##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year endedDecember 31, 2007
 or
 o
    
    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
  New Jersey
    
    22-2434751State or other jurisdiction of 
incorporation or organization
    
    (I.R.S. Employer
Identification No.)
  (Address of principal executive offices)
    
    (Zip Code)
 (973) 624-0865
  Title of each class
    
    Name of each exchange on which registered
  
  o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



PagePART IItem 1.
    
    Business
    
    
    1Item 1a
    
    Risk Factors
    
    
    3Item 2.
    
    Properties
    
    
    4Item 3.
    
    Legal Proceedings
    
    
    4Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    4PART IIItem 5.
    
    Market for the Registrants Common Equity and Related Stockholder Matters
    
    
    4Item 6.
    
    Selected Financial Data
    
    
    5Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    6  15Item 7a.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    15Item 8.
    
    Financial Statements and Supplementary Data
    
    
    16  32Item 9.
    
    Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
    
    
    33Item 9a.
    
    Controls and Procedures
    
    
    33PART IIIItem 10.
    
    Directors and Executive Officers of Registrant
    
    
    33Item 11.
    
    Executive Compensation
    
    
    33Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    33Item 13.
    
    Certain Relationships and Related Transactions
    
    
    33PART IVItem 14.
    
    Principal Accountant Fees and Services
    
    
    33Item 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    33  35Signatures
    
    
    
    
    36EX-31: CERTIFICATIONEX-32: CERTIFICATION
  II




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Part I
 
 Item 1. Business
 Description of business
 Competition
   Supervision and regulation
  Governmental policies and legislation
   1




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Bank holding company regulations
   de novo de novo de novo
 de novo de novo
 Regulation of bank subsidiary
   2




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##### Table of Contents



Community reinvestment
 Government policies
  Employees
  
 Item 1a. Risk factors
    Changes in interest rates
   3




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##### Table of Contents



Competition
  Regulation
   Changes in economic conditions within the Corporations market area
  
 Item 2. Properties
 Item 3. Legal Proceedings
  
 Item 4. Submission of matters to a vote of security holders
  
 Part II
 
 Item 5. Market for the registrants common equity and related stockholders matters
    Form 10-K
 The annual report filed with the Securities and Exchange Commission on Form 10-K is available
without charge upon written request to City National Bancshares Corporation, Edward R. Wright,
Senior Vice President and Chief Financial Officer, 900 Broad Street, Newark, New Jersey, 07102.
 Transfer Agent
   4




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##### Table of Contents



Item 6. Selected Financial Data
 Five-Year Summary
 Dollars in thousands, except per share data
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Year-end Balance Sheet dataTotal assets
    
    $
    449,748
    
    
    $
    395,217
    
    
    $
    363,541
    
    
    $
    325,412
    
    
    $
    236,440Gross loans
    
    
    232,824
    
    
    
    199,284
    
    
    
    179,093
    
    
    
    159,359
    
    
    
    131,771Allowance for loan losses
    
    
    3,000
    
    
    
    2,400
    
    
    
    2,165
    
    
    
    2,076
    
    
    
    2,145Investment securities
    
    
    157,556
    
    
    
    169,598
    
    
    
    149,1165
    
    
    
    142,470
    
    
    
    77,193Total deposits
    
    
    394,856
    
    
    
    342,416
    
    
    
    312,429
    
    
    
    280,863
    
    
    
    198,371Long-term debt
    
    
    19,800
    
    
    
    19,606
    
    
    
    20,700
    
    
    
    22,750
    
    
    
    19,318Stockholders equity
    
    
    28,872
    
    
    
    27,762
    
    
    
    25,142
    
    
    
    16,279
    
    
    
    14,311Income Statement dataInterest income
    
    
    25,978
    
    
    
    21,649
    
    
    
    18,173
    
    
    
    14,411
    
    
    
    12,084Interest expense
    
    
    14,233
    
    
    
    10,848
    
    
    
    7,280
    
    
    
    4,767
    
    
    
    3,266Net interest income
    
    
    11,745
    
    
    
    10,801
    
    
    
    10,893
    
    
    
    9,644
    
    
    
    8,818Provision for loan losses
    
    
    772
    
    
    
    279
    
    
    
    115
    
    
    
    144
    
    
    
    129Net interest income after provision
for loan losses
    
    
    10,973
    
    
    
    10,522
    
    
    
    10,778
    
    
    
    9,500
    
    
    
    8,689Other operating income
    
    
    2,694
    
    
    
    2,724
    
    
    
    2,136
    
    
    
    2,573
    
    
    
    2,605Other operating expenses
    
    
    11,428
    
    
    
    10,035
    
    
    
    9,717
    
    
    
    9,085
    
    
    
    8,847Income before income tax expense
    
    
    2,239
    
    
    
    3,211
    
    
    
    3,197
    
    
    
    2,988
    
    
    
    2,447Income tax expense
    
    
    372
    
    
    
    743
    
    
    
    862
    
    
    
    862
    
    
    
    726Net income
    
    $
    1,867
    
    
    $
    2,468
    
    
    $
    2,335
    
    
    $
    2,126
    
    
    $
    1,721Per common share dataNet income per basic share
    
    $
    8.28
    
    
    $
    13.04
    
    
    $
    16.20
    
    
    $
    15.52
    
    
    $
    12.94Net income per diluted share
    
    
    8.09
    
    
    
    12.54
    
    
    
    15.52
    
    
    
    15.52
    
    
    
    12.55Book value
    
    
    141.04
    
    
    
    129.88
    
    
    
    118.23
    
    
    
    113.79
    
    
    
    100.89Dividends declared
    
    
    3.50
    
    
    
    3.25
    
    
    
    3.00
    
    
    
    2.75
    
    
    
    2.50Basic average number of common shares
outstanding
    
    
    132,306
    
    
    
    133,246
    
    
    
    133,654
    
    
    
    132,646
    
    
    
    127,854Diluted average number of common shares
outstanding
    
    
    148,623
    
    
    
    143,924
    
    
    
    139,511
    
    
    
    132,646
    
    
    
    132,129Number of common shares outstanding at year-end
    
    
    131,987
    
    
    
    132,926
    
    
    
    133,650
    
    
    
    133,866
    
    
    
    131,469Financial ratiosReturn on average assets
    
    
    .44
    %
    
    
    .65
    %
    
    
    .66
    %
    
    
    .71
    %
    
    
    .75
    %Return on average common equity
    
    
    6.35
    
    
    
    10.90
    
    
    
    13.83
    
    
    
    14.90
    
    
    
    13.21Stockholders equity as a percentage of total assets
    
    
    6.42
    
    
    
    6.96
    
    
    
    6.92
    
    
    
    5.00
    
    
    
    6.05Common dividend payout ratio
    
    
    42.22
    
    
    
    25.92
    
    
    
    19.33
    
    
    
    17.72
    
    
    
    19.32
 5




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary statement concerning forward-looking statements
  Executive summary
      Cash and due from banks
 Federal funds sold
  Interest-bearing deposits with banks
  Investments
   6




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Investment Securities Available for Sale
 Maturing After One
    
    Maturing After FiveMaturing Within
    
    Year But Within
    
    Years But Within
    
    Maturing AfterOne Year
    
    Five Years
    
    Ten Years
    
    Ten Years
    
    Total
    
    TotalDollars in thousands
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldU.S. Treasury securities and
obligations of U.S.
government agencies
    
    $
    3,252
    
    
    
    4.05
    %
    
    $
    
    
    
    
    
    %
    
    $
    91
    
    
    
    6.01
    %
    
    $
    3,517
    
    
    
    5.30
    %
    
    $
    6,860
    
    
    
    4.72
    %Obligations of U.S. government sponsored entities
    
    
    4,957
    
    
    
    4.06
    
    
    
    2,998
    
    
    
    4.33
    
    
    
    
    
    
    
    
    
    
    
    2,889
    
    
    
    6.40
    
    
    
    10,844
    
    
    
    4.74Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    3,569
    
    
    
    4.16
    
    
    
    5,965
    
    
    
    4.38
    
    
    
    65,106
    
    
    
    5.28
    
    
    
    74,640
    
    
    
    5.15Obligations of state and
political and subdivisions
    
    
    
    
    
    
    
    
    
    
    551
    
    
    
    5.39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    551
    
    
    
    5.39Other debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    4.00
    
    
    
    8,618
    
    
    
    6.33
    
    
    
    9,618
    
    
    
    6.09Total amortized cost
    
    $
    8,209
    
    
    
    4.05
    %
    
    $
    7,118
    
    
    
    4.32
    %
    
    $
    7,056
    
    
    
    4.35
    %
    
    $
    80,130
    
    
    
    5.43
    %
    
    $
    102,513
    
    
    
    5.31
    %
 Investment Securities Held to Maturity
 Maturing After One
    
    Maturing After FiveMaturing Within
    
    Year But Within
    
    Years But Within
    
    Maturing AfterOne Year
    
    Five Years
    
    Ten Years
    
    Ten Years
    
    Total
    
    TotalDollars in thousands
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldObligations of U.S. government sponsored entities
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    1,500
    
    
    
    5.13
    %
    
    $
    13,094
    
    
    
    5.77
    %
    
    $
    14,594
    
    
    
    5.70
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    5.21
    
    
    
    4,872
    
    
    
    5.34
    
    
    
    5,175
    
    
    
    5.35Obligations of state and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    5,135
    
    
    
    5.82
    
    
    
    14,829
    
    
    
    5.95
    
    
    
    11,702
    
    
    
    6.47
    
    
    
    31,665
    
    
    
    6.12Other debt securities
    
    
    
    
    
    
    
    
    
    
    2,004
    
    
    
    8.05
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    6.39
    
    
    
    2,504
    
    
    
    7.72Total amortized cost
    
    $
    
    
    
    
    
    %
    
    $
    7,139
    
    
    
    6.44
    %
    
    $
    16,631
    
    
    
    6.08
    %
    
    $
    30,168
    
    
    
    5.95
    %
    
    $
    53,938
    
    
    
    6.01
    %
  
 
    Investment Securities Available for Sale
 2007
    
    2006
    
    2005Amortized
    
    Market
    
    Amortized
    
    Market
    
    Amortized
    
    MarketIn thousands
    
    Cost
    
    Value
    
    Cost
    
    Value
    
    Cost
    
    ValueU.S. Treasury securities and obligations
of U.S. government agencies
    
    $
    6,860
    
    
    $
    6,832
    
    
    $
    2,080
    
    
    $
    2,080
    
    
    $
    3,831
    
    
    $
    3,831Obligations of U.S. government sponsored entities
    
    
    10,844
    
    
    
    10,895
    
    
    
    37,840
    
    
    
    37,414
    
    
    
    29,328
    
    
    
    28,899Obligations of state and political subdivisions
    
    
    551
    
    
    
    557
    
    
    
    3,395
    
    
    
    3,437
    
    
    
    943
    
    
    
    998Mortgage-backed securities
    
    
    74,640
    
    
    
    74,273
    
    
    
    64,519
    
    
    
    63,342
    
    
    
    70,834
    
    
    
    69,636Other debt securities
    
    
    9,618
    
    
    
    8,968
    
    
    
    7,874
    
    
    
    7,859
    
    
    
    4,424
    
    
    
    4,427Equity securities:Marketable securities
    
    
    646
    
    
    
    618
    
    
    
    618
    
    
    
    586
    
    
    
    589
    
    
    
    558Nonmarketable securities
    
    
    115
    
    
    
    115
    
    
    
    115
    
    
    
    115
    
    
    
    115
    
    
    
    115Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    1,360
    
    
    
    1,360
    
    
    
    1,285
    
    
    
    1,285
    
    
    
    1,261
    
    
    
    1,261Total
    
    $
    104,634
    
    
    $
    103,618
    
    
    $
    117,726
    
    
    $
    116,118
    
    
    $
    111,325
    
    
    $
    109,725
 Investment Securities Held to Maturity
 2007
    
    2006
    
    2005Amortized
    
    Market
    
    Amortized
    
    Market
    
    Amortized
    
    MarketIn thousands
    
    Cost
    
    Value
    
    Cost
    
    Value
    
    Cost
    
    ValueU.S. Treasury securities and obligations
of U.S. government agencies
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8
    
