SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11535
CITY NATIONAL BANCSHARES CORPORATION
(E0xact name of registrant as specified in its charter)
New Jersey 22-2434751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Broad Street, 07102
Newark, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 624-0865
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Common stock, par value $10 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The aggregate market value of voting stock held by non affiliates of the
Registrant as of August 12, 1998 was approximately $1,614,150.
There were 114,141 shares of common stock outstanding at August 12, 1998.
<PAGE>
1
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
June 30, December 31,
Dollars in thousands, except per share data 1998 1997
================================================================================
Assets
Cash and due from banks .............................. $ 3,259 $ 13,260
Federal funds sold ................................... 30,500 --
Interest bearing deposits with banks ................. 40 40
Investment securities available for sale ............. 30,684 32,694
Investment securities held to maturity
(Market value of $27,567 at June 30,
1998 and $29,638 at December 31,1997) .............. 27,675 29,666
Loans held for sale .................................. 1,683 807
Loans ................................................ 56,377 56,947
Less: Reserve for possible loan losses ............... 1,275 825
-------- --------
Net loans ............................................ 55,102 56,122
-------- --------
Premises and equipment ............................... 3,382 3,192
Accrued interest receivable .......................... 1,051 1,112
Other real estate owned .............................. 663 385
Other assets ......................................... 1,830 1,590
-------- --------
Total assets ......................................... $155,869 $138,868
======== ========
Liabilities and Stockholders' Equity
Deposits:
Demand ........................................ $ 14,922 $ 24,789
Savings ....................................... 49,930 24,949
Time .......................................... 60,223 69,979
-------- --------
Total deposits ....................................... 125,075 119,717
Short-term borrowings ................................ 6,000 4,213
Accrued expenses and other liabilities ............... 1,077 1,157
Long-term debt ....................................... 13,749 3,749
-------- --------
Total liabilities .................................... 145,901 128,836
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value: Authorized
100,000 shares; Series A , issued and
outstanding 8 shares in 1998 and 1997 ............ 200 200
Series B , issued and outstanding 20 shares
in 1998 and 1997 ................................ 500 500
Series C , issued and outstanding 108 shares
in 1998 and 1997 ................................ 27 27
Series D , issued and outstanding 3,208
shares in 1998 and 1997 ......................... 820 820
Common stock, par value $10: Authorized
400,000 shares; 114,980 shares issued in
1998 and 1997, 114,141 shares outstanding
in 1998 and 1997 ................................ 1,150 1,150
Surplus ............................................ 901 901
Retained earnings .................................. 6,414 6,497
Less:
Accumulated other comprehensive income ........... 19 38
Treasury stock, at cost - 839 shares ............. 25 25
-------- --------
Total stockholders' equity ........................... 9,968 10,032
-------- --------
Total liabilities and stockholders' equity ........... $155,869 $138,868
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
2
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Income (Unaudited)
Six months ended Three months ended
Dollars in thousands, June 30, June 30,
except per share data 1998 1997 1998 1997
================================================================================
Interest income
Interest and fees on loans ..... $ 2,599 $ 2,535 $ 1,318 $ 1,282
Interest on Federal funds sold
and securities purchased under
agreements to resell ......... 314 243 178 122
Interest on other short term
investments .................. -- 39 -- 39
Interest on deposits with banks 1 1 -- --
Interest and dividends on
investment securities:
Taxable ...................... 1,724 1,857 864 960
Tax-exempt ................... 107 58 54 29
--------- --------- --------- ---------
Total interest income .......... 4,745 4,733 2,414 2,432
--------- --------- --------- ---------
Interest expense
Interest on deposits ........... 1,926 1,924 926 1,003
Interest on short-term
borrowings ................... 96 116 54 68
