<PAGE>
                                       1

                                                                               
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

 (Mark One)
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                For the fiscal year ended December 31, 1996 
 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                 For the transition period from    to

                    Commission file number 0-11535

                 CITY NATIONAL BANCSHARES CORPORATION
        (Exact name of registrant as specified in its charter)

         New Jersey                               22-2434751
  (State or other jurisdiction of              (I.R.S. Employer
   incorporation or organization)               Identification No.)

         900 Broad Street,                           07102
        Newark, New Jersey                         (Zip Code)
(Address of principal executive offices)

     Registrant's telephone number, including area code: (201) 624-0865

      Securities Registered Pursuant to Section 12(b) of the Act: None

         Securities Registered Pursuant to Section 12(g) of the Act:

                             Title of each class
                    Common stock, par value $10 per share

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.      
Yes X----                No-----

The  aggregate  market  value  of  voting  stock  held by  nonaffiliates  of the
Registrant as of March 15, 1997 was approximately $1,312,440.

There were 114,141 shares of common stock outstanding at March 15, 1997.

Documents incorporated by reference:
Certain  portions of the definitive  Proxy Statement for the 1997 Annual Meeting
of shareholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A are incorporated herein by reference in Part III.

Page 1 of           pages.  Exhibit Index appears on page ___________.

<PAGE>
                                       2

                      CITY NATIONAL BANCSHARES CORPORATION
                                    FORM 10-K
                                Table of Contents
                                                                          Page
                                     PART I

Item 1.  Business............................................................3
Item 2.  Properties..........................................................4
Item 3.  Legal Proceedings...................................................4
Item 4.  Submission of Matters to a Vote of Security Holders.................4

                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters.............................................................4
Item 6.  Selected Financial Data.............................................5
Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................6  - 13
Item 8.  Financial Statements and Supplementary Data...................14 - 28
Item 9.  Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure...........................28

                                    PART III

Item 10. Directors and Executive Officers of Registrant.....................28
Item 11. Executive Compensation.............................................28
Item 12. Security Ownership of Certain Beneficial Owners and Management.....28
Item 13. Certain Relationships and Related Transactions.....................28

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....29


Signatures..................................................................30

<PAGE>
                                       3

Part I
Item 1.  Business
Description of business
City National  Bancshares  Corporation  (the  "Corporation"  or "CNBC") is a New
Jersey corporation  incorporated on January 10, 1983. At December 31, 1996, CNBC
had consolidated total assets of $135 million,  total deposits of $115.9 million
and stockholders'  equity of $8.3 million.  Its only subsidiary is City National
Bank of New Jersey (the "Bank" or "CNB"), a nationally chartered commercial bank
which  commenced  operations  on June 11,  1973.  CNB has one  subsidiary,  City
National,  Inc.,  an  investment  company  which  holds,  maintains  and manages
investment assets for CNB.

In  1994,  the  Bank  acquired  a  branch  office  from  the  Resolution   Trust
Corporation,  assuming  deposits  of $25.2  million,  while  in  1996,  the Bank
acquired a branch office from another financial  institution,  assuming deposits
of $7.7 million.

CNB is a national  banking  association  chartered in 1973 under the laws of the
United States of America.  CNB is minority  owned and  controlled  and therefore
eligible to participate in certain federal government programs.  CNB is a member
of the Federal  Reserve Bank, the Federal Home Loan Bank and the Federal Deposit
Insurance  Corporation.  CNB  provides  a wide  range of retail  and  commercial
banking services  through three offices located in northern New Jersey.  Deposit
services  include  savings and checking  accounts,  certificates  of deposit and
money market and retirement accounts. The Bank also provides many forms of small
to medium size business  financing,  including  revolving credit,  credit lines,
term loans and all forms of consumer financing,  including auto, home equity and
mortgage loans and maintains banking  relationships  with several major domestic
corporations.

CNB  specializes  in  providing  credit and deposit  services  to  business  and
individuals  located within urban areas within New Jersey,  particularly  in the
Newark area.

The Bank has no trust department.

Competition
The market for banking and bank related services is highly competitive. The Bank
competes with other  providers of financial  services such as other bank holding
companies,  commercial  saving  banks,  savings  and loan  associations,  credit
unions, money market and mutual funds, mortgage companies, and a growing list of
other local,  regional and national institutions which offer financial services.
Mergers  between  financial  institutions  within New Jersey and in  neighboring
states have added competitive pressures. Competition is expected to intensify as
a consequence of interstate  banking laws now in effect or that may be in effect
in the future. CNB competes by offering quality products and convenient services
at  competitive  prices.  CNB  regularly  reviews its products and locations and
considers various branch acquisition prospects.

Management  believes  that  as New  Jersey's  only  African-American  owned  and
controlled Bank, it has a unique ability to provide  commercial banking services
to that segment of the minority community.

Supervision and regulation
The banking industry is highly regulated.  The following  discussion  summarizes
some of the material  provisions of the banking laws and  regulations  affecting
City National Bancshares Corporation and City National Bank of New Jersey.

Bank holding company regulations
CNBC is a bank holding  company  within the meaning of the Bank Holding  Company
Act (the "Act") of 1956, and as such, is supervised by the Board of Governors of
the Federal Reserve System (the "FRB").

The Act prohibits CNBC,  with certain  exceptions,  from acquiring  ownership or
control of more than five percent of the voting  shares of any company  which is
not a bank and  from  engaging  in any  business  other  than  that of  banking,
managing and controlling  banks or furnishing  services to subsidiary banks. The
Act also requires prior  approval by the FRB of the  acquisition by CNBC of more
than five  percent  of the voting  stock of any  additional  bank.  The Act also
restricts the types of  businesses,  activities,  and operations in which a bank
holding company may engage.

The  Riegle-Neal  Interstate  Bank and  Branching  Efficiency  Act of 1994  (the
"Branching Act") significantly changed interstate banking rules. Pursuant to the
Branching  Act, a bank holding  company will be able to acquire  banks in states
other than its home state beginning September 29, 1995, regardless of applicable
state laws.
<PAGE>
                                       4

The Branching  Act also  authorizes  banks to merge across state lines,  thereby
creating  interstate  branches,  beginning June 1, 1997. Under such legislation,
each state has the opportunity  either to "opt out" of this  provision,  thereby
prohibiting  interstate  branching in such states,  or to "opt in" at an earlier
time, thereby allowing  interstate  branching within that state prior to June 1,
1997.  Furthermore,  a state may  "opt-in"  with  respect to de novo  branching,
thereby permitting a bank to open new branches in a state in which the bank does
not already have a branch.  Without de novo branching,  an out-of-state bank can
enter the state only by acquiring an existing bank.

The New Jersey  legislature is presently  examining  whether it will opt-in with
respect to earlier interstate banking and branching,  as well as whether it will
authorize de novo branching and the entry into New Jersey of foreign banks.

Regulation of bank subsidiary
CNB is subject to the supervision  of, and to regular  examination by the Office
of the Comptroller of the Currency of the United States (the "OCC".)

Various  laws  and  the   regulations   thereunder   applicable  to  CNB  impose
restrictions and requirement in many areas, including capital requirements,  the
maintenance of reserves,  establishment of new offices,  the making of loans and
investments,  consumer  protection  and other  matters.  There are various legal
limitations  on the extent to which a bank  subsidiary  may finance or otherwise
supply funds to its holding company or its non-bank subsidiaries.  Under federal
law, no bank subsidiary may, subject to certain limited  exceptions,  make loans
or extensions of credit to, or  investments  in the securities of, its parent or
nonbank subsidiaries of its parent (other than direct subsidiaries of such bank)
or, subject to broader exceptions, take their securities as collateral for loans
to any borrower.  Each bank  subsidiary  is also subject to collateral  security
requirements for any loans or extension of credit permitted by such exceptions.

CNBC is a legal entity  separate and distinct from its subsidiary  bank.  CNBC's
revenues (on a parent  company only basis) result from dividends paid to CNBC by
its subsidiary.  Payment of dividends to CNBC by CNB,  without prior  regulatory
approval,  is subject to  regulatory  limitations.  Under the National Bank Act,
dividends  may be declared  only if, after  payment  thereof,  capital  would be
unimpaired  and  remaining  surplus  would  equal 100% of capital.  Moreover,  a
national  bank  may  declare,  in any one  year,  dividends  only  in an  amount
aggregating  not more  than  the sum of its net  profits  for such  year and its
retained  net  profits  for the  preceding  two  years.  In  addition,  the bank
regulatory agencies have the authority to prohibit a bank subsidiary from paying
dividends  or  otherwise  supplying  funds  to a  bank  holding  company  if the
supervising  agency  determines that such payment would  constitute an unsafe or
unsound banking practice.

Under the Financial  Institutions Reform,  Recovery, and Enforcement Act of 1989
("FIRREA"),  a depository institution insured by the FDIC can be held liable for
any loss  incurred  by, or  reasonably  expected to be incurred  by, the FDIC in
connection  with the default of a commonly  controlled  FDIC-insured  depository
institution  or any  assistance  provided  by the FDIC to a commonly  controlled
FDIC-insured  depository  institution  in danger of default,  or deferred by the
FDIC.  Further,  under  FIRREA,  the failure to meet  capital  guidelines  could
subject a banking institution to a variety of enforcement  remedies available to
federal regulatory  authorities,  including the termination of deposit insurance
by the FDIC.

The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to revise its risk-based  capital standards
to ensure that those  standards  take  adequate  account of interest  rate risk,
concentration  of credit risk and the risks of  non-traditional  activities.  In
addition,  each federal banking agency has promulgated  regulations,  specifying
the  levels  at  which  a  financial   institution  would  be  considered  "well
capitalized",  "adequately  capitalized",   "undercapitalized",   "significantly
undercapitalized",  or  "critically  undercapitalized",   and  to  take  certain
mandatory and  discretionary  supervisory  actions based on the capital level of
the institution.

The OCC's  regulations  implementing  these provisions of FDICIA provide that an
institution  will  be  classified  as  "well  capitalized"  if it  has  a  total
risk-based  capital ratio of at least 10%, has a Tier 1 risk-based capital ratio
of at least 6%,  has a Tier 1 leverage  ratio of at least 5%, and meets  certain
other   requirements.   An   institution   will  be  classified  as  "adequately
capitalized"  if it has a total  risk-based  capital ratio of at least 8%, has a
Tier 1 risk-based capital ratio of at least 4%, and has Tier 1 leverage ratio of
at least 4%. An institution will be classified as "undercapitalized" if it has a
total risk-based  capital ratio of less than 6%, has a Tier 1 risk-based capital
ratio of less  than 3%,  or has a Tier 1  leverage  ratio  of less  than 3%.  An
institution will be classified as "significantly  undercapitalized"  if it has a
total risk-based  capital ratio of less than 6%, or a Tier I risk-based  capital
ratio  of less  than  3%,  or a Tier I  leverage  ratio  of  less  than  3%.  An
institution  will be classified  as  "critically  undercapitalized"  if it has a
tangible  equity  to total  assets  ratio  that is equal to or less  than 2%. An
insured  depository  institution  may be deemed to be in a lower  capitalization
category if it receives an unsatisfactory examination.
<PAGE>
                                       5

Insured   institutions  are  generally   prohibited  from  paying  dividends  or
management  fees if  after  making  such  payments,  the  institution  would  be
"undercapitalized".  An  "undercapitalized"  institution  also  is  required  to
develop  and  submit  to  the  appropriate  federal  banking  agency  a  capital
restoration  plan, and each company  controlling such institution must guarantee
the institution's compliance with such plan.

Government policies
The earnings of the  Corporation  are affected not only by economic  conditions,
but also by the  monetary  and  fiscal  policies  of the  United  States and its
agencies,  especially  the  Federal  Reserve  Board.  The actions of the Federal
Reserve  Board  influence  the  overall  levels of bank loans,  investments  and
deposits  and  also  affect  the  interest  rates  charged  on  loans or paid on
deposits.  The  monetary  policies  of the  Federal  Reserve  Board  have  had a
significant  affect on the operating results of commercial banks in the past and
are expected to do so in the future.  The nature and impact of future changes in
monetary  and fiscal  policies  on the  earnings  of the  Corporation  cannot be
determined.

Employees
On December  31,  1996,  CNBC and its  subsidiary  had 62  full-time  equivalent
employees. Management considers relations with employees to be satisfactory.

Item 2.  Properties

Properties
The corporate  headquarters  and main office as well as the  operations and data
processing  center  of CNBC and CNB are  located  in  Newark,  New  Jersey  in a
building owned by CNB. The Bank leases its Hackensack office from the Resolution
Trust Corporation,  for which no rent is payable for five years, after which the
Bank will have the  opportunity  to  purchase  the  property.  The Bank owns the
property where its second branch office is located.

Item 3.  Legal proceedings

Legal proceedings
There were no material  pending  legal  proceedings  to which CNBC of CNB were a
party.

Item 4.  Submission of matters to a vote of security holders

Submission of matters to a vote of security holders
During  the  fourth  quarter  of  1996,  there  were  no  matters  submitted  to
stockholders for a vote.

Part II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
Matters

Market for common equity and related stockholder matters
The   Corporation's    common   stock,   when   publicly   traded,   is   traded
over-the-counter.  The  common  stock is not listed on any  exchange  and is not
quoted on the National  Association of Securities  Dealers' Automated  Quotation
System.  The last customer trade effected by a market maker was  unsolicited and
occurred on November 2, 1990. No price  quotations  are currently  published for
the common stock , nor is any market maker executing trades. No price quotations
were published during 1996.

At March 3, 1997, the Corporation had 1,916 common stockholders of record.

On May 1,  1996,  the  Corporation  paid a cash  dividend  of $1.35 per share to
stockholders  of record on March 31, 1996.  Whether cash dividends on the common
stock will be paid in the future  depends upon various  factors,  including  the
earnings and financial  condition of the Bank and the  Corporation  at the time.
Additionally, federal and state laws and regulations contain restrictions on the
ability of the Bank and the Corporation to pay dividends.

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, Raul L. Oseguera, Assistant Vice President,  Stockholder Relations,
900 Broad Street, Newark, New Jersey, 07102.

