<PAGE> 1
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
March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11535
CITY NATIONAL BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2434751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Broad Street, 07102
Newark, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 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 May 2, 2000 was approximately $1,875,600.
There were 119,571 shares of common stock outstanding at May 2, 2000.
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<TABLE>
<CAPTION>
Index Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 2000 and December 31, 1999 ....................3
Consolidated Statement of Income for the Three Months Ended March 31, 2000
and 1999..................................................................................4
Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended
March 31, 2000 and 1999...................................................................5
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and 1999...................................................................6
Notes to Consolidated Financial Statements ...............................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..............................12
PART II OTHER INFORMATION .......................................................................12
Item 1. Legal proceedings........................................................................12
Item 6. Exhibits and Reports on Form 8-K.........................................................13
Signatures .......................................................................................14
</TABLE>
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
Dollars in thousands, except per share data 2000 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,666 $ 6,209
Federal funds sold 9,400 5,400
Interest bearing deposits with banks 2,379 2,286
Investment securities available for sale 37,575 35,458
Investment securities held to maturity (Market value of $29,409
at March 31, 2000 and $31,051 at March 31,1999 ) 31,199 33,017
Loans held for sale - 405
Loans 81,735 82,446
Less: Reserve for loan losses 929 1,975
- -----------------------------------------------------------------------------------------------------------------
Net loans 80,806 80,471
- -----------------------------------------------------------------------------------------------------------------
Premises and equipment 3,609 3,709
Accrued interest receivable 1,387 1,295
Other real estate owned 745 698
Other assets 3,921 3,548
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 175,687 $ 172,496
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 23,511 $ 20,625
Savings 50,032 34,719
Time 74,506 84,493
- -----------------------------------------------------------------------------------------------------------------
Total deposits 148,049 139,837
Short-term borrowings 5,370 6,000
Accrued expenses and other liabilities 1,570 1,408
Long-term debt 11,725 16,225
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 166,714 163,470
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value: Authorized 100,000 shares;
Series A , issued and outstanding 8 shares in 2000 and 1999 200 200
Series C , issued and outstanding 108 shares in 2000 and 1999 27 27
Series D , issued and outstanding 3,280 shares in 2000 and 1999 820 820
Common stock, par value $10: Authorized 400,000 shares;
120,130 shares issued in 2000 and 1999
119,571 shares outstanding in 2000 and 1999 1,201 1,201
Surplus 950 950
Retained earnings 6,507 6,524
Accumulated other comprehensive loss, net of tax (715) (679)
Treasury stock, at cost - 559 shares in 1999 and 1998 (17) (17)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 8,973 9,026
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 175,687 $ 172,496
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 2000 1999
- -----------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,755 $ 1,512
Interest on Federal funds sold and securities
purchased under agreements to resell 113 102
Interest on deposits with banks 29 1
Interest and dividends on investment securities:
Taxable 1,030 867
Tax-exempt 81 58
- -----------------------------------------------------------------------------------
Total interest income 3,008 2,540
- -----------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,384 914
Interest on short-term borrowings 60 33
Interest on long-term debt 186 219
- -----------------------------------------------------------------------------------
Total interest expense 1,630 1,166
- -----------------------------------------------------------------------------------
Net interest income 1,378 1,374
Provision for loan losses 304 43
- -----------------------------------------------------------------------------------
Net interest income after provision
for loan losses 1,074 1,331
- -----------------------------------------------------------------------------------
OTHER OPERATING INCOME
Service charges on deposit accounts 143 127
Other income 236 271
Net (losses) gains on sales of investment
securities (13) 15
- -----------------------------------------------------------------------------------
Total other operating income 366 413
- -----------------------------------------------------------------------------------
OTHER OPERATING EXPENSES
Salaries and other employee benefits 748 673
Occupancy expense 113 102
Equipment expense 104 100
Other expenses 432 404
- -----------------------------------------------------------------------------------
Total other operating expenses 1,397 1,279
- -----------------------------------------------------------------------------------
Income before income tax expense 43 465
Income tax (benefit) expense (27) 159
- -----------------------------------------------------------------------------------
NET INCOME $ 70 $ 306
- -----------------------------------------------------------------------------------
NET (LOSS) INCOME PER SHARE
Basic $ (.14) $ 1.68
Diluted (.14) 1.53
- -----------------------------------------------------------------------------------
Basic average common shares outstanding 119,571 118,221