Interest on long-term debt ..... 240 91 185 55
--------- --------- --------- ---------
Total interest expense ......... 2,262 2,131 1,165 1,126
--------- --------- --------- ---------
Net interest income ............ 2,483 2,602 1,249 1,306
Provision for possible loan
losses ....................... 497 50 459 23
--------- --------- --------- ---------
Net interest income after
provision for possible loan
losses ....................... 1,986 2,552 790 1,283
--------- --------- --------- ---------
Other operating income
Service charges on deposit
accounts ..................... 319 285 170 142
Other income ................... 366 304 179 146
Net gain on sales of investment
securities available for sale 9 40 1 19
--------- --------- --------- ---------
Total other operating income ... 694 629 350 307
--------- --------- --------- ---------
Other operating expenses
Salaries and other employee
benefits ..................... 1,323 1,307 679 666
Occupancy expense .............. 168 165 88 78
Equipment expense .............. 183 190 95 93
Other expenses ................. 757 727 431 358
--------- --------- --------- ---------
Total other operating expenses . 2,431 2,389 1,293 1,195
--------- --------- --------- ---------
Income (loss) before income tax
expense ...................... 249 792 (153) 395
Income tax expense (benefit) ... 51 287 (85) 143
========= ========= ========= =========
Net income (loss) .............. $ 198 $ 505 ($ 68) $ 252
========= ========= ========= =========
Net income (loss) per
common share
Basic .......................... $ 1.51 $ 4.04 ($ 0.60) $ 2.21
Diluted ........................ 1.38 3.65 (0.60) 1.99
========= ========= ========= =========
Basic average common shares
outstanding .................. 114,141 114,141 114,141 114,141
Diluted average common shares
outstanding .................... 127,991 127,991 114,141 127,991
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
3
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Changes
in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Dollars in thousands, Common Preferred Retained Comprehensive Treasury
except per share data Stock Surplus Stock Earnings Income (Loss) Stock Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 .............. $ 1,150 $ 901 $ 727 $ 5,645 $ (111) $ (25) $ 8,287
Net income .............................. -- -- -- 505 -- -- 505
Unrealized gain, net of tax ............. -- -- -- -- 41 -- 41
--------
Total comprehensive income, net of tax 546
Proceeds from issuance of preferred stock -- -- 820 -- -- -- 820
Dividends paid on preferred stock ....... -- -- -- (45) -- -- (45)
Dividends paid on common stock .......... -- -- -- (172) -- -- (172)
-------- -------- -------- -------- -------- -------- --------
Balance, June 30, 1997 .................. $ 1,150 $ 901 $ 1,547 $ 5,933 $ (70) $ (25) $ 9,436
======== ======== ======== ======== ======== ======== ========
Balance, December 31, 1997 .............. $ 1,150 $ 901 $ 1,547 $ 6,497 $ (38) $ (25) $ 10,032
Net income .............................. -- -- -- 198 -- -- 198
Unrealized gain, net of tax ............. -- -- -- -- 19 -- 19
--------
Total comprehensive income, net of tax 217
Dividends paid on preferred stock ....... -- -- -- (82) -- -- (82)
Dividends paid on common stock .......... -- -- -- (199) -- -- (199)
-------- -------- -------- -------- -------- -------- --------
Balance, June 30, 1998 .................. $ 1,150 $ 901 $ 1,547 $ 6,414 $ (19) $ (25) $ 9,968
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
4
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended
June 30,
In thousands 1998 1997
================================================================================
Operating activities
Net income ......................................... $ 198 $ 505
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization .................... 179 183
Provision for possible loan losses ............... 497 50
Writedown of other real estate owned
Net (accretion of discount)
amortization of premium ........................ (30) (12)
Net gain on sales of investment
securities available for sale ................ (9) (42)
Gains and commissions on sales of
loans held for sale .......................... -- (12)
Decrease in accrued interest receivable ............ 61 67
Deferred income tax benefit ........................ (12) (26)
Increase in other assets ........................... (240) (1,078)
Decrease in accrued expenses and
other liabilities ................................ (32) (2,783)
-------- --------
Net cash provided by (used in)
operating activities ............................. 612 (3,148)
-------- --------
Investing activities
Loans originated for sale .......................... (876) (756)
Proceeds from sales of loans held for sale ......... -- 480
Decrease in loans .................................. 196 170
Decrease in interest bearing deposits
with banks ....................................... -- 36
Proceeds from sales of investment securities
available for sale .............................. 162 4,718
Proceeds from maturities of investment
securities available for sale, including
principal payments and calls ..................... 7,146 18,625
Proceeds from maturities of investment
securities held to maturity, including
principal payments and calls ..................... 8,543 604
Purchases of investment securities
available for sale ............................... (5,329) (23,881)
Purchases of investment securities held
to maturity ...................................... (6,499) --
Purchases of premises and equipment ................ (369) (170)
Decrease in other real estate owned ................ 49 94
-------- --------
Net cash provided by (used in)
investing activities ............................. 3,023 (80)
-------- --------
Financing activities
Increase in long-term debt ......................... 10,000 2,000
Increase (decrease) in deposits .................... 5,358 (10,357)
Increase in short-term borrowings .................. 1,787 2,825
Dividends paid on preferred stock .................. (82) (44)
Dividends paid on common stock ..................... (199) (173)
-------- --------
Net cash provided by (used in)
financing activities ............................. 16,864 (5,749)
-------- --------
Net increase (decrease) in cash and
cash equivalents ................................. 20,499 (8,977)
Cash and cash equivalents at beginning
of period ........................................ 13,260 11,667
-------- --------
Cash and cash equivalents at end of period ......... $ 33,759 $ 2,690
======== ========
Cash paid during the year:
Interest ........................................... $ 2,001 $ 1,982
Income taxes ....................................... 424 303
See accompanying notes to consolidated financial statements.
<PAGE>
5
CITY NATIONAL BANCSHARES CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
1. Principles of consolidation
The accompanying consolidated financial statements include the accounts of City
National Bancshares Corporation (the "Corporation") and its subsidiary, City
National Bank of New Jersey (the "Bank"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
2. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial statements have been included. Operating results for the six
months and three months ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31,1998.
3. Net income per common share
Basic income per common share is calculated by dividing net income less
dividends paid on preferred stock by the weighted average number of common
shares outstanding. On a diluted basis, both net income and common shares
outstanding are adjusted to assume the conversion of the convertible subordinate
debentures from the date of issue.
4. Recent accounting pronouncements
In June, 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," effective for fiscal years beginning
after December 15, 1997. SFAS 130 establishes standards for reporting and
displaying of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements. SFAS
130 requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Corporation adopted SFAS No. 130 in the first quarter of 1998.
Total comprehensive income consists of net income and other comprehensive income
which is comprised of unrealized holding gains (loss) on securities available
for sale, net of tax.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, and for hedging activities. SFAS
No. 133 supersedes the disclosure requirements in SFAS No. 80, 105, and 119 and
is effective for periods after June 15, 1999. The adoption of SFAS No. 133 is
not expected to have a material impact on the financial position or results of
operations of the Corporation.
<PAGE>
6
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of operations
Net income for the first half of 1998 was $198,000 compared to $505,000 for the
similar 1997 period. Related earnings per common share on a fully diluted basis
decreased to $1.38 from $3.65 a year earlier. The 1998 second quarter reflected
a $65,000 net loss compared to net income of $255,000 for the second quarter of
1997. Related diluted per common share (loss) earnings were $(.51) compared to
$1.99. A $405,000 provision for possible loan losses was recorded in the second
quarter of 1998 in connection with an overdraft incurred during that quarter
which is more fully discussed under "Nonperforming loans" below. This increased
provision was the primary reason for the negative earnings performance.