    
    $
    8Obligations of U.S. government sponsored entities
    
    
    14,594
    
    
    
    14,522
    
    
    
    14,753
    
    
    
    14,417
    
    
    
    9,000
    
    
    
    8,776Mortgage-backed securities
    
    
    5,175
    
    
    
    5,132
    
    
    
    5,177
    
    
    
    5,027
    
    
    
    6,837
    
    
    
    6,759Obligations of state and political subdivisions
    
    
    31,665
    
    
    
    31,868
    
    
    
    31,042
    
    
    
    31,273
    
    
    
    21,563
    
    
    
    21,710Other debt securities
    
    
    2,504
    
    
    
    2,483
    
    
    
    2,508
    
    
    
    2,615
    
    
    
    2,011
    
    
    
    2,174Total
    
    $
    53,938
    
    
    $
    54,005
    
    
    $
    53,480
    
    
    $
    53,332
    
    
    $
    39,419
    
    
    $
    39,427
 7




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##### Table of Contents



Consolidated Average Balance Sheet with Related Interest and Rates
 2007
    
    2006
    
    2005Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AverageTax equivalent basis; dollars in thousands
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateAssetsInterest earning assets:Federal funds sold and securities purchased
under agreements to resell
    
    $
    28,179
    
    
    $
    1,392
    
    
    
    4.94
    %
    
    $
    19,575
    
    
    $
    940
    
    
    
    4.80
    %
    
    $
    23,850
    
    
    $
    759
    
    
    
    3.18
    %Interest-bearing deposits with banks1
    
    
    1,429
    
    
    
    90
    
    
    
    6.30
    
    
    
    950
    
    
    
    69
    
    
    
    7.26
    
    
    
    862
    
    
    
    35
    
    
    
    4.06Investment securities2:Taxable
    
    
    126,327
    
    
    
    6,613
    
    
    
    5.23
    
    
    
    121,173
    
    
    
    5,851
    
    
    
    4.83
    
    
    
    127,919
    
    
    
    5,707
    
    
    
    4.46Tax-exempt
    
    
    34,095
    
    
    
    2,080
    
    
    
    6.10
    
    
    
    29,444
    
    
    
    1,801
    
    
    
    6.12
    
    
    
    15,800
    
    
    
    1,049
    
    
    
    6.64Total investment securities
    
    
    160,422
    
    
    
    8,693
    
    
    
    5.42
    
    
    
    150,617
    
    
    
    7,652
    
    
    
    5.08
    
    
    
    143,719
    
    
    
    6,756
    
    
    
    4.70Loans 3, 4Commercial 7
    
    
    38,882
    
    
    
    2,640
    
    
    
    6.79
    
    
    
    26,255
    
    
    
    1,901
    
    
    
    7.24
    
    
    
    22,437
    
    
    
    1,413
    
    
    
    6.30Real estate
    
    
    178,579
    
    
    
    13,753
    
    
    
    7.70
    
    
    
    160,887
    
    
    
    11,577
    
    
    
    7.20
    
    
    
    142,379
    
    
    
    9,432
    
    
    
    6.62Installment
    
    
    1,576
    
    
    
    117
    
    
    
    7.30
    
    
    
    1,565
    
    
    
    124
    
    
    
    7.92
    
    
    
    1,453
    
    
    
    135
    
    
    
    9.29Total loans
    
    
    219,037
    
    
    
    16,510
    
    
    
    7.54
    
    
    
    188,707
    
    
    
    13,602
    
    
    
    7.21
    
    
    
    166,269
    
    
    
    10,980
    
    
    
    6.60Total interest earning assets
    
    
    409,067
    
    
    
    26,685
    
    
    
    6.52
    
    
    
    359,849
    
    
    
    22,263
    
    
    
    6.19
    
    
    
    334,700
    
    
    
    18,530
    
    
    
    5.54Noninterest earning assets:Cash and due from banks
    
    
    7,591
    
    
    
    
    
    
    
    
    
    
    
    6,983
    
    
    
    
    
    
    
    
    
    
    
    6,743Net unrealized loss on investment
securities available for sale
    
    
    (1,806
    )
    
    
    
    
    
    
    
    
    
    
    (2,221
    )
    
    
    
    
    
    
    
    
    
    
    (526
    )Allowance for loan losses
    
    
    (2,529
    )
    
    
    
    
    
    
    
    
    
    
    (2,256
    )
    
    
    
    
    
    
    
    
    
    
    (2,283
    )Other assets
    
    
    15,597
    
    
    
    
    
    
    
    
    
    
    
    14,889
    
    
    
    
    
    
    
    
    
    
    
    13,516Total noninterest earning assets
    
    
    18,853
    
    
    
    
    
    
    
    
    
    
    
    17,395
    
    
    
    
    
    
    
    
    
    
    
    17,450Total assets
    
    $
    427,920
    
    
    
    
    
    
    
    
    
    
    $
    377,244
    
    
    
    
    
    
    
    
    
    
    $
    352,150Liabilities and stockholders equityInterest bearing liabilities:Demand deposits
    
    $
    37,804
    
    
    $
    737
    
    
    
    1.95
    %
    
    $
    34,366
    
    
    $
    517
    
    
    
    1.50
    %
    
    $
    33,487
    
    
    $
    145
    
    
    
    .43
    %Money market deposits
    
    
    108,498
    
    
    
    4,324
    
    
    
    3.99
    
    
    
    88,869
    
    
    
    3,552
    
    
    
    4.00
    
    
    
    79,342
    
    
    
    2,193
    
    
    
    2.76Savings deposits5
    
    
    29,881
    
    
    
    157
    
    
    
    .53
    
    
    
    32,101
    
    
    
    168
    
    
    
    .52
    
    
    
    34,193
    
    
    
    180
    
    
    
    .53Time deposits
    
    
    159,059
    
    
    
    7,676
    
    
    
    4.83
    
    
    
    130,293
    
    
    
    5,180
    
    
    
    3.98
    
    
    
    120,956
    
    
    
    3,452
    
    
    
    2.85Total interest bearing deposits
    
    
    335,242
    
    
    
    12,894
    
    
    
    3.85
    
    
    
    285,629
    
    
    
    9,417
    
    
    
    3.30
    
    
    
    267,978
    
    
    
    5,970
    
    
    
    2.23Short-term borrowings
    
    
    537
    
    
    
    23
    
    
    
    4.28
    
    
    
    2,460
    
    
    
    128
    
    
    
    5.20
    
    
    
    2,475
    
    
    
    85
    
    
    
    3.43Long-term debt
    
    
    21,613
    
    
    
    1,316
    
    
    
    6.09
    
    
    
    20,599
    
    
    
    1,303
    
    
    
    6.33
    
    
    
    22,213
    
    
    
    1,225
    
    
    
    5.52Total interest bearing liabilities
    
    
    357,392
    
    
    
    14,233
    
    
    
    3.98
    
    
    
    308,688
    
    
    
    10,848
    
    
    
    3.51
    
    
    
    292,666
    
    
    
    7,280
    
    
    
    2.49Noninterest bearing liabilities:Demand deposits
    
    
    37,393
    
    
    
    
    
    
    
    
    
    
    
    37,792
    
    
    
    
    
    
    
    
    
    
    
    34,793Other liabilities
    
    
    5,588
    
    
    
    
    
    
    
    
    
    
    
    5,388
    
    
    
    
    
    
    
    
    
    
    
    5,377Total noninterest bearing liabilities
    
    
    42,981
    
    
    
    
    
    
    
    
    
    
    
    43,180
    
    
    
    
    
    
    
    
    
    
    
    40,170Stockholders equity
    
    
    27,547
    
    
    
    
    
    
    
    
    
    
    
    25,376
    
    
    
    
    
    
    
    
    
    
    
    19,314Total liabilities and stockholders equity
    
    $
    427,920
    
    
    
    
    
    
    
    
    
    
    $
    377,244
    
    
    
    
    
    
    
    
    
    
    $
    352,150Net interest income (tax equivalent basis)
    
    
    
    
    
    
    12,452
    
    
    
    2.54
    
    
    
    
    
    
    
    11,415
    
    
    
    2.68
    
    
    
    
    
    
    
    11,250
    
    
    
    3.05Tax equivalent basis adjustment6
    
    
    
    
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    (615
    )
    
    
    
    
    
    
    
    
    
    
    (357
    )Net interest income8
    
    
    
    
    
    $
    11,745
    
    
    
    
    
    
    
    
    
    
    $
    10,800
    
    
    
    
    
    
    
    
    
    
    $
    10,893Average rate paid to fund interest earning
Assets
    
    
    
    
    
    
    
    
    
    
    3.48
    
    
    
    
    
    
    
    
    
    
    
    3.01
    
    
    
    
    
    
    
    
    
    
    
    2.18Net interest income as a percentage of
interest earning assets (tax equivalent
basis)
    
    
    
    
    
    
    
    
    
    
    3.04
    
    
    
    
    
    
    
    
    
    
    
    3.18
    %
    
    
    
    
    
    
    
    
    
    
    3.36
    %
 1
    
    Includes $39,000 in 2007, $42,000 in 2006 and $20,000 in 2005, representing income received
under the U.S. Treasury Departments Bank Enterprise Award certificate of deposit program.2
    
    Includes investment securities available for sale and held to maturity.3
    
    Includes nonperforming loans.4
    
    Includes loan fees of $611,000, $428,000 and $491,000 in 2007, 2006 and 2005 respectively.5
    
    Includes noninterest bearing deposits maintained by a state governmental agency of $- in 2007
and 2006 and $194,000 in 2005 and all passbook and statement saving accounts.6
    
    The tax equivalent adjustment was computed assuming a 34% statutory federal income tax rate
in 2007, 2006 and 2005.7
    
    Includes $336,000 in 2007, $64,000 in 2006 and $54,000 in 2005 representing income received
under the U.S. Treasury Departments Bank Enterprise Award loan program.8
    
    The total yield enhancements on the interest bearing deposits with banks and loans increased
net interest income by nine basis points in 2007 and 2006 and three basis points in 2005. 8




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##### Table of Contents



2007 Net Interest Income Increase
    
    2006 Net Interest Income Increase(Decrease) from 2006 due to:
    
    (Decrease) from 2005 due to:In thousands
    
    Volume
    
    Rate
    
    Total
    
    Volume
    
    Rate
    
    TotalInterest incomeLoans:Commercial
    
    $
    914
    
    
    $
    (175
    )
    
    $
    739
    
    
    $
    238
    
    
    $
    250
    
    
    $
    488Real estate
    
    
    1,274
    
    
    
    902
    
    
    
    2,176
    
    
    
    1,225
    
    
    
    920
    
    
    
    2,145Installment
    
    
    87
    
    
    
    (94
    )
    
    
    (7
    )
    
    
    14
    
    
    
    (25
    )
    
    
    (11
    )Total loans
    
    
    2,275
    
    
    
    633
    
    
    
    2,908
    
    
    
    1,477
    
    
    
    1,145
    
    
    
    2,622Taxable investment securities
    
    
    249
    
    
    
    513
    
    
    
    762
    
    
    
    (301
    )
    
    
    445
    
    
    
    144Tax-exempt investment securities
    
    
    285
    
    
    
    (6
    )
    
    
    279
    
    
    
    906
    
    
    
    (154
    )
    
    
    752Federal funds sold and securities
purchased under agreements to resell
    
    
    413
    
    
    
    39
    
    
    
    452
    
    
    
    (136
    )
    
    
    317
    
    
    
    181Interest-bearing deposits with banks
    
    
    35
    
    
    
    (14
    )
    
    
    21
    
    
    
    4
    
    
    
    30
    
    
    
    34Total interest income
    
    
    3,257
    
    
    
    1,165
    
    
    
    4,422
    
    
    
    1,950
    
    
    
    1,783
    
    
    
    3,733Interest expenseDemand deposits
    
    
    (52
    )
    
    
    (168
    )
    
    
    (220
    )
    
    
    (1
    )
    
    
    (371
    )
    
    
    (372
    )Savings deposits
    
    
    12
    
    
    
    (1
    )
    
    
    11
    
    
    
    11
    
    
    
    1
    
    
    
    12Money market deposits
    
    
    (785
    )
    
    
    13
    
    
    
    (772
    )
    
    
    (263
    )
    
    
    (1,096
    )
    
    
    (1,359
    )Time deposits
    
    
    (1,145
    )
    
    
    (1,351
    )
    
    
    (2,496
    )
    
    
    (266
    )
    
    
    (1,462
    )
    
    
    (1,728
    )Short-term borrowings
    
    
    100
    
    
    
    5
    
    
    
    105
    
    
    
    
    
    
    
    (43
    )
    
    
    (43
    )Long-term debt
    
    
    (64
    )
    
    
    51
    
    
    
    (13
    )
    
    
    89
    
    
    
    (167
    )
    
    
    (78
    )Total interest expense
    
    
    (1,934
    )
    
    
    (1,451
    )
    
    
    (3,385
    )
    
    
    (430
    )
    
    
    (3,138
    )
    
    
    (3,568
    )Net interest income
    
    $
    1,323
    
    
    $
    (286
    )
    
    $
    1,037
    
    
    $
    1,520
    
    
    $
    (1,355
    )
    
    $
    165
  Loans
 Maturities and interest sensitivities of loans
  Due fromOne YearDue in One
    
    Through
    
    Due AfterIn thousands
    
    Year or Less
    
    Five Years
    
    Five Years
    
    TotalCommercial
    
    $
    23,191
    
    
    $
    8,260
    
    
    $
    13,053
    
    
    $
    44,504Real estate:Construction
    
    
    30,655
    
    
    
    7,292
    
    
    
    
    
    
    
    37,947Mortgage
    
    
    11,577
    
    
    
    25,529
    
    
    
    112,206
    
    
    
    149,312Installment
    
    
    410
    
    
    
    433
    
    
    
    218
    
    
    
    1,061Total
    
    $
    65,833
    
    
    $
    41,514
    
    
    $
    125,477
    
    
    $
    232,824Loans at fixed
interest rates
    
    $
    15,890
    
    
    $
    24,616
    
    
    $
    33,244
    
    
    $
    73,750Loans at variable
interest rates
    
    
    49,943
    
    
    
    16,898
    
    
    
    92,233
    
    
    
    159,074Total
    
    $
    65,833
    
    
    $
    41,514
    
    
    $
    125,477
    
    
    $
    232,824
    In thousands
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Commercial
    
    $
    44,504
    
    
    $
    32,572
    
    
    $
    2,536
    
    
    $
    16,450
    
    
    $
    20,052Real estate
    
    
    187,447
    
    
    
    165,828
    
    
    
    155,711
    
    
    
    142,085
    
    
    
    110,802Installment
    
    
    1,061
    
    
    
    1,176
    
    
    
    1,261
    
    
    
    1,171
    
    
    
    1,035Total loans
    
    
    233,012
    
    
    
    199,576
    
    
    
    179,508
    
    
    
    159,706
    
    
    
    131,889Less: Unearned income
    
    
    188
    
    
    
    292
    
    
    
    291
    
    
    
    347
    
    
    
    118Loans
    
    $
    232,824
    
    
    $
    199,284
    
    
    $
    179,217
    
    
    $
    159,359
    
    
    $
    131,771
 9




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##### Table of Contents



Summary of loan loss experience
  Dollars in thousands
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Balance, January 1
    
    $
    2,400
    
    
    $
    2,165
    
    
    $
    2,076
    
    
    $
    2,145
    
    
    $
    2,045Charge-offs:Commercial loans
    
    
    118
    
    
    
    108
    
    
    
    68
    
    
    
    229
    
    
    
    164Real estate loans
    
    
    22
    
    
    
    2
    
    
    
    
    
    
    
    8
    
    
    
    Installment loans
    
    
    66
    
    
    
    39
    
    
    
    16
    
    
    
    9
    
    
    
    43Total
    
    
    206
    
    
    
    149
    
    
    
    84
    
    
    
    246
    
    
    
    207Recoveries:Commercial loans
    
    
    2
    
    
    
    87
    
    
    
    5
    
    
    
    23
    
    
    
    89Real estate loans
    
    
    2
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    73Installment loans
    
    
    30
    
    
    
    18
    
    
    
    24
    
    
    
    10
    
    
    
    16Total
    
    
    34
    
    
    
    105
    
    
    
    58
    
    
    
    33
    
    
    
    178Net (charge-offs) recoveries
    
    
    (172
    )
    
    
    (44
    )
    
    
    (26
    )
    
    
    (213
    )
    
    
    (29
    )Provision for loan
losses charged to operations
    
    
    772
    
    
    
    279
    
    
    
    115
    
    
    
    144
    
    
    
    129Balance, December 31
    
    $
    3,000
    
    
    $
    2,400
    
    
    $
    2,165
    
    
    $
    2,076
    
    
    $
    2,145Net charge-offs as a
percentage of average loans
    
    
    .08
    %
    
    
    .03
    %
    
    
    .02
    %
    
    
    .15
    %
    
    
    .02
    %Allowance for loan losses as a
percentage of loans
    
    
    1.29
    
    
    
    1.20
    
    
    
    1.21
    
    
    
    1.30
    
    
    
    1.63Allowance for loan losses as a
percentage of nonperforming loans
    
    
    37.67
    
    
    
    40.45
    
    
    
    107.39
    
    
    
    171.15
    
    
    
    140.56
  
 Allocation of the allowance for loan losses
   2007
    
    2006
    
    2005
    
    2004
    
    2003Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    Percentageof Loan
    
    
    
    
    
    of Loan
    
    
    
    
    
    of Loan
    
    
    
    
    
    of Loan
    
    
    
    
    
    of LoanCategory
    
    
    
    
    
    Category
    
    
    
    
    
    Category
    
    
    
    
    
    Category
    
    
    
    
    
    Categoryto Gross
    
    
    
    
    
    to Gross
    
    
    
    
    
    to Gross
    
    
    
    
    
    to Gross
    
    
    
    
    
    to GrossDollars in thousands
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    LoansCommercial
    
    $
    1,098
    
    
    
    19.11
    %
    
    $
    730
    
    
    
    16.32
    %
    
    $
    626
    
    
    
    13.14
    %
    
    $
    567
    
    
    
    10.32
    %
    
    $
    686
    
    
    
    15.22
    %Real estate
    
    
    1,709
    
    
    
    80.43
    
    
    
    1,427
    
    
    
    83.09
    
    
    
    1,174
    
    
    
    86.39
    
    
    
    1,120
    
    
    
    88.94
    
    
    
    798
    
    
    
    84.00Installment
    
    
    91
    
    
    
    .46
    
    
    
    21
    
    
    
    .49
    
    
    
    25
    
    
    
    .47
    
    
    
    35
    
    
    
    .74
    
    
    
    75
    
    
    
    .78Unallocated
    
    
    102
    
    
    
    
    
    
    
    222
    
    
    
    
    
    
    
    340
    
    
    
    
    
    
    
    354
    
    
    
    
    
    
    
    586
    
    
    
    Total
    
    $
    3,000
    
    
    
    100.00
    %
    
    $
    2,400
    
    
    
    100.00
    %
    
    $
    2,165
    
    
    
    100.00
    %
    
    $
    2,076
    
    
    
    100.00
    %
    
    $
    2,145
    
    
    
    100.00
    %
  
 
   10




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##### Table of Contents



Nonperforming assets
  In thousands
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Loans past due 90 days or more and
still accruingCommercial
    
    $
    43
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Real estate
    
    
    377
    
    
    
    1,254
    
    
    
    162
    
    
    
    218
    
    
    
    224Installment
    
    
    18
    
    
    
    5
    
    
    
    7
    
    
    
    4
    
    
    
    6Loans past due 90 days or more and
still accruing
    
    
    438
    
    
    
    1,259
    
    
    
    169
    
    
    
    222
    
    
    
    230Nonaccrual loansCommercial
    
    
    1,996
    
    
    
    797
    
    
    
    742
    
    
    
    146
    
    
    
    314Real estate
    
    
    5,485
    
    
    
    3,899
    
    
    
    1,020
    
    
    
    763
    
    
    
    670Installment
    
    
    45
    
    
    
    38
    
    
    
    85
    
    
    
    82
    
    
    
    22Total nonaccrual loans
    
    
    7,526
    
    
    
    4,734
    
    
    
    1,847
    
    
    
    991
    
    
    
    1,006Total nonperforming loans
    
    
    7,964
    
    
    
    5,993
    
    
    
    2,016
    
    
    
    1,213
    
    
    
    1,236Other real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    7,964
    
    
    $
    5,993
    
    
    $
    2,016
    
    
    $
    1,213
    
    
    $
    1,236
  Deposits
 Short-term borrowings
   Long-term debt
  Results of operations  2007 compared with 2006
   11




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##### Table of Contents



Liquidity
 Contractual obligations
   Commitments, contingent liabilities, and off-balance sheet arrangements
  One toOne Year
    
    Three
    
    Three toIn thousands
    
    or Less
    
    Years
    
    Five Years
    
    TotalCommitments to extend credit:Commercial loans and lines of credit
    
    $
    39,703
    
    
    $
    
    
    
    $
    
    
    
    $
    39,703Commercial mortgages
    
    
    39,451
    
    
    
    
    
    
    
    
    
    
    
    39,451Credit cards
    
    
    
    
    
    
    
    
    
    
    692
    
    
    
    692Residential mortgages
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    252Home equity and other revolving lines of credit
    
    
    1,109
    
    
    
    
    
    
    
    
    
    
    
    1,109Standby letters of credit
    
    
    139
    
    
    
    
    
    
    
    
    
    
    
    139
   12




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##### Table of Contents



Effects of inflation
    Interest rate sensitivity
 
   Interest Sensitivity Gap Analysis
 December 31, 2007One Year
    
    One Year
    
    Two Years
    
    Three Years
    
    Four Years
    
    Five Years
    
    More thanto
    
    to
    
    to
    
    to
    
    toIn thousands
    
    Or Less
    
    Two Years
    
    Three Years
    
    Four Years
    
    Five Years
    
    Ten Years
    
    Ten Years
    
    TotalInterest earning assets:Federal funds sold and securities
purchased under agreements
to resell
    
    $
    22,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,000Interest-bearing deposits with
banks
    
    
    278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    278Investment securities
    
    
    51,018
    
    
    
    14,980
    
    
    
    5,940
    
    
    
    12,520
    
    
    
    9,950
    
    
    
    30,291
    
    
    
    33,873
    
    
    
    158,572Loans
    
    
    125,639
    
    
    
    36,005
    
    
    
    21,947
    
    
    
    11,377
    
    
    
    14,070
    
    
    
    16,493
    
    
    
    7,293
    
    
    
    232,824198,935
    
    
    
    50,985
    
    
    
    27,887
    
    
    
    23,897
    
    
    
    24,020
    
    
    
    46,784
    
    
    
    41,166
    
    
    
    413,674Interest bearing liabilities:Deposits:Savings
    
    
    200,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,996Time
    
    
    107,193
    
    
    
    19,051
    
    
    
    15,126
    
    
    
    7,078
    
    
    
    4,012
    
    
    
    5,446
    
    
    
    1,411
    
    
    
    159,317Short-term borrowings
    
    
    1,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,150Long-term debt
    
    
    11,600
    
    
    
    1,500
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    5,000
    
    
    
    19,800320,939
    
    
    
    20,551
    
    
    
    16,626
    
    
    
    7,078
    
    
    
    4,012
    
    
    
    5,646
    
    
    
    6,411
    
    
    
    381,263Asset (liability) sensitivity gap:Period gap
    
    $
    (122,004
    )
    
    $
    30,434
    
    
    $
    11,261
    
    
    $
    16,819
    
    
    $
    20,008
    
    
    $
    41,138
    
    
    $
    34,755
    
    
    $
    32,411Cumulative gap
    
    
    (122,004
    )
    
    
    (91,570
    )
    
    
    (80,309
    )
    
    
    (63,490
    )
    
    
    (43,482
    )
    
    
    (2,344
    )
    
    
    32,411
    
    
    
    
  
 
   13




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##### Table of Contents



Capital
  Consolidated
    
    Bank OnlyDecember 31,
    
    December 31,Dollars in thousands
    
    2007
    
    2006
    
    2007
    
    2006Total stockholders equity
    
    $
    28,872
    
    
    $
    27,427
    
    
    $
    29,155
    
    
    $
    25,228Net unrealized loss
on investment securities
available for sale
    
    
    623
    
    
    
    978
    
    
    
    623
    
    
    
    978Net unrealized loss on
equity securities available
for sale
    
    
    (17
    )
    
    
    (19
    )
    
    
    (17
    )
    
    
    (19
    )Disallowed intangibles
    
    
    (1,254
    )
    
    
    (727
    )
    
    
    (1,254
    )
    
    
    (727
    )Qualifiying trust preferred
securities
    
    
    4,000
    
    
    
    7,000
    
    
    
    
    
    
    
    Tier 1 capital
    
    
    32,226
    
    
    
    34,659
    
    
    
    28,507
    
    
    
    25,460Qualifying long-term debt
    
    
    5,260
    
    
    
    340
    
    
    
    5,000
    
    
    
    Allowance for loan
losses
    
    
    3,000
    
    
    
    2,300
    
    
    
    3,000
    
    
    
    2,465Other
    
    
    165
    
    
    
    165
    
    
    
    165
    
    
    
    Tier 2 capital
    
    
    8,425
    
    
    
    2,805
    
    
    
    8,165
    
    
    
    2,465Total capital
    
    $
    40,651
    
    
    $
    37,464
    
    
    $
    36,672
    
    
    $
    27,925Risk-adjusted assets
    
    $
    280,964
    
    
    $
    243,813
    
    
    $
    280,815
    
    
    $
    242,674Average total assets
    
    
    445,077
    
    
    
    383,552
    
    
    
    444,890
    
    
    
    383,593Risk-based capital ratios:Tier 1 capital to risk-adjusted assets
    
    
    11.47
    %
    
    
    14.22
    %
    
    
    10.15
    %
    
    
    10.49
    %Regulatory minimum
    
    
    5.00
    
    
    
    5.00
    
    
    
    5.00
    
    
    
    5.00Total capital to risk-adjusted assets
    
    
    14.47
    
    
    
    15.37
    
    
    
    13.06
    
    
    
    11.51Regulatory minimum
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00Leverage ratio
    
    
    6.41
    
    
    
    9.04
    
    
    
    6.41
    
    
    
    6.64Total stockholders equity
to total assets
    
    
    6.43
    
    
    
    6.94
    
    
    
    6.49
    
    
    
    6.38
 Results of operations  2006 compared with 2005
   14




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##### Table of Contents



Critical accounting policies and use of estimates
 Item 7a. Quantitative and Qualitative Disclosure about Market Risk
   15




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##### Table of Contents



Item
8. Financial Statements and Supplementary Data
 CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Balance Sheets
 December 31,Dollars in thousands, except per share data
    
    2007
    
    2006AssetsCash and due from banks (Note 2)
    
    $
    22,819
    
    
    $
    7,231Federal funds sold (Note 3)
    
    
    22,000
    
    
    
    5,000Interest-bearing deposits with banks
    
    
    278
    
    
    
    653Investment securities available for sale (Note 4)
    
    
    103,618
    
    
    
    116,118Investment securities held to maturity (Market value of $54,005)
at December 31, 2007 and $53,332 at December 31, 2006) (Note 5)
    
    
    53,938
    
    
    
    53,480Loans held for sale
    
    
    226
    
    
    
    609Loans (Note 6)
    
    
    232,824
    
    
    
    199,284Less: Allowance for loan losses (Note 7)
    
    
    3,000
    
    
    
    2,400Net loans
    
    
    229,824
    
    
    
    196,884Premises and equipment (Note 8)
    
    
    3,601
    
    
    
    3,729Accrued interest receivable
    
    
    2,672
    
    
    
    2,505Cash surrender value of life insurance
    
    
    4,928
    
    
    
    4,743Other assets (Notes 13 and 14)
    
    
    5,844
    
    
    
    4,265Total assets
    
    $
    449,748
    
    
    $
    395,217Liabilities and Stockholders EquityDeposits: (Notes 4, 5, and 9)Demand
    
    $
    34,543
    
    
    $
    36,807Savings
    
    
    200,996
    
    
    
    140,787Time
    
    
    159,317
    
    
    
    164,822Total deposits
    
    
    394,856
    
    
    
    342,416Accrued expenses and other liabilities
    
    
    5,070
    
    
    
    5,033Short-term borrowings (Note 10)
    
    
    1,150
    
    
    
    400Long-term debt (Note 11)
    
    
    19,800
    
    
    
    19,606Total liabilities
    
    
    420,876
    
    
    
    367,455Commitments and contingencies (Note 20)Stockholders equity (Notes 15, 16 and 23):Preferred stock, no par value: Authorized 100,000 shares (Note 15);Series A , issued and outstanding 8 shares in 2007 and 2006
    
    
    200
    
    
    
    200Series C , issued and outstanding 108 shares in 2007 and 2006
    
    
    27
    
    
    
    27Series D , issued and outstanding 3,280 shares in 2007 and 2006
    
    
    820
    
    
    
    820Preferred stock, no par value, perpetual noncumulative: Authorized 200 shares;Series E, issued and outstanding 49 shares in 2007 and 2006
    
    
    2,450
    
    
    
    2,450Preferred stock, no par value, perpetual noncumulative: Authorized 7,000 shares;Series F, issued and outstanding 7,000 shares in 2007 and 2006
    
    
    6,790
    
    
    
    6,790Common stock, par value $10: Authorized 400,000 shares;134,530 shares issued in 2007 and 2006131,987 shares outstanding in 2007 and 132,786 shares outstanding in 2006
    
    
    1,345
    
    
    
    1,345Surplus
    
    
    1,115
    
    
    
    1,115Retained earnings
    
    
    16,922
    
    
    
    16,102Accumulated other comprehensive loss
    
    
    (623
    )
    
    
    (978
    )Treasury stock, at cost - 2,543 and 1,744 common shares in 2007 and 2006, respectively
    
    
    (174
    )
    
    
    (109
    )Total stockholders equity
    
    
    28,872
    
    
    
    27,762Total liabilities and stockholders equity
    
    $
    449,748
    
    
    $
    395,217
  16




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##### Table of Contents



CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Income
 Year Ended December 31,Dollars in thousands, except per share data
    
    2007
    
    2006
    
    2005Interest incomeInterest and fees on loans
    
    $
    16,510
    
    
    $
    13,602
    
    
    $
    10,980Interest on Federal funds sold and securities
purchased under agreements to resell
    
    
    1,392
    
    
    
    940
    
    
    
    759Interest on deposits with banks
    
    
    90
    
    
    
    67
    
    
    
    35Interest and dividends on investment securities:Taxable
    
    
    6,613
    
    
    
    5,851
    
    
    
    5,707Tax-exempt
    
    
    1,373
    
    
    
    1,189
    
    
    
    692Total interest income
    
    
    25,978
    
    
    
    21,649
    
    
    
    18,173Interest expenseInterest on deposits (Note 9)
    
    
    12,894
    
    
    
    9,417
    
    
    
    5,970Interest on short-term borrowings
    
    
    23
    
    
    
    128
    
    
    
    85Interest on long-term debt
    
    
    1,316
    
    
    
    1,303
    
    
    
    1,225Total interest expense
    
    
    14,233
    
    
    
    10,848
    
    
    
    7,280Net interest income
    
    
    11,745
    
    
    
    10,801
    
    
    
    10,893Provision for loan losses (Note 7)
    
    
    772
    
    
    
    279
    
    
    
    115Net interest income after provision
for loan losses
    
    
    10,973
    
    
    
    10,522
    
    
    
    10,778Other operating incomeService charges on deposit accounts
    
    
    1,332
    
    
    
    1,157
    
    
    
    1,152Other income (Note 12)
    
    
    1,352
    
    
    
    1,586
    
    
    
    1,080Net gains (losses) on securities transactions (Notes 4 and 5)
    
    
    10
    
    
    
    (19
    )
    
    
    (96
    )Total other operating income
    
    
    2,694
    
    
    
    2,724
    
    
    
    2,136Other operating expensesSalaries and other employee benefits (Note 14)
    
    
    5,992
    
    
    
    5,503
    
    
    
    5,312Occupancy expense (Note 8)
    
    
    1,201
    
    
    
    920
    
    
    
    846Equipment expense (Note 8)
    
    
    562
    
    
    
    577
    
    
    
    579Other expenses (Note 12)
    
    
    3,673
    
    
    
    3,035
    
    
    
    2,980Total other operating expenses
    
    
    11,428
    
    
    
    10,035
    
    
    
    9,717Income before income tax expense
    
    
    2,239
    
    
    
    3,211
    
    
    
    3,197Income tax expense (Note 13)
    
    
    372
    
    
    
    743
    
    
    
    862Net income
    
    $
    1,867
    
    
    $
    2,468
    
    
    $
    2,335Net income per common share (Note 17)Basic
    
    $
    8.28
    
    
    $
    13.04
    
    
    $
    16.20Diluted
    
    
    8.09
    
    
    
    12.54
    
    
    
    15.52Basic average common shares outstanding
    
    
    132,306
    
    
    
    133,246
    
    
    
    133,654Diluted average common shares outstanding
    
    
    148,623
    
    
    
    143,924
    
    
    
    139,511Cash dividends declared per common share
    
    $
    3.50
    
    
    $
    3.25
    
    
    $
    3.00
  17




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##### Table of Contents



CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Changes
in Stockholders Equity
 AccumulatedOtherCommon
    
    
    
    
    
    
    Preferred
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryDollars in thousands
    
    Stock
    
    
    Surplus
    
    
    Stock
    
    
    Earnings
    
    
    (Loss) Income
    
    
    Stock
    
    
    TotalBalance, December 31, 2004
    
    $
    1,345
    
    
    $
    1,113
    
    
    $
    1,047
    
    
    $
    12,701
    
    
    $
    106
    
    
    $
    (33
    )
    
    $
    16,279Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,335
    
    
    
    
    
    
    
    
    
    
    
    2,335Unrealized holding losses on securities
arising during the period (net of tax of $671)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,010
    )
    
    
    
    
    
    
    (1,010
    )Reclassification adjustment for gains (losses)
included in net income (net of tax of $(27))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    
    
    
    
    (69
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,256Proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    8,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,190Proceeds from issuance of common stock
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    25Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402
    )
    
    
    
    
    
    
    
    
    
    
    (402
    )Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (170
    )
    
    
    
    
    
    
    
    
    
    
    (170
    )Balance, December 31, 2005
    
    
    1,345
    
    
    
    1,115
    
    
    
    9,237
    
    
    
    14,464
    
    
    
    (973
    )
    
    
    (46
    )
    
    
    25,142Cumulative adjustment to beginning retained
earnings under SAB No. 108 (Note 25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    335Adjusted Balance, January 1, 2006
    
    
    1,345
    
    
    
    1,115
    
    
    
    9,237
    
    
    
    14,799
    
    
    
    (973
    )
    
    
    (46
    )
    
    
    25,477Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,468
    
    
    
    
    
    
    
    
    
    
    
    2,468Unrealized holding losses on securities
arising during the period (net of tax of $5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Reclassification adjustment for gains (losses)
included in net income (net of tax of $(7))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,463Conversion of long-term debt into preferred stock
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800Proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    (63
    )Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (434
    )
    
    
    
    
    
    
    
    
    
    
    (434
    )Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (731
    )
    
    
    
    
    
    
    
    
    
    
    (731
    )Balance, December 31, 2006
    
    
    1,345
    
    
    
    1,115
    
    
    
    10,287
    
    
    
    16,102
    
    
    
    (978
    )
    
    
    (109
    )
    
    
    27,762Cumulative adjustment to beginning retained
earnings upon adoption of FIN #48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    188Adjusted Balance, January 1, 2007
    
    
    1,345
    
    
    
    1,115
    
    
    
    10,287
    
    
    
    16,290
    
    
    
    (978
    )
    
    
    (109
    )
    
    
    27,950Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,867
    
    
    
    
    
    
    
    
    
    
    
    1,867Unrealized holding gains on securities
arising during the period (net of tax of $(179))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347
    
    
    
    
    
    
    
    347Reclassification adjustment for gains (losses)
included in net income (net of tax of $3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,222Conversion of long-term debt into preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    (65
    )Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (464
    )
    
    
    
    
    
    
    
    
    
    
    (464
    )Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (771
    )
    
    
    
    
    
    
    
    
    
    
    (771
    )Balance, December 31, 2007
    
    $
    1,345
    
    
    $
    1,115
    
    
    $
    10,287
    
    
    $
    16,922
    
    
    $
    (623
    )
    
    $
    (174
    )
    
    $
    28,872
  18




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##### Table of Contents



CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Cash Flows
 Year Ended December 31,In thousands
    
    2007
    
    2006
    
    2005Operating activitiesNet income
    
    $
    1,867
    
    
    $
    2,468
    
    
    $
    2,335Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    430
    
    
    
    458
    
    
    
    465Provision for loan losses
    
    
    772
    
    
    
    279
    
    
    
    115(Discount accretion) premium amortization of investment securities
    
    
    (335
    )
    
    
    122
    
    
    
    118Amortization of intangible assets
    
    
    197
    
    
    
    120
    
    
    
    120Net (gains) losses on sales and early redemptions of investment securities
    
    
    (10
    )
    
    
    19
    
    
    
    96Net gains on sales of loans held for sale
    
    
    (72
    )
    
    
    (39
    )
    
    
    (18
    )Net gain on sale of bank-owned properties
    
    
    
    
    
    
    (583
    )
    
    
    Loans originated for sale
    
    
    (3,312
    )
    
    
    (3,279
    )
    
    
    (2,088
    )Proceeds from sales and principal payments from loans held for sale
    
    
    3,767
    
    
    
    2,833
    
    
    
    1,982Increase in accrued interest receivable
    
    
    (167
    )
    
    
    (588
    )
    
    
    (391
    )Deferred taxes
    
    
    236
    
    
    
    (629
    )
    
    
    (357
    )Net increase in bank-owned life insurance
    
    
    (185
    )
    
    
    (159
    )
    
    
    (133
    )(Increase) decrease in other assets
    
    
    (2,249
    )
    
    
    742
    
    
    
    609Increase (decrease) in accrued expenses and other liabilities
    
    
    226
    
    
    
    638
    
    
    
    (294
    )Net cash provided by operating activities
    
    
    1,165
    
    
    
    2,402
    
    
    
    2,559Investing activitiesPurchase of loans
    
    
    (18,734
    )
    
    
    
    
    
    
    Increase in loans, net
    
    
    (14,978
    )
    
    
    (20,235
    )
    
    
    (19,758
    )Decrease (increase) in interest bearing deposits with banks
    
    
    375
    
    
    
    607
    
    
    
    (399
    )Proceeds from maturities of investment securities available for
sale, including principal repayments and early redemptions
    
    
    48,501
    
    
    
    47,062
    
    
    
    64,944Proceeds from maturities of investment securities held to
maturity, including principal repayments and early redemptions
    
    
    4,792
    
    
    
    918
    
    
    
    8,536Proceeds from sales of investment securities available for sale
    
    
    3,195
    
    
    
    3,725
    
    
    
    16,100Purchases of investment securities available for sale
    
    
    (38,230
    )
    
    
    (57,298
    )
    
    
    (87,508
    )Purchases of investment securities held to maturity
    
    
    (5,280
    )
    
    
    (15,009
    )
    
    
    (10,737
    )(Purchases of) proceeds from bank-owned life insurance, net
    
    
    
    
    
    
    (714
    )
    
    
    87Proceeds from sale of bank-owned properties
    
    
    
    
    
    
    1,013
    
    
    
    Purchases of premises and equipment
    
    
    (302
    )
    
    
    (275
    )
    
    
    (814
    )Net cash used in investing activities
    
    
    (20,661
    )
    
    
    (40,206
    )
    
    
    (29,549
    )Financing activitiesPurchase of deposits
    
    
    11,016
    
    
    
    
    
    
    
    Increase in deposits
    
    
    41,424
    
    
    
    29,987
    
    
    
    31,566Increase (decrease) in short-term borrowings
    
    
    750
    
    
    
    (140
    )
    
    
    (390
    )Proceeds from issuance of long-term debt
    
    
    5,000
    
    
    
    
    
    
    
    Decrease in long-term debt
    
    
    (4,806
    )
    
    
    (294
    )
    
    
    (2,050
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    25Proceeds from issuance of preferred stock
    
    
    
    
    
    
    250
    
    
    
    8,190Purchases of treasury stock
    
    
    (65
    )
    
    
    (63
    )
    
    
    (36
    )Dividends paid on preferred stock
    
    
    (771
    )
    
    
    (731
    )
    
    
    (170
    )Dividends paid on common stock
    
    
    (464
    )
    
    
    (434
    )
    
    
    (402
    )Net cash provided by financing activities
    
    
    52,084
    
    
    
    28,575
    
    
    
    36,733Net increase (decrease) in cash and cash equivalents
    
    
    32,588
    
    
    
    (9,229
    )
    
    
    9,743Cash and cash equivalents at beginning of year
    
    
    12,231
    
    
    
    21,460
    
    
    
    11,717Cash and cash equivalents at end of year
    
    $
    44,819
    
    
    $
    12,231
    
    
    $
    21,460Cash paid during the year:Interest
    
    $
    14,050
    
    
    $
    10,315
    
    
    $
    7,417Income taxes
    
    
    842
    
    
    
    996
    
    
    
    531Non-cash investing activities:Conversion of long-term debt into preferred stock
    
    
    
    
    
    
    800
    
    
    
    
  19




---



##### Table of Contents



Notes
to Consolidated Financial Statements
  Note 1 Summary of significant accounting policies
  Business
   Principles of consolidation
  Cash and cash equivalents
  Investment securities held to maturity and investment securities available for sale
 Loans held for sale
  Loans
    Allowance for loan losses
     Bank premises and equipment
   20




---



##### Table of Contents



Other assets
  Other real estate owned
   Core deposit premiums
  Long-term debt
   Income taxes
 Net income per common share
  Comprehensive income
  Recent accounting pronouncements
   21




---



##### Table of Contents



Reclassifications
  Note 2 Cash and due from banks
  Note 3 Federal funds sold and securities purchased under agreements to resell
  Note 4 Investment securities available for sale
   22




---



##### Table of Contents



Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Market2007 In thousands
    
    Cost
    
    Gains
    
    Losses
    
    ValueU.S. Treasury securities
and obligations of U.S.
government agencies
    
    $
    6,860
    
    
    $
    198
    
    
    $
    226
    
    
    $
    6,832Obligations of U.S.
government sponsored
entities
    
    
    10,844
    
    
    
    62
    
    
    
    11
    
    
    
    10,895Obligations of state and
political subdivisions
    
    
    551
    
    
    
    6
    
    
    
    
    
    
    
    557Mortgage-backed
securities
    
    
    74,640
    
    
    
    196
    
    
    
    563
    
    
    
    74,273Other debt securities
    
    
    9,618
    
    
    
    15
    
    
    
    665
    
    
    
    8,968Equity securities:Marketable securities
    
    
    646
    
    
    
    
    
    
    
    28
    
    
    
    618Nonmarketable
securities
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Federal Reserve Bank
and Federal Home
Loan Bank stock
    
    
    1,360
    
    
    
    
    
    
    
    
    
    
    
    1,360Total
    
    $
    104,634
    
    
    $
    477
    
    
    $
    1,493
    
    
    $
    103,618
 Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Market2006 In thousands
    
    Cost
    
    Gains
    
    Losses
    
    ValueU.S. Treasury securities
and obligations of U.S.
government agencies
    
    $
    2,080
    
    
    $
    
    
    
    $
    
    
    
    $
    2,080Obligations of U.S.
government sponsored
entities
    
    
    37,840
    
    
    
    11
    
    
    
    437
    
    
    
    37,414Obligations of state and
political subdivisions
    
    
    3,395
    
    
    
    45
    
    
    
    3
    
    
    
    3,437Mortgage-backed
securities
    
    
    64,519
    
    
    
    66
    
    
    
    1,243
    
    
    
    63,342Other debt securities
    
    
    7,874
    
    
    
    93
    
    
    
    108
    
    
    
    7,859Equity securities:Marketable securities
    
    
    618
    
    
    
    
    
    
    
    32
    
    
    
    586Nonmarketable
securities
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Federal Reserve Bank
and Federal Home
Loan Bank stock
    
    
    1,285
    
    
    
    
    
    
    
    
    
    
    
    1,285Total
    
    $
    117,726
    
    
    $
    215
    
    
    $
    1,823
    
    
    $
    116,118
 Amortized
    
    MarketIn thousands
    
    Cost
    
    ValueDue within one year:U.S. Treasury securities and obligations
of U.S. government agencies
    
    $
    3,253
    
    
    $
    3,259Obligations of U.S. government sponsored
entities
    
    
    4,957
    
    
    
    4,962Due after one year but within five years:Obligations of U.S. government sponsored
entities
    
    
    2,998
    
    
    
    3,044Mortgage-backed securities
    
    
    3,568
    
    
    
    3,526Obligations of state and political subdivisions
    
    
    551
    
    
    
    557Due after five years but within ten years:U.S. Treasury securities and obligations
of U.S. government agencies
    
    
    91
    
    
    
    91Mortgage-backed securities
    
    
    5,965
    
    
    
    5,878Other debt securities
    
    
    1,000
    
    
    
    800Due after ten years:U.S. Treasury securities and obligations
of U.S. government agencies
    
    
    3,517
    
    
    
    3,483Obligations of U.S. government sponsored
entities
    
    
    2,889
    
    
    
    2,889Mortgage-backed securities
    
    
    65,106
    
    
    
    64,868Other debt securities
    
    
    8,618
    
    
    
    8,168Total debt securities
    
    
    102,513
    
    
    
    101,525Equity securities
    
    
    2,121
    
    
    
    2,093Total
    
    $
    104,634
    
    
    $
    103,618
   In thousands
    
    2007
    
    2006
    
    2005Taxable
    
    $
    5,187
    
    
    $
    4,853
    
    
    $
    4,567Tax-exempt
    
    
    94
    
    
    
    110
    
    
    
    67Total
    
    $
    5,281
    
    
    $
    4,963
    
    
    $
    4,634
    Less than 12 Months
    
    12 Months or More
    
    TotalGross Unrealized
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    Gross Unrealized2007 In thousands
    
    Market Value
    
    Losses
    
    Market Value
    
    Losses
    
    Market Value
    
    LossesU.S. Treasury securities and obligations
of U.S. government agencies
    
    $
    4,402
    
    
    $
    36
    
    
    $
    12,525
    
    
    $
    190
    
    
    $
    16,927
    
    
    $
    226Obligations of U.S. government
sponsored entities
    
    
    721
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    721
    
    
    
    11Mortgaged-backed securities
    
    
    5,272
    
    
    
    14
    
    
    
    31,353
    
    
    
    549
    
    
    
    36,625
    
    
    
    563Other debt securities
    
    
    6,120
    
    
    
    429
    
    
    
    1,765
    
    
    
    236
    
    
    
    7,885
    
    
    
    665Equity securities
    
    
    
    
    
    
    
    
    
    
    646
    
    
    
    28
    
    
    
    646
    
    
    
    28Total
    
    $
    16,515
    
    
    $
    490
    
    
    $
    46,289
    
    
    $
    1,003
    
    
    $
    62,804
    
    
    $
    1,493
 Less than 12 Months
    
    12 Months or More
    
    TotalGross Unrealized
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    Gross Unrealized2006 In thousands
    
    Market Value
    
    Losses
    
    Market Value
    
    Losses
    
    Market Value
    
    LossesObligations of U.S. government
sponsored entities
    
    $
    13,875
    
    
    $
    74
    
    
    $
    10,658
    
    
    $
    363
    
    
    $
    24,533
    
    
    $
    437Mortgaged-backed securities
    
    
    7,199
    
    
    
    39
    
    
    
    38,438
    
    
    
    1,204
    
    
    
    45,637
    
    
    
    1,243Obligations of state and
political subdivisions
    
    
    1,152
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    1,152
    
    
    
    3Other debt securities
    
    
    3,426
    
    
    
    18
    
    
    
    911
    
    
    
    90
    
    
    
    4,337
    
    
    
    108Equity securities
    
    
    
    
    
    
    
    
    
    
    586
    
    
    
    32
    
    
    
    586
    
    
    
    32Total
    
    $
    25,652
    
    
    $
    134
    
    
    $
    50,593
    
    
    $
    1,689
    
    
    $
    76,245
    
    
    $
    1,823
 23




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##### Table of Contents



Note 5 Investment securities held to maturity
  Gross
    
    GrossBook
    
    Unrealized
    
    Unrealized
    
    Market2007 In thousands
    
    Value
    
    Gains
    
    Losses
    
    ValueObligations of U.S.
government
sponsored entities
    
    $
    14,594
    
    
    $
    45
    
    
    $
    117
    
    
    $
    14,522Mortgage-backed
securities
    
    
    5,175
    
    
    
    25
    
    
    
    68
    
    
    
    5,132Obligations of state
and
political subdivisions
    
    
    31,665
    
    
    
    406
    
    
    
    203
    
    
    
    31,868Other debt securities
    
    
    2,504
    
    
    
    47
    
    
    
    68
    
    
    
    2,483Total
    
    $
    53,938
    
    
    $
    523
    
    
    $
    456
    
    
    $
    54,005
 Gross
    
    GrossBook
    
    Unrealized
    
    Unrealized
    
    Market2006 In thousands
    
    Value
    
    Gains
    
    Losses
    
    ValueObligations of U.S.
government
sponsored entities
    
    $
    14,753
    
    
    $
    36
    
    
    $
    372
    
    
    $
    14,417Obligations of state
and
political subdivisions
    
    
    31,042
    
    
    
    337
    
    
    
    106
    
    
    
    31,273Mortgage-backed
securities
    
    
    5,177
    
    
    
    1
    
    
    
    151
    
    
    
    5,027Other debt securities
    
    
    2,508
    
    
    
    114
    
    
    
    7
    
    
    
    2,615Total
    
    $
    53,480
    
    
    $
    488
    
    
    $
    636
    
    
    $
    53,332
 Book
    
    MarketIn thousands
    
    Value
    
    ValueDue after one year but within five years:Obligations of state and political
subdivisions
    
    $
    5,134
    
    
    $
    5,224Other debt securities
    
    
    2,004
    
    
    
    2,035Due after five years but within ten years:Obligations of U.S. government sponsored
entities
    
    
    1,500
    
    
    
    1,502Obligations of state and political
subdivisions
    
    
    14,829
    
    
    
    15,026Mortgage-backed securities
    
    
    303
    
    
    
    308Due after ten years:Obligations of U.S. government sponsored
entities
    
    
    13,094
    
    
    
    13,019Obligations
of state and political subdivisions
    
    
    11,702
    
    
    
    11,618Mortgage-backed securities
    
    
    4,872
    
    
    
    4,825Other debt securities
    
    
    500
    
    
    
    448Total
    
    $
    53,938
    
    
    $
    54,005
  In thousands
    
    2007
    
    2006
    
    2005Taxable
    
    $
    1,426
    
    
    $
    998
    
    
    $
    1,140Tax-exempt
    
    
    1,279
    
    
    
    1,079
    
    
    
    625Total
    
    $
    2,705
    
    
    $
    2,077
    
    
    $
    1,765
    Less than 12 Months
    
    12 Months or More
    
    TotalGross Unrealized
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    Gross Unrealized2007 In thousands
    
    Market Value
    
    Losses
    
    Market Value
    
    Losses
    
    Market Value
    
    LossesObligations of U.S. government
sponsored entities
    
    $
    1,784
    
    
    $
    4
    
    
    $
    6,402
    
    
    $
    113
    
    
    $
    8,186
    
    
    $
    117Mortgaged-backed securities
    
    
    
    
    
    
    
    
    
    
    1,935
    
    
    
    68
    
    
    
    1,935
    
    
    
    68Obligations of state and political sub-
divisions
    
    
    3,248
    
    
    
    158
    
    
    
    4,294
    
    
    
    45
    
    
    
    7,542
    
    
    
    203Other debt securities
    
    
    1,432
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    1,432
    
    
    
    68Total
    
    $
    6,464
    
    
    $
    230
    
    
    $
    12,631
    
    
    $
    226
    
    
    $
    19,095
    
    
    $
    456
 24




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##### Table of Contents



Less than 12 Months
    
    12 Months or More
    
    TotalGross Unrealized
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    Gross Unrealized2006 In thousands
    
    Market Value
    
    Losses
    
    Market Value
    
    Losses
    
    Market Value
    
    LossesObligations of U.S. government
sponsored entities
    
    $
    4,946
    
    
    $
    48
    
    
    $
    8,674
    
    
    $
    324
    
    
    $
    13,620
    
    
    $
    372Obligations of state and political
subdivisions
    
    
    6,969
    
    
    
    71
    
    
    
    4,547
    
    
    
    35
    
    
    
    11,516
    
    
    
    106Mortgage-backed securities
    
    
    1,778
    
    
    
    22
    
    
    
    3,211
    
    
    
    129
    
    
    
    4,989
    
    
    
    151Other debt securities
    
    
    
    
    
    
    
    
    
    
    2,615
    
    
    
    7
    
    
    
    2,615
    
    
    
    7Total
    
    $
    13,693
    
    
    $
    141
    
    
    $
    19,047
    
    
    $
    495
    
    
    $
    32,740
    
    
    $
    636
  Note 6 Loans
  In thousands
    
    2007
    
    2006Commercial
    
    $
    44,504
    
    
    $
    32,572Real estate
    
    
    187,447
    
    
    
    165,828Installment
    
    
    1,061
    
    
    
    1,176Total loans
    
    
    233,012
    
    
    
    199,576Less:Unearned income
    
    
    188
    
    
    
    292Loans
    
    $
    232,824
    
    
    $
    199,284
   In thousands
    
    2007
    
    2006Nonaccrual loans
    
    $
    7,527
    
    
    $
    4,734Loans with interest or principal 90
days or more past due and still accruing
    
    
    438
    
    
    
    1,259Total nonperforming loans
    
    $
    7,965
    
    
    $
    5,993
  In thousands
    
    2007
    
    2006
    
    2005Interest income foregone
    
    $
    (465
    )
    
    $
    (174
    )
    
    $
    (56
    )Interest income received
    
    
    429
    
    
    
    296
    
    
    
    162$
    (36
    )
    
    $
    122
    
    
    $
    106
 Note 7 Allowance for loan losses
  In thousands
    
    2007
    
    2006
    
    2005Balance, January 1
    
    $
    2,400
    
    
    $
    2,165
    
    
    $
    2,076Provision for loan
losses
    
    
    772
    
    
    
    279
    
    
    
    115Recoveries of loans previously
charged off
    
    
    34
    
    
    
    105
    
    
    
    583,206
    
    
    
    2,549
    
    
    
    2,249Less: Charge-offs
    
    
    206
    
    
    
    149
    
    
    
    84Balance, December 31
    
    $
    3,000
    
    
    $
    2,400
    
    
    $
    2,165
 Note 8 Premises and equipment
  In thousands
    
    2007
    
    2006Land
    
    $
    329
    
    
    $
    329Premises
    
    
    1,530
    
    
    
    1,530Furniture and equipment
    
    
    4,092
    
    
    
    3,855Leasehold improvements
    
    
    3,315
    
    
    
    3,272Total cost
    
    
    9,266
    
    
    
    8,986Less: Accumulated depreciation and amortization
    
    
    5,665
    
    
    
    5,257Total premises and equipment
    
    $
    3,601
    
    
    $
    3,729
  Note 9 Deposits
  In thousands
    
    2007
    
    2006Noninterest bearing demand
    
    $
    34,543
    
    
    $
    36,807Interest bearing:Demand
    
    
    66,276
    
    
    
    28,895Savings
    
    
    28,149
    
    
    
    30,352Money market
    
    
    106,571
    
    
    
    81,540Time
    
    
    159,317
    
    
    
    164,822Total interest bearing deposits
    
    
    360,313
    
    
    
    305,609Total deposits
    
    $
    394,856
    
    
    $
    342,416
  In thousands
    
    2007
    
    2006Three months or less
    
    $
    37,759
    
    
    $
    34,850Over three months but within six months
    
    
    15,685
    
    
    
    26,680Over six months but within twelve months
    
    
    8,871
    
    
    
    21,680Over twelve months
    
    
    19,791
    
    
    
    14,311Total deposits
    
    $
    82,106
    
    
    $
    97,521
   25




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##### Table of Contents



Note 10 Short-term borrowings
  AverageInterest
    
    
    
    
    
    Average
    
    MaximumRate on
    
    Average
    
    Interest
    
    BalanceDecem-
    
    Decem-
    
    Balance
    
    Rate
    
    at anyber 31
    
    ber 31
    
    During
    
    During
    
    Month-Dollars in thousands
    
    Balance
    
    Balance
    
    the Year
    
    the Year
    
    End2007Federal funds
purchased
    
    $
    
    
    
    
    
    %
    
    $
    11
    
    
    
    5.53
    %
    
    $
    Securities sold under
repurchase
agreements
    
    
    1,150
    
    
    
    .50
    %
    
    
    63
    
    
    
    .54
    
    
    
    2,000Demand note issued
to the U.S. Treasury
    
    
    
    
    
    
    
    
    
    
    463
    
    
    
    4.76
    
    
    
    5,216Total
    
    $
    1,150
    
    
    
    .50
    %
    
    $
    537
    
    
    
    4.28
    %
    
    $
    7,2162006Federal funds
purchased
    
    $
    
    
    
    
    
    %
    
    $
    836
    
    
    
    5.48
    %
    
    $
    10,480Securities sold under
repurchase
agreements
    
    
    400
    
    
    
    4.41
    %
    
    
    917
    
    
    
    5.33
    
    
    
    5,854Demand note issued
to the U.S. Treasury
    
    
    
    
    
    
    
    
    
    
    707
    
    
    
    4.70
    
    
    
    5,191Total
    
    $
    400
    
    
    
    4.41
    %
    
    $
    2,460
    
    
    
    5.20
    %
    
    $
    21,525
   Note 11 Long-term debt
  In thousands
    
    2007
    
    2006FHLB convertible advances due from
April 7, 2008 through October 4, 2010
    
    $
    10,200
    
    
    $
    11,7005.00% capital note, due July 1, 2008
    
    
    100
    
    
    
    2006.00% capital note, due December 28, 2010
    
    
    300
    
    
    
    4007.00% note, due January 1, 2014
    
    
    
    
    
    
    1068.00% capital note, due May 6, 2017
    
    
    200
    
    
    
    2005.00% senior note, due February 21, 2022
    
    
    5,000
    
    
    
    Subordinated debt
    
    
    4,000
    
    
    
    7,000Total
    
    $
    19,800
    
    
    $
    19,606
 In thousands
    
    Amount2008
    
    $
    7,7002009
    
    
    1,6002010
    
    
    1,300Thereafter
    
    
    9,200Total
    
    $
    19,800
 Note 12 Other operating income and expenses
  In thousands
    
    2007
    
    2006
    
    2005Other incomeIncome from off-site ATMs
    
    $
    420
    
    
    $
    384
    
    
    $
    316Agency fees on commercial loans
    
    
    328
    
    
    
    323
    
    
    
    377Earnings on cash surrender value of
life insurance
    
    
    225
    
    
    
    198
    
    
    
    179Gain on sale of bank-owned properties
    
    
    
    
    
    
    583
    
    
    
    Undistributed loss from
unconsolidated investee
    
    
    (9
    )
    
    
    (335
    )
    
    
    (208
    )Miscellaneous other income
    
    
    388
    
    
    
    433
    
    
    
    416Total other income
    
    $
    1,352
    
    
    $
    1,586
    
    
    $
    1,080Other expensesMarketing expense
    
    $
    447
    
    
    $
    359
    
    
    $
    397Data processing
    
    
    396
    
    
    
    378
    
    
    
    375Merchant card charges
    
    
    334
    
    
    
    273
    
    
    
    228Professional fees
    
    
    264
    
    
    
    231
    
    
    
    351Management consulting fees
    
    
    256
    
    
    
    170
    
    
    
    127Credit card loss recovery
    
    
    
    
    
    
    
    
    
    
    (217)Miscellaneous other expenses
    
    
    1,976
    
    
    
    1,624
    
    
    
    1,719Total other expenses
    
    $
    3,673
    
    
    $
    3,035
    
    
    $
    2,980
 Note 13 Income taxes
  In thousands
    
    2007
    
    2006
    
    2005Current expenseFederal
    
    $
    613
    
    
    $
    1,103
    
    
    $
    922State
    
    
    212
    
    
    
    269
    
    
    
    297825
    
    
    
    1,372
    
    
    
    1,219Deferred expense (benefit)Federal
    
    
    (368
    )
    
    
    (552
    )
    
    
    (265
    )State
    
    
    (85
    )
    
    
    (77
    )
    
    
    (92
    )(453
    )
    
    
    (629
    )
    
    
    (357
    )Total income tax expense
    
    $
    372
    
    
    $
    743
    
    
    $
    862
   26




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##### Table of Contents



In thousands
    
    2007
    
    2006
    
    2005Federal income tax at statutory rate
    
    $
    756
    
    
    $
    1,092
    
    
    $
    1,087Increase (decrease) in income tax
expense resulting from:State income tax expense, net of
federal benefit
    
    
    83
    
    
    
    127
    
    
    
    135Tax-exempt income
    
    
    (485
    )
    
    
    (465
    )
    
    
    (351
    )Life insurance
    
    
    (63
    )
    
    
    (54
    )
    
    
    (45
    )Other, net
    
    
    81
    
    
    
    43
    
    
    
    36Total income tax expense
    
    $
    372
    
    
    $
    743
    
    
    $
    862
  In thousands
    
    2007
    
    2006Deferred tax assetsUnrealized losses on investment
securities available for sale
    
    $
    393
    
    
    $
    629Allowance for loan losses
    
    
    964
    
    
    
    724Premises and equipment
    
    
    153
    
    
    
    107Deposit intangible
    
    
    145
    
    
    
    113Deferred compensation
    
    
    1,020
    
    
    
    887Deferred income
    
    
    225
    
    
    
    186Other assets
    
    
    98
    
    
    
    117Total deferred tax asset
    
    
    2,998
    
    
    
    2,763Deferred tax liabilitiesInvestment in partnership
    
    
    245
    
    
    
    348Other
    
    
    123
    
    
    
    3Total deferred tax liabilities
    
    
    368
    
    
    
    351Net deferred tax asset
    
    $
    2,630
    
    
    $
    2,412
    In thousandsBalance at
January 1, 2007
    
    $
    385Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Balance at December 3l, 2007
    
    $
    385
 Note 14 Benefit plans
 Note 15 Preferred stock
   Year
    
    Dividend
    
    Stated
    
    Number
    
    December 31,Issued
    
    Rate
    
    Value
    
    of Shares
    
    2007
    
    2006Series A
    
    
    1996
    
    
    
    6.00
    %
    
    $
    25,000
    
    
    
    8
    
    
    $
    200,000
    
    
    $
    200,000Series C
    
    
    1996
    
    
    
    8.00
    
    
    
    250
    
    
    
    108
    
    
    
    27,000
    
    
    
    27,000Series D
    
    
    1997
    
    
    
    6.50
    
    
    
    250
    
    
    
    3,280
    
    
    
    820,000
    
    
    
    820,000Series E
    
    
    2005
    
    
    
    6.00
    
    
    
    50,000
    
    
    
    28
    
    
    
    1,400,000
    
    
    
    1,400,000Series F
    
    
    2005
    
    
    
    8.53
    
    
    
    7,000,000
    
    
    
    7,000
    
    
    
    6,790,000
    
    
    
    6,790,000Series E
    
    
    2006
    
    
    
    6.00
    
    
    
    50,000
    
    
    
    21
    
    
    
    1,050,000
    
    
    
    1,050,000$
    10,287,000
    
    
    $
    10,287,000




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##### Table of Contents



Note 16 Restrictions on subsidiary bank dividends
   Note 17 Net income per common share
  In thousands, except per share data
    
    2007
    
    2006
    
    2005Net income
    
    $
    1,867
    
    
    $
    2,468
    
    
    $
    2,335Dividends on preferred stock
    
    
    (771
    )
    
    
    (731
    )
    
    
    (170
    )Net income applicable to basic
common shares
    
    
    1,096
    
    
    
    1,737
    
    
    
    2,165Dividends applicable to convertible
preferred stock
    
    
    106
    
    
    
    67
    
    
    
    52Net income applicable to diluted
common shares
    
    $
    1,202
    
    
    $
    1,804
    
    
    $
    2,217Number of average common sharesBasic
    
    
    132,306
    
    
    
    133,246
    
    
    
    133,654Diluted:Average common shares outstanding
    
    
    132,306
    
    
    
    133,246
    
    
    
    133,654Average potential dilutive common
shares
    
    
    16,317
    
    
    
    10,678
    
    
    
    5,857148,623
    
    
    
    143,924
    
    
    
    139,511Net income per common shareBasic
    
    $
    8.28
    
    
    $
    13.04
    
    
    $
    16.20Diluted
    
    
    8.09
    
    
    
    12.54
    
    
    
    15.52
 Note 18 Related party transactions
   Note 19 Fair value of financial instruments
 Cash, short-term investments and interest-bearing deposits with banks
  Investment securities
  Loans
  Loans held for sale
  Deposit liabilities
  Short-term borrowings
  Long-term debt
  Commitments to extend credit and letters of credit
   28




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##### Table of Contents



2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairIn thousands
    
    Value
    
    Value
    
    Value
    
    ValueFinancial assetsCash and other short-term
Investments
    
    $
    44,819
    
    
    $
    44,819
    
    
    $
    12,231
    
    
    $
    12,231Interest-bearing deposits
with banks
    
    
    278
    
    
    
    278
    
    
    
    653
    
    
    
    653Investment securities AFS
    
    
    103,618
    
    
    
    103,618
    
    
    
    116,118
    
    
    
    116,118Investment securities HTM
    
    
    53,938
    
    
    
    54,005
    
    
    
    53,480
    
    
    
    53,332Loans
    
    
    232,824
    
    
    
    233,918
    
    
    
    199,284
    
    
    
    192,646Loans held for sale
    
    
    226
    
    
    
    226
    
    
    
    609
    
    
    
    609Financial liabilitiesDeposits
    
    
    394,856
    
    
    
    376,054
    
    
    
    342,416
    
    
    
    322,822Short-term borrowings
    
    
    1,150
    
    
    
    1,150
    
    
    
    400
    
    
    
    400Long-term debt
    
    
    19,800
    
    
    
    19,440
    
    
    
    19,606
    
    
    
    19,458
 Note 20 Commitments and contingencies
    Note 21 Financial instruments with off-balance sheet risk
 Note 22 Parent company information
  Condensed Balance Sheet
 December 31,In thousands
    
    2007
    
    2006AssetsCash and cash equivalents
    
    $
    4
    
    
    $
    250Investment in subsidiary
    
    
    29,173
    
    
    
    25,782Due from subsidiary
    
    
    9,150
    
    
    
    9,890Other assets
    
    
    350
    
    
    
    122Total assets
    
    $
    38,677
    
    
    $
    36,044Liabilities and stockholders equityOther liabilities
    
    $
    81
    
    
    $
    159Notes payable
    
    
    5,600
    
    
    
    906Subordinated debt
    
    
    4,124
    
    
    
    7,217Total liabilities
    
    
    9,805
    
    
    
    8,282Stockholders equity
    
    
    28,872
    
    
    
    27,762Total liabilities and stockholders equity
    
    $
    38,677
    
    
    $
    36,044
 Condensed Statement of Income
 Year Ended December 31,In thousands
    
    2007
    
    2006
    
    2005IncomeInterest income
    
    $
    13
    
    
    $
    7
    
    
    $
    3Dividends from subsidiaries
    
    
    750
    
    
    
    900
    
    
    
    850Interest from subsidiaries
    
    
    835
    
    
    
    1,110
    
    
    
    551Total income
    
    
    1,598
    
    
    
    2,017
    
    
    
    1,404ExpensesInterest expense
    
    
    756
    
    
    
    730
    
    
    
    626Other operating income
    
    
    
    
    
    
    4
    
    
    
    Other operating expenses
    
    
    3
    
    
    
    2
    
    
    
    3Net losses on securities
transactions
    
    
    
    
    
    
    
    
    
    
    (32
    )Income tax expense (benefit)
    
    
    36
    
    
    
    155
    
    
    
    (15
    )Total expenses
    
    
    795
    
    
    
    883
    
    
    
    582Income before equity in undis-
tributed income of
subsidiaries
    
    
    803
    
    
    
    1,134
    
    
    
    822Equity in undistributed income
of subsidiaries
    
    
    1,064
    
    
    
    1,334
    
    
    
    1,513Net income
    
    $
    1,867
    
    
    $
    2,468
    
    
    $
    2,335
   29




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##### Table of Contents



Condensed Statement of Cash Flows
 Year Ended December 31,In thousands
    
    2007
    
    2006
    
    2005Operating activitiesNet income
    
    $
    1,867
    
    
    $
    2,468
    
    
    $
    2,335Adjustments to reconcile net income
to cash used in operating activities:Net gains on sales of investment
securities
    
    
    
    
    
    
    
    
    
    
    (32
    )Equity in undistributed income of
subsidiaries
    
    
    (1,064
    )
    
    
    (1,335
    )
    
    
    (1,513
    )(Increase) decrease in other assets
    
    
    (228
    )
    
    
    49
    
    
    
    (113
    )(Decrease) increase in other liabilities
    
    
    (78
    )
    
    
    (21
    )
    
    
    91Net cash provided by operating activities
    
    
    497
    
    
    
    1,161
    
    
    
    768Investing activitiesProceeds from sales and maturities of
investment securities available for sale
including principal payments
    
    
    
    
    
    
    
    
    
    
    652Purchases of investment securities
available for sale
    
    
    
    
    
    
    
    
    
    
    (293
    )(Increase) decrease in investment in
subsidiaries
    
    
    (1,784
    )
    
    
    (2,999
    )
    
    
    15Decrease (increase) in loans to
subsidiaries
    
    
    740
    
    
    
    3,300
    
    
    
    (8,227
    )Net cash (used in) provided by investing
activities
    
    
    (1,044
    )
    
    
    301
    
    
    
    (7,853
    )Financing activitiesDecrease in subordinated debt
    
    
    (3,093
    )
    
    
    
    
    
    
    Increase in notes payable
    
    
    4,694
    
    
    
    (1,094
    )
    
    
    (550
    )Proceeds from issuance of preferred stock
    
    
    
    
    
    
    1,050
    
    
    
    8,190Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    25Purchases of treasury stock
    
    
    (65
    )
    
    
    (63
    )
    
    
    (36
    )Dividends paid
    
    
    (1,235
    )
    
    
    (1,165
    )
    
    
    (572
    )Net cash provided by(used in) financing
activities
    
    
    301
    
    
    
    (1,272
    )
    
    
    7,057(Decrease) increase in cash and
cash equivalents
    
    
    (246
    )
    
    
    190
    
    
    
    (28
    )Cash and cash equivalents at
beginning of year
    
    
    250
    
    
    
    60
    
    
    
    88Cash and cash equivalents at
end of year
    
    $
    4
    
    
    $
    250
    
    
    $
    60
 Note 23 Regulatory capital requirements
 In thousands
    
    FDIC RequirementsMinimum Capital For ClassificationBank Actual
    
    Adequacy
    
    as Well-CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioDecember 31, 2007Leverage (Tier 1)
capital
    
    $
    28,507
    
    
    
    6.41
    %
    
    $
    11,233
    
    
    
    4.00
    %
    
    $
    14,041
    
    
    
    5.00
    %Risk-based capital:Tier 1
    
    
    28,507
    
    
    
    10.15
    
    
    
    11,233
    
    
    
    4.00
    
    
    
    16,849
    
    
    
    6.00Total
    
    
    36,672
    
    
    
    13.06
    
    
    
    22,466
    
    
    
    8.00
    
    
    
    28,082
    
    
    
    10.00December 31, 2006Leverage (Tier 1)
capital
    
    $
    25,460
    
    
    
    6.38
    %
    
    $
    9,753
    
    
    
    4.00
    %
    
    $
    12,191
    
    
    
    5.00
    %Risk-based capital:Tier 1
    
    
    25,460
    
    
    
    10.49
    
    
    
    9,753
    
    
    
    4.00
    
    
    
    14,692
    
    
    
    6.00Total
    
    
    27,925
    
    
    
    11.51
    
    
    
    19,505
    
    
    
    8.00
    
    
    
    24,381
    
    
    
    10.00
   Note 24 Summary of quarterly financial information
 (unaudited)
    
    2007Dollars in thousands,
    
    First
    
    Second
    
    Third
    
    Fourthexcept per share data
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterInterest income
    
    $
    6,051
    
    
    $
    6,340
    
    
    $
    6,646
    
    
    $
    6,883Interest expense
    
    
    3,332
    
    
    
    3,569
    
    
    
    3,730
    
    
    
    3,602Net interest income
    
    
    2,719
    
    
    
    2,771
    
    
    
    2,916
    
    
    
    3,281Provision for loan losses
    
    
    225
    
    
    
    71
    
    
    
    10
    
    
    
    466Net gains on sales
of investment securities
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    Other operating income
    
    
    605
    
    
    
    671
    
    
    
    672
    
    
    
    794Other operating expenses
    
    
    2,616
    
    
    
    2,810
    
    
    
    2,949
    
    
    
    3,053Income before income
tax expense
    
    
    483
    
    
    
    561
    
    
    
    639
    
    
    
    556Income tax expense
    
    
    111
    
    
    
    77
    
    
    
    95
    
    
    
    89Net income
    
    $
    372
    
    
    $
    484
    
    
    $
    544
    
    
    $
    467Net income per share- basic
    
    $
    .37
    
    
    $
    2.53
    
    
    $
    2.99
    
    
    $
    2.41Net income per share-
diluted
    
    $
    .37
    
    
    $
    2.25
    
    
    $
    2.66
    
    
    $
    2.14
   30




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##### Table of Contents



(unaudited)
    
    2006Dollars in thousands,
    
    First
    
    Second
    
    Third
    
    Fourthexcept per share data
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterInterest income
    
    $
    5,202
    
    
    $
    5,248
    
    
    $
    5,482
    
    
    $
    5,717Interest expense
    
    
    2,446
    
    
    
    2,553
    
    
    
    2,696
    
    
    
    3,153Net interest income
    
    
    2,756
    
    
    
    2,695
    
    
    
    2,786
    
    
    
    2,564Provision for loan losses
    
    
    
    
    
    
    49
    
    
    
    65
    
    
    
    165Net gains (losses) on sales
of investment securities
    
    
    (16
    )
    
    
    
    
    
    
    (3
    )
    
    
    Other operating income
    
    
    543
    
    
    
    621
    
    
    
    570
    
    
    
    1,009Other operating expenses
    
    
    2,509
    
    
    
    2,475
    
    
    
    2,518
    
    
    
    2,533Income before income
tax expense
    
    
    774
    
    
    
    792
    
    
    
    770
    
    
    
    875Income tax expense
    
    
    186
    
    
    
    180
    
    
    
    173
    
    
    
    204Net income
    
    $
    588
    
    
    $
    612
    
    
    $
    597
    
    
    $
    671Net income per share- basic
    
    $
    2.28
    
    
    $
    3.47
    
    
    $
    3.36
    
    
    $
    3.78Net income per share-
diluted
    
    $
    2.28
    
    
    $
    3.20
    
    
    $
    3.11
    
    
    $
    3.30
 Note 25. Cumulative adjustment to retained earnings under SEC Staff Accounting Bulletin No. 108
   31




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Report
of Independent Registered Public Accounting Firm
 
    
 32




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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A Controls and Procedures
 (a)
    
    Evaluation of Disclosure Controls and Procedures.Management of the Corporation, including the Chief Executive Officer and the Chief Financial
Officer, have conducted an evaluation of the effectiveness of the Corporations disclosure
controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as of
the end of the period covered by this report (the Evaluation Date). Based on that evaluation,
the Chief Executive Officer and the Chief Financial Officer concluded that, as of the Evaluation
Date, the Corporations disclosure controls and procedures were effective in ensuring that all
material information relating to the Corporation, including all consolidated subsidiaries,
required to be filed in this report has been made known to them in a timely manner.(b)
    
    Managements Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) under the Securities
Exchange Act of 1934. Under the supervision and with the participation of the principal
executive officer and the principal financial officer, management has conducted an evaluation of
the effectiveness of the Corporations control over financial reporting based on the framework
in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on the evaluation under the framework, management has
concluded that the internal control over financial reporting was effective as of December 31,
2007.This annual report does not include an attestation report of the Corporations registered public
accounting firm regarding internal control over financial reporting. Managements report was
not subject to attestation by the Corporations registered public accounting firm pursuant to
temporary rules of the Securities Exchange Commission that permit the Corporation to provide
only managements report in this annual report.
 (c)
    
    Changes in Internal Control Over Financial Reporting.There have not been any changes in the Companys internal control over financial reporting as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the final
fiscal quarter of the year to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Corporations internal control over financial
reporting.
 Item 9B. Other Information.
  
 Part III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management
  
 Item 13. Certain Relationships and Related Transactions
  
 Part IV
 
 Item 14. Principal Accountant Fees and Services
   
 Item 15. Exhibits and Financial Statement Schedules
  (a)
    
    The following documents are filed ad part of this report:
 PageConsolidated Financial Statements:Report of Independent Registered Public Accounting Firm
KPMG, LLP
    
    
    32Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    16Consolidated Statements of Income for the years ended
December 31, 2007, 2006 and 2005
    
    
    17Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2007, 2006 and 2005
    
    
    18Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
    
    
    19Notes to Consolidated Financial Statements
    
    
    20
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(b)
    
    The required exhibits are included as follows:
 (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)
    
    Amendments to the Corporations Articles of Incorporation establishing the
Corporations Non-cumulative Perpetual Preferred Stock, Series E (incorporated by
reference to Exhibit (3)(i) to the Corporations Current Report on Form 8-K filed
on March 4, 2005).(3)(g)
    
    Amendment to the Corporations Articles of Incorporation establishing the
Corporations MultiMode Series F Non-cummulative Redeemable Preferred Stock
(incorporated herein by reference to Exhibit (3)(f) of the Corporations Quartely
Report on Form10-Q filed on September 30, 2005).(3)(h)
    
    The Amendment to the 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).(3)(i)
    
    The By-Laws of the Corporation (incorporated herein by reference to Exhibit
(3)(b) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 1988).(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)
    
    Indenture dated July 11, 2002 between the Corporation and Wilmington Trust
Company (incorporated herein by reference to Exhibit 4(c) to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).(10)(a)
    
    The Employees 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 26, 2006 (incorporated herein by reference to Exhibit 10.1 of the
Corporations Current Report on Form 8-K dated December 4, 2006).(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 February 27, 2001 (incorporated by
reference to Exhibit 10(d) to the Corporations Annual Report on Form 10-K for
the year ended December 31, 2000).(10)(e)
    
    Secured Promissory Note of the Corporation dated December 28, 2001 payable to
National Community Investment Fund in the principal amount of $1,000,000,
(incorporated by reference to Exhibit 10(e) to the Corporations Annual Report on
Form 10-K for the year ended December 31, 2001).(10)(f)
    
    Loan Agreement dated December 28, 2001 by and between the Corporation and
National Community Investment Fund (incorporated by reference to Exhibit 10(f) to
the Corporations Annual Report on Form 10-K for the year ended December 31,
2001).(10)(g)
    
    Pledge Agreement dated December 28, 2001 by and between the Corporation and
National Community Investment Fund (incorporated by reference to Exhibit (g) to
the Corporations Annual Report on Form 10-K for the year ended December 31,
2001).
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(10)(h)
    
    Asset Purchase and Sale Agreement between the Bank and Carver Federal Savings
Bank dated as of January 26, 1998 (incorporated by reference to Exhibit 10(h) to
the Corporations Annual Report on Form 10-K for the year ended December 31,
1998).(10)(i)
    
    Promissory Note dated May 6, 2002 payable to United Negro College Fund, Inc.,
in the principal amount of $200,000 (incorporated by reference to Exhibit 10(i)
to the Corporations Quarterly Report on Form 10-Q for quarter ended March 31,
2002).(10)(j)
    
    Guarantee Agreement dated July 11, 2002 from the Corporation in favor of
Wilmington Trust Company, as trustee for holders of securities issued by City
National Bank of New Jersey Capital Trust 1 (incorporated by reference to Exhibit
10(j) to the Companys Quarterly Report on Form 10-Q for the quarter ended June
30, 2002).(10(k)
    
    Amended and Restated Declaration of Trust of City National Bank of New Jersey
Capital Trust I, dated July 11, 2002 (incorporated by reference to Exhibit 10(k)
to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2002).(10)(l)
    
    Purchase and Assumption Agreement dated as of March 31, 2004 by and between
Prudential Savings Bank, F.S.B., The Prudential Bank and Trust Company and the
Bank. (incorporated by reference to Exhibit 10(l) to the Corporations Quarterly
Report on Form 10-Q for the quarter ended March 31, 2004).(10)(m)
    
    Guarantee Agreement dated March 17, 2004 from the Corporation in favor of U.S.
Bank, N.A., as trustee for holders of securities issued by City National Bank of
New Jersey Capital Statutory Trust II (incorporated by reference to Exhibit 10(m)
to the Corporations Quarterly Report on Form 10-Q for the quarter ended March
31, 2004).(10)(n)
    
    Purchase Agreement dated September 27, 2005 by and between Sandler ONeil &
Partners, L.P., and the Corporation with respect to issue and sale of 7,000
shares of the Corporations MultiMode Series F Noncummulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 10(n) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).(10)(o)
    
    Credit Agreement dated February 21, 2007 by and between The Prudential
Insurance Company of America and the Corporation with respect to a $5,000,000
loan to the Corporation (incorporated by reference to Exhibit 10.1 to the
Corporations Current Report on Form 8-K dated February 23, 2007).(10)(p)
    
    Branch Purchase and Assumption Agreement, dated as of November 1, 2006, by and
between City National Bank of New Jersey (CNB) and Sun National Bank (Sun),
as amended by Amendment to Branch Purchase and Assumption Agreement, dated as of
March 8, 2007, by and between CNB and Sun (incorporated by reference to Exhibit
10 (p) to the Corporations Current Report on Form 8-K dated March 14, 2007).(11)
    
    Statement regarding computation of per share earnings. The required
information is included on page 28.(12)
    
    Ratios have been computed using the average daily balances of the
respective asset, liability and stockholders equity accounts.(13)
    
    Annual Report to security holders for the fiscal year ended December 31,
2007.(21)
    
    Subsidiaries of the registrant. The required information is included on
page 3.(31)
    
    Certificate of Periodic Report (302).(32)
    
    Certificate of Periodic Report (906).
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##### Table of Contents



By:
    
    /s/ Louis E. Prezeau
    
    By:
    
    /s/ Edward R. WrightLouis E. Prezeau
    
    
    
    Edward R. WrightPresident and Chief
    
    
    
    Chief Financial OfficerExecutive Officer
    
    
    
    and Principal Accounting OfficerDate:
    
    March 29, 2008
    
    Date:
    
    March 29, 2008
  Signature
    
    Title
    
    Date/s/ Douglas E. Anderson
Douglas E. Anderson
    
    Director
    
    March 29, 2008/s/ Barbara Bell ColemanBarbara Bell Coleman
    
    Director
    
    March 29, 2008/s/ Eugene GiscombeEugene Giscombe
    
    Director, 
Chairperson of the Board
    
    March 29, 2008/s/ Louis E. Prezeau
Louis E. Prezeau
    
    Director, 
President and Chief 
Executive Officer
    
    March 29, 2008/s/ Lemar C. Whigham
Lemar C. Whigham
    
    Director
    
    March 29, 2008
 36