Diluted average common shares outstanding 119,571 132,071
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Preferred Retained
Dollars in thousands, except per share data Stock Surplus Stock Earnings
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $1,188 $938 $1,547 $6,442
COMPREHENSIVE INCOME:
Net income - - - 306
Unrealized loss on securities available for sale,
net of tax - - - -
Total comprehensive income, net of tax - - - -
Dividends paid on preferred stock - - - (107)
Dividends paid on common stock - - - (213)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 $1,188 $938 $1,547 $6,428
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $1,201 $950 $1,047 $6,524
COMPREHENSIVE INCOME:
Net income - - - 70
Unrealized loss on securities available for sale,
net of tax - - - -
Total comprehensive income, net of tax - - - -
Dividends paid on preferred stock - - - (87)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 $1,201 $950 $1,047 $6,507
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Treasury
Dollars in thousands, except per share data Income (Loss) Stock Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $25 ($17) $10,123
COMPREHENSIVE INCOME:
Net income - - 306
Unrealized loss on securities available for sale,
net of tax (114) - (114)
--------------
Total comprehensive income, net of tax - - 192
Dividends paid on preferred stock - - (107)
Dividends paid on common stock - - (213)
- --------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 ($89) ($17) $9,995
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 ($679) ($17) $9,026
COMPREHENSIVE INCOME:
Net income - - 70
Unrealized loss on securities available for sale,
net of tax (36) - (36)
--------------
Total comprehensive income, net of tax - - 34
Dividends paid on preferred stock - - (87)
- --------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 ($715) ($17) $8,973
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
MARCH 31
---------------------------
IN THOUSANDS 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 70 $ 306
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 113 98
Provision for loan losses 304 43
Premium amortization on investment securities 7 26
Net losses (gains) on sales and investment securities 13 (15)
Gains on loans held for sale (6) (21)
Proceeds from sales and principal payments from loans held for sale 411 592
(Increase) in accrued interest receivable (92) (86)
Deferred income tax (benefit) expense (22) 19
Increase in other assets (329) (217)
Increase in accrued expenses and other liabilities 162 609
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 631 1,354
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase in loans, net (639) (98)
Increase in interest bearing deposits with banks (93) (61)
Proceeds from maturities of investment securities available for sale,
including sales, principal repayments and early redemptions 653 2,857
Proceeds from maturities of investment securities held to maturity,
including sales, principal repayments and early redemptions 3,781 5,867
Purchases of investment securities available for sale (2,834) (7,469)
Purchases of investment securities held to maturity (1,977) (2,829)
Increase in other real estate owned, net (47) 59
Purchases of premises and equipment (13) (27)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,169) (1,701)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in deposits 8,212 (12,306)
(Decrease) Increase in short-term borrowings (630) 5,054
Decrease in long term debt (4,500) -
Dividends paid on preferred stock (87) (107)
Dividends paid on common stock - (213)
- ------------------------------------------------------------------------------------------------------------
Net cash provided (used in) financing activities 2,995 (7,572)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,457 (7,919)
Cash and cash equivalents at beginning of period 11,609 21,967
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,066 $ 14,048
- ------------------------------------------------------------------------------------------------------------
CASH PAID DURING THE YEAR:
Interest $ 1,503 $ 1,251
Income taxes 30 10
</TABLE>
See accompanying notes to consolidated financial statements.
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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" or "CNB"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
2. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial statements have been included. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000.
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 dilutive convertible
subordinated debentures.
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Net income decreased to $70,000 in the first quarter of 2000 from $306,000 for
the similar 1999 period due primarily to a higher provision for loan losses,
which increased to $314,000 from $43,000 a year earlier. The higher provision
was required to provide additional reserves for the charge-off of an impaired
loan for which the credit quality rapidly deteriorated during the first quarter.
Related (loss) earnings per share on a diluted basis decreased to $(.14) from
$1.53.
NET INTEREST INCOME
Net interest income on a tax equivalent basis was relatively unchanged in the
first quarter of 2000 compared to the first quarter of 1999, while the net
interest margin in the 2000 first quarter declined 44 basis points to 3.50%
compared to 3.94% a year ago. A higher interest rate environment contributed to
an increase in the yields on interest earning assets, which rose to 7.52% from
7.22%. The increased earnings generated from the higher yield were offset by an
increase in the cost to fund those interest earning assets, which rose to 4.02%
from 3.27%.
Interest income on a tax equivalent basis increased to $3 million in the first
quarter of 2000 compared to $2.6 million for the year earlier quarter, due to
the additional earnings generated from increased levels of all categories of
interest earning assets. Interest expense rose to $1.6 million in the 2000 first
quarter compared to $1.2 million a year earlier primarily due to the higher cost
of municipal time deposits.