Net interest income
For the first half of 1998, net interest income on a tax equivalent basis
decreased 5.2%, to $2,467,000 from $2,603,000 in the comparable 1997 period. The
related net interest margin declined to 3.94% from 4.09% due to higher cost of
deposits. Tax equivalent interest income was relatively unchanged as was the mix
in earning assets and the average rate earned on earning assets, which rose two
basis points to 7.42% from 7.40%. Interest expense rose 6.14% on relatively
unchanged interest bearing liabilities due to an increase in April, 1998 of $10
million in Federal Home Loan Bank advances, which were used in part to replace
municipal time deposits. The average rate paid to fund interest earning assets
rose from 3.31% to 3.51%.
Management has been actively reducing municipal time deposit levels by utilizing
these advances, which are included in long-term debt and have allowed the
Corporation to obtain more stable funding for longer terms at no additional
cost.
For the second quarter of 1998, net interest income on a tax equivalent basis
declined 3.3%, to $1,277,000 from $1,321,000 in the comparable 1997 period. The
related net interest margin decreased to 3.86% from 4.15% due to a higher cost
of funding interest earning assets. Tax equivalent interest income was
relatively unchanged as was the mix in earning assets and the average rate
earned on earning assets. Interest expense rose 3.46% due to the aforementioned
Federal Home Loan Bank advances, while the average rate to fund interest earning
assets rose from 3.39% to 3.52%.
Provision and reserve for possible loan losses
Changes in the reserve for possible loan losses are set forth below.
Six Months Three Months
Ended June 30, Ended June 30,
----------------------------------------------
(Dollars in thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of period $ 825 $ 750 $ 825 $ 760
Provision for possible loan
losses 497 50 459 23
Recoveries of previous charge-offs 53 29 7 17
----- ----- ----- -----
1,375 829 1,291 800
Less: Charge-offs 29 100 16 -
----- ----- ----- -----
Balance at end of period $1,275 $ 800 $1,275 $ 800
===== ===== ===== =====
Management believes that the reserve for possible loan losses is adequate based
on an ongoing evaluation of the loan portfolio. This evaluation includes
consideration of past loan loss experience, the level and composition of
nonperforming loans, collateral adequacy, and general economic conditions,
including the effect of such conditions on particular industries.
While management uses available information to determine the adequacy of the
reserve, future additions may be necessary based on changes in economic
conditions or in subsequently occurring events unforeseen at the time of
evaluation.
<PAGE>
7
June 30, March 31, December 31,
(Dollars in thousands) 1998 1998 1997
- --------------------------------------------------------------------------------
Reserve for possible loan
losses as a percentage of:
Total loans 2.26% 1.32% 1.45%
Total nonperforming loans 53.04% 62.31% 59.10%
Total nonperforming assets
(nonperforming loans and OREO) 41.57% 41.52% 53.78%
Net charge-offs (recoveries) as a
percentage of average loans
(year-to-date) 0.08% 0.02% 0.15%
Nonperforming loans
Nonperforming loans include loans on which the accrual of interest has been
discontinued or loans which are contractually past due 90 days or more as to
interest or principal payments on which interest income is still being accrued.
Nonaccrual loans include loans where principal or interest income is still being
accrued Delinquent interest payments are credited to income when received. The
following table presents the principal amounts of nonperforming loans past due
90 days or more and accruing.
June 30, March 31, December 31,
(Dollars in thousands) 1998 1998 1997
- --------------------------------------------------------------------------------
Nonaccrual loans
Commercial $ 1,489 $ 827 $ 568
Installment 1 11 1
Real estate 310 186 597
------ ------ ------
Total 1,800 1,024 1,166
------ ------ -----
Loans past due 90 days
or more and still accruing
Commercial 230 - 46
Installment - - -
Real estate 374 300 184
------ ------ ------
Total 604 300 230
------ ------ ------
Total nonperforming loans 2,404 1,324 1,396
------ ------ ------
Troubled debt restructurings 1,261 1,261 1,261
------ ------ ------
Total nonperforming loans and
troubled debt restructurings $3,665 $2,585 $2,657
====== ====== ======
During April, 1998 a customer of City National Bank incurred overdrafts
aggregating approximately $805,000, exceeding the customer's authorized limit.
