CITY NATIONAL BANCSHARES CORPORATION
                        CITY NATIONAL BANK OF NEW JERSEY
                          DIRECTOR RETIREMENT AGREEMENT

                  THIS  AGREEMENT  is made this 1st day of January,  1997 by and
among CITY  NATIONAL BANK OF NEW JERSEY,  a national  banking  association  (the
"Company"),  CITY  NATIONAL  BANCSHARES  CORPORATION,  a New Jersey  corporation
("CNBC") and DOUGLAS E. ANDERSON (the "Director").
                                  INTRODUCTION
                  To encourage  the Director to remain a member of the Company's
Board of  Directors,  the  Company is willing  to  provide  director  retirement
benefits to the Director. The Company will pay such retirement benefits from its
general  assets  and  CNBC  shall  guarantee  all of the  Company's  obligations
hereunder.
                                    AGREEMENT
                  The Director and the Company agree as follows:

                                    Article 1
                                   Definitions
1.1  Definitions.  Whenever  used in this  Agreement,  the  following  words and
     phrases shall have the meanings specified:
1.1.1"Change of Control" means an acquisition, after the date of this Agreement,
     (other  than  directly  from  CNBC)  by  an  individual,  entity  or  group
     (excluding the Company, CNBC or an employee benefit plan of the Company) of
     30% or more of CNBC's  outstanding  voting  common  stock  followed  by (x)
     termination of the Director's  status as a member of the Company's Board of
     Directors for any reason prior to such Director's then existing term or (y)
     failure  for  whatever  reason  of  such  Director  to be  elected  for  an
     immediately succeeding term upon the natural expiration of his then current
     term.
1.1.2"Code" means the Internal  Revenue Code of 1986, as amended.  References to
     a Code  section  shall be deemed to be to that section as it now exists and
     to any  successor  provision.  1.1.3  "Early  Retirement  Date"  means  the
     Director  completing 5 Years of Service.  1.1.4  "Normal  Retirement  Date"
     means the Director attaining age 65 and completing 5 Years of Service.
1.1.5"Termination  of Service"  means the  Director's  ceasing to be a member of
     the Company's Board of Directors for any reason whatsoever.
1.1.6"Years of Service"  means the total number of  twelve-month  periods during
     which the Director serves as a member of the Company's Board of Directors.
                                    Article 2
                                Lifetime Benefits
2.1  Normal Retirement  Benefit.  If the Director terminates service on or after
     the Normal  Retirement  Date,  the Company  shall pay to the  Director  the
     benefit described in this Section 2.1.
2.1.1Amount of Annual Benefit.  The annual benefit under this Section 2.1 is 50%
     of the aggregate  amount of Director's fees paid to the Director during the
     then last full fiscal year of the Company. The annual benefit is to be paid
     each year for 10 years in accordance with Section 2.1.2 below.
2.1.2Payment of Benefit.  The  Company  shall pay the  aggregate  benefit to the
     Director (or his  beneficiary  pursuant to Section 3.2 hereof) in 120 equal
     consecutive monthly  installments on the first day of each month commencing
     with  the  month  following  the  Retirement  Date and  continuing  for 119
     additional months.
2.2  Early  Retirement  Benefit.  If the Director  terminates  service after the
     Early  Retirement Date but before the Normal  Retirement  Date, the Company
     shall pay to the Director the benefit described in this Section 2.2.
2.2.1Amount of Annual Benefit.  The annual benefit under this Section 2.2 is the
     benefit  calculated  under Section  2.1.1 as if the date of the  Director's
     Termination of Service was the Director's  Normal  Retirement  Date,  which
     amount is then  multiplied by the applicable  percentage from the following
     table based on the Director's Years of Service at Termination of Service:

                          --------------------------- -------------------------

                                     Years of                   Applicable
                                      Service                   Percentage
                          --------------------------- -------------------------
                          --------------------------- -------------------------
                                         $5 < 7                        20%
                                         $ 7 < 8                       40%
                                         $8 < 9                        60%
                                        $ 9 < 10                       80%
                                       10 or more                     100%
                          --------------------------- -------------------------
                                                                  
2.2.2Payment of Benefit.  The  Company  shall pay the  aggregate  benefit to the
     Director (or his  beneficiary  pursuant to Section 3.2 hereof) in 120 equal
     consecutive monthly  installments on the first day of each month commencing
     with  the  month  following  the  Director's  Termination  of  Service  and
     continuing for 119 additional months.
2.3  Change of Control  Benefit.  Upon a Change of Control while the Director is
     in the active service of the Company, the Company shall pay to the Director
     the benefit  described  in this  Section  2.3 in lieu of any other  benefit
     under this Agreement.
2.3.1Amount of Benefit.  The benefit under this Section 2.3 is the present value
     (computed  with an annual  discount rate of 4%) of a theoretical  series of
     120 equal monthly  payments,  with each payment equal to 1/12 of the annual
     Normal  Retirement  Benefit  described  in Section 2.1  (computed as if the
     Director's  date  of  Termination  of  Service  was the  Director's  Normal
     Retirement Date), beginning with the month following the month in which the
     Director's Normal  Retirement Date would have actually  occurred  (assuming
     continuous  service as a director) and  continuing  for an  additional  119
     consecutive months.
2.4.2Payment of Benefit.  The  Company  shall pay the  aggregate  benefit to the
     Director in a lump sum within 30 days after the Change of Control.

