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, 1997
       [    ]   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: (973) 624-0865

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

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

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

Indicate by check mark 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, 1998 was approximately $1,312,440.

There were 114,141 shares of common stock outstanding at March 15, 1998.

Documents incorporated by reference:
Certain  portions of the definitive  Proxy Statement for the 1998 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
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, 1997, CNBC
had  consolidated  total  assets of $138.9  million,  total  deposits  of $119.7
million and  stockholders'  equity of $10 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 Investments,  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  businesses  and
individuals located within urban areas in 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>
                                       2

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>
                                       3

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,  1997,  CNBC and its  subsidiary  had 63  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, until 1999, at
which time 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 matter to a vote of security holders

Submission of matters to a vote of security holders
During  the  fourth  quarter  of  1997,  there  were  no  matters  submitted  to
stockholders for a vote.

Part II
Item 5. Market for the  Registrants's  Common  Equity and  relates  stockholders
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 1997.

At March 2, 1998, the Corporation had 1,928 common stockholders of record.

On May 2,  1997,  the  Corporation  paid a cash  dividend  of $1.50 per share to
stockholders  of record on April 2, 1997.  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, Vice President,  Stockholder Relations, 900 Broad
Street, Newark, New Jersey, 07102.

Transfer Agent
First City Transfer Company
P.O. Box 170
Iselin, New Jersey  08830
<PAGE>
                                       4


Item 6.  Selected Financial Data
<TABLE>
<CAPTION>
Five-Year Summary
Dollars in thousands, except per share data                       1997         1996         1995       1994 (1)       1993
=================================================================================================================================
Year-end Balance Sheet data:
<S>                                                           <C>          <C>          <C>          <C>           <C>    
Total assets                                                  $138,868     $134,951     $114,410     $111,062      $74,786
Total loans                                                     56,947       57,128       44,739       25,563       23,659
Reserve for possible loan losses                                   825          750          650          625          700
Investment securities                                           62,360       60,863       55,103       53,751       39,193
Total deposits                                                 119,717      115,854      100,889      103,941       64,435
Long-term debt                                                   3,749        1,749        1,749          249          249
Stockholders' equity                                            10,032        8,287        6,896        5,588        4,562
=================================================================================================================================
Income Statement data:
Interest income                                                $ 9,571      $ 9,034      $ 7,470      $ 5,596      $ 4,509
Interest expense                                                 4,330        3,802        2,829        2,068        1,469
---------------------------------------------------------------------------------------------------------------------------------
Net interest income                                              5,241        5,232        4,641        3,528        3,040
Provision (credit) for possible loan losses                        159           91          486       (1,464)         (23)
---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision (credit)
  for possible loan losses                                       5,082        5,141        4,155        4,992        3,063
Noninterest income                                               1,199        1,147        1,363        1,375          898
Noninterest expense                                              4,630        4,839        4,245        3,645        3,019
---------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense and cumulative
  effect of accounting change                                    1,651        1,449        1,273        2,722          942
Income tax expense                                                 582          504          471          998          168
---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
  accounting change and extraordinary item                       1,069          945          802        1,724          774
Cumulative effect of accounting change                              -            -            -            -           206
---------------------------------------------------------------------------------------------------------------------------------
Net income                                                    $  1,069    $     945    $     802    $   1,724     $    980
=================================================================================================================================
(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                   $    8.98    $    8.31    $    7.22     $  15.51      $  7.88
Cumulative effect of accounting change and
  extraordinary item                                                -            -            -            -          2.09
Net income per basic share                                        8.98         8.31         7.22        15.51         9.97
Net income per diluted share                                      8.11         7.51         6.51        13.90         8.86
Book value                                                       74.34        66.23        62.05        50.28        41.05
Dividends                                                         1.50         1.35         1.25         1.00          N/A

Basic average number of common shares
  outstanding                                                  114,141      113,498      111,141      111,141       98,267
Diluted average number of common shares
  outstanding                                                  127,991      127,348      124,991      124,991      112,117
Number of common shares outstanding at year-end                114,141      114,141      111,141      111,141      111,141

Financial ratios:
Return on average assets                                           .78%         .71%         .72%        1.66%        1.20%
Return on average common equity                                  13.05        13.19        12.71        30.24        25.22
Stockholders' equity as a percentage of total assets              7.22         6.14         6.03         5.03         6.10
Dividend payout ratio                                            20.30        16.51        17.46         6.45          N/A
</TABLE>
<PAGE>
                                       5

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

Earnings summary
Net income in 1997  increased  $124,000,  or 13.1%,  to  $1,069,000  compared to
$945,000 in 1996.  Related  earnings per common share on a diluted basis rose to
$8.11 from  $7.51.  Returns on average  common  equity and  average  assets were
13.05% and .78% in 1997 and 13.19% and .71% in 1996.

The  primary  reason  for the  improved  earnings  performance  was a 1996 third
quarter assessment of $100,000 paid to the FDIC representing the Bank's share of
replenishing the Savings Association  Insurance Fund ("SAIF"),  for the purchase
in 1994 of a branch of a failed thrift  institution that was  SAIF-insured  that
did not recur in 1997.

Excluding this assessment,  net of tax, earnings from operations rose $58,000 in
1997, up 5.7% from $1,011,000 in 1996 to $1,069,000 in 1997.

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 was $5.3
million in 1997 and in 1996,  while the related net interest margin decreased to
4.13% from 4.26%.  While average  interest earning assets rose 3.1% in 1997, the
higher  earnings  generated  from this growth was offset by the  decrease in net
interest margin resulting from higher rates paid on funding sources.

Interest  income  on a FTE  basis  was $9.6  million  in 1997,  an  increase  of
$541,000,  or 5.9%  compared to 1996.  This  increase  was due  primarily to the
higher level of average interest  earning assets,  which generated an additional
$406,000.  Most of the increase in interest earnings assets occurred in the loan
portfolio,  which  averaged  $57.8  million in 1997 compared to $53.5 million in
1996,  an increase of 8%. The average yield on interest  earning  assets rose 20
basis points to 7.50% in 1997, compared to 7.30% in 1996.

Interest  expense was $4.3 million in 1997,  an increase of  $528,000,  or 13.9%
from 1996.  This increase  resulted  primarily from higher average rates paid on
interest bearing  liabilities,  which rose to 3.92% in 1997 compared to 3.51% in
1996, an increase of 41 basis points.  Almost all this increase came from higher
average  rates paid on time  deposits,  which rose to 4.57% in 1997  compared to
$4.16% in 1996,  an  increase  of 41 basis  points.  This  growth  increase  was
attributable  to higher balances of certificates of deposit of $100,000 or more,
reflecting the Bank's growing relationship with local municipalities.

Investments
Total  investment  securities  averaged $61.7 million in 1997, a slight increase
from $60.8 million 1996. The activity in the portfolio  resulted  primarily from
the reinvestment of maturity and call proceeds.

The  investment   securities   available  for  sale  ("AFS")  portfolio  changed
nominally,  from $31 million at December 31, 1996 to $32.7 million a year later,
while the related  gross  unrealized  loss  decreased  from $108,000 to $14,000,
representing less than .5% of the AFS portfolio's book value at both dates.

The investment securities held to maturity ("HTM") portfolio of $29.7 million at
December 31, 1997 was virtually unchanged from a year earlier.

At December 31, 1997,  the Bank held five  structured  notes with total book and
related  market  values of $4,250,000  and  $4,112,000,  reflecting  $138,000 of
unrealized depreciation,  while a year earlier the structured note portfolio had
a book value of $6,227,000 and related market value of $6,084,000,  reflecting a
gross  unrealized  loss  of  $143,000.   These  structured  notes  consisted  of
dual-index  and  deleveraged  notes.  The dual index  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 $1.5 million of dual
index notes mature in 1998, while the $2,749,000 of deleveraged  notes mature in
2000.

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.