This customer sells money orders issued by City National Bank as an agent of the
Bank. No further deposits have been made and the Bank has commenced legal action
to collect the overdraft, and has made claims against a $300,000 fidelity bond
maintained by the customer, as well as its own blanket bond.
The customer has filed a defense against the claims made by the Bank, along with
a counterclaim, which was dismissed but may be resubmitted if additional
information is provided. While the Bank is confident of its claims, the ultimate
outcome of these actions cannot be determined and the complete collection of the
overdraft is uncertain.
Based on an evaluation of the information currently available, the second
quarter and first half of 1998 include a $405,000 addition to the reserve for
possible loan losses to provide for a possible loss on this overdraft, which is
included with nonaccrual commercial loans at June 30, 1998.
Troubled debt restructurings includes two loans to one commercial borrower
totaling $1.3 million. A $1 million construction loan was originated in August,
1996 and subsequently increased by $200,000. Payments remained current thought
June, 1997 when construction was completed and the loan was converted to a
permanent commercial mortgage, at which time principal paydowns were scheduled
to commence. Prior to becoming 90 days past due, the terms of the loan were
modified to continue interest only payments for a specified period of time. The
loan is secured by a leasehold mortgage on the financed property and the
borrower's principals have provided joint and several personal guarantees. In
addition, a $100,000 working capital loan secured by receivables was originated
in July, 1997.
<PAGE>
8
The loan is currently performing in accordance with the modified terms while the
working capital loan is currently performing in accordance with it original
terms. Management believes that both of these loans are adequately secured and
fully collectible.
Nonperforming assets are generally well secured by residential and small
commercial real estate. It is the Bank's intent to move nonperforming loans into
other real estate owned ("OREO") as rapidly as possible and to dispose of all
OREO properties at the earliest possible date at or near current market value.
At June 30, 1998, 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, or to borrowers whose loans have been
restructured.
Other operating income
Other operating income, including the results of investment securities
transactions, rose slightly in both the first half and second quarter of 1998
compared to the similar 1997 periods due to higher service charges resulting
from increased transaction volume along with higher loan syndication fees.
Other operating expenses
Other operating expenses rose 1.8% for the first half of 1998 and 8.2% in the
second quarter of 1998 compared to the similar 1997 periods. Both periods were
affected by costs incurred in connection with the opening during the second
quarter of 1998 of a new branch office.
Income tax expense
Income tax expense as a percentage of pretax income declined to 33.8% from 36.3%
for the first quarter of 1998 compared to the first quarter of 1997 as a result
of higher levels of income subject to lower state income tax rates.
Investment securities
There was little activity in either the held to maturity or available for sale
portfolio during the first quarter of 1998.
Loans
Loans held for sale rose to $1.7 million at June 30, 1998 from $807,000 at
December 31, 1997 reflecting a 15.9% increase in loans originated for sale
during the 1998 first quarter compared to the first three months of 1997. Loans
totaled $56.4 million at June 30, 1998 compared to $56.9 million at December 31,
1997, as payoffs exceeded originations.
Deposits
Average deposits for the first half of 1998 totaled $115.3 million compared to
$120.4 million for the first half of 1997, while total deposits rose from $119.7
million at 1997 year-end to $125.1 million at June 30, 1998. The decrease in
average deposits resulted from management's decision to reduce the levels of
municipal time deposits through more stable funding sources. Total deposits were
higher due to a nonrecurring $12 million municipal savings deposit which was on
hand at June 30, 1998, while December 31, 1997 included a similar $8 million
nonrecurring demand deposit from a U.S. Government agency.
The Bank's deposit levels may change significantly on a daily basis because
deposit accounts maintained by municipalities represent a significant part of
the Bank's deposits and are more volatile than commercial or retail deposits.
Total certificates of deposit decreased from $70 million at 1997 year-end to
$66.1 million at the end of the 1998 first quarter due to a reduction in
certificates of deposit of $100,000 or more, most of which are municipal
deposits, which declined from $51 million at December 31, 1997 to $45.5 million
at March 31, 1998.
Short-term borrowings
Average short-term borrowings declined 17.7% from the first half of 1997
compared to the corresponding 1998 period, reflecting lower levels of U.S.
Treasury tax and loan note option balances, while the average rate paid on these
borrowings rose by seven basis points.
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' requests 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.
<PAGE>
9
It is the responsibility of the Asset/Liability Management Committee ("ALCO") 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 Bank
also utilizes the Federal Home Loan Bank advance program for its liquidity
needs.
The major contribution during the first half of 1998 from operating activities
to the Corporation's liquidity come from net income, while an increase in other
assets represented the highest use of cash.
Sources of cash provided by investing activities were derived primarily from
proceeds from maturities, principal payments and early redemptions of investment
securities held to maturity, which amounted to $8.5 million, while net cash used
in investing activities was primarily the result of the purchase of investment
securities held to maturity, which totaled $8.5 million.
The primary source of funds from financing activities resulted from an increase
in long-term debt, which rose $10 million, while the highest use of cash in
financing activities resulted from dividend payments.
Interest rate sensitivity
The management of interest rate risk is also important to the profitability of
the Corporation. Interest rate risk arises when an earning asset matures or when
its interest rate changes in a time period different from that of a supporting
interest bearing liability, or when its interest rate changes in a time period
different from that of an interest earning asset that it supports. While the
Corporation does not match specific assets and liabilities, total earnings
assets and interest bearing liabilities are grouped to determine the overall
interest rate risk within a number of specific time frames.
Interest sensitivity analysis attempts to measure the responsiveness of net
interest income to changes in interest rate levels. The difference between
interest sensitive assets and interest sensitive liabilities is referred to as
the interest sensitivity gap. At any given 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 movement and variances in the effects of
rate changes on the Corporations' mix of interest-sensitive assets and
liabilities.
At June 30,1998, the Corporation had a cumulative one-year static gap of a
negative $12.8 million, representing 8.2% of total assets compared to a negative
$12.9 million gap at December 31,1997, which represented 9.29% of total assets.
Utilizing a 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 200 basis points, which is the maximum change that management
uses to measure the Corporation's exposure to interest rate risk.
Capital
Stockholders' equity amounted to approximately $10 million at both June 30,1998
and December 31, 1997. Stockholders' equity as a percentage of total assets was
6.55% at June 30,1998 compared to 7.22% at December 31, 1997.
Risk-based capital ratios are expressed as a percentage of risk-adjusted assets,
and relate capital to the risk factors of a bank's asset base, including
off-balance sheet risk exposures. Various weights are assigned to different
asset categories as well as off-balance sheet exposures depending on the risk
associated with each. In general, less capital is required for less risk.
At June 30,1998 the Corporation's core capital (Tier 1) and total (Tier 1 plus
Tier 2) risked-based capital ratios were 14.81% and 18.55%, respectively.
<PAGE>
10
PART II Other information
Item 5. Other Matters
a) On February 26, 1998, the Board approved the declaration of a
$1.75 per share dividend to common stockholders, payable on
April 6, 1998 to stockholders of record on March 4, 1998.
Item 6a. Exhibits
(3)(a) The Corporation's Restated Articles of Incorporation
(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 Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series A (incorporated herein by reference to
Exhibit (3)(b) of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995).
(3)(c) Amendments to the Corporation's Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series B (incorporated herein by reference to
Exhibit (3)(c) of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995).
(3)(d) Amendments to the Corporation's Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series C (incorporated herein by reference to
Exhibit (3)(i) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996).
(3)(e) Amendments to the Corporation's Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series D (incorporated herein by reference to
Exhibit filed with the Corporation's current report on Form
10-K dated July 10, 1997).
(3)(f) The amended By-Laws of the Corporation (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 (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 (incorporated herein
by reference to Exhibit (4)(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
(10)(a) The Employee's Profit Sharing Plan of City National Bank of
New Jersey (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 dated May 24, 1997 (incorporated by reference
to Exhibit 10 to the Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
(10)(c) Lease and option Agreement dated may 6, 1995 by and between
the RTC and City National Bank of New Jersey (incorporated
herein by reference to Exhibit (10)(d) to the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1995).
(10)(d) Asset Purchase and Sale Agreement between the Bank and Carver
Federal Savings Bank dated as of January 26, 1998
(incorporated herein by reference to Exhibit 10(d) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997).
(11) Statement re computation of per share earnings
(27) Financial Data Schedule
<PAGE>
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CITY NATIONAL BANCSHARES CORPORATION
(Registrant)
August 12, 1998 ____________________
Edward R. Wright
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 1560 3510
<INT-BEARING-DEPOSITS> 40 38
<FED-FUNDS-SOLD> 30500 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 30684 31668
<INVESTMENTS-CARRYING> 30715 29252
<INVESTMENTS-MARKET> 27567 28772
<LOANS> 58060 57488
<ALLOWANCE> 1275 800
<TOTAL-ASSETS> 155869 127785
<DEPOSITS> 125075 105497
<SHORT-TERM> 6000 8000
<LIABILITIES-OTHER> 1077 1103
<LONG-TERM> 13749 3749
0 0
1547 1547
<COMMON> 2051 2051
<OTHER-SE> 9968 5835
<TOTAL-LIABILITIES-AND-EQUITY> 155869 127785
<INTEREST-LOAN> 2599 2535
<INTEREST-INVEST> 2146 2198
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 4745 4733
<INTEREST-DEPOSIT> 1926 1924
<INTEREST-EXPENSE> 336 207
<INTEREST-INCOME-NET> 2483 2602
<LOAN-LOSSES> 497 50
<SECURITIES-GAINS> 9 40
<EXPENSE-OTHER> 2431 2389
<INCOME-PRETAX> 249 792
<INCOME-PRE-EXTRAORDINARY> 241 792
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 198 505
<EPS-PRIMARY> 1.51 4.04
<EPS-DILUTED> 1.38 3.65
<YIELD-ACTUAL> 3.53 4.09
<LOANS-NON> 994 711
<LOANS-PAST> 3718 2371
<LOANS-TROUBLED> 1799 231
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 825 750
<CHARGE-OFFS> 100 29
<RECOVERIES> 53 29
<ALLOWANCE-CLOSE> 1275 800
<ALLOWANCE-DOMESTIC> 1246 683
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 29 117
</TABLE>
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
City National Bancshares Corporation
Computation of Earnings Per Common Share on a
Basic & Diluted Basis
In thousands, except per share data
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
Net income (loss) $198 $505 ($68) $252
Dividends paid on preferred stock 82 44 - -
Net income (loss) applicable to basic
common shares 116 461 (68) 252
Interest expense on convertible
subordinated debentures, net of
income tax 6 6 - 3
Net income (loss) applicable to diluted
shares $122 $467 ($68) $255
Number of average common shares:
Basic 114,141 114,141 114,141 114,141
Diluted:
Average common shares outstanding 114,141 114,141 114,141 114,141
Average convertible subordinated
debentures convertible to common
shares 13,850 13,850 - 13,850
127,991 127,991 114,141 127,991
Net income (loss) per common share
Basic $1.01 $4.04 ($0.60) $2.21
Diluted 0.93 3.65 (0.60) 1.99