PROVISION AND RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses are set forth below.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
(Dollars in thousands) 2000 1999
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $1,975 $1,415
Provision for loan losses 304 43
Recoveries of previous charge-offs 34 18
------ ------
2,313 1,476
Less: Charge-offs 1,384 401
------ ------
Balance at end of period $ 929 $1,075
====== ======
</TABLE>
Management believes that the reserve for loan losses is adequate based on an
ongoing evaluation of the loan portfolio. This evaluation includes consideration
of past loan loss experience, the level and composition of nonperforming loans,
collateral adequacy, and general economic conditions, including the effect of
such conditions on particular industries.
While management uses available information to determine the adequacy of the
reserve, future additions may be necessary based on changes in economic
conditions or in subsequently occurring events unforeseen at the time of
evaluation.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 2000 1999 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve for loan
losses as a percentage of:
Total loans 1.13% 2.40% 1.51%
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Total nonperforming loans 74.20% 71.40% 74.76%
Total nonperforming assets
(nonperforming loans and OREO) 46.51% 57.02% 46.51%
Net charge-offs as a percentage
of average loans (year-to-date) 1.63% .47% .53%
</TABLE>
NONPERFORMING LOANS
Nonperforming loans include loans on which the accrual of interest has been
discontinued or loans which are contractually past due 90 days or more as to
interest or principal payments on which interest income is still being accrued.
Nonaccrual loans include loans where principal or interest 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.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 2000 1999 1999
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans
Commercial $ 417 $ 441 $ 787
Installment 14 5 2
Real estate 707 2,093 302
------ ------ ------
Total 1,138 2,539 1,091
------ ------ ------
Loans past due 90 days
or more and still accruing
Commercial - - -
Installment - - 3
Real estate 114 227 344
------ ------ ------
Total 114 227 347
------ ------ ------
Total nonperforming loans 1,252 2,766 1,438
------ ------ ------
Troubled debt restructurings - - 1,261
------ ------ ------
Total loans and troubled
debt restructurings $1,252 $2,766 $2,699
====== ====== ======
</TABLE>
Nonperforming assets are generally secured by residential and small commercial
real estate. It is the Bank's intent to dispose of all other real estate owned
("OREO") properties at the earliest possible date at or near current market
value.
Nonaccrual loans declined significantly during the 2000 first quarter due to the
charge-off of $1.3 million in impaired loans to a single borrower that had
previously been restructured.
There were no impaired loans at March 31, 2000, while impaired loans totalled
$1.3 million at December 31,1999. The related reserves allocated to these loans
amounted to $955,000 at December 31, 1999. Impaired loans averaged $1.1 million
for the first quarter of 2000 and $380,000 for the first quarter of 1999.
OTHER OPERATING INCOME
Other operating income, including the results of investment securities
transactions, decreased 11.4% during the three months ended March 31, 2000
compared to the similar 1999 quarter, due primarily to the
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receipt in 1999 of $51,000 from the U.S. Department of Treasury, under its Bank
Enterprise Award Program. This program provides financial incentives to banks
making qualifying loans in distressed communities. No such income was received
in 2000.
OTHER OPERATING EXPENSES
Other operating expenses rose 9.2% for the first quarter of 2000 to $1,397,000
from $1,279,000 in the first quarter of 1999, with the increase attributable
primarily to higher salaries and benefit expenses, which increased by $75,000,
or 11.1%. Merit increases, along with staffing increases resulting from product
and branch expansion, contributed to this increase.
INCOME TAX EXPENSE
A net loss for state income tax purposes contributed to an income tax benefit in
the 2000 first quarter, while in the first quarter of 1999, income tax expense
as a percentage of pretax income was 34.2%.
INVESTMENT SECURITIES
Investment securities available for sale ("AFS") rose to $37.6 million at March
31, 2000 from $35.5 million at the end of 1999. Net unrealized losses in the AFS
portfolio rose to $715,000 at March 31, 2000 from $679,000 at 1999 year-end due
to the effects on the portfolio of an increase in interest rates during the
first quarter of 2000.
The held to maturity ("HTM") portfolio carried gross unrealized losses of
$1,790,000 at March 31, 2000 compared to $1,966,000 at December 31, 1999. This
increase was also due to the higher interest rate environment and had a
particularly negative impact on the Bank's $19.5 million portfolio of callable
agency bonds, which had gross unrealized losses of $1.6 million at March 31,
2000 and at the end of 1999. Because of their call features, these bonds tend to
reflect depreciation regardless of bond market conditions as they will earn less
than current issues if interest rates rise, whereas if rates fall, they then may
be redeemed by the issuer. However, at the time of purchase, they have a higher
coupon rate than similar noncallable securities and the favorable spreads
provide compensation for the interest rate risk inherent in this investment due
to the call feature.