Finally,  at December 31, 1997,  the Bank held callable U.S.  Government  agency
notes with a carrying value of $12.7 million, all which were included in the HTM
portfolio. These notes are callable at various dates from 1998 through 2008.
<PAGE>
                                       6

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, 1997 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:

<TABLE>
<CAPTION>
Investment Securities Available for Sale  
                                                 Maturing After      Maturing After
                                Maturing         One Year But        Five Years But       
                                Within           Within              Within             Maturing After
                                One Year         Five Years          Ten Years          Ten Years             Total    Total
Dollars in thousands            Amount  Yield    Amount     Yield    Amount    Yield    Amount      Yield     Amount   Yield
=================================================================================================================================
<S>                             <C>       <C>    <C>         <C>     <C>       <C>      <C>          <C>       <C>       <C>  
U.S. Treasury securities        $ 2,751   6.57%  $  2,012    5.80%   $     -      - %   $       -      - %     $ 4,763   6.24%
U.S. Government agencies          2,321   4.54      3,843    6.20       3,256   7.06        14,868   6.70       24,288   6.46
Obligations of state
  political and subdivisions(1)      -      -          -     -             -      -          2,251   7.55        2,251   7.55
Other                                -      -          -     -            262   7.57            -      -           262   7.57
---------------------------------------------------------------------------------------------------------------------------------
Total amortized cost            $ 5,072   5.64%  $  5,855   6.06%     $ 3,518   7.10%      $17,119   6.81%     $31,564   6.52%
=================================================================================================================================
<FN>
(1) Includes $250,000 of nontax-exempt securities with a 7.60% yield.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
                                                 Maturing After      Maturing After
                                Maturing         One Year But        Five Years But       
                                Within           Within              Within             Maturing After
                                One Year         Five Years          Ten Years          Ten Years             Total    Total
Dollars in thousands            Amount  Yield    Amount     Yield    Amount    Yield    Amount      Yield     Amount   Yield
=================================================================================================================================
<S>                             <C>      <C>     <C>         <C>     <C>        <C>     <C>          <C>      <C>       <C>  
U.S. Government agencies        $ 1,000  7.04%   $10,956     6.14%   $12,713    6.72%   $ 2,461      5.90%    $27,130   6.42%
Obligations of state and
  political subdivisions            120  7.96      2,416     6.86         -       -          -          -       2,536   6.91
---------------------------------------------------------------------------------------------------------------------------------
Total amortized cost            $ 1,120  7.14%   $13,372     6.27%   $12,713    6.72%   $ 2,461      5.90%    $29,666   6.46%
=================================================================================================================================
</TABLE>

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, 1997. Average yields on tax-exempt
obligations  of state and political  subdivisions  have been computed on a fully
taxable equivalent basis, using the statutory Federal income tax rate of 34%.

The average yield on the AFS portfolio  increased from 6.20% in 1996 to 6.52% in
1997 , while the yield on the HTM portfolio  rose from 6.36% in 1996 to 6.46% in
1997, reflecting higher yields on securities purchased.
<PAGE>
                                       7

<TABLE>
<CAPTION>
Consolidated Average Balance Sheet with Related Interest and Rates
                                                              1997                                          1996
=================================================================================================================================
                                              Average                  Average              Average                   Average
Tax equivalent basisdollars in thousands      Balance   Interest       Rate                 Balance    Interest       Rate
=================================================================================================================================
<S>                                           <C>        <C>             <C>                <C>        <C>             <C>
Assets
Interest earning assets:
  Federal funds sold and securities purchased
    under agreements to resell                $  8,073   $    439        5.43%              $  6,053   $    317        5.23%
  Other short-term investments                     742         39        5.32                  3,996        215        5.37
  Interest-bearing deposits with banks              59          3        5.14                    104          5        5.16
  Investment securities:
    Taxable 1                                   59,008      3,718        6.30                 58,270      3,577        6.14
    Tax-exempt                                   2,722        189        6.95                  2,536        176        6.92
---------------------------------------------------------------------------------------------------------------------------------
    Total investment securities                 61,730      3,907        6.33                 60,806      3,753        6.17
---------------------------------------------------------------------------------------------------------------------------------
  Loans 2,3:
    Commercial                                  19,391      1,660        8.56                 20,031      1,642        8.20
    Real estate                                 37,684      3,514        9.32                 33,104      3,116        9.42
    Installment                                    729         73        9.98                    388         46       11.85
---------------------------------------------------------------------------------------------------------------------------------
    Total loans                                 57,804      5,247        9.08                 53,523      4,804        8.98
---------------------------------------------------------------------------------------------------------------------------------
    Total interest earning assets              128,408      9,635        7.50                124,484      9,094        7.30
---------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets:
  Cash and due from banks                        3,855                                         4,065
  Gross unrealized loss on investment
    securities available for sale                  (83)                                         (164)
  Reserve for possible loan losses                (806)                                         (724)
  Other assets                                   6,413                                         4,733
---------------------------------------------------------------------------------------------------------------------------------
  Total noninterest earning assets               9,379                                         7,912
---------------------------------------------------------------------------------------------------------------------------------
Total assets                                  $137,787                                      $132,396
=================================================================================================================================
Liabilities and stockholders' equity
Interest bearing liabilities:
  Savings deposits 4                          $ 31,732    $   666        2.10              $  36,427    $   750        2.06
  Time deposits 5                               71,343      3,261        4.57                 66,420      2,764        4.16
---------------------------------------------------------------------------------------------------------------------------------
  Total interest bearing deposits              103,075      3,927        3.81                102,847      3,514        3.42
  Short-term borrowings                          3,809        202        5.30                  3,620        189        5.21
  Long-term debt                                 3,453        201        5.83                  1,749         99        5.69
---------------------------------------------------------------------------------------------------------------------------------
  Total interest bearing liabilities           110,337      4,330        3.92                108,216      3,802        3.51
---------------------------------------------------------------------------------------------------------------------------------
Noninterest bearing liabilities:
  Demand deposits                               16,294                                        14,960
  Other liabilities                              2,150                                         1,443
---------------------------------------------------------------------------------------------------------------------------------
  Total noninterest bearing liabilities         18,444                                        16,403
---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity                             9,006                                         7,777
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity    $137,787                                      $132,396
=================================================================================================================================
Net interest income (tax equivalent basis)                  5,305        3.58                             5,292        3.79
Tax equivalent basis adjustments 6                            (64)                                          (60)
---------------------------------------------------------------------------------------------------------------------------------
Net interest income                                       $ 5,241                                       $ 5,232
=================================================================================================================================
Average rate paid to fund interest earning assets                        3.37                                          3.06
---------------------------------------------------------------------------------------------------------------------------------
Net interest income as a percentage of
   interest earning assets (tax equivalent basis)                        4.13%                                         4.26%
=================================================================================================================================
<FN>
1  Includes  investment  securities  available  for sale and  held to  maturity
2  Includes  nonperforming  loans 3 Includes  loan fees of $123,000 and $200,000 in 1997 and 1996, respectively
4  Includes noninterest bearing deposits maintained by a state governmental agency of $469,000 in 1997 and 1996
5  Includes noninterest bearing deposits maintained by corporations and U.S. governmental agencies of $10,635,000 in 1997 and
   $12,522,000 in 1996
6  The tax equivalent adjustment was computed assuming a 34% statutory federal income tax rate in 1997 and 1996
</FN>
</TABLE>
<PAGE>
                                       8

 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.

