<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 June 30, 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 August 11, 2000 was approximately $1,537,775
There were 121,421 shares of common stock outstanding at August 11, 2000.
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<TABLE>
<CAPTION>
Index Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2000 and December 31, 1999 .............3
Consolidated Statement of Income for the Six Months Ended June 30, 2000
and 1999 and for the Three Months Ended June 30, 2000 and 1999....................4
Consolidated Statement of Changes in Stockholders' Equity for the Six
Months Ended June 30, 2000 and 1999...............................................5
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 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................................................................13
Item 4. Submission of matters to a vote of security holders..............................13
Item 6. Exhibits and Reports on Form 8-K.................................................13
Signatures ..............................................................................14
</TABLE>
2
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in thousands, except per share data 2000 1999
============================================================================================================================
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,485 $ 6,209
Federal funds sold 7,000 5,400
Interest bearing deposits with banks 122 2,286
Investment securities available for sale 36,376 35,458
Investment securities held to maturity (Market value of $29,143
at June 30, 2000 and $31,051 at December 31,1999) 30,860 33,017
Loans held for sale 113 405
Loans 85,250 82,446
Less: Reserve for loan losses 908 1,975
----------------------------------------------------------------------------------------------------------------------------
Net loans 84,342 80,471
----------------------------------------------------------------------------------------------------------------------------
Premises and equipment 3,583 3,709
Accrued interest receivable 1,410 1,295
Other real estate owned 642 698
Other assets 4,274 3,548
----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 175,207 $ 172,496
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 23,806 $ 20,625
Savings 61,196 34,719
Time 65,354 84,493
----------------------------------------------------------------------------------------------------------------------------
Total deposits 150,356 139,837
Short-term borrowings 2,501 6,000
Accrued expenses and other liabilities 1,393 1,408
Long-term debt 11,725 16,225
----------------------------------------------------------------------------------------------------------------------------
Total liabilities 165,975 163,470
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 3,208 shares in 2000 and 1999 820 820
Common stock, par value $10: Authorized 400,000 shares;
122,030 shares issued in 2000, and 120,130 shares issued in 1999
121,421 shared outstanding in 2000, and 119,571 shares outstanding in 1999 1,220 1,201
Surplus 968 950
Retained earnings 6,763 6,524
Accumulated other comprehensive (loss) income, net of tax (748) (679)
Treasury stock, at cost - 609 shares and 559 shares in 2000 and 1999, respectively (18) (17)
----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 9,232 9,026
----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 175,207 $ 172,496
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) JUNE 30, JUNE 30,
------------------------- ---------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 2000 1999 2000 1999
======================================================================================================================
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,797 $ 1,509 $ 3,552 $ 3,021
Interest on Federal funds sold and securities
purchased under agreements to resell 203 73 316 175
Interest on deposits with banks 8 - 37 24
Interest and dividends on investment securities:
Taxable 1,003 924 2,033 1,791
Tax-exempt 93 56 174 114
----------------------------------------------------------------------------------------------------------------------
Total interest income 3,104 2,562 6,112 5,125
----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,348 957 2,732 1,871
Interest on short-term borrowings 75 33 135 66
Interest on long-term debt 167 219 353 438
----------------------------------------------------------------------------------------------------------------------
Total interest expense 1,590 1,209 3,220 2,375
----------------------------------------------------------------------------------------------------------------------
Net interest income 1,514 1,353 2,892 2,750
Provision for loan losses 45 141 349 184
----------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 1,469 1,212 2,543 2,566
----------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME
Service charges on deposit accounts 160 149 303 276
Other income 201 206 437 477
Net gains (losses) on sales of investment securities 8 - (5) 15
----------------------------------------------------------------------------------------------------------------------
Total other operating income 369 355 735 768
----------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES
Salaries and other employee benefits 764 697 1,512 1,370
Occupancy expense 108 97 221 199
Equipment expense 127 106 231 206
Other expenses 465 373 897 777
----------------------------------------------------------------------------------------------------------------------
Total other operating expenses 1,464 1,273 2,861 2,552