Transfer Agent
First City Transfer Company
111 Wood Avenue South, Suite 206
Iselin, New Jersey  08830

<PAGE>
                                       6

Item 6.  Selected Financial Data

Five-Year Summary
Dollars in thousands, except per share data
                                     1996      1995      1994(1)  1993   1992
===============================================================================
Year-end Balance Sheet data:
Total assets ..............   $134,951   $114,410   $111,062   $74,786   $61,911
Total loans .................   57,128     44,739     25,563    23,659    20,331
Reserve for possible
 loan losses                       750        650        625       700       650
Investment securities .......   60,863     55,103     53,751    39,193    35,644
Total deposits ..............  115,854    100,889    103,941    64,435    57,853
Long-term debt ..............    1,749      1,749        249       249       249
Stockholders' equity ........    8,287      6,896      5,588     4,562     3,356
================================================================================
Income Statement data:
Interest income ......... $  9,034   $  7,470   $   5,596    $  4,509    $ 4,430
Interest expense .......     3,802      2,829       2,068       1,469      1,513
--------------------------------------------------------------------------------
Net interest income .....    5,232      4,641       3,528       3,040      2,917
Provision (credit) for
 possible loan losses ...       91        486      (1,464)        (23)        30
--------------------------------------------------------------------------------
Net interest income after provision (credit)
  for possible loan losses . 5,141      4,155       4,992       3,063      2,887
Noninterest income ......... 1,147      1,363       1,375         898        508
Noninterest expense .......  4,839      4,245       3,645       3,019      2,829

Income before income tax expense and cumulative
  effect of accounting change1,449      1,273       2,722         942        566
Income tax expense .........   504        471         998         168        205
--------------------------------------------------------------------------------
Net income before cumulative effect of
  accounting change
  and extraordinary item .     945        802       1,724         774        361
Cumulative effect of
 accounting change ......       --         --         --          206         --
Extraordinary item ......     --         --          --          --          194
--------------------------------------------------------------------------------
Net income .............  $    945   $    802   $   1,724    $    980    $   555
================================================================================

(1) Includes  the effects of a $1.6 million  recovery of a loan that was charged
off in 1989,  which is more fully  discussed  in  "Management's  discussion  and
analysis of financial condition and results of operations."

Per common share data:
Income before cumulative effect of
  accounting change
  and extraordinary item $ 8.31  $ 7.22 $     15.51 $         7.88 $        4.16
Cumulative effect of
  accounting change and
  extraordinary item       --       --          --            2.09          2.24
Net income per
 primary share ......      8.31    7.22       15.51           9.97          6.40
Net income per fully
 diluted share ........    7.51    6.51       13.90           8.86          6.40
Book value .........      66.23   62.05       50.28          41.05         34.30
Dividends ....             1.35    1.25        1.00           N/A            N/A

Average number of common shares
 outstanding .          113,498   111,141    111,141          98,267      86,738
Number of common shares
 outstanding at
 year-end ....           114,141  111,141    111,141         111,141      97,841

Financial ratios:
Return on average assets   .71%     .72%      1.66%          1.20%          .81%
Return on average
 common equity ......    13.19    12.71       30.24          25.22         19.02
Stockholders' equity as a percentage of
 total assets             6.14     6.03        5.03           6.10          5.42
Dividend payout ratio    16.51    17.46        6.45            N/A           N/A
================================================================================

Item 7. Management's  discussion and analysis of financial condition and results
         of operations

Earnings summary
Net  income in 1996  increased  $143,000,  or 17.8%,  to  $945,000  compared  to
$802,000  in 1995.  Returns on average  common  equity and  average  assets were
13.19% and .71% in 1996 and 12.71% and .72% in 1995. Related earnings per common
share on a fully diluted basis rose to $7.51 from $6.51.

<PAGE>
                                       7

Both 1996 and 1995 included nonrecurring items which affected net income. In the
third  quarter  of  1996,  an  assessment  of  $100,000  was  paid  to the  FDIC
representing the Bank's share of replenishing the Savings Association  Insurance
Fund  ("SAIF"),  for the purchase in 1994 of a failed thrift  institute that was
SAIF-insured  while the first  quarter of 1995  included  $198,000  of  proceeds
received  from the RTC,  representing  earnings on funds  allocated  to purchase
loans from the RTC,  offset in part by a special  addition  of  $115,000  to the
provision for possible loan losses, to provide a reserve on these loans.

Excluding these items along with net securities gains,  earnings from operations
rose $262,000 in 1996, up 35.2% from $744,000 in 1995 to $1,006,000 in 1996.

The primary reason for the improved earnings  performance was an increase in net
interest income, which rose 12.7% compared to 1995.  Offsetting this improvement
somewhat  were higher costs  associated  with the  operations of a branch office
acquired in March,  1996 and the  completion of  renovations  of the Bank's main
office.

Net interest income
Net interest income is the principal  source of the  Corporation's  earnings and
represents  the amounts by which the interest and fees earned on loans and other
interest earning assets exceeds the interest paid on the funding sources used to
finance those assets.  An analysis of the  components of net interest  income is
facilitated when the income from tax-exempt investment securities is adjusted to
a taxable equivalent basis, placing tax-exempt assets on a comparable basis with
taxable interest earning assets.

On a fully taxable  equivalent  ("FTE") basis,  net interest income rose to $5.2
million in 1996 from $4.6 million in 1995, while the related net interest margin
decreased to 4.26% to 4.50%.  This  improvement in net interest  income resulted
from a higher level of interest earning assets, which averaged $124.5 million in
1996  compared to $104.4  million in 1995.  Loan growth  comprised  most of this
increase.  The lower net  interest  margin  reflected  a higher cost of deposits
along with a narrower spread on loans.

Interest  income on a FTE basis was $9.1  million in 1996,  an  increase of $1.6
million,  or 20.9%  compared to 1995.  This  increase  was due  primarily to the
higher level of average interest earning assets, which rose 19.3% in 1996. While
there was some  increase in  shorter-term  earning  assets due  primarily to the
liquid  assets  acquired in the  aforementioned  branch  acquisition,  the major
increase  occurred in the loan  portfolio,  which averaged $53.5 million in 1996
compared  to $39  million in 1995,  an  increase  of 37.3%.  Average  investment
securities  grew $3.8  million,  or 6.8% in 1996.The  average  yield on interest
earning  assets  rose nine basis  points to 7.30% in 1996,  compared to 7.21% in
1995.

Interest  expense was $3.8 million in 1996,  an increase of  $973,000,  or 34.4%
from 1995.  This  increase  resulted  primarily  from  higher  interest  bearing
liabilities,  which averaged $108.2 million in 1996 compared to $87.6 million in
1995, a 23.5% increase.  Almost all this increase comes from higher average time
deposit balances,  which rose to $66.4 million in 1996 compared to $47.8 million
in 1995, an increase of 39%. This growth  occurred  entirely in  certificates of
deposit of $100,000 or more,  reflecting the Bank's expanded  relationship  with
local municipalities.

A higher cost of funds also contributed to the increased  interest  expense,  as
the average cost of funds rose 35 basis  points,  from 2.71% in 1995 to 3.06% in
1996,  due  to  the  higher  cost  of  the  aforementioned  municipal  deposits.
Additionally,  noninterest  bearing funds  represented 13.1% of interest earning
assets in 1996 compared to 16% in 1995.

Investments

Total  investment  securities  averaged  $60.8  million in 1996  compared to $57
million in 1995,  an increase of $3.8  million,  or 6.9%.  Most of this increase
came from the use of  proceeds  received  from the deposit  assumption  and were
invested  in U.S.  Government  agency  securities.  The  other  activity  in the
portfolio resulted primarily from the reinvestment of maturity proceeds.

The  investment   securities   available  for  sale  ("AFS")  portfolio  changed
nominally,  from $30.6 million at December 31, 1995 to $31 million a year later,
while the related  gross  unrealized  loss changed  slightly,  from  $135,000 to
$108,000,  representing  less than .5% of the AFS portfolio's book value at both
dates.

The investment  securities  held to maturity  ("HTM")  portfolio rose from $24.5
million at December  31,  1995 to $29.9  million a year  later,  reflecting  the
aforementioned  purchases.  Related  unrealized  depreciation  was  $60,000  and
$349,000,  respectively,  reflecting  depreciation on agency callable securities
purchased in 1996. While these securities return substantially more than related
bullet bonds, their call features affect their marketability.
<PAGE>
                                       8

At December 31, 1996, the Bank held seven  structured  notes with total book and
related  market  values of $6,227,000  and  $6,084,000,  reflecting  $143,000 of
unrealized depreciation,  while a year earlier the structured note portfolio had
a book value of $8,209,000 and related market value of $8,003,000,  reflecting a
gross unrealized loss of $206,000.  These structured notes consisted of step-up,
dual-index  and  deleveraged  notes.  The  dual  notes  are  all  indexed  to  a
combination  of long and  short-term  rates,  while  the  deleveraged  notes are
indexed to the ten-year  Treasury.  Accordingly,  the value of these  securities
could  fluctuate  depending on interest rate  movements.  The step-ups have less
interest  rate risk  since  their  yield  will  increase  over  their  remaining
maturities.

In September 1994, the Bank transferred  certain  securities from the AFS to the
HTM portfolio.  Immediately  prior to the transfer,  these securities had a book
value of  $6,437,000  and a market  value of  $5,933,000,  resulting  in a gross
unrealized loss totalling  $504,000,  or $302,000 net of tax. This loss is being
amortized  by  increasing  the book value of the related  securities  over their
remaining  maturities.  At December 31, 1996, the remaining security transferred
had a book value of $1,911,000  with a related  market value of $2,017,000 and a
related gross unrealized loss included in stockholders' equity of $86,000.

Finally,  at December 31, 1996,  the Bank held callable U.S.  Government  agency
notes with a carrying value of $15.9  million,  $2 million of which was included
in the AFS portfolio and $13.9 million was included in the HTM portfolio.  These
notes are callable at various dates from 1997 through 2008.

Management  believes  that  holding  either  the  structured  notes or  callable
securities  will not have a significant  impact upon the financial  condition or
operations of the  Corporation.  Information  pertaining to the average weighted
yields of  investments  in debt  securities  at December  31, 1996 is  presented
below.  Maturities of mortgaged-backed  securities included with U.S. Government
agencies  are  based  on the  maturity  of the  final  scheduled  payment.  Such
securities,  which comprise most of the balances  shown as maturing  beyond five
years,  generally  amortize on a monthly  basis and are  subject to  prepayment.
Taking into account such contractual  amortization and expected  prepayments,  a
significant amount of principal reduction on the aforementioned  securities will
occur within three years:

Dollars in thousands
================================================================================
Investment Securities Available for Sale ...


                           Maturing      Maturing
                           After One     After Five
            Maturing       Year But      Years but     Maturing
            Within         Within Five   Within Ten    after
            One Year       Years         Years         Ten Years    Total  Total
           Amount  Yield  Amount Yield  Amount Yield  Amount Yield  Amount Yield
================================================================================
U.S. Treasury securities
           $ --     --% $4,2716  .29%$   --     --%     $--   --%  $4,271  6.29%
U.S. Government agencies
           1,786   5.96  8,567  5.70    418   8.96    15,180  6.41  25,951 6.19
--------------------------------------------------------------------------------
Total amortized cost
          $1,786  5.96%$12,838  5.90    418   8.96% $15,180  6.41%$ 30,222 6.20%
================================================================================

Investment Securities Held to Maturity



                           Maturing      Maturing
                           After One     After Five
            Maturing       Year But      Years but     Maturing
            Within         Within Five   Within Ten    after
            One Year       Years         Years         Ten Years    Total  Total
           Amount  Yield  Amount Yield  Amount Yield  Amount Yield  Amount Yield
================================================================================
Dollars in thousands
U.S. Government agencies
       $   --    -- %    $13,30 15.91% $11,377  6.82% $2,652 6.09% $27,330 6.31%
Obligations of states and
  political subdivisions
           --    --       2,132  6.89      404  7.03     --    --    2,536 6.91
--------------------------------------------------------------------------------
Total amortized cost
       $   --    -- %    $15,433 6.05% $11,781  6.83% $2,652 6.09% $29,866 6.36%
================================================================================

Average  yields are  computed by dividing  the annual  interest,  net of premium
amortization  and including  discount  accretion,  by the amortized cost of each
type of security outstanding at December 31, 1996. Average yields on obligations
of states and  political  subdivisions  have been  computed  on a fully  taxable
equivalent basis, using the statutory Federal income tax rate of 34%.
<PAGE>
                                       9

The average yield on the AFS portfolio  increased from 6.02% in 1995 to 6.20% in
1996 , while the yield on the HTM portfolio  rose from 6.24% in 1995 to 6.36% in
1996, reflecting higher yields on securities purchased.

Consolidated Average Balance Sheet with Related Interest and Rates
                                     1996                         1995
================================================================================
Tax equivalent basis;dollars in thousands
                             Average                     Average
                             Balance  Interest  Rate     Balance  Interest  Rate
================================================================================
Assets Interest earning assets:
 Federal funds sold and securities purchased
 under agreements to resell
                          $ 6,053   $  317      5.23%$ 4,948   $  279      5.65%
 Other short-term investments
                            3,996      215      5.37   3,334      192      5.75
 Interest-bearing deposits
 with banks............       104        5      5.16     170       10      6.09
 Investment securities:
  Taxable 1 ...........    58,270    3,577      6.14  54,468    3,269      6.00
  Tax-exempt ..........     2,536      176      6.92   2,491      171      6.88
--------------------------------------------------------------------------------
Total investment securities 60,806    3,753      6.17  56,959    3,440      6.04
--------------------------------------------------------------------------------
  Loans 2,3:
    Commercial             20,031    1,642      8.20  14,598    1,202      8.23
    Real estate            33,104    3,116      9.42  24,000    2,365      9.85
    Installment               388       46     11.85     374       40     10.70
--------------------------------------------------------------------------------
    Total loans            53,523    4,804      8.98  38,972     3,607      9.26
--------------------------------------------------------------------------------
    Total interest earning assets
                          124,484    9,094      7.30 104,383     7,528      7.21
--------------------------------------------------------------------------------
Noninterest earning assets:
  Cash and due from banks   4,065                      3,784
  Gross unrealized loss on investment
    securities available for sale
                             (164)                      (297)
  Reserve for possible loan losses
                             (724)                      (729)
  Other assets              4,733                      3,904
--------------------------------------------------------------------------------
  Total noninterest earning assets
                            7,912                      6,662
--------------------------------------------------------------------------------
Total assets             $132,396                   $111,045
================================================================================
Liabilities and stockholders' equity Interest bearing liabilities:
  Savings deposits 4      $36,427    $ 750       2.06 $36,818      $726     1.97
  Time deposits 5          66,420    2,764       4.16  47,797     1,927     4.03
--------------------------------------------------------------------------------
  Total interest bearing deposits
                          102,847    3,514       3.42  84,615      2,653    3.14
  Short-term borrowings     3,620      189       5.21   2,780        156    5.63
  Long-term debt            1,749       99       5.69     249         20    8.01
--------------------------------------------------------------------------------
  Total interest bearing liabilities
                          108,216    3,802       3.51  87,644      2,829    3.23
--------------------------------------------------------------------------------
Noninterest bearing liabilities:
  Demand deposits          14,960                      15,713
  Other liabilities         1,443                       1,378
--------------------------------------------------------------------------------
  Total noninterest bearing liabilities
                           16,403                      17,091
--------------------------------------------------------------------------------
Stockholders' equity        7,777                       6,310
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity
                        $ 132,396                   $ 111,045
================================================================================
Net interest income (tax equivalent basis)
                                     5,292       3.79              4,699    3.98
Tax equivalent basis adjustments(6)    (60)                          (58)
--------------------------------------------------------------------------------
Net interest income                $ 5,232                       $ 4,641
================================================================================
Average rate paid to fund interest earning assets
                                                 3.06                       2.71
--------------------------------------------------------------------------------
Net interest income as a percentage of
   interest earning assets (tax equivalent basis)
                                                 4.26%                     4.50%
================================================================================