<TABLE>
<CAPTION>
                                               1997 Net Interest Income Increase       1996 Net Interest Income Increase
                                                 (Decrease) from 1996 due to              (Decrease) from 1995 due to
In thousands                                    Volume       Rate       Total             Volume     Rate       Total
=================================================================================================================================
<S>                                           <C>         <C>         <C>                <C>     <C>          <C> 
Interest income
Loans:
  Commercial                                  $   (52)    $   70      $   18             $  457  $   (17)     $  440
  Real estate                                     431        (33)        398                797      (46)        751
  Installment                                      40        (13)         27                  2        4           6
---------------------------------------------------------------------------------------------------------------------------------
Total loans                                       419         24         443              1,256      (59)      1,197
Taxable investment securities                      45         96         141                178      130         308
Tax-exempt investment securities                   13          1          14                  5       -            5
Federal funds sold and securities
  purchased under agreements to resell            106         15         121                 62      (24)         38
Other short-term investments                     (175)        (1)       (176)                38      (15)         23
Interest-bearing deposits with banks               (2)        -           (2)                (4)      (1)         (5)
---------------------------------------------------------------------------------------------------------------------------------
Total interest income                             406        135         541              1,535       31       1,566
---------------------------------------------------------------------------------------------------------------------------------
Interest expense
Savings deposits                                   97        (13)         84                  8      (33)        (25)
Time deposits                                    (205)      (292)       (497)              (751)     (85)       (836)
Short-term borrowings                             (10)        (3)        (13)               (47)      14         (33)
Long -term debt                                   (97)        (5)       (102)              (120)      41         (79)
---------------------------------------------------------------------------------------------------------------------------------
Total interest expense                           (215)      (313)       (528)              (910)     (63)       (973)
---------------------------------------------------------------------------------------------------------------------------------
Net interest income                           $   191     $ (178)     $   13             $  625    $ (32)     $  593
=================================================================================================================================
</TABLE>

Loans
Total loans averaged $57.8 million in 1997 compared to $53.5 million in 1996, an
increase of 8.0%,  while total loans  declined  slightly at December 31, 1997 to
$56.9 million from a year earlier.  The increase in average loans  resulted from
greater commercial loan growth and the reduction in loans at year-end was due to
the paydown of  syndicated  line  draw-downs.  These lines had draw downs during
1997 and paid off prior to year-end.

Loans  originated for sale declined to $1.6 million in 1997 from $3.8 million in
1996,  while loans sold  decreased  to $1.2 million in 1997 from $4.3 million in
1996.  Gains and  commissions  on loan sales  declined  from $170,000 in 1996 to
$57,000 in 1997.

At December 31, 1997,  loans to churches  totalled  $7.5  million,  representing
13.2% 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.

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  5.1%  at the end of 1997
compared to a nationwide rate of 4.9%.

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 1998.

Management is unaware of any significant potential problem loans at December 31,
1997.
<PAGE>
                                       9

Maturities and interest sensitivities of loans
Information  pertaining to maturities and the sensitivity to changes in interest
rates of loans at December 31, 1997 is presented below.

                                  One Year 
                    Due in One    Through     Due After
In thousands        Year or Less  Five Years  Five Years   Total
==============================================================================
Commercial          $  4,012      $  5,941    $  9,035    $ 18,988
Real estate:
  Construction           604            -           -          604
  Mortgage             1,498         7,263      27,844      36,605
  Installment             57           450         243         750
-------------------------------------------------------------------------------
Total               $  6,171      $ 13,654    $ 37,122    $ 56,947
===============================================================================
Loans at fixed
  interest rates    $  2,386      $  6,533    $  7,276    $ 16,195
Loans at variable
  Interest rates       3,785         7,121      29,846      40,752
-------------------------------------------------------------------------------
Total               $  6,171      $ 13,654    $ 37,122    $ 56,947
===============================================================================

Summary of loan loss experience
Changes in the reserve for possible loan losses are summarized below.

Dollars in thousands                          1997       1996
===============================================================
Balance, January 1                          $ 750      $ 650
---------------------------------------------------------------
Charge-offs:
  Commercial loans                             31         25
  Real estate loans                           108         65
  Installment loans                            19          8
----------------------------------------------------------------
Total                                         158         98
----------------------------------------------------------------
Recoveries:
  Commercial loans                             57         20
  Real estate loans                             5         81
  Installment loans                            12          6
----------------------------------------------------------------
Total                                          74        107
----------------------------------------------------------------
Net (charge-offs) recoveries                  (84)         9
Provision for possible loan
  losses charged to operations                159         91
-----------------------------------------------------------------
Balance, December 31                        $ 825      $ 750
=================================================================
Net charge-offs (recoveries) as a 
  percentage of average loans                 .15%      (.02)%
Reserve for possible loan losses as 
  a percentage of loans                      1.45       1.31
Reserve for possible loan losses as
  a percentage of nonperforming loans       59.10      70.89
=================================================================

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.

Net  charge-offs  comprised  .15% of total  loans in 1997 while  there was a net
recovery in 1996.  The reserve for possible loan losses was 1.45% of total loans
at December 31, 1997 compared to 1.31% at December 31, 1996.
<PAGE>
                                       10

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:
                              1997                  1996
=================================================================
                               Percentage           Percentage
                                  of Loan              of Loan
Dollars in thousands   Amount    Category    Amount   Category
=================================================================
Commercial             $ 348        1.85%    $ 250      1.27%
Real estate              382        1.01       376      1.00
Installment               12        1.62        12      2.71
Unallocated               83         -         112       -
-----------------------------------------------------------------
Total                  $ 825        1.45%    $ 750      1.31%
=================================================================

Nonperforming assets
Information  pertaining  to  nonperforming  assets at December 31 is  summarized
below:

In thousands                                  1997       1996
=================================================================
Nonperforming loans
  Commercial                               $   614    $   437
  Real estate                                  781        617
  Installment                                    1          4
-----------------------------------------------------------------
Total nonperforming loans                    1,396      1,058
Other real estate owned                        415        672
-----------------------------------------------------------------
Total                                       $1,811     $1,730
=================================================================

The increase in nonperforming loans in 1997 resulted primarily from the addition
of a commercial loan that is 70% guaranteed by the Small Business Administration
and a residential mortgage loan that management considers well-secured.

Total  risk  elements  includes a  restructured  loan to a  commercial  borrower
totalling $1.3 million,  along with a $100,000  working capital loan to the same
borrower.  The $1.3 million commercial mortgage loan is currently  performing in
accordance  with its modified terms while the working  capital loan is currently
performing in accordance with its original terms (See Note 6).

Deposits
Total deposits rose from $115.9 million at December 31, 1996 to $119.7 million a
year later,  while average  deposits rose 1.3%,  from $117.8  million in 1996 to
$119.4 million in 1997. While total deposits did not change  significantly  from
1996  to  1997,  the  deposit  components   experienced   larger   fluctuations,
particularly at year-end.  December 31, 1997 included an $8 million nonrecurring
demand deposit from a U.S.  Government  agency which was withdrawn on January 2,
1998.

Savings  accounts  declined  during  1997  while time  deposits  rose due to the
transfer of  municipal  transaction  account  balances  into longer term deposit
instruments.  As a result,  the average rate paid on interest  bearing  deposits
rose from 3.42% in 1996 to 3.81% in 1997.

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,  1997.
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 withdrawal
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.   At  December  31,  1997,  such  balances   totalled   $469,000  and
$10,635,000, respectively.
<PAGE>
                                       11
Short-term borrowings
Average short-term  borrowings rose 5.2% in 1997 because of higher U.S. Treasury
tax and loan note option account balances.  The average rate paid for short-term
borrowings increased nine basis points from 5.21% in 1996 to 5.30% in 1997.

Long-term debt
Long-term  debt rose from  $1,749,000  at December 31, 1996 to $3,749,000 a year
later due to $2 million of Federal Home Loan Bank advances incurred in February,
1997.  The average rate paid on long-term  debt rose from 5.69% in 1996 to 5.83%
in 1997.

Other operating income
Other operating  income increased 4.5%, from $1,147,000 in 1996 to $1,199,000 in
1997. The primary  reasons for the increase were higher loan  syndication  fees,
which rose from  $238,000 in 1996 to $283,000 in 1997 and higher  earnings  from
increased cash surrender  value of corporate  owned life  insurance,  which rose
from $3,000 in 1996 to $72,000 in 1997. These increases were partially offset by
lower  gains and  commissions  on loan sales.  The  syndication  fees  represent
compensation from large corporations that utilize the Bank to syndicate lines of
credit to other small banks.

Other operating expenses
Other operating  expenses,  which include  expenses other than interest,  income
taxes and the provision for possible loan losses, totalled $4.6 million in 1997,
a 4.3% decrease  compared to 1996.  The primary  reason for the decrease was the
nonrecurring $100,000 FDIC SAIF assessment imposed in 1996.


Salaries and other employee  benefits remained  virtually  unchanged in 1997, as
did occupancy and equipment expense.

Other  expenses  were lower by $199,000 , or 13.2% in 1997 due  primarily to the
aforementioned  nonrecurring $100,000 FDIC SAIF assessment. Also contributing to
the reduction was lower marketing  expense,  which declined from $99,000 in 1996
to $38,000 in 1997.

Income tax expense
Income tax expense as a percentage of pre-tax  income was 35.3% in 1997 compared
to 34.8% in 1996.

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

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

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

The  major   contribution   during  1997  from   operating   activities  to  the
Corporation's  liquidity  came  from net  income  while a  decrease  in  accrued
expenses and other liabilities  described in Note 10 to the Financial Statements
was the primary use of cash for operating activities.

Net cash used in investing  activities  was primarily the result of the purchase
of investment securities available for sale, which totalled $42.6 million, while
sources of cash provided by investing  activities  were derived  primarily  from
proceeds from maturities, principal payments and early redemptions of investment
securities available for sale, amounting to $41 million.

The primary sources of funds from financing activities resulted from an increase
in  deposits  of $3.9  million  along with the sale of $2  million of  preferred
stock, while a $962,000 decrease in short-term  borrowings comprised the largest
use of funds.

Effects of inflation
Inflation,  as measured by the CPI,  declined to 2% in 1997  compared to 2.8% in
1996 and 2.8% in 1995.
<PAGE>
                                       12

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.

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 on the  Corporation's  mix of
interest sensitive assets and liabilities.
<PAGE>
                                       13

The  following  table  presents  the  Corporation's  interest  rate  sensitivity
position at December 31, 1997 categorized by anticipated repricing frequency.

Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
                                                                 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
=================================================================================================================================
<S>                                               <C>          <C>          <C>          <C>          <C>           <C>        
Interest earning assets
Interest bearing deposits with banks              $        40  $        -   $        -   $        40  $         -   $        40
Investment securities                                  18,173        2,361        4,547       25,081        37,292       62,373
Loans                                                  15,883        4,915        8,497       29,295        27,652       56,947
---------------------------------------------------------------------------------------------------------------------------------
Total                                                  34,096        7,276       13,044       54,416        64,944      119,360
---------------------------------------------------------------------------------------------------------------------------------
Sources of funds supporting interest-earning assets
Savings deposits (1)                                    8,597           -            -         8,597        16,352       24,949
Time deposits                                          42,719        7,952        3,841       54,512        15,467       69,979
Short-term borrowings                                   4,213           -            -         4,213            -         4,213
Long-term debt                                             -            -            -            -          3,749        3,749
Noninterest bearing sources                                -            -            -            -         16,470       16,470
---------------------------------------------------------------------------------------------------------------------------------
Total                                                  55,529        7,952        3,841       67,322        52,038      119,360
---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitive gap                                (21,433)        (676)       9,203      (12,906)
---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap                $  (21,433) $   (22,109) $   (12,906) $   (12,906)
---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitive assets to interest
  sensitive liabilities                                 .61:1         91:1       3.39:1        .81:1
---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitive assets
  to interest sensitive liabilities                     .61:1       . 65:1        .82:1        .81:1
---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitivity gap as a percentage of 
  total assets                                         (15.43)%       (.49)%       6.63 %      (9.29)%
---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap as a percentage
  of total assets                                      (15.43)%     (15.92)%      (9.29)%      (9.29)%
=================================================================================================================================
<FN>
(1) Based on historical experience, management has classified passbook and statement savings accounts as noninterest sensitive
</FN>
</TABLE>

At December 31, 1997, the Corporation had a negative  cumulative one-year gap of
$12.9  million,  representing  9.29%  of  total  assets  and a ratio  of  .81:1.
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 200 basis  points,  which is the  maximum  change  that
management uses to measure the Corporation's exposure to interest rate risk.
<PAGE>
                                       14

The following  table  presents the financial  instruments  that are sensitive to
changes  in  interest  rates,   categorized  by  expected   maturity,   and  the
instruments' fair values at December 31, 1997. Market risk sensitive instruments
are generally defined as on-and-off balance sheet financial instruments.

<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
                                                        Expected Maturity
=================================================================================================================================
                              Average
                              Interest                                                                       Total       Fair
In thousands                  Rate (1)      1998         1999       2000       2001       2002   Thereafter  Balance     Value
=================================================================================================================================
<S>                              <C>    <C>          <C>        <C>        <C>        <C>        <C>       <C>        <C>      
Interest sensitive assets
Interest bearing deposits 
  with banks                     4.75%  $     40     $     -    $     -    $     -    $     -    $     -   $      40  $      40
Investment securities:
    U.S. Treasury securities     6.24      2,753        1,509        501         -          -          -       4,763      4,784
    Obligations of U.S. 
      government agencies        6.46     21,519        4,423      8,879      1,012      1,457     14,129     51,419     51,348
    Obligations of state and 
      political subdivisions     7.21        121          102        354      1,148        401      2,661      4,787      4,792
    Other debt securities        7.66         -            -          -          -          -         262        262        262
    Equity securities              -          -            -          -          -          -       1,143      1,143      1,146

Loans net of unearned income:
    Commercial                   8.45     14,694          754      1,309      1,181        941        109     18,988     20,447
    Mortgage                     9.03     13,563        5,546      7,031      2,091      4,323      4,655     37,209     38,202
    Consumer                    10.17        231          164         93         60         35        167        750        783
Loans held for sale              9.00        807           -          -          -          -          -         807        807
---------------------------------------------------------------------------------------------------------------------------------
Total interest sensitive
  assests                        7.64%   $53,728      $12,498    $18,167    $ 5,492    $ 7,157    $23,126   $120,168   $122,611
=================================================================================================================================
Interest sensitive liabilities
Deposits:
  SuperNOW and money
    market accounts              2.22%  $  8,597    $      -    $     -    $     -  $       -   $      -     $ 8,597    $ 8,597
  Regular savings                2.25         -            -          -          -          -      16,352     16,352     16,352
  Time                           4.71     63,239        4,089        669        250        234      1,498     69,979     70,027
Short-term borrowings            5.57      4,213           -          -          -          -          -       4,213      4,213
Long-term debt                   5.80         -            -          -          -       2,000      1,749      3,749      3,726
---------------------------------------------------------------------------------------------------------------------------------
Total interest sensitive
  liabilities                    4.19%  $ 76,049     $  4,089   $    669   $    250  $   2,234  $  19,599   $102,890   $102,915
=================================================================================================================================
<FN>
(1) Tax equivalent basisexcludes equity securities
</FN>
</TABLE>

Expected  maturities  consist of contractual  maturities  adjusted for principal
payments.  The Corporation uses certain  assumptions to estimate fair values and
expected  maturities.  The actual  maturities  of these  instruments  could vary
substantially if future prepayments differ from estimated experience.
<PAGE>
                                       15

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                 1997     1996     1997    1996
===========================================================================


Total stockholders' equity        $10,032  $ 8,287  $10,628   $9,726
Net unrealized loss on investment
  securities available for sale        38      111       45      111
Disallowed intangibles                (56)     (66)     (56)     (66)
---------------------------------------------------------------------------
Tier 1 capital                     10,014    8,332   10,617    9,771
---------------------------------------------------------------------------
Qualifying long-term debt           1,749    1,749      249      249
Reserve for possible loan losses      781      734      773      734
---------------------------------------------------------------------------
Tier 2 capital                      2,530    2,483    1,022      983
---------------------------------------------------------------------------
Total capital                     $12,544  $10,815  $11,639  $10,754
===========================================================================
Risk-adjusted assets              $62,491  $58,681  $61,824  $58,681
Total assets                      138,868  134,951  137,985  134,951
---------------------------------------------------------------------------
Risk-based capital ratios:
  Tier 1 capital to risk-
    adjusted assets                 16.02%   14.20%   17.17%   16.65%
  Regulatory minimum                 4.00     4.00     4.00     4.00
  Total capital to risk-
    adjusted assets                 20.07    18.43    18.83    18.33
  Regulatory minimum                 8.00     8.00     8.00     8.00
Leverage ratio                       7.21     5.93     7.69     7.01
Total stockholders' equity to 
    total assets                     7.22     6.14     7.90     7.21
===========================================================================

Results of operations - 1996 compared with 1995
Net  income in 1996  increased  $143,000,  or 17.8%,  to  $945,000  compared  to
$802,000 in 1995.  Related  earnings per common share on a diluted basis rose to
$7.51 form $6.51.