----------------------------------------------------------------------------------------------------------------------
Income before income tax expense 374 294 417 782
Income tax expense 118 110 91 269
======================================================================================================================
NET INCOME $ 256 $ 184 $ 326 $ 513
======================================================================================================================
NET INCOME PER COMMON SHARE
Basic $ 2.11 $ 1.56 $ 1.98 $ 3.43
Diluted 1.92 1.42 1.82 3.12
======================================================================================================================
Basic average common shares outstanding 121,306 118,221 120,438 118,221
Diluted average common shares outstanding 135,156 132,071 134,288 132,071
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Common Preferred Retained Comprehensive Treasury
Dollars in thousands, except per share data Stock Surplus Stock Earnings Income (Loss) Stock Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $ 1,188 $ 938 $ 1,547 $ 6,442 $ 25 $ (17) $ 10,123
Comprehensive income:
Net income - - - 513 - - 513
Unrealized loss on securities available for sale,
net of tax - - - - (391) - (391)
---------
122
Total comprehensive income, net of tax
Dividends paid on preferred stock - - - (107) - - (107)
Dividends paid on common stock - - - (213) - - (213)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 $ 1,188 $ 938 $ 1,547 $ 6,635 ($ 366) $ (17) $ 9,925
====================================================================================================================================
BALANCE, DECEMBER 31, 1999 $ 1,201 $ 950 $ 1,047 $ 6,524 ($ 679) ($ 17) $ 9,026
Comprehensive income:
Net income - - - 326 - - 326
Unrealized loss on securities available for sale,
net of tax - - - - (69) - (69)
---------
Total comprehensive income, net of tax - - - - - - 257
Proceeds from issuance of common stock 19 18 - - - - 37
Purchase of treasury stock - - - - - (1) (1)
Dividends paid on preferred stock - - - (87) - - (87)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 $ 1,220 $ 968 $ 1,047 $ 6,763 ($ 748) ($ 18) $ 9,232
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
IN THOUSANDS 2000 1999
================================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net income $326 $513
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 229 199
Provision for loan losses 349 184
Premium amortization
on investment securities 12 38
Net losses (gains) on sales and early redemptions of investment securities 5 (15)
Gains on loans held for sale (10) (21)
Loans originated for sale (113) (380)
Proceeds from sales of loans held for sale 415 762
Increase in accrued interest receivable (115) (94)
Deferred income tax benefit (40) (12)
Increase in other assets (604) (111)
Decrease in accrued expenses and other liabilities (15) (30)
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 439 1,033
----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
(Increase) decrease in loans (4,220) 910
Increase (decrease) in interest bearing deposits with banks 2,164 (2,297)
Proceeds from maturities of investment securities available for sale,
including sales, principal payments and calls 2,235 11,692
Proceeds from maturities of investment securities held to maturity,
including sales, principal payments and calls 4,120 7,154
Purchases of investment securities available for sale (3,270) (16,143)
Purchases of investment securities held to maturity (1,978) (7,005)
Purchases of premises and equipment (103) (173)
Decrease in other real estate owned, net 56 61
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (996) (5,801)
----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Purchase of deposits 8,339 -
Decrease in long-term debt (4,500) -
Increase (decrease) in deposits 2,180 (11,027)
(Decrease) Increase in short-term borrowings (3,499) 5,982
Dividends paid on preferred stock (87) (107)
Dividends paid on common stock - (213)
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,433 (5,365)
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,876 (10,133)
Cash and cash equivalents at beginning of period 11,609 21,967
----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,485 $11,834
================================================================================================================
CASH PAID DURING THE YEAR:
Interest $3,306 $2,458
Income taxes 320 339
</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 and
six months ended June 30, 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 FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at June 30, 2000 increased to $175.2 million from $172.5 million at
the end of 1999, due primarily to the acquisition of a branch office with $8.3
million in deposits from a savings bank in Roosevelt, New York, offset in part
by early redemptions of long-term debt by the Federal Home Loan Bank. The
acquisition was the Corporation's first interstate purchase and, as a result,
City National Bank of New Jersey became the second interstate minority-owned
bank in the country.
Investments
The investment securities available for sale ("AFS") portfolio increased
slightly to $36.4 at June 30, 2000 from $35.5 million at the end of 1999, while
the net related unrealized loss rose to $748,000 from $679,000. The investments
held to maturity("HTM") portfolio decreased to $30.9 million at June 30, 2000
from $33 million at the end of 1999 due primarily to maturities that were not
reinvested in the portfolio. The related unrealized loss in the HTM portfolio
declined from $2 million at the end of 1999 to $1.7 million at June 30, 2000 and
included $1.3 million attributable to $18.5 million of callable agency bonds.
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 at par
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 $2.8 million, to $85.3 million at June 30, 2000 from December 31,1999
after reflecting loan charge-offs, while average loans increased 14.6% to $82.6
million for the first half of 2000 from $72.1 million in the first half of 1999.
Loans held for sale decreased to $113,000 at June 30, 2000 from $405,000 at the
December 31, 1999 All loans held for sale at the end of 1999 were sold during
the first quarter of 2000.
Provision and reserve for loan losses
Changes in the reserve for loan losses are set forth below.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 929 $1,075 $1,975 $1,075
Provision for loan losses 45 141 349 141
Recoveries of previous charge-offs 23 17 57 17
------ ------ ------ ------
997 1,233 2,381 1,233
Less: Charge-offs 89 33 1,473 33
------ ------ ------ ------
Balance at end of period $ 908 $1,200 $ 908 $ $1,200
====== ====== ====== ======
</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.
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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>
June 30, December 31, June 30,
(Dollars in thousands) 2000 1999 1999
------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve for loan
losses as a percentage of:
Total loans 1.07% 2.40% 1.70%
Total nonperforming loans 69.79% 71.40% 75.76%
Total nonperforming assets
(nonperforming loans and OREO) 46.73% 57.02% 56.79%
Net charge-offs as a percentage
of average loans (year-to-date) 1.71% .47% .55%
</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
and nonaccrual loans. 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>
June 30, December 31, June 30,
(Dollars in thousands) 2000 1999 1999
---------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans
Commercial $ 727 $2,093 $ 834
Installment 8 5 -
Real estate 324 441 406
------ ------ ------
Total 1,059 2,539 1,240
------ ------ ------
Loans past due 90 days
or more and still accruing
Commercial - - -
Installment 17 - -
Real estate 225 227 344
------ ------ ------
Total 242 227 344
------ ------ ------
Total nonperforming loans 1,301 2,766 1,584
------ ------ ------
Troubled debt restructurings - - 1,261
------ ------ ------
Total nonperforming loans and
troubled debt restructurings $1,252 $2,766 $2,845
====== ====== ======
</TABLE>
Nonperforming assets are generally secured by small commercial real estate
properties. Nonaccrual loans declined significantly during the 2000 first half
due to the charge-off in the first quarter of $1.3 million of impaired loans to
a single borrower that had previously been restructured.
There were no impaired loans at June 30, 2000, while impaired loans totalled
$1.3 million at December 31,1999, all of which were charged off in the first
quarter of 2000. The related reserves allocated to these
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loans amounted to $955,000 at December 31, 1999. Impaired loans averaged
$550,000 for the first half of 2000 and $190,000 for the first half of 1999.
DEPOSITS
Total deposits rose $10.6 million, or 7.6% to $150.4 million at June 30, 2000
from $139.8 million at the end of 1999, while average deposits rose 17.9%, to
$148.1.million for the first half of 2000 from $125.6 million for the first half
of 1999. The major sources of the growth in deposits were from the
aforementioned branch acquisition along with increased municipal time deposit
balances. Average demand deposits rose $3.7 million, or 17.9% due to increased
municipal and commercial account activity. Savings deposits rose to $61.2
million at June 30, 2000 from $34.7 million at the end of 1999, while time
deposits declined to $65.4 million at the end of June, 2000 from $84.5 million
at December 31, 1999. Both changes occurred due to shifts in municipal deposit
account balances.
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 more at June 30, 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 $2.5 million at the end of the 2000 second quarter, the average balances were
$2.9 million for the first six months of 1999 compared to $4.6 million for the
first half 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
June 30, 2000, while average long-term debt declined from $15.7 million for the
first six months of 1999 to $12.4 million for the first half of 2000. The
decreases occurred due to early redemptions of callable Federal Home Loan Bank
advances.
Capital
Stockholders' equity amounted to $9.2 million at June 30, 2000 compared to $9
million at December 31,1999, while stockholders' equity as a percentage of total
assets was 5.27% at June 30, 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 June 30, 2000, the Corporation's core capital (Tier 1) and total (Tier 1 plus
Tier 2) risked-based capital ratios were 9.61% and 11.23%, respectively.
RESULTS OF OPERATIONS
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Net income rose 39.1% to $256,000 for the second quarter of 2000 from $184,000
for the same 1999 quarter due primarily to an 11.9% increase in net interest
income. Related earnings per share on a diluted basis were $2.11 and $1.92. Net
income declined to $326,000 in the first half of 2000 from $513,000 for the
similar 1999 period due to an increased first quarter 2000 loan loss provision
compared to the first quarter of 1999. Related earnings per share on a diluted
basis decreased to $1.82 from $3.12.
Net interest income
In the first half of 2000, net interest income on a tax equialvent basis rose
5.2% from the same 1999 period, while the related net interest margins were
3.64% compared to 3.90%. The increased income resulted from higher levels of
earnings assets, while the lower interest margin was due to pressures from a
higher interest rate environment. Net interest income on a tax equivalent basis
rose 11.2% in the second quarter of 2000 compared to the second quarter of 1999,
while the net interest margin in the 2000 second quarter increased slightly to
3.89% compared to 3.86% a year ago.
Interest income on a tax equivalent basis rose 19.6% in the first half of 2000
compared to the first half of 1999 due to the increased earning asset levels.
Interest expense rose 35.6% between the same periods due to higher
interest-bearing liability levels. The yield on earning assets rose 39 basis
points, to 7.58% from 7.19%, while the average rated paid increased 72 basis
points, from 3.88% to 4.60% with both increases resulting from a higher interest
rate environment.
Other operating income
Other operating income, including the results of investment securities
transactions, was relatively unchanged in the second quarter of 2000 compared to
the similar 1999 period, while such income declined 4.3% during the six months
ended June 30, 2000.compared to the 1999 first half, due primarily to the
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 15% for the second quarter of 2000 to $1,464,000
from $1,273,000 in the second quarter of 1999, with the increase attributable
primarily to higher salaries and benefit expenses, along with increased
collection costs. Merit increases, along with staffing increases resulting from
product and branch expansion, contributed to the salary increase, while higher
health insurance costs was the primary cause for the higher benefit expense.
First half 2000 other operating expenses rose 12.1%, to $2,861,000 from
$2,552,000 a year earlier for the same reasons that caused the second quarter
increase, as well as from higher legal fees incurred in the first quarter of
2000 compared with the same quarter in 1999
Income tax expense
Income tax expense rose in the second quarter of 2000 from the similar 1999
quarter due to higher taxable income levels, while income tax expense as a
percentage of pretax income declined to 31.6% from 37.4% as a result of
increased tax-exempt income. Income tax expense for the first half of 2000
decreased from prior year levels due to lower taxable income levels, while
income tax expense as a percentage of pretax income decreased due to higher
tax-exempt interest income.
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
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<PAGE> 12
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 half 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 for loan originations, 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.
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 $60,000 in
net interest income and an increase of $31,000 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
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<PAGE> 13
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 of CNB's
success in this litigation and its ability to recover any amount for which it
obtains judgment is uncertain.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Stockholders of City National Bancshares Corporation
was held on May 25, 2000. The stockholders voted upon the election of one
person, named in the proxy statement, to serve as a director of the
Corporation for three years. The director was elected at the Annual Meeting
with 74,569 votes "For" and 182 votes "Abstained". There were no votes
"Against". The terms of the following directors were continued after the
Annual Meeting: Douglas E. Anderson, Barbara Bell-Coleman, Eugene Giscombe,
Norman Jeffries, Louis Prezeau and Lemar Whigham.
Stockholders also voted upon the ratification of the appointment of KPMG LLP as
independent auditors for the fiscal year ended December 31, 2000. Stockholders
voted 74,690 shares "For" the proposal and 61 votes "Abstained". There were no
votes "Against".
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).
13
<PAGE> 14
(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) Amended and Restated Asset Purchase and Sale Agreement between
the Bank and Carver Federal Savings Bank dated as of January 18,
2000 (incorporated by reference to Exhibit 10(d) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999).
(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 June 30,
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)
August 11, 2000 /s/ EDWARD R. WRIGHT
----------------------
Edward R. Wright
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
14
<PAGE> 15
EXHIBIT INDEX
(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) Amended and Restated Asset Purchase and Sale Agreement between
the Bank and Carver Federal Savings Bank dated as of January 18,
2000 (incorporated by reference to Exhibit 10(d) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999).
(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.