<PAGE>
                                       10

1  Includes  investment  securities  available  for sale and held to  maturity 2
Includes  nonperforming  loans 3 Includes  loan fees of $247,000 and $197,000 in
1996 and 1995,  respectively 4 Includes  noninterest bearing deposits maintained
by a state governmental
   agency of $469,000 in 1996 and 1995
5  Includes  noninterest  bearing  deposits  maintained by corporations and U.S.
   governmental agencies of $12,522,000 in 1996 and $12,756,000 in 1995
6  The tax equivalent adjustment was computed  assuming a 34% statutory  federal
   income tax rate in 1996 and 1995


The table below set forth, on a fully taxable basis, an analysis of the increase
(decrease)  in net interest  income  resulting  from the specific  components of
income and expenses  due to changes in volume and rate.  Because of the numerous
simultaneous  balance and rate changes, it is not possible to precisely allocate
such changes between balances and rates. Therefore,  for purposes of this table,
changes  which are not due solely to balance and rate  changes are  allocated to
rate.
================================================================================
           1996 Net Interest Income Increase  1995 Net Interest Income Increase
              (Decrease) from 1995 due to         (Decrease) from 1994 due to
In thousands   Volume       Rate       Total        Volume     Rate       Total
================================================================================
Interest income
Loans:
  Commercial   $  457    $   (17)     $  440        $  (114)  $ 394    $    280
  Real estate     797        (46)        751         1,323     (179)      1,144
  Installment       2          4           6           (19)       8         (11)
--------------------------------------------------------------------------------
Total loans     1,256        (59)      1,197         1,190      223       1,413
Taxable investment securities
                  178         130        308           280      486         766
Tax-exempt investment securities
                    5          -           5            29        -          29
Federal funds sold and securities
  purchased under agreements to resell
                   62        (24)         38          (601)      65        (536)
Other short-term investments
                   38        (15)         23           192       -          192
Interest-bearing deposits with banks
                   (4)        (1)         (5)           10       -           10
--------------------------------------------------------------------------------
Total interest income
                1,535        (31)      1,566         1,100      774       1,874
--------------------------------------------------------------------------------
Interest expense
Savings deposits    8        (33)        (25)           63       (4)         59
Time deposits    (751)       (85)       (836)         (458)    (385)       (843)
Short-term borrowings
                  (47)        14         (33)          (86)     109          23
Long -term debt  (120)        41         (79)            -        -           -
--------------------------------------------------------------------------------
Total interest expense
                 (910)       (63)       (973)         (481)    (280)       (761)
--------------------------------------------------------------------------------
Net interest income
               $  625     $  (32)     $  593       $   627    $ 500     $ 1,027
================================================================================

Loans
Total loans  averaged  $53.5 million in 1996 compared to $39 million in 1995, an
increase of 37.2%.  At December 31, 1996,  total gross loans were $57.1 million,
up 27.7% from $44.7 million at 1995 year-end.

This increase resulted from greater commercial loan growth, as well as increased
residential  mortgage  volume,  which  included  the  purchase  of $4 million of
performing  residential  mortgage  loans in  connection  with  the  1996  branch
acquisiyion.   These  loans  consisted  of  one-to-four   family  loans  located
throughout  central New Jersey and were  acquired at an average  rate lower than
real estate loans already carried thereby  reducing the average rate in the real
estate loan  portfolio  from 9.85% to 9.42%.  Other than these loans,  there was
little  growth in the  Bank's  residential  mortgage  portfolio,  as most of its
residential mortgage loans originations are sold in the secondary market. Theses
loans represent Housing and Urban Development  ("HUD") - guaranteed  residential
rehabilitation loans.

Loans  originated for sale declined to $3.8 million in 1996 from $4.6 million in
1995,  while  loans sold  decreased  to $4 million in 1996 from $4.5  million in
1995. Gains and commissions on loan sales rose from $122,000 in 1995 to $170,000
in 1996.

At December 31, 1996, loans to churches totaled $7 million,  representing  12.3%
of total loans  outstanding and are included with real estate loans.  Management
does not believe that this loan  concentration  exposes the  Corporation  to any
unusual degree of risk.
<PAGE>
                                       11

The Bank generally secures its loans by obtaining  primarily first liens on real
estate,  both  residential  and  commercial,  and does  virtually no asset-based
financing.  Without  additional  side  collateral,  the Bank generally  requires
maximum  loan-to-value ratios of 70% for loan transactions secured by commercial
real estate.

The Bank's  primary  market area  consists of northern New Jersey,  particularly
within the Newark area.  Although Newark is undergoing a major  renovation,  the
city  continues  to  experience  a  high  rate  of  unemployment.   The  overall
unemployment  rate  in the  State  of New  Jersey  was  6.2%  at the end of 1996
compared to a nationwide rate of 5.3%.

While  management  believes that its loan  portfolio is well secured and able to
withstand a downturn  in economic  conditions,  its  effects  will be  carefully
considered in making credit decisions in 1997.

Management is unaware of any significant potential problem loans at December 31,
1996. Maturities and interest  sensitivities of loans Information  pertaining to
maturities and the sensitivity to changes in interest rates of loans at December
31, 1996 is presented below.
                              Due After One
                  Due in One  Year ThroughDue After
In thousands      Year or LessFive Years Five Years      Total
================================================================================
Commercial           $ 10,518    $ 5,041    $ 4,075   $ 19,634
Real estate:
  Construction            144        965        -        1,109
  Mortgage             11,128     18,464      6,350     35,942
  Installment             171        272        -          443
--------------------------------------------------------------------------------
Total                 $21,961    $24,742    $10,425    $57,128
================================================================================
Loans at fixed
  interest rates    $   1,856    $ 7,637   $ 10,425   $ 19,918
Loans at variable
  Interest rates       20,105     17,105        -       37,210
--------------------------------------------------------------------------------
Total                $ 21,961   $ 24,742   $ 10,425   $ 57,128
================================================================================
Summary of loan loss experience
Changes in the reserve for possible loan losses are summarized below.
Dollars in thousands                                          1996      1995
================================================================================
Balance, January 1                                           $ 650      $625
--------------------------------------------------------------------------------
Charge-offs:
  Commercial loans                                              25        382
  Real estate loans                                             65        163
  Installment loans                                              8         14
--------------------------------------------------------------------------------
Total                                                           98        559
--------------------------------------------------------------------------------
Recoveries:
  Commercial loans                                              20         26
  Real estate loans                                             81         54
  Installment loans                                              6         18
--------------------------------------------------------------------------------
Total                                                          107         98
--------------------------------------------------------------------------------
Net recoveries (charge-offs)                                     9       (461)
Provision for possible loan
  losses charged to operations                                  91        486
--------------------------------------------------------------------------------
Balance, December 31                                          $750       $650
================================================================================
Net  recoveries  (charge-offs)  as a percentage  of average  loans .02 % (1.19)%
Reserve for possible  loan losses as a percentage of loans 1.31 1.45 Reserve for
possible loan losses as a percentage
  of nonperforming loans                                      70.89     74.71
================================================================================

The reserve for possible  loan losses is  maintained  at a level  determined  by
management to be adequate to provide for inherent  losses in the loan portfolio.
The reserve is increased by provisions  charged to operations  and recoveries of
loan  charge-offs.  The reserve is based on management's  evaluation of the loan
portfolio and several other factors,  including past loan loss  experience,  the
credit  conditions  of the  borrower,  the value of the  underlying  collateral,
business and economic  conditions and the possibility that there may be inherent
losses in the portfolio which cannot currently be identified.

Charge-offs declined from $559,000 in 1995 to $98,000 in 1996 as a result of the
charge-off,  in the fourth  quarter of 1995, of a commercial  loan that had been
performing until then, at which time credit quality rapidly eroded to the extent
that management considered the collection of the loan to be doubtful.
<PAGE>
                                       12

Allocation of the reserve for possible loan losses
The reserve for possible loan losses has been  allocated  based on  management's
estimates of the risk  elements  within the loan  categories  set forth below at
December 31:
                                1996            1995
================================================================================
                              Percentage            Percentage
                                 of Loan                ofLoan
Dollars in thousands   Amount   Category     Amount   Category
================================================================================
Commercial              $ 250       1.27%     $ 175       .98%
Real estate               376       1.00        448      1.65
Installment                12       2.71          7      1.97
Unallocated               112        -           20       -
--------------------------------------------------------------------------------
Total                   $ 750      1.31%      $ 650      1.44%
================================================================================
Nonperforming assets
Information  pertaining  to  nonperforming  assets at December 31 is  summarized
below:

In thousands                                   1996     1995
================================================================================
Nonperforming loans
  Commercial                                 $  437  $     68
  Real estate                                   617       800
  Installment                                     4         2
--------------------------------------------------------------------------------
Total nonperforming loans                     1,058       870
Other real estate owned                         672       212
--------------------------------------------------------------------------------
Total                                        $1,730    $1,082
================================================================================

The increase in nonperforming loans in 1996 resulted primarily from the addition
of one loan that management considers well-secured by a commercial property.

Deposits
Average  deposits rose 17.4%,  from $100.3  million in 1995 to $117.8 million in
1996 due to the  deposits  assumed in the branch  acquisition  along with higher
levels of  municipal  time  deposits.  The  Bank's  deposit  levels  may  change
significantly  on  a  daily  basis  because  deposit   accounts   maintained  by
municipalities  represent a significant part of the Bank's deposits and are more
volatile than commercial or retail deposits.

These municipal and U.S. Government accounts represent a substantial part of the
Bank's business,  tend to have high balance  relationships and comprised most of
the Bank's  accounts  with  balances of $100,000 or more at December  31,  1996.
While  local  municipalities  use the  accounts  for  operating  and  short-term
investments purposes, the U.S. Government uses noninterest-bearing  certificates
of deposit as compensating balances, representing a form of payment for services
provided.  All the foregoing  deposits  require  collateralization  with readily
marketable U.S.  Government  securities.  While the Bank issues  certificates of
deposit to  municipalities in amounts of $100,000 at rates which are competitive
with other institutions and somewhat more costly than other sources of deposits,
the overall  cost of  certificates  of deposit of $100,000 or more is reduced by
the maintenance of the foregoing compensating balance accounts.

While  the  collateral  maintenance  requirements  associated  with  the  Bank's
municipal and U.S.  Government account  relationships might limit the ability to
readily  dispose of investment  securities used as such  collateral,  management
does not foresee any need for such disposal, and in the event of the loss of any
of these deposits, these securities are readily marketable.

Certain  corporations and  governmental  agencies  maintain  noninterest-bearing
savings and time deposit  accounts  with the Bank as  compensation  for services
performed.   In  1996,  such  balances   averaged   $469,000  and   $12,756,000,
respectively, contributing 39 basis points to net interest income.

The average cost of  interest-bearing  deposits rose from 3.14% in 1995 to 3.42%
in 1996 reflecting the greater proportion of time deposits.

Short-term borrowings
Average short-term borrowings rose 30.2% in 1996 because of higher U.S. Treasury
tax and loan note option account balances.  The average rate paid for short-term
borrowings  decreased  42  basis  points  reflecting  the  lower  interest  rate
environment during 1996.

Long-term debt
Average  long-term  debt rose from $249,000 in 1995 to $1,749,000 in 1996 due to
the issuance in  December,  1995 of $1.5 million in 5.25%  capital  notes.  As a
result, the average rate paid declined from 8.01% to 5.69% in 1996.
<PAGE>
                                       13

Other operating income
Other operating  income decreased 15.8% from $1,363,000 in 1995 to $1,147,000 in
1996 due primarily to the aforementioned proceeds received from the RTC in 1995.
Service charges on deposit accounts  declined 16.7% in 1996 primarily due to the
loss of a customer whose account incurred significant charges in 1995.

These  reductions were partially offset by higher agency fees, which rose 46.9%,
from  $162,000 in 1995 to $238,000 in 1996.  These fees  represent  compensation
from large corporations that utilize the Bank to syndicate lines of credit.

Other operating expenses
Other operating  expenses,  which include  expenses other than interest,  income
taxes and the provision for possible loan losses, totalled $4.8 million in 1996,
a 14% increase  compared to 1995. The primary  reasons for the increase were the
branch  acquisition along with costs  attributable to the renovation of the main
office.

Salaries and other employee benefits increased $173,000,  or 6.9% in 1996 due to
merit increase and the branch acquisition.

Occupancy  expense  rose  $136,000,  or 88.9%  from  1995 to 1996 due to  higher
depreciation  expense  arising from the  completion  of the  renovations  to the
Bank's main office as well as the branch acquisition.

Equipment expense increased  $135,000,  or 49.2% from 1995 to 1996 due primarily
to higher costs related to the aforementioned renovations and acquisition.

Other  expenses  were higher by  $150,000,  or 11% in 1996 due  primarily to the
nonrecurring  $100,000 FDIC SAIF assessment.  Also  contributing to the increase
was higher marketing expense, which rose from $19,000 in 1995 to $85,000 in 1996
as the Bank instituted a market awareness program.

Income tax expense
Income tax expense as a percentage of pre-tax  income was 34.8%  compared to 37%
in 1995 due to the operation of an investment subsidiary for a full year in 1996
compared to a partial year in 1995.  This  subsidiary  derives  state income tax
benefits from its operations.

Liquidity
The  liquidity  position  of the  Corporation  is  dependent  on the  successful
management of its assets and liabilities so as to meet the needs of both deposit
and credit  customers.  Liquidity needs arise primarily to accommodate  possible
deposit  outflows and to meet borrowers'  requests for loans.  Such needs can be
satisfied by investment and loan maturities and payments, along with the ability
to raise short-term funds from external sources.

It is the responsibility of the Asset/Liability Management Committee ("ALCO") to
monitor and oversee all  activities  relating to  liquidity  management  and the
protection of net interest income from fluctuations in interest rates.