Management believes that holding the callable securities will not have a
significant impact upon the financial condition or operations of the
Corporation.
LOANS
Loans rose slightly at March 31, 2000 from December 31,1999 after reflecting
loan charge-offs, while loans held for sale at December 31, 1999 were all sold
during the first quarter. There were no loans originated for sale during the
first three months of 2000.
DEPOSITS
Total deposits rose $8.2 million, or 5.9% to $148 million at March 31, 2000 from
$139.8 million at the end of 1999, while average deposits rose 16.7%, to $145.8
million for the first quarter of 2000 from $124.9 million for the same quarter
of 1999. The major source of the deposit growth was from higher municipal time
deposit balances, although some of these funds came from municipal Super-NOW
accounts. Super NOW accounts averaged $18.7 million in the first quarter of
2000, a 20% decrease from the 1999 first quarter. Average demand deposits rose
$2.2 million, or 10.3% due primarily to increased commercial account activity.
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.
These municipal accounts represent a substantial part of the Bank's deposits,
tend to have high balance relationships and comprised most of the Bank's
accounts with balances of $100,000 or
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more at March 31, 2000. These accounts are used for operating and short-term
investment purposes. All the foregoing deposits require collateralization with
readily marketable U.S. Government securities.
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 withdrawal
of any of these deposits, these securities are readily marketable.
SHORT-TERM BORROWINGS
While total short-term borrowings decreased from $6 million at December 31, 1999
to $5.4 million at the end of the 2000 first quarter, the related average
balances were $3 million for the first three months of 1999 compared to $4.3
million for the first three months of 2000. These borrowings are comprised
primarily of U.S. Treasury tax and loan note option balances, which may be
withdrawn at any time.
LONG-TERM DEBT
Long-term debt decreased from $16.2 million at 1999 year-end to $11.7 million at
March 31, 2000, while average long-term debt declined from $15.7 million for the
first three months of 1999 to $13 million for the first quarter of 2000. The
decrease in average long-term debt occurred due to early redemptions of callable
Federal Home Loan Bank advances.
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.
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 for longer-term funding purposes.
The major contribution during the first quarter of 2000 from operating
activities to the Corporation's liquidity came from proceeds from sales of loans
held for sale, while the highest use of cash was for other assets.
Net cash used in investing activities was primarily the result of the purchase
of investment securities available for sale, while 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.
The primary source of funds from financing activities resulted from an increase
in deposits, while the highest use of cash in financing activities resulted from
early redemptions of callable long-term debt.
CAPITAL
Stockholders' equity amounted to $9 million at March 31, 2000 and at December
31, 1999 as preferred dividend payments and an increase in net unrealized
securities losses offset net income. Stockholders'
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equity as a percentage of total assets was 5.11% at March 31, 2000 compared to
5.23% at December 31, 1999.
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 March 31, 2000, the Corporation's core capital (Tier 1) and total (Tier 1
plus Tier 2) risked-based capital ratios were 9.80% and 13.00%, respectively.
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Due to the nature of the Corporation's business, market risk consists primarily
of its exposure to interest rate risk. Interest rate risk is the impact that
changes in interest rates have on earnings. The principal objective in managing
interest rate risk. Interest rate risk is to maximize net interest income within
the acceptable levels of risk that have been established by policy. There are
various strategies which may be used to reduce interest rate risk, including the
administration of liability costs, the reinvestment of asset maturities and the
use of off-balance sheet financial instruments. The Corporation has no risk
associated with off balance-sheet financial instruments.
Interest rate risk is monitored through the use of simulation modeling
techniques, which apply alternative interest rate scenarios to periodic
forecasts of changes in interest rates, projecting the related impact on net
interest income. The use of simulation modeling assists management in its
continuing efforts to achieve earnings growth in varying interest rate
environments.
Key assumptions in the model include anticipated prepayments on mortgage-related
instruments, contractual cash flows and maturities of all financial instruments,
deposit sensitivity and changes in interest rates.
These assumptions are inherently uncertain, and as a result, these models cannot
precisely estimate the effect that higher or lower rate environments will have
on net interest income. Actual results may differ from simulated projections due
to the timing, magnitude or frequency of interest rate changes, as well as
changes in management's strategies.