                                    Article 3
                                 Death Benefits
3.1  Death  During  Active  Service.  If the  Director  dies while in the active
     service of the Company, the Company shall pay to the Director's beneficiary
     the benefit described in this Section 3.1.
3.1.1Amount of Benefit.  The benefit under Section 3.1 is the greater of (x) the
     normal retirement benefit accrued by the Company for the Director as of the
     date of the  Director's  death  or (y) the  original  projected  retirement
     benefit as shown on Schedule A hereto.
3.1.2Payment of Benefit.  The  Company  shall pay the  aggregate  benefit to the
     beneficiary in 120 equal consecutive monthly  installments on the first day
     of each month  commencing with the month following the Director's death and
     continuing for 119 additional months.
3.2  Death During Benefit  Period.  If the Director dies after benefit  payments
     have commenced under this Agreement but before receiving all such payments,
     the Company shall pay the remaining benefits to the Director's  beneficiary
     at the same time and in the same  amounts  they would have been paid to the
     Director had the Director survived.
                                    Article 4
                                  Beneficiaries
                  4.1 Beneficiary  Designations.  The Director shall designate a
beneficiary by filing a written  designation with the Company.  The Director may
revoke  or  modify  the  designation  at any time by  filing a new  designation.
However,  designations  will only be  effective  if signed by the  Director  and
accepted  by  the  Company  during  the  Director's  lifetime.   The  Director's
beneficiary designation shall be deemed automatically revoked if the beneficiary
predeceases  the Director,  or if the Director names a spouse as beneficiary and
the marriage is  subsequently  dissolved.  If the Director  dies without a valid
beneficiary designation,  all payments shall be made to the Director's surviving
spouse,  if any,  and if none,  to the  Director's  surviving  children  and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Director's estate.
                  4.2  Facility of Payment.  If a benefit is payable to a minor,
to a person  declared  incompetent,  or to a person  incapable  of handling  the
disposition  of his or her  property,  the Company  may pay such  benefit to the
guardian,  legal  representative  or person  having  the care or custody of such
minor,  incompetent person or incapable person. The Company may require proof of
incompetency,  minority  or  guardianship  as it may deem  appropriate  prior to
distribution of the benefit.  Such distribution  shall completely  discharge the
Company from all liability with respect to such benefit.
                                    Article 5
                               General Limitations
                  Notwithstanding   any  provision  of  this  Agreement  to  the
contrary,  the Company  shall not pay any benefit  under this  Agreement  if the
Company   terminates  the   Director's   service  within  three  months  of  the
non-appealable conviction of the Director of a felony criminal offense involving
or relating to the Company or CNBC.

                                    Article 6
                          Claims and Review Procedures
                  6.1 Claims Procedure. The Company shall notify the Director or
the  Director's  beneficiary  in writing,  within ninety (90) days of his or her
written  application for benefits,  of his or her eligibility or  noneligibility
for benefits under the Agreement. If the Company determines that the Director or
the Director's  beneficiary  is not eligible for benefits or full benefits,  the
notice shall set forth (1) the specific reasons for such denial,  (2) a specific
reference to the provisions of the Agreement on which the denial is based, (3) a
description of any additional information or material necessary for the claimant
to perfect his or her claim,  and a description of why it is needed,  and (4) an
explanation of the  Agreement's  claims review  procedure and other  appropriate
information  as to the  steps  to be  taken if the  Director  or the  Director's
beneficiary  wishes to have the claim reviewed.  If the Company  determines that
there are special  circumstances  requiring  additional time to make a decision,
the Company  shall  notify the  Director or the  Director's  beneficiary  of the
special  circumstances  and the date by which a decision is expected to be made,
and may extend the time for up to an additional ninety-day period.