The Bank depends  primarily  on deposits as a source of funds and also  provides
for a portion  of its  funding  needs  through  short-term  borrowings,  such as
Federal  Funds  purchased,  securities  sold  under  repurchase  agreements  and
borrowings under the U.S. Treasury tax and loan note option program.

Aside from the increase in accrued expenses and other  liabilities  described in
Note 10 to the Financial  Statements,  the major  contribution  during 1996 from
operating activities to the Corporation's liquidity came from net income.

Net cash used in investing  activities  was primarily the result of the purchase
of investment  securities,  which totalled $31.2 million,  while sources of cash
provided by investing  activities  were derived  primarily  from  proceeds  from
maturities,  principal payments and early redemptions of investment  securities,
amounting to $25.6 million.

The primary source of funds from financing  activities resulted from an increase
in  short-term  borrowings  of $1.5  million  and an increase in deposits of $15
million.

Effects of inflation
Inflation,  as measured by the CPI, has been  relatively  steady  during  recent
years, advancing 2.8% in 1996 and 1995 and 2.7% in 1994.

The asset and liability  structure of the Corporation and subsidiary bank differ
from that of an industrial  company since its assets and  liabilities  fluctuate
over time based upon monetary policies and changes in interest rates. The growth
in earning  assets,  regardless of the effects of  inflation,  will increase net
income if the  Corporation  is able to  maintain a  consistent  interest  spread
between earning assets and supporting  liabilities.  In an inflationary  period,
the  purchasing  power of  these  net  monetary  assets  necessarily  decreases.
However,  changes in interest  rates may have a more  significant  impact on the
Corporation's  performance than inflation.  While interest rates are affected by
inflation,  they do not necessarily  move in the same direction,  or in the same
magnitude as the prices of other goods and services.
<PAGE>
                                       14

The impact of inflation on the future  operations of the Corporation  should not
be viewed without  consideration of other financial and economic indicators,  as
well as historical  financial  statements and the preceding discussion regarding
the Corporation's liquidity and asset and liability management.

Interest rate sensitivity
The management of interest rate risk is also important to the  profitability  of
the Corporation. Interest rate risk arises when an earning asset matures or when
its interest rate changes in a time period  different  from that of a supporting
interest-bearing  liability,  or when an  interest-bearing  liability matures or
when its  interest  rate  changes  in a time  period  different  from that of an
earning asset that it supports.  While the  Corporation  does not match specific
assets and liabilities,  total earning assets and interest  bearing  liabilities
are  grouped to  determine  the  overall  interest  rate risk within a number of
specific time frames.

Interest  sensitivity  analysis  attempts to measure the  responsiveness  of net
interest  income to changes in interest  rate  levels.  The  difference  between
interest sensitive assets and interest  sensitive  liabilities is referred to as
interest sensitive gap. At any given point in time, the Corporation may be in an
asset-sensitive  position,  whereby  its  interest-sensitive  assets  exceed its
interest-sensitive liabilities or in a liability-sensitive position, whereby its
interest-sensitive  liabilities exceed its interest-sensitive  assets, depending
on management's judgment as to projected interest rate trends.

One measure of interest rate risk is the  interest-sensitivity  analysis,  which
details the repricing  differences for assets and liabilities for given periods.
The primary  limitation of this  analysis is that it is a static (i.e.,  as of a
specific  point in time)  measurement  which does not  capture  risk that varies
nonproportionally  with changes in interest rates.  Because of this  limitation,
the  Corporation  uses a  simulation  model as its primary  method of  measuring
interest rate risk.  This model,  because of its dynamic  nature,  forecasts the
effects of different  patterns of rate movements and variances in the effects of
rate  changes  on  the  Corporations'  mix  of  interest-sensitive   assets  and
liabilities.

The  following  table  presents  the  Corporation's  interest  rate  sensitivity
position at December 31, 1996. Interest-sensitivity analysis
                  Interest Sensitivity Period
================================================================================
                       Daily     Due After  Due After                  Due After
                Floating and  Three Months Six Months     Total      One Year or
                  Due Within    But Within But Within    Within     Noninterest-
In thousands    Three Months    Six Months   One Year  One Year  sensitive Total
================================================================================
Interest-earning assets
Federal funds sold
                    $ 8,900         $--       $ --    $ 8,900   $  --    $ 8,900
Interest-bearing deposits with banks
                         74          --         --         74      --         74
Investment securities
                     18,496       1,601      4,980     25,077    35,894   60,971
Gross loans ....     17,073       3,943      6,599     27,615    29,804   57,419
--------------------------------------------------------------------------------
Total                44,543       5,544     11,579     61,666    65,698  127,364
--------------------------------------------------------------------------------
Sources of funds supporting interest-earning assets
Savings deposits (1) 19,737         --          --     19,737    17,790   37,527
Time deposits        27,338      17,903      3,919     49,160    15,468   64,628
Short-term borrowings 5,175         --          --      5,175        --    5,175
Long-term debt           --         --          --         --     1,749    1,749
Noninterest bearing
sources                  --         --          --         --    18,285   18,285
--------------------------------------------------------------------------------
Total                52,250      17,903      3,919      74,072   53,292  127,364
--------------------------------------------------------------------------------
Interest-sensitive gap
                     (7,707)    (12,359)     7,660      (12,406)
--------------------------------------------------------------------------------
Cumulative interest-sensitivity gap
                    $(7,707)   $(20,066)  $(12,406)     $(12,406)
--------------------------------------------------------------------------------
Interest-sensitive assets to interest
 sensitive liabilities.85:1       .30:1      2.95:1        .83:1
--------------------------------------------------------------------------------
Cumulative interest-sensitive assets
 to interest sensitive liabilities
                      .85:1       .71:1       .83:1        .83:1
--------------------------------------------------------------------------------
Interest-sensitivity gap as a percentage of total assets
                     (5.71)%     (9.16)%      5.68%       (9.19)%
--------------------------------------------------------------------------------
Cumulative interest-sensitivity gap as a percentage
  of total assets    (5.71)%    (14.87)%    (9.19)%       (9.19)%
================================================================================
(1) Based on  historical  experience,  management  has  classified  passbook and
statement savings accounts as noninterest sensitive
<PAGE>
                                       15

At December 31, 1996, the Corporation  had a cumulative  one-year gap of $(12.4)
million,  representing 9.19% of total assets and a ratio of .83:1. Utilizing the
dynamic simulation model,  management believes that this amount would not result
in a significant  change in net interest  income should  interest  rates rise or
fall up to 300 basis points, which is the maximum change that management uses to
measure the Corporation's exposure to interest rate risk.

Capital

The following table presents the consolidated and bank-only  capital  components
and  related  ratios as  calculated  under  regulatory  accounting  practice  at
December 31:

                                                        Bank
                                    Consolidated         Only
================================================================================
                                    December 31,     December 31,
Dollars in thousands               1996      1995      1996
================================================================================
Total stockholders' equity   $    8,287 $   6,896 $   9,726
Net unrealized loss on investment
  securities available for sale     111       141       111
Disallowed intangibles              (66)      (76)      (66)
--------------------------------------------------------------------------------
Tier 1 capital                    8,332     6,961     9,771
--------------------------------------------------------------------------------
Qualifying long-term debt         1,749     1,749       249
Reserve for possible loan losses    734       516       734
--------------------------------------------------------------------------------
Tier 2 capital                    2,483    2,265 983
--------------------------------------------------------------------------------
Total capital                 $  10,815 $   9,226  $ 10,754
================================================================================
Risk-adjusted assets          $  58,681  $  41,303 $ 58,681
Total assets                    134,951    114,410  134,951
--------------------------------------------------------------------------------
Risk-based capital ratios:
  Tier 1 capital to risk-adjusted assets
                                  14.20%    15.86%    16.65%
  Regulatory minimum               4.00      4.00      4.00
  Total capital to risk-adjusted assets
                                  18.43     17.81     18.33
  Regulatory minimum               8.00      8.00      8.00
  Leverage ratio                   5.93      6.13      7.01
Total stockholders' equity to total assets
                                   6.14      6.03      7.21
================================================================================

Results of operations - 1995 compared with 1994
Net income for 1995 declined to $802,000,  or, on a fully diluted  basis,  $6.51
per common  share  compared to  $1,724,000 , or $13.90 per common share in 1994,
due to a $1.6 million insurance  recovery in 1994 of a loan charged off in 1989.
Excluding  the  nonrecurring  items and net security  gains,  net earnings  from
operations  were $798,000 in 1995,  compared to $688,000 in 1994, an increase of
16% . Higher net interest income was the primarily reason for this increase. The
related net  interest  margin rose from 3.63% in 1994 to 4.50% in 1995.  Average
deposits grew from $92.3 million in 1994 to $100.3  million in 1995, an increase
of 8.7%, due to the aforementioned branch acquisition.

Total  investment  securities  averaged  $57  million in 1995  compared to $50.9
million in 1994,  an increase of $6.1 million,  or 11.9%.  Most of this increase
came from the proceeds received from the deposit assumption and were invested in
U.S. Government agency and mortgage-backed securities.

Total loans  averaged $39 million in 1995  compared to $27.3 million in 1994, an
increase of 42.9%. At December 31,1995, total loans were $44.7 million, up 71.9%
from $26 million at 1994  year-end.  The largest  increase  occurred in mortgage
loans,  where average volume in 1995 was $24 million,  compared to $10.9 million
in 1994, an increase of 120.1%.

This  increase  occurred as a result of the  purchase in January,  1995 of $11.5
million  in  seasoned  residential  mortgage  loans  from the  Resolution  Trust
Corporation.   These  loans  consisted  of  one-to-four   family  loans  located
throughout central New Jersey.

Loans  originated for sale declined to $4.6 million in 1995 from $6.5 million in
1994,  while loans sold decreased,  to $4.5 million in 1995 from $6.1 million in
1994.  However,  gains and  commissions  on loan  sales rose by 90.6% due to the
emphasis by the Bank during 1995 on originating residential rehabilitation loans
guaranteed by the Department of Housing and Urban Development ("HUD"), which are
more labor intensive than the conventional  residential  mortgage loans that the
Bank originated and sold during 1994, but are more profitable.
<PAGE>
                                       16

Other operating  income was $1.4 million in both 1995 and 1994. There were major
changes within the components,  however,  as service  charges rose $227,000,  or
46.9% due to a greater volume of service chargeable  transactions.  Other income
decreased $213,000,  or 24.9% due primarily to the recording in 1994 of $175,000
associated with the aforementioned loan loss recovery.

Other  operating  expenses  totalled  $4.2  million  in 1995,  a 16.5%  increase
compared to 1994.  Salaries and other  employee  benefits  comprised the largest
portion of the  increase,  rising 23.7% from $2 million to $2.5 million in 1995.
The  primary  reason for the  increase  in overall  operating  expenses  was the
operation of the acquired  branch office for a full year.  Also  contributing to
the higher  salary and benefit  costs were the effects of increased  lending and
administrative staff and annual merit increases.

Occupancy  expense  rose  $30,000,  or 24.4%  from  1994 to 1995  due to  higher
depreciation  expense  arising from the  renovations  of the Bank's main office.
Equipment expense increased  $74,000,  or 37% from 1994 to 1995 due primarily to
higher costs related to the aforementioned renovations.

Other  operating  expense was  nominally  higher in 1995 due  primarily to lower
premiums  for  FDIC  insurance  coverage  as well as the  effectiveness  of cost
containment measures instituted in early 1995. These reductions partially offset
the increased cost of operating the acquired branch for a full year.

Income  tax  expense  as a  percentage  of  pretax  income  was 37%,  relatively
unchanged from 36.7% in 1994.
<PAGE>
                                       17

KPMG Peat Marwick LLP

New Jersey Headquarters
150 John F. Kennedy Parkway
Short Hills, NJ  07078

Independent Auditors' Report

The Board of Directors and Stockholders City National Bancshares Corporation:

We have audited the  accompanying  consolidated  balance sheets of City National
Bancshares  Corporation and subsidiary (the Corporation) as of December 31, 1996
and  1995,  and the  related  consolidated  statements  of  income,  changes  in
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended December 31, 1996. These consolidated  financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of the Corporation and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and  their  cash  flows  for each of the years in the  three-year  period  ended
December 31, 1996, in conformity with generally accepted accounting principles.

As discussed in note 1 to the consolidated financial statements, the Corporation
adopted the provisions of the Financial  Accounting  Standards Board's Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" as of January i, 1994.


/s/ KPMG Peat Marwick

February 6, 1997
<PAGE>
                                       18

Item 8. Financial Statement and Supplementary data

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
                                                         Year Ended December 31,

Dollars in thousands, except per share data                    1996        1995
Assets
Cash and due from banks (Note 2)                              $2,767      $3,344
Federal funds sold (Note 3)                                    8,900       6,950
Interest-bearing deposits with banks                              74         321
Investment securities available
 for sale (Note 4)                                            30,997      30,609
Investment securities held to maturity (Market value of $29,517
   in 1996 and $24,434 in 1995) (Note 5)                      29,866      24,494
Loans held for sale (Note 1)                                     291         555
Loans (Note 6)                                                57,128      44,739
Less: Reserve for possible loan
  losses (Note 7)                                                750         650
Net loans                                                     56,378      44,089

Premises and equipment (Note 8)                                3,331       2,288
Accrued interest receivable                                    1,078         955
Other real estate owned                                          672         212
Other assets                                                     597         593

Total assets                                                $134,951    $114,410
Liabilities and Stockholders' Equity
Deposits: (Notes 4, 5, and 9)
       Demand                                                $13,699     $12,925
       Savings                                                37,527      37,019
       Time                                                   64,628      50,945
Total deposits                                               115,854     100,889
Short-term borrowings (Notes 6 and 11)                         5,175       3,661
Accrued expenses and other liabilities (Note10)                3,886       1,215
Long-term debt (Note 12)                                       1,749       1,749
Total liabilities                                            126,664     107,514
Commitments and contingencies (Note 21)
Stockholders' equity (Note17):
  Preferred stock, no par value: Authorized 100,000           727            200
        Common stock, par value $10: Authorized 400,000 shares;
                115,000 shares issued and 114,141 outstanding in 1996
                112,000 shares issued and 111,141 outstand  1,150          1,120
       Surplus                                                901            886
       Retained earnings                                    5,645          4,856
       Less:
              Net unrealized loss on investment securities    111            141
              Treasury stock, at cost - 839 shares             25             25
Total stockholders' equity                                  8,287          6,896
Total liabilities and stockholders' equity               $134,951       $114,410
See accompanying notes to consolidated financial statements.
<PAGE>
                                       19

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

Consolidated Statement of Income
                                                     Year Ended December 31,

Dollars in thousands, except per share data      1996        1995         1994

Interest income
Interest and fees on loans                     $4,804      $3,607         $2,194
Interest on Federal funds sold and securities
  purchased under agreements to resell            317         279            815
Interest on other short-term investments          215         192            -
Interest on deposits with banks                     5          10            -
Interest and dividends on investment securities:
        Taxable                                 3,577       3,269          2,503
        Tax-exempt                                116         113             84
Total interest income                           9,034       7,470          5,596

Interest expense
Interest on deposits (Note 9)                   3,514       2,653          1,869
Interest on short-term borrowings                 189         156            179
Interest on long-term debt                         99          20             20
Total interest expense                          3,802       2,829          2,068

Net interest income                             5,232       4,641          3,528
Provision (credit) for possible loan
losses (Note 7)                                    91         486        (1,464)
Net interest income after provision (credit)
         for possible loan losses               5,141       4,155          4,992

Other operating income
Service charges on deposit accounts               592         711            484
Other income (Note 12)                            548         642            855
Net gains on sales of investment securities
(Notes 4 and 5)                                     7          10             36
Total other operating income                    1,147       1,363          1,375

Other operating expenses
Salaries and other employee benefits
(Note 15)                                       2,628       2,455          1,984
Occupancy expense (Note 8)                        289         153            123
Equipment expense (Note 8)                        409         274            200
Other expenses (Note 13)                        1,513       1,363          1,338
Total other operating expenses                  4,839       4,245          3,645

Income before income tax expense                1,449       1,273          2,722
Income tax expense (Note 14)                      504         471            998
                                             -----------------------------------
Net income                                       $945        $802         $1,724
                                             ===================================
Net income per common share  (Note 18)
Primary                                         $8.31       $7.22         $15.51
Fully diluted                                    7.51        6.51          13.90

Primary average common shares outstanding     113,502     111,141        111,141
Fully diluted average common shares
 outstanding                                  127,352     124,991        124,991

See accompanying notes to consolidated financial statements.
<PAGE>
                                       20

CITY NATIONAL BANCSHARES CORPORATION
 AND SUBSIDIARIES
Consolidated Statement of Changes
in Stockholders' Equity
<TABLE>
<CAPTION>

                                                                                     Net Unrealized
                                                                                     Gain (Loss) on
                                                                                     Investment
                                       Common              Preferred  Retained       Securities  Treasury
                                        Stock    Surplus   Stock      Earnings       AFS         Stock      Total
Dollars in thousands, except per share data
<S>                                      <C>         <C>       <C>        <C>             <C>      <C>     <C>

Balance, December 31, 1993              $1,120       $886   $     -       $2,581       $     -     $(25)   $4,562
Net income                                  -          -          -        1,724             -        -     1,724
Net unrealized loss on investment securities upon
       adoption of a change in accounting   -          -          -           -              68       -        68
       principles 
Change in unrealized gain (loss) on investment
       securities available for sale        -          -          -           -            (655)      -      (655)
Dividends paid on common stock              -          -          -         (111)            -        -      (111)
                                                                     
Balance, December 31, 1994               1,120        886         -        4,194           (587)     (25)   5,588
Net income                                  -          -          -          802             -        -       802
Proceeds from issuance of preferred stock   -          -         200          -              -        -       200
Change in net unrealized loss on investment
       securities available for sale        -          -          -           -             446       -       446
Dividends paid on common stock              -          -          -         (140)            -        -      (140)

Balance, December 31, 1995               1,120        886        200       4,856           (141)     (25)   6,896
Net income                                  -          -          -          945             -        -       945
Proceeds from issuance of common stock      30         15         -           -              -        -        45
Proceeds from issuance of preferred stock   -          -         527          -                       -       527
Change in net unrealized loss on investment
       securities available for sale        -          -          -           -              30       -        30
Dividends paid on common stock              -          -          -         (154)            -        -      (154)
Dividends paid on preferred stock           -          -          -           (2)            -        -        (2)

Balance, December 31, 1996              $1,150       $901       $727      $5,645         $(111)    $(25)   $8,287
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
                                       21

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows

                                                      Year Ended December 31,

In thousands                                     1996        1995         1994
                                             -----------------------------------
Operating activities
Net income                                       $945        $802         $1,724
Adjustments to reconcile net income to net cash from operating activities:
    Depreciation and amortization                 339         191            120
    Provision (credit) for possible loan losses    91         486        (1,464)
    Net (accretion) amortization on
     investment securities                        (15)        151            423
    Net gains on sales and early redemptions
     of investmen                                  (7)        (10)          (36)
    Gains and commissions on loans held for sale (170)       (122)          (64)
(Increase) decrease in accrued interest
     receivable                                  (123)        194          (655)
Deferred income tax (benefit) expense             (53)       (203)           578
(Increase) decrease in other assets                (4)        984        (1,314)
Decrease in other real estate owned                 -          95            -
Increase (decrease)  in accrued expenses and other
liability                                       2,702        (150)           556
Premium paid on branch acquisition               -           -              (90)
                                              ----------------------------------
Net cash provided by (used in)
 operating activity                              3,705       2,418         (222)
                                              ----------------------------------
Investing activities
Loans originated for sale                       (3,776)     (4,594)      (6,525)
Proceeds from sales of loans held for sale       4,210       4,631         6,118
Increase in loans                               (8,912)     (8,256)      (2,370)
Purchase of loans in conjunction with branch
  acquisitions                                   4,035)    (11,479)           -
Decrease (increase) in interest-bearing
  deposits with bank                               247        (321)           -
Proceeds from recoveries of loans previously
   charged off                                     107          97         1,549
Proceeds from maturities of investment securities available for sale,
      including principal payments and
      early redemptions                         20,917       1,524         3,660
Proceeds from maturities of investment securities held to maturity,
      including principal payments and early
      redemptions                                4,643      11,127         5,597
Proceeds from sales of investment securities
 available for                                      -           -          2,382
Purchases of investment securities
 available for sale                            (21,221)     (2,745)     (10,246)
Purchases of investment securities
 held to maturity                              (10,025)    (10,669)     (17,315)
Purchases of premises and equipment             (1,382)       (739)        (737)
                                               ---------------------------------
Net cash used in investing activities          (19,227)    (21,424)     (17,887)
                                               ---------------------------------
Financing activities
Deposits assumed in branch acquisitions          7,661         -          25,209
Increase (decrease) in deposits                  7,304      (3,052)       14,297
Increase in short-term borrowings                1,514       3,661       (5,000)
Proceeds from issuance of long-term debt           -         1,500           -
Proceeds from issuance of common stock              45         -             -
Proceeds from issuance of preferred stock          527         200            -
Dividends paid                                    (156)       (140)        (111)
                                               ---------------------------------
Net cash provided by financing activities       16,895       2,169        34,395

                                               ---------------------------------
Net increase (decrease) in cash and
   cash equivalents                              1,373     (16,837)       16,286

Cash and cash equivalents at beginning of year  10,294      27,131        10,845

Cash and cash equivalents at end of year       $11,667     $10,294       $27,131

Cash paid during the year:                     =================================
Interest                                        $3,960      $2,719        $1,768
Income taxes                                       335         991           102

Supplemental schedule for noncash investing activities:
Real estate acquired in settlement of loans        460         212           307
Transfers of investment securities held to maturity
       to (from) investment securities
      available for sale                            -       21,836       (6,437)
See accompanying notes to consolidated financial statements.
<PAGE>
                                       22

Note 1   Summary of significant accounting policies
The accounting and reporting  policies of City National  Bancshares  Corporation
(the  "Corporation"  or "CNBC") and its  subsidiary  City  National  Bank of New
Jersey  (the  "Bank"  or  "CNB")  conform  with  generally  accepted  accounting
principles and to general practice within the banking industry. In preparing the
financial  statements,  management is required to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities  and  disclosure of
contingent  liabilities  as of the date of the balance  sheet and  revenues  and
expenses for the related periods. Actual results could differ significantly from
those estimates. The following is a summary of the more significant policies and
practices.

Principles of consolidation
The  financial  statements  include the  accounts  of CNBC and its  wholly-owned
subsidiary,  CNB. All significant  intercompany  accounts and transactions  have
been eliminated in consolidation.

Cash and cash equivalents
For purposes of the  presentation of the Statement of Cash Flows,  Cash and cash
equivalents  includes  Cash  and due  from  banks  and  Federal  funds  sold and
securities purchased under agreements to resell.

Federal Home Loan Bank of New York
The Bank, as member of Federal Home Loan Bank of New York "FHLB", is required to
hold shares of capital stock of the FHLB based on a specified formula.  The FHLB
stock is carried at cost.

Investment  securities held to maturity and investment  securities available for
sale  Investment  securities are designated as held to maturity or available for
sale at the time of acquisition.  Securities that the Corporation has the intent
and ability at the time of purchase to hold until  maturity  are  designated  as
held to maturity.  Investment securities held to maturity are stated at cost and
adjusted  for  amortization  of premiums to the earlier of maturity or call date
and accretion of discount to maturity.

Securities to be held for indefinite periods of time but not intended to be held
until maturity or on a long-term  basis are classified as investment  securities
available  for sale.  Securities  held for  indefinite  periods of time  include
securities  that the  Corporation  intends to use as part of its  interest  rate
sensitivity  management  strategy and that may be sold in response to changes in
interest  rates,  resultant  risk  and  other  factors.   Investment  securities
available for sale are reported at fair market value,  with unrealized gains and
losses reported as a separate component of stockholders' equity, net of deferred
tax. Gains and losses  realized from the sales of securities  available for sale
are determined using the specific identification method.

The Corporation holds in its investment portfolios  mortgage-backed  securities.
Such securities are subject to changes in the prepayment rates of the underlying
mortgages, which may affect both the yield and maturity of the securities.

Loans held for sale
The Bank originates  mortgage loans for sale.  Premiums received from purchasers
on sales of  conventional  nonguaranteed  one-to-four  family mortgage loans are
recorded as income when received. Once the determination to sell a loan has been
made,  it is  transferred  to loans  held for sale and  carried  at the lower of
remaining  principal  balance  or  market  value.  Loans  held for sale  include
residential  mortgage loans  originated with the intent to sell.  Loans held for
sale are carried at the lower of aggregate cost or fair value.


Loans
Loans are stated at the principal amounts outstanding,  net of unearned discount
and deferred  loan fees.  Interest  income is accrued as earned,  based upon the
principal  amounts  outstanding.  Loan  origination fees and certain direct loan
origination  costs,  as well as unearned  discount,  are deferred and recognized
over the life of the loan revised for loan prepayments,  as an adjustment to the
loan's  yield.  Recognition  of  interest  on the  accrual  method is  generally
discontinued  when a loan  contractually  becomes  90 days or more past due or a
reasonable doubt exists as to the  collectibility of the loan, unless such loans
are well-secured and in the process of collection.  At the time a loan is placed
on a nonaccrual status, previously accrued and uncollected interest is generally
reversed against interest income in the current period.  Interest on such loans,
if  appropriate,  is recognized as income when payments are received.  A loan is
returned to an accrual status when it is current as to principal and interest.

Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" (SFAS 114) and Statement of Financial Accounting Standards
No. 118  "Accounting by Creditors for Impairment of a Loan - Income  Recognition
and Disclosure" (SFAS 118) were adopted  prospectively by the Bank on January 1,
1995. These statements address the accounting for impaired loans and specify how
allowances for loan losses related to these impaired loans should be determined.
The adoption of the statements did not affect the level of the overall allowance
for loan losses or the operating  results of the Bank.  Income  recognition  and
charge-off policies were not changed as a result of the adoption of SFAS No. 114
and SFAS No. 118.
<PAGE>
                                       23

The  Corporation  has  defined  the  population  of  impaired  loans  to be  all
nonaccrual loans of $100,000 or more considered by management to be inadequately
secured  and  subject to risk of loss.  Impaired  loans of  $100,000 or more are
individually  assessed  to  determine  that the loan's  carrying  value does not
exceed the fair value of the  underlying  collateral or the present value of the
loan's expected future cash flows.  Smaller balance  homogeneous  loans that are
collectively   evaluated  for  impairment  such  as  residential   mortgage  and
installment  loans, are specifically  excluded from the impaired loan portfolio.
Where  impaired  loans are carried at the present value of expected  future cash
flows, any change in such value is included with the provision for possible loan
losses. There were no impaired loans recorded during 1996.

Reserve for possible loan losses
A  substantial  portion of the Bank's  loans are  secured by real  estate in New
Jersey particularly within the Newark area. Accordingly,  as with most financial
institutions  in the market area, the ultimate  collectibility  of a substantial
portion  of the  Bank's  loan  portfolio  is  susceptible  to  changes in market
conditions.

The  reserve  for  possible  loan  losses is  maintained  at a level  determined
adequate to provide for potential  losses on loans.  The reserve is increased by
provisions  charged to operations and recoveries of loans previously charged off
and reduced by loan charge-offs. The reserve is based on management's evaluation
of the loan portfolio  considering current economic  conditions,  the volume and
nature of the loan  portfolio,  historical  loan loss  experience and individual
credit and collateral situations.

Management believes that the reserve for possible loan losses is adequate. While
management uses available  information to determine the adequacy of the reserve,
future additions may be necessary based on changes in economic  conditions or in
subsequently occurring events unforeseen at the time of evaluation.

In  addition,  various  regulatory  agencies,  as  an  integral  part  of  their
examination  process,  periodically  review the Bank's reserve for possible loan
losses.  Such  agencies  may require the Bank to increase  the reserve  based on
their  judgment  of  information   available  to  them  at  the  time  of  their
examination.

Bank premises and equipment
Premises and equipment are stated at cost less  accumulated  depreciation  based
upon estimated useful lives of 3 to 39 years,  computed using the  straight-line
method.  Expenditures  for  maintenance and repairs are charged to operations as
incurred,  while major  replacements and  improvements are capitalized.  The net
asset  values  of assets  retired  or  disposed  of are  removed  from the asset
accounts and any related gains or losses are included in operations.

Other real estate owned
Other  real  estate  owned  acquired  through  foreclosure  or  deed  in lieu of
foreclosure is carried at the lower of cost or fair value less estimated cost to
sell.  When a property  is  acquired,  the excess of the loan  balance  over the
estimated  fair  value is charged  to the  reserve  for  possible  loan  losses.
Operating  results  including any future  writedowns of other real estate owned,
rental income and operating expenses, are included in "Other expenses".

Core deposit premiums
The premium paid for the acquisition of deposits in connection with the purchase
of a branch  office is  amortized  on an  accelerated  basis  over the  ten-year
estimated useful life of the assumed deposit base.

Income taxes
Federal  income taxes are based on currently  reported  income and expense after
the  elimination  of income which is exempt from Federal income tax. Such timing
differences include depreciation and the provision for possible loan losses.

Deferred tax assets and liabilities  are recognized for future tax  consequences
attributable to differences  between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.

Net income per common share
Primary  income per common  share is  calculated  by  dividing  net income  less
dividends  paid on  preferred  stock by the  weighted  average  number of common
shares  outstanding.  Common shares  issuable upon conversion of the subordinate
debentures  have been excluded from the computation of primary income per common
share as they are not  considered  to be common  stock  equivalents.  On a fully
diluted  basis,  both net income and common shares  outstanding  are adjusted to
assume the conversion of the convertible subordinate debentures from the date of
issue.
<PAGE>
                                       24

Stock-based compensation
On January 1, 1996, the Corporation  adopted  Statement of Financial  Accounting
Standards No. 123,  "Accounting for Stock-Based  Compensation" (SFAS 123), which
permits entities to recognize as expense over a vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows
entities to continue to apply the  provisions  of  Accounting  Principles  Board
("APB")  Opinion No. 25 and provide pro forma net income and pro forma  earnings
per share  disclosures  for employee stock option grants made in 1995 and future
years as if the  fair-value-based  method  defined in SFAS 123 had been applied.
The  Corporation  has elected to continue to apply the provisions of APB Opinion
No.  25 and  provide  the pro  forma  disclosure  provisions  of SFAS 123  stock
based-compensation as applicable. The Corporation has made no stock-based awards
to employees or directors during 1996 or 1995.

Reclassifications
Certain  reclassifications  have  been  made to the 1995  and 1994  consolidated
financial statements in order to conform with the 1996 presentation.

Note 2   Restrictions on cash and due from banks
The Bank is required to maintain a reserve balance with the Federal Reserve Bank
based primarily on deposits levels.  These reserve balances averaged  $1,028,000
in 1996 and $857,000 in 1995.

Note 3 Federal funds sold and securities  purchased  under  agreements to resell
Federal funds sold  averaged $6.0 million  during 1996 and $4.9 million in 1995,
while the maximum balance  outstanding at any month-end during 1996 and 1995 was
$11.6 million and $10.2 million, respectively. During 1996, securities purchased
under  agreements to resell averaged  $41,000.  There were no such  transactions
outstanding at any month-end. During 1995, there were no such transactions.  The
aforementioned  repurchase  agreements  were  collateralized  by  U.S.  Treasury
securities held for the benefit of the Bank at the Federal Reserve Bank.

Note 4   Investment securities available for sale
The amortized  cost and market  values at December 31 of  investment  securities
available for sale were as follows:
                                                  Gross       Gross
                                    Amortized   Unrealized  Unrealized    Market
1996 In thousands                     Cost        Gains       Losses       Value
================================================================================
U.S. Treasury securities
  and obligations of U.S. ......
government agencies ............     $11,322     $   127     $    81     $11,368
Other securities:
  Mortgage-backed ..............      18,900         111         265      18,746
  Equity securities ............         883          --          --         883

                                     -------      -------     -------    -------
Total ..........................     $31,105     $   238     $   346     $30,997
================================================================================

                                                     Gross      Gross
                                         Amortized Unrealized Unrealized  Market
1995 In thousands                           Cost     Gains      Losses     Value
================================================================================
U.S. Treasury securities                   $14,670   $   276   $   165   $14,781
Mortgage-backed
  securities ...........................    15,613        93       339    15,367
Equity securities ......................       461        --        --       461
                                           -------    -------   -------  -------
Total ..................................   $30,744   $   369   $   504   $30,609
================================================================================

At  December  31,  1996,  the  Corporation  held  structured  notes with a total
amortized  cost  of  $3,477,000  and  a  related  market  value  of  $3,424,000,
reflecting gross unrealized depreciation of $53,000.

At  December  31,  1995,  the  Corporation  held  structured  notes with a total
amortized  cost  of  $4,459,000  and  a  related  market  value  of  $4,330,000,
reflecting gross unrealized  depreciation of $129,000. The Corporation also held
structured  notes in the held to maturity  portfolio  at  December  31, 1996 and
December 31, 1995
<PAGE>
                                       25

The  amortized  cost and the market  values of  investments  in debt  securities
available for sale  presented  below as of December 31, 1996 are  distributed by
contractual  maturity,  including  mortgage-backed  securities,  which  may have
shorter estimated lives as a result of prepayments of the underlying mortgages.

                                                         Amortized        Market
In thousands                                                Cost           Value
================================================================================
Due within one year:
  U.S. Treasury securities and obligations
    of U.S. Government agencies ....................       $ 1,000       $   985
    Mortgage-backed securities .....................           786           790
Due after one year but within five years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies ....................         7,747         7,730
  Mortgage-backed securities .......................         5,091         5,084
Due after five year but within ten years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies ....................            --            --
  Mortgage-backed securities .......................           418           430
Due after ten years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies ....................         2,575         2,653
  Mortgage-backed securities .......................        12,605        12,442
                                                           -------       -------
Total ..............................................       $30,222       $30,114
 ===============================================================================

There were no sales of investment  securities available for sale during 1996 and
1995,  while $1 million of securities were called prior to maturity during 1996,
resulting in no gains or losses.

All  interest and  dividends on  investment  securities  available  for sale was
taxable in 1996, 1995 and 1994.

Investment securities available for sale having an amortized cost of $29,579,000
were pledged to secure public funds at December 31, 1996.

Note 5   Investment securities held to maturity
The book and market  values as of December 31 of investment  securities  held to
maturity were as follows:
                                                    Gross       Gross
                                          Book   Unrealized  Unrealized   Market
1996 In thousands                         Value     Gains       Losses     Value
================================================================================
U.S. Treasury securities
  and obligations of U.S.
  Government agencies...............    $16,849   $    131   $    268    $16,712
Obligations of state and
  political subdivisions............      2,536         14         24      2,526
Other securities:
  Mortgage-backed ..................     10,481         13        215     10,279
                                        --------     -------   -------   -------

Total ..............................    $29,866    $   158    $   507    $29,517
================================================================================

                                                   Gross       Gross
                                       Book     Unrealized   Unrealized   Market
1995 In thousands                      Value       Gains       Losses      Value
================================================================================
U.S. Treasury securities
  and obligations of U.S. ......
  Government agencies ..........     $12,124     $   184     $    79     $12,229
Obligations of state and
  political subdivisions .......       2,536          26          18       2,544
Other securities:
  Mortgage-backed ..............       9,834          35         208       9,661
                                      ------       ------      ------     ------
Total ..........................     $24,494      $  245      $  305     $24,434
================================================================================

At  December  31,  1996,  the  Corporation  held  structured  notes with a total
amortized  cost  of  $2,750,000  and  a  related  market  value  of  $2,660,000,
reflecting gross unrealized depreciation of $90,000.  Comparable amounts as of a
year earlier were $3,750,000, $3,673,000 and $72,000, respectively.
<PAGE>
                                       26

The book value and the market value of  investment  securities  held to maturity
presented below as of December 31, 1996 are distributed by contractual maturity,
including mortgage-backed securities,  which may have shorter estimated lives as
a result of prepayment of the underlying mortgages.
                                                              Book        Market
In thousands                                                 Value         Value
================================================================================
Due after one year but within five years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies ....................       $ 6,860       $ 6,871
  Mortgage-backed securities .......................         6,441         6,393
  Obligations of states and
  political subdivisions ...........................         2,132         2,123
Due after five years but within ten years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies ....................         9,299         9,161
  Mortgage-backed securities .......................         2,078         2,048
  Obligations of states and
  political subdivisions ...........................           404           403
Due after ten years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies ....................           690           680
  Mortgage-backed securities .......................         1,962         1,838
                                                             ------       ------
Total ..............................................       $29,866       $29,517
================================================================================


There  were no sales  of  securities  held to  maturity  in 1996 or 1995,  while
$2,988,000 of investment  securities  were called prior to maturity during 1996,
resulting in net gains of $7,000 in 1996 and $10,000 in 1995.

Interest and dividends on investment securities held to maturity was as follows:
In thousands                               1996            1995            1994
================================================================================
Taxable ........................          $1,628          $2,594          $1,795
Tax-exempt .....................             116             113              84
                                          ------          ------          ------
Total ..........................          $1,744          $2,707          $1,879
================================================================================

Investment  securities held to maturity having a book value of $17,638,000  were
pledged to secure public funds at December 31, 1996.

Note 6   Loans
Loans, net of unearned  discount and net deferred  origination fees and costs at
December 31 were as follows:
In thousands                                             1996             1995
================================================================================
Commercial .................................           $19,634           $18,002
Real estate ................................            37,448            26,764
Installment ................................               443               372
                                                       -------           -------
Total loans ................................            57,525            45,138
Less: Unearned income ......................               397               399
                                                       -------           -------
Loans ......................................           $57,128           $44,739
================================================================================
Loans guaranteed by the Small Business Administration  totalling $5,156,000 were
pledged as collateral  for borrowings  under a note issued to the U.S.  Treasury
Department at December 31, 1996.

Nonperforming  loans include loans which are  contractually  past due 90 days or
more for which interest income is still being accrued,  renegotiated loans whose
terms  have been  modified  due to the  borrower's  financial  difficulties  and
nonaccrual loans.
At December 31, nonperforming loans were as follows:
In thousands                                                  1996         1995
================================================================================
Nonaccrual loans .....................................       $1,025       $  839
Loans with interest or principal 90
  days or more past due and still accruing ...........           33           31
                                                            -------       ------
Total nonperforming loans ............................       $1,058       $  870
================================================================================
The effect of nonaccrual loans on income before taxes is presented below.
In thousands                                   1996          1995          1994
================================================================================
Interest income foregone .............       $  (61)       $  (52)       $  (68)
Interest income received .............          106            55            90
                                              ------        ------        ------
                                             $   45        $    3        $   22
================================================================================
<PAGE>
                                       27

At December 31, 1996,  there were no  commitments  to lend  additional  funds to
borrowers for loans that were on nonaccrual or contractually  past due in excess
of 90 days and still accruing interest.

A majority of the Bank's loan portfolio is  concentrated in first mortgage loans
to borrowers in northern New Jersey,  particularly  within the Newark area.  Its
borrowers'  abilities  to repay their  obligations  are  dependent  upon various
factors including the borrowers'  income, net worth, cash flows generated by the
underlying  collateral,  the value of the underlying  collateral and priority of
the Bank's lien on the related property. Such factors are dependent upon various
economic  conditions and  individual  circumstances  beyond the Bank's  control.
Accordingly, the Bank may be subject to risk of credit losses.

The Bank believes its lending  policies and procedures  adequately  minimize the
potential  exposure to such risk and that adequate  provisions for possible loan
losses are provided for all known and inherent risk.

Note 7   Reserve for possible loan losses
Transactions in the reserve for possible loan losses are summarized as follows:
In thousands                                       1996        1995        1994
================================================================================
Balance, January 1 ........................     $   650     $   625     $   700
Provision (credit) for possible loan
  losses ..................................          91         486      (1,464)
Recoveries of loans previously
  charged off .............................         107          98       1,549
                                                 -------    --------    --------
                                                    848       1,209         785
Less: Charge-offs .........................          98         559         160
                                                 -------    --------    --------
Balance, December 31 ......................     $   750     $   650     $   625
================================================================================
Included in 1994 is the $1,425,000  recovery of a loan previously charged off in
1989, along with the related effects on the provision (credit) for possible loan
losses.

Note 8   Premises and equipment
A summary of premises and equipment at December 31 follows:
In thousands                                                    1996       1995
--------------------------------------------------------------------------------
Land .....................................................     $  274     $  240
Premises .................................................      1,035        733
Furniture and equipment ..................................      1,677      1,091
Building improvements ....................................      1,773      1,341
                                                               ------     ------
Total cost ...............................................      4,759      3,405
Less: Accumulated depreciation and amortization                 1,428      1,117
                                                               ------     ------
Net book value ...........................................     $3,331     $2,288
--------------------------------------------------------------------------------

Depreciation  and  amortization   expense  charged  to  operations  amounted  to
$339,000, $191,000, and $120,000 in 1996, 1995, and 1994, respectively.

Note 9   Deposits
Deposits at December 31 are presented below.
In thousands                                               1996           1995
================================================================================
Noninterest bearing
  Demand .......................................          13,699        $ 12,925
  Savings ......................................             469             469
  Time .........................................          12,522          11,319
                                                        --------       --------
Total noninterest bearing deposits .............          26,690          24,713
                                                        --------        --------
Interest bearing
  Savings ......................................          37,058          36,550
  Time .........................................          52,106          39,626
                                                        --------        --------
Total interest bearing deposits ................          89,164          76,176
                                                        --------        --------
Total deposits .................................        $115,854        $100,889
================================================================================

Time deposits issued in amounts of $100,000 or more have the following
maturities at December 31:
In thousands                                                 1996          1995
================================================================================
Three months or less .................................      $25,967      $20,265
Over three months but within six months ..............       15,023        3,085
Over six months but within twelve months .............        2,557        2,557
Over twelve months ...................................        3,943        5,760
                                                            -------      -------
Total deposits .......................................      $47,490      $31,627
================================================================================
<PAGE>
                                       28

Interest expense on certificates of deposits of $100,000 or more was $1,850,000,
$895,000 and $469,000 in 1996, 1995 and 1994, respectively.

Note 10     Accrued expenses and other liabilities
At December 31, 1996, accrued expenses and other liabilities  included a noncash
item for $2,876,000 that was inadvertently submitted to the Federal Reserve Bank
for collection in December,  1996 and for which credit was received. The Federal
Reserve Bank has been advised of this item and the Bank anticipates that a claim
will eventually be made.

Note 11   Short-term borrowings
Information regarding short-term borrowings at December 31, is presented below.

                                              Average
                                              Interest         Average   Maximum
                                              Rate on Average  Interest  Balance
                                     Decem-   Decem-  Balance  Rate      at any
                                     ber 31   ber 31  During   During    Month-
Dollars in thousands                 Balance  Balance the Year the Year  end
================================================================================
1996
Federal funds purchased and
 securities sold under repurchase
 agreements ...........              $  --      --%  $   755     5.51%   $ 7,000
Demand note issued
 to the U.S. Treasury .               5,175    5.16    2,865     5.13      8,000
                                     -------  -------  -------  -------  -------
Total .................               5,175    5.16$   3,620     5.21%   $15,000
================================================================================
1995
Federal funds purchased and securities
  sold under repurchase
  agreements ...................     $ --        -%     $   70    4.87%   $2,000
Demand note issued
  to the U.S. Treasury .........      3,661     5.37     2,710    5.61     7,541
                                     -------  -------  -------  -------  -------
Total ..........................     $3,661     5.37%   $2,780    5.63%   $9,541
================================================================================

The demand note,  which has no stated  maturity,  issued by the Bank to the U.S.
Treasury  Department  is payable with  interest at 25 basis points less than the
weekly average of the daily effective  Federal Funds rate and is  collateralized
by various  investment  securities  held at the Federal Reserve Bank of New York
with a book  value of  $5,998,000,  along  with  loans  guaranteed  by the Small
Business Administration totalling $5,156,000.

Note 12  Long-term debt
In thousands                                                  1996        1995
================================================================================
5.25% capital note, due December 28, 2005 ............       $1,500      $ 1,500
8.00% mandatory convertible debentures,
  due July 1, 2003 ...................................          249          249
                                                             -------     -------
Total ................................................       $1,749       $1,749
================================================================================

Interest is payable  semiannually  on January 15 and July 15 on the  convertible
debentures.  The debentures convert into CNBC common stock upon maturity and are
convertible  by the  holder  at any  time  on or  before  the  maturity,  unless
previously  redeemed by the  Corporation  into CNBC common stock at a conversion
price of $18.00 per share,  subject to adjustment upon the occurrence of certain
events,  including,  among other  things,  the issuance of common stock as a per
share price of less than $18.00 or the issuance of rights or options to purchase
shares of common stock at a price of less than $18.00 per share.

The debentures  are  subordinate to all other  indebtedness  of the  Corporation
except for  indebtedness  which by its terms is equal and not senior in right of
payment to the debentures.  The debentures become  immediately  payable upon the
bankruptcy,  insolvency  or  receivership  of the  Corporation.  In the event of
default as to  principal  or  interest,  the  Corporation  is required  upon the
request  of the  holder,  to pay the  unpaid  principal  balance  along with any
accrued interest by issuing an amount of common stock at the conversion price in
exchange for the  indebtedness,  subject to the holder owning not more than 9.9%
of the total  number of  common  shares  outstanding  when  added to the  shares
already  held by the holder.  The unpaid  balance of  principal,  if any,  after
conversion upon maturity, or an interest payment default is then payable in cash
upon maturity of the debenture  and prior to maturity  would  continue to accrue
interest at an annual rate of 8% payable semiannually.

On December 29, 1995, the  Corporation  issued a $1.5 million  capital note to a
subsidiary  of a major  insurance  company,  due December 28, 2005.  Interest is
payable  semiannually  on the  capital  note on June 29 and  December  29,  with
principal payments commencing semiannually in June, 2001.
<PAGE>
                                       29

The note  agreement  includes  restrictive  covenants  including the creation of
liens on Bank  assets,  the  sale of such  assets  and  certain  limitations  on
investments  and  dividend  payments and  requires  the  maintenance  of certain
capital levels and earning  performance,  asset quality and reserve for possible
loan loss ratios.

Note 13  Other operating income and expenses
The following table presents the major items of other operating income and
expenses:
In thousands                                            1996      1995      1994
================================================================================
Other operating income
Income from loans purchased from
  Resolution Trust Corporation prior
  to loan closing ................................      $--       $198      $339
Unrecorded interest income collected
  on loans charged off in 1989 ...................       --        --        175
Service charge income ............................       217       162       158
Other operating expenses
Professional fees ................................       211       181       234
FDIC deposit insurance ...........................       141       168       201
Stationery and supplies expense ..................       141       115       147
Data processing ..................................       157       115       103
================================================================================

Income  from loans  purchased  from the  Resolution  Trust  Corporation  ("RTC")
represents  income  earned from $1.3  million of funds which were  committed  to
loans  acquired  from  the RTC in  January,  1995 in  connection  with a  branch
acquisition,  as well as interest on the difference  between the amount of loans
committed and the aforementioned $1.3 million.  This income was recorded because
of the RTC's  agreement  to  compensate  the Bank on the entire loan  commitment
balance,  whether or not the loans were purchased.  The amounts were recorded as
other operating  income because there were no earning assets for which to record
interest income.

Note 14  Income taxes
The components of income tax expense are as follows:
In thousands                                              1996     1995     1994
================================================================================
Current
Federal ..............................................   $ 476    $ 571    $ 413
State ................................................      81      103        7
                                                          -----   -----    -----
Total current income tax expense .....................     557      674      420
                                                          -----   -----    -----
Deferred
Federal ..............................................     (45)    (172)     407
State ................................................      (8)     (31)     171

Total deferred income tax (benefit) expense...........     (53)    (203)     578
                                                          -----    -----   -----
Total income tax expense..............................    $ 504    $ 471   $ 998
================================================================================

A  reconciliation  between  income tax  expense and the total  expected  federal
income tax is computed by multiplying pre-tax accounting income by the statutory
federal income tax rate is as follows:
In thousands                                       1996        1995         1994
================================================================================
Federal income tax at statutory rate .......      $ 493       $ 433       $ 925
Increase (decrease) in income tax
  expense resulting from:
  State income taxes, net of federal
    benefit ................................         48          48         118
 Tax-exempt income .........................        (39)        (34)        (28)
 Life insurance ............................        (10)         (7)         --
 Other, net ................................         12          31         (17)
                                                  -------     ------      ------
Total income tax expense ...................       $ 504      $ 471       $ 998
================================================================================

<PAGE>
                                       30

The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at December 31 are as follows:
In thousands                                                  1996         1995
================================================================================
Deferred tax assets
Unrealized loss on investment securities
  available for sale .................................       $  44        $  55
Deferred compensation ................................          31           21
Other ................................................          25           19
                                                              -----        -----
Total deferred tax assets ............................         100           95
Less: Valuation allowance ............................           7            7
                                                              -----        -----
Deferred tax asset ...................................          93           88
                                                              -----        -----
Deferred tax liabilities
Reserve for possible loan losses .....................         307          343
Premises and equipment ...............................          13           14
Investment securities held to maturity ...............           3            3
                                                              -----        -----
Deferred tax liability ...............................         323          360
                                                              -----        -----
Net deferred tax liability ...........................       $(230)       $(272)
================================================================================

The net deferred  liability  represents  the  anticipated  federal and state tax
liability to be incurred in future years upon the  utilization of the underlying
tax attributes  comprising this balance.  Management believes,  based on current
estimates of future  taxable  earnings,  that more likely than not there will be
sufficient taxable income in future years to realize the net deferred tax asset.

The valuation  allowance  amounted to $7,000 at December 31, 1996 and 1995.  The
valuation  allowance at December 31, 1996 and 1995 is  attributable to the state
tax benefit of deductible timing differences.

Note 15  Employee benefit plans
In 1994,  the  Corporation  established  an employee  savings plan under section
401(k) of the Internal  Revenue Code  covering all  employees  with at least six
months of service. Participants are allowed to make contributions to the plan by
salary  reduction,  up to 15% of total  compensation.  The Corporation  provides
matching  contributions  of 25% of the  first 4% of basic  participant  salaries
along  with a 1%  discretionary  contribution,  subject  to a vesting  schedule.
Contribution expense amounted to $55,000 in 1996, $36,000 and $33,000 in 1994.

The  aforementioned  plan replaced a  noncontributory  retirement plan which was
terminated  in 1994.  Proceeds  from the  termination  were rolled over into the
employee savings plan.

The  Corporation  awards  profit  sharing  bonuses to its officers and employees
based on the achievement of certain performance  objectives.  Bonuses charged to
operating  expense in 1996,  1995 and 1994  amounted  to $90,000,  $119,000  and
$120,000, respectively.

During 1996,  the  Corporation  established a nonqualified  retirement  plan for
directors.  Benefits funded through a bank-owned life insurance policy. Expenses
incurred  under this plan totalled  $10.000 while income from the increased cash
surrender value amounted to $3.000.

Note 16  Preferred stock
The Corporation is authorized to issue  noncumulative  perpetual preferred stock
in one or more  series,  with no par  value.  Shares  of  preferred  stock  have
preference  over the  Corporation's  common stock with respect to the payment of
dividends.  Different  series of preferrerd  stock may have different  stated or
liquidation values as well as different rates. Dividends are paid annually.

Set forth below is a summary of the Corporation's preferred stock outstanding.

             Date           Dividend  Stated      Number        December 31,
             Issued         Rate      Value       of Shares   1996       1995
================================================================================


Series A ..  12/96            6.00% $ 25,000           8    $200,000    $200,000
Series B ..  03/96            8.00    25,000          20     500,000        --
Series C ..  02/96            8.00       250         108      27,000        --
                                                            --------    --------
                                                            $727,000    $200,000
================================================================================
<PAGE>
                                       31

Note 17Restrictions on subsidiary bank dividends
Subject  to  applicable  law,  the  Board  of  Directors  of the Bank and of the
Corporation  may provide for the payment of dividends when it is determined that
dividend  payments are  appropriate,  taking into account factors  including net
income,  capital  requirements,   financial  condition,  alternative  investment
options, tax implications,  prevailing economic conditions,  industry practices,
and other factors deemed to be relevant at the time.

Because  CNB is a national  banking  association,  it is  subject to  regulatory
limitation  on  the  amount  of  dividends  it  may  pay  to  CNBC,  CNB's  sole
stockholder.  Prior  approval of the Office of the  Comptroller  of the Currency
("OCC") is required if the total dividends  declared by the Bank in any calendar
year exceeds net profit,  as defined,  for that year  combined with the retained
net profits from the preceding two calendar years.

Under this  limitation,  the Bank could declare  dividends in 1997 without prior
OCC approval of up to  $1,800,000  plus the current  year's net profit up to the
date of the  declaration,  subject to the restrictive  covenants under long-term
debt agreements included in Note 12.

Note 18  Net income per common share
The following table summarizes the computation of net income per common share.
In thousands, except per share data               1996        1995        1994
================================================================================
Net income ................................   $     945    $     802   $   1,724
Dividends paid on preferred stock .........          (2)        --          --
                                               --------     --------    --------
Net income applicable to
  primary common shares ...................         943          802       1,724
Interest expense on convertible
  subordinated debentures,
  net of income taxes .....................          13           13          13
                                               --------     --------    --------
Net income applicable to fully diluted
  common shares ...........................   $     956    $     815   $   1,737
================================================================================
Number of average common shares
Primary ...................................     113,498      111,141     111,141
                                               --------     --------    --------
Fully diluted:
  Average common shares
    outstanding ...........................     113,498      111,141     111,141
  Average convertible subordinate
     debentures converted to
     common shares ........................      13,850       13,850      13,850
                                               --------     --------    --------
                                                127,348      124,991     124,991
================================================================================
Net income per common share
Primary ...................................   $    8.31    $    7.22   $   15.51
Fully diluted .............................        7.51         6.51       13.90
================================================================================

Note 19         Related party transactions
Various directors and executive  officers of the Corporation and its subsidiary,
including   organizations  in  which  they  are  officers  or  have  significant
ownership,  were customers of, and had other  transactions  with the Bank in the
ordinary  course of business  during 1996 and 1995.  Such  transactions  were on
substantially  the same terms,  including  interest  rates and  collateral  with
respect to loans,  as those  prevailing at the time of  comparable  transactions
with others.  Further,  such  transactions  did not involve more than the normal
risk of collectibility and did not include any unfavorable features.

Total loans to the  aforementioned  individuals  and  organizations  amounted to
$349,000 and $366,000 at December 31, 1996 and 1995,  respectively.  The highest
amount of such indebtedness during both 1996 and 1995 amounted to $375,000.
During 1996, $14,000 of new loans were made.

Note 20  Fair value of financial instruments
The fair  value of  financial  instruments  is the  amount  at which an asset or
obligation could be exchanged in a current  transaction between willing parties,
other than in a forced liquidation.  Fair value estimates are made at a specific
point in time based on the type of  financial  instrument  and  relevant  market
information.

Because  no  quoted  market  price  exists  for a  significant  portion  of  the
Corporation's   financial  instruments,   the  fair  values  of  such  financial
instruments  are  derived  based on the amount and timing of future  cash flows,
estimated  discount rates, as well as management's best judgment with respect to
current economic conditions.  Many of these estimates involve  uncertainties and
matters of significant judgment and cannot be determined with precision.
<PAGE>
                                       32

The fair value  information  provided is indicative of the estimated fair values
of those  financial  instruments and should not be interpreted as an estimate of
the fair market value of the  Corporation  taken as a whole.  The disclosures do
not address the value of recognized  and  unrecognized  nonfinancial  assets and
liabilities  or the value of  future  anticipated  business.  In  addition,  tax
implications related to the realization of the unrealized gains and losses could
have a  substantial  impact  on these  fair  value  estimates  and have not been
incorporated into any of the estimates.

The following  methods and assumptions  were used to estimate the fair values of
significant financial instruments at December 31, 1996.

Cash and short-term investments
These  financial  instruments  have  relatively  short  maturities or no defined
maturities  but are payable on demand,  with little or no credit risk. For these
instruments, the carrying amounts represent a reasonable estimate of fair value.

Investment securities
Investment securities available for sale are reported at their fair values based
on quoted  market  prices.  The fair  values of  investment  securities  held to
maturity were also based upon quoted market prices.

Loans
Fair values were estimated for performing  loans by discounting  the future cash
flows using market discount rates that reflect the credit and interest-rate risk
inherent in the loans. Fair value for significant  nonperforming loans was based
on recent  external  appraisals  of  collateral  securing  such  loans.  If such
appraisals were not available,  estimated cash flows were discounted employing a
rate incorporating the risk associated with such cash flows.

Deposit liabilities
The fair values of demand  deposits,  savings deposits and money market accounts
were the amounts payable on demand at December 31, 1996 and 1995. The fair value
of time deposits was based on the discounted  value of  contractual  cash flows.
The  discount  rate was  estimated  utilizing  the rates  currently  offered for
deposits of similar remaining maturities.

Short-term borrowings
For such  short-term  borrowings,  the carrying  amount was  considered  to be a
reasonable estimate of fair value.

Long-term debt
The  fair  value  of  long-term  debt was  estimated  based  on rates  currently
available  to  the  Corporation  for  debt  with  similar  terms  and  remaining
maturities.

Commitments to extend credit and letters of credit
The estimated fair value of financial instruments with off-balance sheet risk is
not significant at December 31, 1996 and 1995.

The following  table presents the carrying  amounts and fair values of financial
instruments at December 31:
                                             1996                   1995
================================================================================
                                    Carrying       Fair     Carrying        Fair
In thousands                           Value      Value        Value       Value
================================================================================
Financial assets
Cash and other short-term
  investments ..................    $ 11,741   $  11,741   $  10,615     $10,615
Investment securities AFS ......      30,997      30,997      30,609      30,609
Investment securities HTM ......      29,866      29,517      24,494      24,434
Loans ..........................      56,378      57,368      44,089      42,509
Loan held for sale .............         291         291         555         555

Financial liabilities
Deposits .......................    $115,854    $115,804    $100,889    $ 99,570
Short-term borrowings ..........       5,175       5,175       3,661       3,661
Long-term debt .................       1,749       1,634       1,749       1,107
================================================================================

Note 21Commitments and contingencies
In the normal course of business,  the  Corporation or its subsidiary  may, from
time to time, be party to various legal  proceedings  relating to the conduct of
its  business.  In  the  opinion  of  management,   the  consolidated  financial
statements  will not be materially  affected by the outcome of any pending legal
proceedings.

Note 22  Financial instruments with off-balance sheet risk
The Bank is party to financial  instruments with  off-balance  sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments  include lines of credit,  commitments  to extend standby
letters of credit,  and could involve,  to varying  degrees,  elements of credit
risk  in  excess  of  the  amounts  recognized  in  the  consolidated  financial
statements.
<PAGE>
                                       33

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters  of  credit  is  represented  by  the   contractual   amounts  of  those
instruments.  The Bank uses the same credit  policies in making  commitments and
conditional  obligations as it does for on balance sheet instruments with credit
risk.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  the payment of a fee.  Since many of the  commitments  are  expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
creditworthiness  on a case-by-case basis, and the amount of collateral or other
security obtained is based on management's credit evaluation of the customer.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.  These  guarantees are
primarily  issued to  support  borrowing  arrangements  and extend for up to one
year. The credit risk involved in issuing  letters of credit is essentially  the
same as that involved in extending  loan  facilities to customers.  Accordingly,
collateral is generally required to support the commitment.

At December 31,1996 and 1995 the Bank had mortgage commitments of $3,183,000 and
$703,000,  unused corporate lines of credit of $13,200,000 and $11,600,000,  and
$1,543,000 and $1,650,000 of other loan commitments.

The  aforementioned  commitments  and  credit  lines are made at both  fixed and
floating rates of interest based on the Bank's prime lending rate.

Note 23  Parent company information
--------------------------------------------------------------------------------
Condensed financial statements of the parent company only are presented below.
Condensed Balance Sheet
                                                                    December 31,
In thousands                                                 1996          1995
================================================================================
Assets
Cash and cash equivalents ..........................       $    26       $     4
Investment in subsidiary ...........................         9,837         8,532
Due from subsidiary ................................           249           249
Other assets .......................................            45            11
                                                           -------       -------
Total assets .......................................       $10,157       $ 8,796
================================================================================
Liabilities and stockholders' equity
Other liabilities ..................................       $    10       $    10
Long-term debt .....................................         1,749         1,749
                                                           -------       -------
Total liabilities ..................................         1,759         1,759
Stockholders' equity ...............................         8,398         7,037
                                                           -------       -------
Total liabilities and stockholders' equity .........       $10,157       $ 8,796
================================================================================
Condensed Statement of Income
                                                       Year Ended December 31,
In thousands                                         1996        1995       1994
================================================================================
Income
Dividends from subsidiary ....................     $  194      $  141     $  112
Interest from subsidiary .....................         20          20         20
                                                    ------     ------     ------
Total income .................................        214         161        132
                                                    ------     ------     ------
Expenses
Interest expense .............................         99          20         20
Other operating expenses .....................          7          --         --
Income tax benefit ...........................        (34)         --         --
                                                    ------     ------     ------
Total expense ................................         72          20         20
                                                    ------     ------     ------
Income before equity in undistributed
  net income of subsidiary ...................        142         141        112
Equity in undistributed income
  of subsidiary ..............................        803         661      1,612
                                                    ------     ------     ------
Net income ...................................     $  945       $ 802     $1,724
================================================================================
<PAGE>
                                       34

Condensed Statement of Cash Flows
                                                     Year Ended December 31,
--------------------------------------------------------------------------------
In thousands                                        1996      1995      1994
================================================================================
Operating activities
Net income ...................................   $   945    $   802    $ 1,724
Adjustments to reconcile net income
  to cash from (used in) operating activities:
    Equity in undistributed net income
      of subsidiary ..........................      (803)      (661)    (1,612)
    Increase in other assets .................       (34)        (1)       --
                                                   -------    -------   -------
Net cash from operating activities ...........       108        140        112
                                                   -------    -------   -------
Investing activities
Capital contribution to subsidiary ...........      (500)    (1,700)       --
                                                   -------    -------   -------
Net cash applied to investing activities .....      (500)    (1,700)       --
                                                   -------    -------   -------
Financing activities
Proceeds from issuance of
  long-term debt .............................        --      1,500        --
Proceeds from issuance of common stock .......        45        --         --
Proceeds from issuance of preferred
  stock ......................................       527        200        --
Dividends paid ...............................      (156)      (140)      (111)
                                                   -------    -------   -------
Net cash from (applied to) financing
  activities .................................       416      1,560       (111)
                                                   -------    -------   -------
Increase in cash and cash equivalents ........        22         --          1
Cash and cash equivalents at
  beginning of year ..........................         4          4          3
                                                   -------    -------   -------
Cash and cash equivalents at
  end of year ................................   $    26    $     4    $     4
================================================================================

Note 24  Regulatory Capital Requirements
FDIC regulations require banks to maintain minimum levels of regulatory capital.
Under the  regulations  in effect at December 31, 1996, the Bank was required to
maintain (i) a minimum  leverage ratio of Tier 1 capital to total average assets
of 4.0%,  and (ii) minimum  ratios of Tier I and total capital to  risk-adjusted
assets of 4.0% and 8.0%, respectively.

Under its prompt  corrective  action  regulations,  the FDIC is required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an  undercapitalized  bank. Such actions could have a direct material
effect  on  such  bank's  financial  statements.  The  regulations  establish  a
framework   for   the    classification   of   banks   into   five   categories:
well-capitalized,   adequately  capitalized,   undercapitalized,   significantly
undercapitalized  and  critically   undercapitalized.   Generally,   a  bank  is
considered  well-capitalized if it has a leverage capital ratio of at least 5.0%
a Tier 1  risk-based  capital  ratio  of at least  6.0%  and a total  risk-based
capital ratio of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative measures
of assets,  liabilities and certain  off-balance sheet items as calculated under
regulatory  accounting  practices.  Capital amounts and classifications are also
subject  to  qualitative  judgments  by  FDIC  about  capital  components,  risk
weighings and other factors.

Management  believes  that, as of December 31, 1996,  the Bank meets all capital
adequacy  requirements  to which it is  subject.  Further,  the most recent FDIC
notification  categorized the Bank as a  well-capitalized  institution under the
prompt  corrective action  regulations.  There have been no conditions or events
since that notification that management believes have changed the Bank's capital
classification.
<PAGE>
                                       35

The following is a summery of the Bank's actual capital amounts and ratios as of
December  31,  1996 and 1995,  compared  to the FDIC  minimum  capital  adequacy
requirements and the FDIC requirements for  classification as a well-capitalized
Bank:


In thousands                           FDIC Requirements
================================================================================
                                         Minimum Capital  For Classification
                         Bank Actual        Adequacy      as Well-Capitalized
                         -----------       -----------       -----------
                        Amount   Ratio     Amount   Ratio   Amount   Ratio
December 31, 1996
 Leverage (Tier 1)..    $9,771    7.01%   $5,578   4.00%   $ 6,972    5.00%
  capital...........
 Risk-based capital:
  Tier 1 ...........     9,771   16.65     2,347   4.00      3,521    6.00
  Total ............    10,754   18.33     4,694   8.00      5,868   10.00
December 31, 1995
 Leverage (Tier 1)..     8,456    7.45     4,540   4.00      5,676    5.00
  capital...........
 Risk-based capital:
  Tier 1 ...........     8,456   20.47     1,652   4.00      2,478    6.00
  Total ............     9,221   22.33     3,304   8.00      4,130   10.00

Note 25  Summary of quarterly financial information (unaudited)
                                      1996
--------------------------------------------------------------------------------
Dollars in thousands,               First    Second      Third    Fourth
  except per share data           Quarter    Quarter    Quarter   Quarter
================================================================================
Interest income ..............   $ 2,057    $ 2,225    $ 2,346    $ 2,406
Interest expense .............       787        887      1,006      1,122
                                 -------    -------    -------    -------
Net interest income ..........     1,270      1,338      1,340      1,284
Provision (credit) for
  possible loan losses .......        10         23         32         26
Net gains (losses) on sales of
  investment securities ......        10         (1)        (1)        (1)
Other operating income .......       312        300        240        288
Other operating expenses .....     1,164      1,164      1,320      1,191
                                 -------    -------    -------    -------
Income before income
  taxes ......................       418        450        227        354
Income tax expense ...........       146        157         82        119
                                 -------    -------    -------    -------
Net income ...................    $272       $  293    $   145    $   235
================================================================================
Net income per share
  (primary) ..................   $  2.37    $  2.55    $  1.25    $  2.14
================================================================================
Net income per share
  (fully diluted) ............   $  2.10    $  2.27    $  1.12    $  2.02
================================================================================

                                        1995
--------------------------------------------------------------------------------
Dollars in thousands,             First      Second     Third      Fourth
  except per share data           Quarter    Quarter    Quarter    Quarter
================================================================================
Interest income ..............   $ 1,736    $ 1,850    $ 1,911    $ 1,973
Interest expense .............       673        681        728        747
                                 -------    -------    -------    -------
Net interest income ..........     1,063      1,169      1,183      1,226
Provision (credit) for
  possible loan losses .......       122         (4)        32        336
Net gains (losses) on sales of
  investment securities ......        --         (1)        (1)        12
Other operating income .......       513        321        249        270
Other operating expenses .....       981      1,071      1,133      1,060
                                 -------    -------    -------    -------
Income before income
  tax expense ................       473        422        266        112
Income tax expense ...........       175        156         90         50
                                 -------    -------    -------    -------
Net income ...................   $   298    $   266    $   176    $    62
================================================================================
Net income per share
  (primary) ..................   $  2.68    $  2.39    $  1.59    $   .56
================================================================================
Net income per share
  (fully diluted) ............   $  2.41    $  2.14    $  1.44    $   .52
================================================================================
<PAGE>
                                       36

Note 26Recent Accounting Pronouncements
In June,  1996,  the FASB issued SFAS No. 125,  "Accounting  for  Transfers  and
Servicing of Financial  Assets and  Extinguishments  of  Liabilities"  (SFAS No.
125).  SFAS 125 amends portions of SFAS 115, amends and extends to all servicing
assets and liabilities the accounting  standards for mortgage  servicing  rights
now in SFAS 65, and  supersedes  SFAS 122.  The  statement  provides  consistent
standards for distinguishing  transfers of financial assets which are sales from
transfers that are secured borrowings. Those standards are based upon consistent
application  of a financial  components  approach  that focuses on control.  The
statement  also defines  accounting  treatment  for  servicing  assets and other
retained  interest in the assets that are  transferred.  As issued,  SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities   occurring   after   December   31,  1996  and  is  to  be  applied
prospectively.

In December, 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125", an amendment of FASB Statement
No. 125 which defers for one year the effective date (a) of paragraph 15 of SFAS
No. 125 and (b) for repurchase  agreement  dollar-roll,  securities  lending and
similar  transactions,  of  paragraph  9-12  and 237 (b) of SFAS  No.  125.  The
adoption of these  statements  is not expected to have a material  effect on the
Bank's financial condition or results of operations.


Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial  Disclosure  There were no changes in or  disagreements  with accounts
during 1995.

Part III

Item 10.  Directors and Executive  Officers of the  Registrant  The  information
required is incorporated  herein by reference to the material responsive to such
item in the Corporation's Proxy Statement for the Annual Meeting of Stockholders
to be held on May 22, 1997.

Item 11.      Executive Compensation
The  information  required is  incorporated  herein by reference to the material
responsive to such item in the Corporation's Proxy Statement.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management The
information  required  is  incorporated  herein  by  reference  to the  material
responsive to such item in the Corporation's Proxy Statement.

Item 13. Certain Relationships and Related Transactions The information required
is incorporated  herein by reference to the material  responsive to such item in
the Corporation's Proxy Statement.


Part IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.

The following  exhibits are  incorporated  herein by reference or are annexed to
this Annual Report:
(a) The required  financial  statements  and the related  independent  auditor's
    report are included in Item 8.
(b) The required exhibits are included as follows:

  (3)(i)Certificate  of  Designation  Establishing  the  Series C and Fixing the
        Powers, Designations,  Preferences and Relative, Participating, Optional
        and  Other  Special  Rights,  and the  Qualifications,  Limitations  and
        Restrictions,of the 8% Noncumulative Perpetual Preferred Stock,Series C.

  (11) Statement regarding  computation  of per  share  earnings.  The  required
       information is included on page 25.

  (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,
        1996.
  (21)  Subsidiaries  of the registrant.  The required  information is included
        on page 3.
  (24)  Power of Attorney is located on the signature page.

  (27)  Financial Data Schedule.

(c) No reports on Form 8-K were filed  during the  quarter  ended  December  31,
    1996.

<PAGE>
                                       37

                                SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, City National Bancshares Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized:

                      CITY NATIONAL BANCSHARES CORPORATION

By:        /s/ Louis E. Prezeau         By:        /s/ Edward R. Wright
           Louis E. Prezeau                        Edward R. Wright
               President                        Chief Financial Officer
                  and                                    and
        Chief Executive Officer               Principal Accounting Officer

Date:       March 26, 1997              Date:       March 26, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.  The undersigned hereby constitute
and appoint  Louis E.  Prezeau  his true and lawful  attorney in fact and agent,
with  full  power  of  substitution  and  resubstitution,  to  sign  any and all
amendments to this report and to file the same, with all exhibits  thereto,  and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission  granting  unto  said  attorney  in fact and  agent,  full  power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the  premises,  as fully and to all intents and purposes
as he or she might or could in person,  hereby ratifying and confirming all that
said  attorney in fact and agent,  may lawfully do or cause to be done by virtue
hereof.

Signature                           Title                             Date

/s/ Douglas E. Anderson             Director                      March 26, 1997
Douglas E. Anderson                 Chairperson of the Board

/s/ Barbara Bell                    Director,                     March 26, 1997
Barbara Bell

/s/ Leon Ewing                      Director                      March 26, 1997
Leon Ewing

/s/ Eugene Giscombe                 Director                      March 26, 1997
Eugene Giscombe

/s/ Norman Jeffries                 Director                      March 26, 1997
Norman Jeffries

/s/ Louis E. Prezeau                Director,                     March 26, 1997
Louis E. Prezeau                    President and Chief
                                    Executive Officer

/s/ Lemar C. Whigham                Director                      March 26, 1997
Lemar C. Whigham