Based on the results of the most recent interest simulation model, if interest
rates increased or decreased 100 basis points from current rates in an immediate
and parallel shock, the Corporation would anticipate a decrease of $195,000 in
net interest income and a decrease of $168,000 in net interest income,
respectively. The results do not represent a material change from the amounts
previously reported as of December 31, 1999.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May of 1998, CNB commenced a lawsuit against an entity that acted as an agent
for CNB in the sale of CNB's money orders, and certain affiliates of such entity
for fraud and other damages. CNB alleges, among other things, that at various
times during its business relationship with the defendants, the defendants
stole, misappropriated, hypothecated or embezzled a sum of approximately
$805,000 from CNB. The defendants have responded alleging CNB records regarding
these transactions are in error and that CNB is liable to the defendants for
amounts due as a result of these errors and for damages incurred by the
defendants as a result of CNB's collection efforts. The amount of the
defendants' counterclaim has not been quantified. CNB has filed appropriate
proofs of loss under various insurance policies, including CNB's fidelity bond.
This litigation is currently in the midst of discovery. The likelihood
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of CNB's success in this litigation and its ability to recover any amount for
which it obtains judgment is uncertain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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).
13
<PAGE> 14
(10)(p) Amended and Restated Asset Purchase and Sale Agreement
between the Bank and Carver Federal Savings Bank dated as of
January 18, 2000 (incorporated herein by reference to Exhibit
10(d) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999).
(11) Statement regarding computation of per share earnings. The
required information is included on page 15.
(24) Power of Attorney is located on the signature page.
(27) Financial Data Schedule.
(c) No reports on Form 8-K were filed during the quarter ending March 31,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CITY NATIONAL BANCSHARES CORPORATION
(Registrant)
May 12, 2000 /s/ EDWARD R. WRIGHT
--------------------------
Edward R. Wright
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
14
<PAGE> 1
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
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---- ----
<S> <C> <C>
Net income $ 70 $ 306
Dividends paid on preferred stock 87 107
--------- --------
Net (loss) income applicable to basic
common shares (17) 199
Interest expense on dilutive convertible
subordinated debentures, net of
income tax - 3
--------- --------
Net (loss) income applicable to diluted shares ($ 17) $ 202
========= ========
Number of average common shares:
Basic 119,571 118,221
========= ========
Diluted:
Average common shares outstanding 119,571 118,221
Average dilutive convertible subordinated
debentures convertible to common shares - 13,850
--------- --------
119,571 132,071
========= ========
Net (loss) income per common share
Basic $ (.14) $ 1.68
Diluted (.14) 1.53
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 4,666 2,746
<INT-BEARING-DEPOSITS> 2,379 86
<FED-FUNDS-SOLD> 9,400 11,300
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 37,575 36,673
<INVESTMENTS-CARRYING> 31,199 28,669
<INVESTMENTS-MARKET> 29,409 28,257
<LOANS> 81,735 72,610
<ALLOWANCE> 929 1,075
<TOTAL-ASSETS> 175,687 158,076
<DEPOSITS> 148,049 125,637
<SHORT-TERM> 5,370 5,072
<LIABILITIES-OTHER> 1,570 1,623
<LONG-TERM> 11,725 15,749
0 0
1,047 1,547
<COMMON> 2,151 2,126
<OTHER-SE> 6,822 6,428
<TOTAL-LIABILITIES-AND-EQUITY> 175,687 158,076
<INTEREST-LOAN> 1,755 1,512
<INTEREST-INVEST> 1,253 1,028
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 3,008 2,540
<INTEREST-DEPOSIT> 1,384 914
<INTEREST-EXPENSE> 246 252
<INTEREST-INCOME-NET> 1,378 1,374
<LOAN-LOSSES> 304 43
<SECURITIES-GAINS> (13) 15
<EXPENSE-OTHER> 1,397 1,279
<INCOME-PRETAX> 43 465
<INCOME-PRE-EXTRAORDINARY> 43 465
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 70 306
<EPS-BASIC> (.14) 1.68
<EPS-DILUTED> (.14) 1.53
<YIELD-ACTUAL> 3.50 3.94
<LOANS-NON> 1,138 1,091
<LOANS-PAST> 114 347
<LOANS-TROUBLED> 0 1,261
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,975 1,415
<CHARGE-OFFS> 1,384 401
<RECOVERIES> 33 18
<ALLOWANCE-CLOSE> 929 1,075
<ALLOWANCE-DOMESTIC> 929 1,030
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 45
</TABLE>