                  6.2  Review  Procedure.  If the  Director  or  the  Director's
beneficiary is determined by the Company not to be eligible for benefits,  or if
the Director or the Director's  beneficiary  believes that he or she is entitled
to greater or different  benefits,  the Director or the  Director's  beneficiary
shall have the  opportunity to have such claim reviewed by the Company by filing
a petition for review with the Company  within sixty (60) days after  receipt of
the notice issued by the Company. Said petition shall state the specific reasons
which the Director or the Director's  beneficiary believes entitle him or her to
benefits  or to  greater or  different  benefits.  Within  sixty (60) days after
receipt by the Company of the petition, the Company shall afford the Director or
the Director's  beneficiary (and counsel,  if any) an opportunity to present his
or her  position to the Company  orally or in writing,  and the  Director or the
Director's beneficiary (or counsel) shall have the right to review the pertinent
documents.  The Company shall notify the Director or the Director's  beneficiary
of its decision in writing within the sixty-day period, stating specifically the
basis of its  decision,  written in a manner  calculated to be understood by the
Director  or the  Director's  beneficiary  and the  specific  provisions  of the
Agreement on which the decision is based. If, because of the need for a hearing,
the sixty-day  period is not sufficient,  the decision may be deferred for up to
another  sixty-day  period at the  election of the  Company,  but notice of this
deferral shall be given to the Director or the Director's beneficiary.
                                    Article 7
                           Amendments and Termination
         Subject to the provisions of the next sentence,  the Board of Directors
of the Company may amend or  terminate  this  Agreement at any time prior to the
Director's  Termination of Service by written  notice to the Director;  provided
that all benefits  accrued by the Company as of the date of such  termination or
amendment for payment of benefits  hereunder  shall be fully vested and shall be
payable  in  accordance  with the terms  hereof  unless  the  Director  consents
otherwise in writing.  Notwithstanding the foregoing, at any time after the date
of this Agreement,  there is an acquisition by an individual,  entity or a group
(excluding the Company,  CNBC or an employee benefit plan of the Company) of 30%
or more of CNBC's outstanding voting common stock, this Agreement may be amended
or terminated  only by written  agreement  authorized by the Company's  Board of
Directors and signed by the Company and the Director.

                                    Article 8
                                  Miscellaneous
                  8.1      Binding  Effect.  This  Agreement  shall bind the 
Director  and the  Company,  and their beneficiaries, survivors, executors, 
administrators and transferees.
                  8.2 No Guaranty of Service.  This  Agreement is not a contract
for  services.  It does not give the  Director the right to remain a director of
the Company,  nor does it interfere with the Shareholder's rights to replace the
Director.  It also  does not  require  the  Director  to remain a  director  nor
interfere with the Director's right to terminate service at any time.
                  8.3 Non-Transferability.  Benefits under this Agreement cannot
be sold, transferred, assigned, pledged, attached or encumbered in any manner.
                  8.4 Tax Withholding. The Company shall withhold any taxes that
are required to be withheld from the benefits provided under this Agreement.
                  8.5  Applicable  Law. The Agreement  and all rights  hereunder
shall be governed by the laws of New Jersey,  except to the extent  preempted by
the laws of the United States of America.
                  8.6 Unfunded  Arrangement.  The Director and  beneficiary  are
general  unsecured  creditors  of the Company for the payment of benefits  under
this  Agreement.  The benefits  represent the mere promise by the Company to pay
such  benefits.  The  rights  to  benefits  are not  subject  in any  manner  to
anticipation,  alienation,  sale,  transfer,  assignment,  pledge,  encumbrance,
attachment, or garnishment by creditors. Any insurance on the Director's life is
a general  asset of the Company to which the  Director and  beneficiary  have no
preferred or secured claim.

                  8.7 Guaranty.  The Company's  obligations under this Agreement
are hereby guaranteed, irrevocably and unconditionally by CNBC.
                  IN WITNESS WHEREOF, the Director and a duly authorized Company
officer have signed this Agreement.

DIRECTOR                                    COMPANY:

                                            CITY NATIONAL BANK OF NEW JERSEY





___________________________                 By:_________________________________
DOUGLAS E. ANDERSON                               Name:
                                                  Title:



CITY NATIONAL BANCSHARES                           CORPORATION


By:                                                        
      Name:
      Title:


                                   SCHEDULE A



                        CITY NATIONAL BANK OF NEW JERSEY
                         SUMMARY OF PROJECTED BENEFITS
                            SALARY CONTINUATION PLAN

                                                   Projected
                                                    15 year
                     Current        Retirement      Annual
Executive              Age             Age          Payout

Douglas Anderson       48              65          $ 5,951






Assumption:
 Discount Rate:              7.50%
 Compensation Inflator:      2.00%

                      CITY NATIONAL BANCSHARES CORPORATION
                        CITY NATIONAL BANK OF NEW JERSEY
                           (collectively, the "Bank")

                          SALARY CONTINUATION AGREEMENT

                             BENEFICIARY DESIGNATION



I designate the following as  beneficiary of any death benefits under the Salary
Continuation Agreement:


Primary: ______________________________________________________________________

_______________________________________________________________________________


Contingent: ___________________________________________________________________

_______________________________________________________________________________


Note:To name a trust as beneficiary,  please provide the name of the trustee and
     the exact date of the trust agreement.

I understand  that I may change these  beneficiary  designations by filing a new
written  designation  with the Bank. I further  understand that the designations
will be automatically  revoked if the beneficiary  predeceases me, or, if I have
named my spouse as beneficiary, in the event of the dissolution of our marriage.

Signature: ________________                                              

Date:  ____________________                                        

Accepted by the Bank this _______ day of _________________, 199__.


CITY NATIONAL BANCSHARES CORPORATION           CITY NATIONAL BANK OF NEW JERSEY

By:                                              By:                         

Title:                                           Title: