, Certified Public Accountants, served as the independent
auditors for the Corporation for the year ended December 31, 1995. Services
provided included the examination of the consolidated financial statements and
preparation of the tax returns.
The Board of Directors of the Corporation has appointed KPMG Peat Marwick LLP as
the independent auditors for the Corporation and the Bank for the fiscal year
1996. Stockholder ratification of the appointment is not required under the laws
of the State of New Jersey, but the Board has decided to ascertain the position
of the stockholders on the appointment. The Board of Directors may reconsider
the appointment if it is not ratified. The affirmative vote of a majority of the
shares voted at the Meeting is required for ratification.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
meeting and will be allowed to make a statement if they so desire. Additionally,
they will be available to respond to appropriate questions from stockholders
during the Meeting.
The Corporation has been advised by KPMG Peat Marwick LLP that the firm and its
partners have no direct financial interest and no material indirect financial
interest in the Corporation or the Bank.
OTHER MATTERS
Management knows of no other business scheduled for consideration at the Annual
Meeting. Should any matter properly come before the Meeting or any adjournment
thereof, it is intended that proxies will vote in accordance with their own
judgment.
<PAGE>
5
STOCKHOLDER PROPOSALS
Stockholders who intend to present proposals at the 1997 Annual Meeting of
Stockholders must present written proposals to the Corporation by January 8,
1997, for inclusion in the Corporations' proxy statement.
By order of the Board of Directors
Lemar C. Whigham
Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000714980
<NAME> City National Bancshares Corp.
<MULTIPLIER> 1000
<CURRENCY> US. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 3344
<INT-BEARING-DEPOSITS> 321
<FED-FUNDS-SOLD> 6950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30609
<INVESTMENTS-CARRYING> 24494
<INVESTMENTS-MARKET> 24434
<LOANS> 45294
<ALLOWANCE> 650
<TOTAL-ASSETS> 114410
<DEPOSITS> 100889
<SHORT-TERM> 3661
<LIABILITIES-OTHER> 1215
<LONG-TERM> 1749
0
200
<COMMON> 1120
<OTHER-SE> 5576
<TOTAL-LIABILITIES-AND-EQUITY> 114410
<INTEREST-LOAN> 3607
<INTEREST-INVEST> 481
<INTEREST-OTHER> 3382
<INTEREST-TOTAL> 7470
<INTEREST-DEPOSIT> 2653
<INTEREST-EXPENSE> 176
<INTEREST-INCOME-NET> 4641
<LOAN-LOSSES> 486
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 4245
<INCOME-PRETAX> 1273
<INCOME-PRE-EXTRAORDINARY> 1273
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802
<EPS-PRIMARY> 7.22
<EPS-DILUTED> 6.53
<YIELD-ACTUAL> 7.23
<LOANS-NON> 839
<LOANS-PAST> 31
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 625
<CHARGE-OFFS> 559
<RECOVERIES> 98
<ALLOWANCE-CLOSE> 650
<ALLOWANCE-DOMESTIC> 630
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 20
</TABLE>