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  branch  of a  failed  thrift
institution  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 to $1,006,000 in 1996, up 35.2% from $755,000 in 1995.

The primary reason for the improved earnings  performance was an increase in net
interest income,  which rose 12.7% compared to 1995,  partially offset by 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.

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 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.

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 proceeds received from the deposit assumption and were invested in
U.S. Government agency securities.

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 acquisition.
<PAGE>
                                       16

Other operating  income decreased 15.8% to $1,147,000 in 1996 from $1,363,000 in
1995 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  service charges in 1995.
These  reductions were partially offset by higher agency fees, which rose 45.1%,
to $235,000 in 1996 from  $162,000 in 1995.  These fees  represent  compensation
from large corporations that utilize the Bank to syndicate lines of credit.

Other operating  expenses totalled $4.8 million in 1996, a 14% increase compared
to 1995. The primary reasons for the increase in overall operating expenses were
the branch  acquisition  along with costs  attributable to the renovation of the
main office.

Occupancy and equipment expense rose $271,000, or 63.5% from 1995 to 1996 due to
higher  depreciation  expense  arising from the  renovations  of the Bank's main
office.

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 as a percentage of pretax income was 35.3%, up slightly, from
34.8% in 1995.

Year 2000
During  1997,   the   Corporation   established   an  overall  plan  to  address
system-related Year 2000 issues. The plan calls for either system  modifications
to , or replacement of, existing  business systems  applications.  A majority of
the systems are provided and maintained by outside  vendors with whom management
is  coordinating  the Year 2000 efforts.  The cost of this Year 2000  compliance
program  related to system  modifications  is not expected to be material to the
Corporation's  earnings  in  1998  or  thereafter.   The  Corporation  currently
anticipates that substantially all of the work under this program, including the
testing of critical  systems,  will be  initially  completed by the end of 1998,
with further testing to be performed during 1999.
<PAGE>

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, 1997
and  1996,  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, 1997. 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 audits in accordance with generally  accepted auditing  standards.
Those standards require that we plan and perform thee 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 audits  provide 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, 1997 and 1996, and the results of their operations
and  their  cash  flows  for each of the years in the  three-year  period  ended
December 31, 1997, in conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick. LLP
February 11. 1998





<PAGE>
                                       17
Item 8. Financial Statements and Supplementary Data

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

Consolidated Balance Sheet
                                                              December 31,
                                                        =======================

Dollars in thousands, except per share data ..........         1997         1996
                                                           ========     ========
Assets
Cash and due from banks (Note 2) .....................     $ 13,260     $  2,767
Federal funds sold (Note 3) ..........................         --          8,900
Interest-bearing deposits with banks .................           40           74
Investment securities available for sale (Note 4) ....       32,694       30,997
Investment securities held to maturity
  (Market value of $29,638 in 1997 and $29,517
  in 1996) (Note 5) ..................................       29,666       29,866
Loans held for sale (Note 1) .........................          807          291
Loans (Note 6) .......................................       56,947       57,128
Less: Reserve for possible loan losses (Note 7) ......          825          750
                                                           --------     --------
Net loans ............................................       56,122       56,378
                                                           --------     --------
Premises and equipment (Note 8) ......................        3,192        3,331
Accrued interest receivable ..........................        1,112        1,078
Other real estate owned ..............................          385          672
Other assets  (Note 15) ..............................        1,590          597
                                                           --------     --------
Total assets .........................................     $138,868     $134,951
                                                           ========     ========
Liabilities and Stockholders' Equity

Deposits: (Notes 2, 4, 5, and 9)
  Demand .............................................     $ 24,789     $ 13,699
  Savings ............................................       24,949       37,527
  Time ...............................................       69,979       64,628
                                                           --------     --------
Total deposits .......................................      119,717      115,854
Short-term borrowings (Notes 6 and 11) ...............        4,213        5,175
Accrued expenses and other liabilities (Note 10) .....        1,157        3,886
Long-term debt (Note 12) .............................        3,749        1,749
                                                           --------     --------
Total liabilities ....................................      128,836      126,664
Commitments and contingencies (Note 21)
Stockholders' equity (Note17):
  Preferred stock, no par value: Authorized
  100,000 shares (Note 16);
  Series A , issued and outstanding 8 shares
   in 1997 and 1996 ..................................          200          200
  Series B , issued and outstanding 20 shares
   in 1997 and 1996 ..................................          500          500
  Series C , issued and outstanding 108 shares
   in 1997 and 1996 ..................................           27           27
  Series D , issued and outstanding 3,280
   shares in 1997 ....................................          820         --
  Common stock, par value $10: Authorized
   400,000 shares; 114,980 shares issued and
   114,141 outstanding in 1997 and 1996 ..............        1,150        1,150
  Surplus ............................................          901          901
  Retained earnings ..................................        6,497        5,645
  Less:
    Net unrealized loss on investment
     securities available for sale ...................           38          111
    Treasury stock, at cost - 839 shares .............           25           25
                                                           --------     --------
Total stockholders' equity ...........................       10,032        8,287
                                                           --------     --------
Total liabilities and stockholders' equity ...........     $138,868     $134,951
                                                           ========     ========

See accompanying notes to consolidated financial statements.
<PAGE>
                                       18


CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

Consolidated Statement of Income
                                                     Year Ended December 31,
                                             ===================================
Dollars in thousands,
except per share data ...................         1997         1996         1995
                                              ========     ========     ========
Interest income
Interest and fees on loans ..............     $  5,247     $  4,804     $  3,607
Interest on Federal funds sold and
  securities purchased under
  agreements to resell ..................          439          317          279
Interest on other short-term
  investments ...........................           39          215          192
Interest on deposits with banks .........            3            5           10
Interest and dividends on
  investment securities:
  Taxable ...............................        3,718        3,577        3,269
  Tax-exempt ............................          125          116          113
                                              --------     --------     --------
Total interest income ...................        9,571        9,034        7,470
                                              --------     --------     --------
Interest expense
Interest on deposits (Note 9) ...........        3,927        3,514        2,653
Interest on short-term borrowings .......          202          189          156
Interest on long-term debt ..............          201           99           20
                                              --------     --------     --------
Total interest expense ..................        4,330        3,802        2,829
                                              --------     --------     --------
Net interest income .....................        5,241        5,232        4,641
Provision for possible loan
  losses (Note 7) .......................          159           91          486
                                              --------     --------     --------
Net interest income after provision
  for possible loan losses ..............        5,082        5,141        4,155
                                              --------     --------     --------
Other operating income
Service charges on deposit accounts .....          604          592          711
Other income (Notes 13 and 15) ..........          577          548          642
Net gains on sales of investment
  securities (Notes 4 and 5) ............           18            7           10
                                              --------     --------     --------
Total other operating income ............        1,199        1,147        1,363
                                              --------     --------     --------
Other operating expenses
Salaries and other employee
  benefits (Note 15) ....................        2,615        2,628        2,455
Occupancy expense (Note 8) ..............          319          289          153
Equipment expense (Note 8) ..............          382          409          274
Other expenses (Note 13) ................        1,314        1,513        1,363
                                              --------     --------     --------
Total other operating expenses ..........        4,630        4,839        4,245
                                              --------     --------     --------
Income before income tax expense ........        1,651        1,449        1,273
Income tax expense (Note 14) ............          582          504          471
                                              --------     --------     --------
Net income ..............................     $  1,069     $    945     $    802
                                              ========     ========     ========
Net income per common
  share (Note 18)
Basic ...................................     $   8.98     $   8.31     $   7.22
Diluted .................................         8.11         7.51         6.51
                                              ========     ========     ========
Basic average common shares
  outstanding ...........................      114,141      113,498      111,141
Diluted average common
  shares outstanding ....................      127,991      127,348      124,991
                                              ========     ========     ========

See accompanying notes to consolidated financial statements.
<PAGE>
                                       19


CITY NATIONAL BANCSHARES CORPORATION
 AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statement of Changes
in Stockholders' Equity                                                                          Net Unrealized
                                                                                                Gain (Loss) on
                                                                                               Investment Securities
                                                      Common                Preferred  Retained  Available     Treasury
Dollars in thousands                                  Stock      Surplus    Stock      Earnings  for Sale      Stock        Total
===================================================================================================================================
<S>                                                   <C>        <C>        <C>        <C>         <C>         <C>         <C>     
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
Net income ........................................       --         --         --        1,069        --          --         1,069
Proceeds from issuance of preferred stock .........       --         --          820       --          --          --           820
Change in net unrealized loss on investment
  securities available for sale ...................       --         --         --         --            73        --            73
Dividends paid on common stock ....................       --         --         --         (173)       --          --          (173)
Dividends paid on preferred stock .................       --         --         --          (44)       --          --           (44)
                                                      --------   --------   --------   --------    --------     --------   --------
Balance, December 31, 1997 ........................   $  1,150   $    901   $  1,547   $  6,497    $    (38)   $    (25)   $ 10,032
                                                      ========   ========   ========   ========    ========     ========   ========
</TABLE>

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

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY

Consolidated Statement of Cash Flows                Year Ended December 31,
                                             ===================================
In thousands                                       1997        1996        1995
================================================================================
Operating activities
Net income .................................   $  1,069    $    945    $    802
Adjustments to reconcile net income
  to net cash from operating activities:
  Depreciation and amortization ............        367         339         191
  Provision  for possible loan losses ......        159          91         486
  Accretion of discount, net of premium
    amortization on investment securities ..         12         (15)        151
  Net gains on sales and calls of investment
    securities .............................        (18)         (7)        (10)
  Gains and commissions on loans held for
    sale ...................................        (57)       (170)       (122)
(Increase) decrease in accrued interest
  receivable ...............................        (33)       (123)        194
Deferred income tax  benefit ...............       (104)        (53)       (203)
(Increase) decrease in other assets ........     (1,143)         (4)        984
Decrease in other real estate owned ........        336        --            95
(Decrease) increase  in accrued expenses
  and other liabilities ....................     (2,525)      2,702        (150)
                                               --------    --------    --------
Net cash (used in) provided by
  operating activities .....................     (1,937)      3,705       2,418
                                               --------    --------    --------
Investing activities
Loans originated for sale ..................     (1,611)     (3,776)     (4,594)
Proceeds from sales of loans held for sale .      1,152       4,210       4,631
Decrease (increase) in loans ...............         48      (8,805)     (8,159)
Purchase of loans in conjunction with
  branch acquisitions ......................       --        (4,035)    (11,479)
Decrease  (increase) in interest-bearing
  deposits with banks ......................         34         247        (321)
Proceeds from maturities of investment
  securities available for sale,
  including sales, principal payments
  and early redemptions ....................     41,011      20,917       1,524
Proceeds from maturities of investment
  securities held to maturity, including
  principal payments and early redemptions .      3,718       4,643      11,127
Purchases of investment securities
  available for sale .......................    (42,570)    (21,221)     (2,745)
Purchases of investment securities held
  to maturity ..............................     (3,529)    (10,025)    (10,669)
Purchases of premises and equipment ........       (227)     (1,382)       (739)
                                               --------    --------    --------
Net cash used in investing activities ......     (1,974)    (19,227)    (21,424)
                                               --------    --------    --------
Financing activities
Deposits assumed in branch acquisitions ....       --         7,661        --
Increase (decrease) in deposits ............      3,863       7,304      (3,052)
(Decrease) increase in short-term
  borrowings ...............................       (962)      1,514       3,661
Proceeds from issuance of long-term debt ...      2,000        --         1,500
Proceeds from issuance of common stock .....       --            45        --
Proceeds from issuance of preferred stock ..        820         527         200
Dividends paid on preferred stock ..........        (44)         (2)       --
Dividends paid on common stock .............       (173)       (154)       (140)
                                               --------    --------    --------
Net cash provided by financing activities ..      5,504      16,895       2,169
                                               --------    --------    --------
Net increase (decrease) in cash and
  cash equivalents .........................      1,593       1,373     (16,837)
Cash and cash equivalents at beginning
  of year ..................................     11,667      10,294      27,131
                                               --------    --------    --------
Cash and cash equivalents at end of year ...   $ 13,260    $ 11,667    $ 10,294
                                               ========    ========    ========
Cash paid during the year:
Interest ...................................   $  4,321    $  3,960    $  2,719
Income taxes ...............................        538         335         991

Supplemental schedule for noncash investing activities:
Real estate acquired in settlement
  of loans .................................         49         460         212
Transfers of investment securities
  held to maturity to investment
  securities available for sale ............       --          --        21,836
See accompanying notes to consolidated financial statements.
<PAGE>
                                       21

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 a 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.

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.  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
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
and its future collectibility is expected.
<PAGE>
                                       22

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 during 1997 or 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  three  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 ("OREO") acquired through foreclosure or deed in lieu of
foreclosure is carried at the lower of cost or fair value less estimated cost to
sell, net of a valuation allowance.  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
OREO, rental income and operating expenses, are included in "Other expenses".

A reserve  for OREO has been  established  through  charges  to OREO  expense to
maintain  properties at the lower of cost or fair value less  estimated  cost to
sell.

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.

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.  Such temporary
differences include depreciation and the provision for possible loan losses.

Net income per common share
The Corporation adopted Financial  Accounting Standards Board ("FASB") Statement
of Financial  Accounting Standards No. 128, "Earnings per share" on December 31,
1997. SFAS 128 establishes  standards for computing and presenting  earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common  stock.  SFAS  128  replaces  the  presentation  of  primary  EPS  with a
presentation  of basic EPS and requires dual  presentation  of basic and diluted
EPS on the face of the income  statement for all entities  with complex  capital
structures.
<PAGE>
                                       23

Basic  income  per common  share is  calculated  by  dividing  net  income  less
dividends  paid on  preferred  stock by the  weighted  average  number of common
shares  outstanding.  On a diluted  basis,  both net income  and  common  shares
outstanding are adjusted to assume the conversion of the convertible subordinate
debentures from the date of issue.

Recent accounting pronouncement
In June 1997, the FASB issued SFAS No. 130.  "Reporting  Comprehensive  Income".
SFAS 130 establishes standards for reporting and display of comprehensive income
an its  components  (revenues,  expenses,  gains,  and  losses) in a full set of
general-purpose financial statements.  SFAS 130 requires that all items that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.  The adoption of SFAS No. 130
is not expected to materially affect the financial statements

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  proforma a net income and proforma  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  proforma  disclosure  provisions  of SFAS  123  stock
based-compensation as applicable.

Reclassifications
Certain  reclassifications  have  been  made to the 1996  and 1995  consolidated
financial statements in order to conform with the 1997 presentation.

Note 2   Cash and due from banks
The Bank is required to maintain a reserve balance with the Federal Reserve Bank
based primarily on deposit levels.  These reserve balances  averaged $662,000 in
1997 and $1,028,000 in 1996.

Cash and due from banks and demand  deposits at December 31, 1997 included an $8
million  nonrecurring  deposit made by an agency of the U.S Government which was
withdrawn on January 2, 1998.  The source of this deposit was a check drawn on a
financial  institution  that  was  located  out of the  Bank's  Federal  Reserve
district.

Note 3   Federal funds sold and securities purchased under agreements to resell
Federal funds sold  averaged $7.8 million  during 1997 and $6.0 million in 1996,
while the maximum balance  outstanding at any month-end during 1997 and 1996 was
$7.3 million and $11.6 million,  respectively.  During 1997 and 1996, securities
purchased under agreements to resell averaged $27,000 and $41,000  respectively.
There were no such transactions outstanding at any month-end. 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
1997 In thousands             Cost      Gains     Losses     Value
======================================================================
U.S. Treasury securities
  and obligations of U.S.
  government agencies      $10,432     $   75     $   56   $10,450
Obligations of states and
   political subdivisions    2,251         11         13     2,249
Other securities:
  Mortgage-backed
   securities               18,620        144        178    18,587
  Other debt securities        262         -          -        262
  Equity securities          1,143          3         -      1,146
----------------------------------------------------------------------
Total                      $32,708     $  233     $  247   $32,694
======================================================================
<PAGE>
                                       24


                                        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
======================================================================


At  December  31,  1997,  the  Corporation  held  structured  notes with a total
amortized  cost  of  $1,500,000  and  a  related  market  value  of  $1,445,000,
reflecting gross unrealized depreciation of $55,000.

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.  The Corporation also held
structured  notes in the held to maturity  portfolio  at  December  31, 1997 and
December 31, 1996.

The  amortized  cost and the market  values of  investments  in debt  securities
available for sale  presented  below as of December 31, 1997 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             $  4,251     $  4,199
    Mortgage-backed securities                   821          828
Due after one year but within five years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies                4,513        4,536
  Mortgage-backed securities                   1,343        1,368
Due after five years but within ten years:
  Mortgage-backed securities                   3,256        3,297
  Other debt securities                          262          262
Due after ten years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies                1,668        1,715
  Mortgage-backed securities                  13,200       13,094
  Obligations of state and political 
    subdivisions                               2,251        2,249
-----------------------------------------------------------------------
Total debt securities                         31,565       31,548
Equity securities                              1,143        1,146
-----------------------------------------------------------------------
Total                                        $32,708      $32,694
=======================================================================

Sales of investment securities available for sale totalled $3.7 million in 1997,
while there were no such sales  during 1996.  $2.6  million of these  securities
were called prior to maturity during 1997,  while $1 million was called prior to
maturity during 1996.

Interest and dividends on investment securities available for sale was as 
follows:
In thousands                       1997       1996       1995
=================================================================
Taxable                        $  1,999   $  1,949    $   675
Tax-exempt                            9         -          -
-----------------------------------------------------------------
Total                          $  2,008   $  1,949    $   675
=================================================================

Investment securities available for sale having an amortized cost of $27,467,000
were pledged to secure public funds at December 31, 1997.
<PAGE>
                                       25

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
1997 In thousands            Value      Gains     Losses     Value
======================================================================
U.S. Treasury securities
  and obligations of U.S.
  Government agencies      $16,835  $      84   $    101   $16,818
Obligations of state and
  political subdivisions     2,536         16          9     2,543
Other securities:
  Mortgage-backed           10,295         61         79    10,277
----------------------------------------------------------------------
Total                      $29,666  $     161   $    189   $29,638
======================================================================

                                        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
=======================================================================

At  December  31,  1997,  the  Corporation  held  structured  notes with a total
amortized  cost  of  $2,750,000  and  a  related  market  value  of  $2,667,000,
reflecting gross unrealized depreciation of $83,000.  Comparable amounts as of a
year earlier were $2,750,000, $2,660,000 and $90,000, respectively.

The book value and the market value of  investment  securities  held to maturity
presented below as of December 31, 1997 are distributed by contractual maturity,
including mortgage-backed securities,  which may have shorter estimated lives as
a result of prepayments of the underlying mortgages.
                                                  Book     Market
In thousands                                     Value      Value
====================================================================
Due within one year
  U.S. Treasury and obligations of
    U.S. Government agencies                  $  1,000    $   999
  Obligations of state and political
    subdivisions                                   120        120
Due after one year but within five years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies                  5,688      5,668
  Mortgage-backed securities                     5,268      5,308
  Obligations of state and political 
    subdivisions                                 2,416      2,423
Due after five years but within ten years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies                  9,648      9,651
  Mortgage-backed securities                     3,065      3,079
Due after ten years:
  U.S. Treasury securities and obligations
    of U.S. Government agencies                    499        500
  Mortgage-backed securities                     1,962      1,890
--------------------------------------------------------------------
Total                                          $29,666    $29,638
====================================================================

There were no sales of  securities  held to maturity  in 1997 or 1996,  while $3
million of securities  were called prior to maturity  during 1997 and $2,988,000
of securities were called during 1996, resulting in net gains of $7,000 in 1996.
There were no related resulting gains or losses in 1997.

Interest and dividends on investment securities held to maturity was as follows:
In thousands                       1997       1996       1995
================================================================
Taxable                         $ 1,719    $ 1,628    $ 2,594
Tax-exempt                          116        116        113
----------------------------------------------------------------
Total                           $ 1,835    $ 1,744    $ 2,707
================================================================

Investment  securities held to maturity having a book value of $18,725,000  were
pledged to secure public funds at December 31, 1997.
<PAGE>
                                       26

Note 6   Loans
Loans, net of unearned discount and net deferred origination fees and costs at 
December 31, were as follows:
In thousands                                  1997       1996
=================================================================
Commercial                                $ 18,988   $ 19,634
Real estate                                 37,521     37,448
Installment                                    750        443
-----------------------------------------------------------------
Total loans                                 57,259     57,525
Less: Unearned income                          312        397
-----------------------------------------------------------------
Loans                                     $ 56,947   $ 57,128
=================================================================

Loans guaranteed by the Small Business Administration  totalling $4,560,000 were
pledged as collateral  for borrowings  under a note issued to the U.S.  Treasury
Department at December 31, 1997.

Nonperforming  loans include loans which are  contractually  past due 90 days or
more for which interest income is still being accrued and nonaccrual loans.

At December 31, nonperforming loans and troubled debt restructurings were as 
follows:
In thousands                                    1997       1996
==================================================================
Nonaccrual loans                            $  1,166   $  1,025
Loans with interest or principal 90
  days or more past due and still accruing       230         33
------------------------------------------------------------------
Total nonperforming loans                      1,396      1,058
Troubled debt restructurings                   1,261         -
------------------------------------------------------------------
Total nonperforming loans
   and troubled debt restructurings           $2,657     $1,058
==================================================================

The effect of nonaccrual loans on income before taxes is presented below.
In thousands                           1997     1996     1995
==================================================================
Interest income foregone              $ (67)   $ (61)   $ (52)
Interest income received                101      106       55
------------------------------------------------------------------
                                      $  34    $  45   $    3
==================================================================

Troubled  debt  restructurings  includes  two loans to one  commercial  borrower
totalling $1.3 million. A $1 million construction loan was originated in August,
1996 and subsequently  increased by $200,000.  Payments remained current through
June,  1997 when  construction  was  completed  and the loan was  converted to a
permanent commercial  mortgage,  at which time principal paydowns were scheduled
to  commence.  Prior to  becoming  90 days past due,  the terms of the loan were
modified to continue  interest only payments for a specified period of time. The
loan is  secured  by a  leasehold  mortgage  on the  financed  property  and the
borrower's  principals have provided joint and several personal  guarantees.  In
addition,  a $100,000 working capital loan secured by receivables was originated
in July, 1997.

The  construction  loan is currently  performing in accordance with the modified
terms while the working capital loan is currently  performing in accordance with
its original terms.  Management believes that both of these loans are adequately
secured and fully collectible.

At December 31, 1997,  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,  or to borrowers  whose loans have been
restructured.  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.
<PAGE>
                                       27

Note 7   Reserve for possible loan losses
Transactions in the reserve for possible loan losses are summarized as follows:
In thousands                       1997       1996       1995
================================================================
Balance, January 1                $ 750      $ 650      $ 625
Provision for possible loan
  losses                            159         91        486
Recoveries of loans previously
  charged off                        74        107         98
-----------------------------------------------------------------
                                    983        848      1,209
Less: Charge-offs                   158         98        559
-----------------------------------------------------------------
Balance, December 31              $ 825      $ 750      $ 650
=================================================================


Note 8                       Premises and equipment
A summary of premises and equipment at December 31 follows:
In thousands                                  1997       1996
-----------------------------------------------------------------
Land                                        $  274     $  274
Premises                                     1,035      1,035
Furniture and equipment                      1,778      1,677
Building improvements                        1,900      1,773
------------------------------------------------------------------
Total cost                                   4,987      4,759
Less: Accumulated depreciation 
  and amortization                           1,795      1,428
------------------------------------------------------------------
Net book value                              $3,192     $3,331
------------------------------------------------------------------

Depreciation  and  amortization   expense  charged  to  operations  amounted  to
$367,000, $339,000, and $191,000 in 1997, 1996, and 1995, respectively.

Note 9   Deposits
Deposits at December 31 are presented below.
In thousands                                  1997       1996
==================================================================
Noninterest bearing
  Demand                                 $  24,789  $  13,699
  Savings                                      469        469
  Time                                      10,635     12,522
------------------------------------------------------------------
Total noninterest bearing deposits          35,893     26,690
------------------------------------------------------------------
Interest bearing
  Savings                                   24,480     37,058
  Time                                      59,344     52,106
------------------------------------------------------------------
Total interest bearing deposits             83,824     89,164
------------------------------------------------------------------
Total deposits                            $119,717   $115,854
==================================================================

Time deposits issued in amounts of $100,000 or more have the following 
maturities at December 31:
In thousands                                  1997       1996
==================================================================
Three months or less                      $ 40,701   $ 25,967
Over three months but within six months      5,315     15,023
Over six months but within twelve months     2,956      2,557
Over twelve months                           2,037      3,943
------------------------------------------------------------------
Total deposits                            $ 51,009   $ 47,490
==================================================================

Interest expense on certificates of deposits of $100,000 or more was $2,369,000,
$1,850,000 and $895,000 in 1997, 1996 and 1995, 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 item was
subsequently repaid.
<PAGE>
                                       28

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
==============================================================================
1997
Federal funds purchased and 
  securities sold under 
  repurchase agreements      $   800   6.75%   $    92    5.47%    $   800
Demand note issued
  to the U.S. Treasury         3,413   5.27      3,717    5.30       8,000
------------------------------------------------------------------------------
Total                        $ 4,213   5.57%   $ 3,809    5.32%    $ 8,800
 =============================================================================
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
==============================================================================

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  $4,620,000,  along  with  loans  guaranteed  by the Small
Business Administration totalling $4,560,000.

Note 12  Long-term debt
Long-term debt at December 31 is summarized as follows:
In thousands                                    1997     1996
================================================================
FHLB convertible advance, 5.93% due
  February 24, 2002                           $2,000   $   -
5.25% capital note, due December 28, 2005      1,500    1,500
8.00% mandatory convertible debentures,
  due July 1, 2003                               249      249
----------------------------------------------------------------
Total                                         $3,749   $1,749
================================================================

Interest is payable  quarterly on the FHLB  advance.  The advance is callable on
February 20, 2000 and on every interest payment date  thereafter.  The borrowing
is secured by obligations of U.S. Government agencies.

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.

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.
<PAGE>
                                       29

Note 13  Other operating income and expenses
The following table presents the major items of other operating income and 
expenses:
In thousands                            1997    1996     1995
================================================================
Other operating income
Income from loans purchased from
  Resolution Trust Corporation prior
  to loan closing                  $     -  $     -     $ 198
Agency fees on commercial loans         253      221      158

Other operating expenses
FDIC deposit insurance                   -       141      168
Stationery and supplies expense          88      141      115
Data processing                         125      157      115
=================================================================

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                           1997     1996     1995
=================================================================
Current
Federal                               $ 581    $ 476    $ 571
State                                   113       81      103
-----------------------------------------------------------------
Total current income tax expense        694      557      674
-----------------------------------------------------------------
Deferred
Federal                                 (90)     (45)    (172)
State                                   (22)      (8)     (31)
-----------------------------------------------------------------
Total deferred income tax 
  (benefit) expense                    (112)     (53)    (203)
-----------------------------------------------------------------
Total income tax expense              $ 582    $ 504    $ 471
=================================================================

A  reconciliation  between  income tax  expense and the total  expected  federal
income tax computed by multiplying  pre-tax  accounting  income by the statutory
federal income tax rate is as follows:
In thousands                           1997     1996     1995
================================================================
Federal income tax at statutory rate  $ 561    $ 493    $ 433
Increase (decrease) in income tax
  expense resulting from:
 State income taxes, net of federal
   benefit                               60       48       48
 Tax-exempt income                      (43)     (39)     (34)
 Life insurance                         (15)     (10)      (7)
 Change in valuation allowance           (7)      -        -
 Other, net                              26       12       31
----------------------------------------------------------------
Total income tax expense              $ 582    $ 504    $ 471
================================================================
<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                                     1997    1996
================================================================
Deferred tax assets
Unrealized loss on investment securities
  available for sale                            $  6    $  44
Reserve for other real estate owned               12       -
Deferred compensation                             60       31
Other                                             32       25
----------------------------------------------------------------
Total deferred tax assets                        110      100
Less: Valuation allowance                         -         7
----------------------------------------------------------------
Deferred tax asset                               110       93
----------------------------------------------------------------
Deferred tax liabilities
Reserve for possible loan losses                 243      307
Premises and equipment                            20       13
Investment securities held to maturity             3        3
----------------------------------------------------------------
Deferred tax liability                           266      323
----------------------------------------------------------------
Net deferred tax liability                     $(156)   $(230)
================================================================

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 total  deferred  tax
asset.  Accordingly,  the  valuation  allowance,  which  amounted  to  $7,000 at
December 31, 1996 was eliminated in 1997.

Note 15  Benefit plans
Savings plan
The Bank maintains 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 Bank 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
$49,000 in 1997, $55,000 in 1996, and $36,000 in 1995.

Bonus plan
The Bank awards profit  sharing  bonuses to its officers and employees  based on
the achievement of certain performance objectives.  Bonuses charged to operating
expense in 1997,  1996 and 1995  amounted to  $119,000  $90,000,  and  $119,000,
respectively.

Nonqualified benefit plans
During 1997,  the Bank  established a  supplemental  executive  retirement  plan
("SERP"),  which provides a post employment  supplemental  retirement benefit to
certain key executive officers.  SERP expense was $26,000 in 1997. The Bank also
has a director  retirement  plan ("DRIP").  DRIP expense was $19,000 in 1997 and
$10,000 in 1996.

Benefits  under both plans will be funded  through a bank-owned  life  insurance
policy,  the cash  surrender  value of which is included  in "Other  assets" and
totalled $1.3 million and $330,000 at December 31, 1997 and 1996,  respectively.
In addition,  expenses for both plans along with the expense related to carrying
the policy  itself are offset by  increases in the cash  surrender  value of the
policy.  Such increases are included in "Other  income" and totalled  $72,000 in
1997 and $3,000 in 1996, while the related life insurance expense was $28,000 in
1997 and $7,000 in 1996.

Stock options
During 1997, the Corporation  issued 5,700 stock options at an exercise price of
$20,  which  represented  the fair market  value of the stock on the date of the
grant.  The Corporation  did not issue any stock options in 1996 or 1995.  Under
Accounting  Principles  Board  Opinion No. 25,  compensation  cost for the stock
options  is not  recognized  because  the  exercise  price of the stock  options
equaled the market price of the underlying  stock on the date of the grant.  Had
compensation expense been recorded for stock options granted as determined under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 123, net income  would have been reduced by $2,000 in 1997,  which would not
have affected the reported basic or diluted earnings per share.

The fair value of the option  grant is  estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:  dividend
yield of 8.75%,  expected  volatility of 15%,  risk-free interest rate of 6% and
estimated  option life of three  years.  The fair value of the options was $1.08
per share. The options vest equally over three years.
<PAGE>
                                       31

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 preferred  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 issued and
 outstanding.
            Date Dividend    Stated     Number        December 31,
          Issued     Rate     Value  of Shares       1997      1996
====================================================================


Series A   12/96    6.00%   $25,000          8   $200,000  $200,000
Series B    3/96    8.00     25,000         20    500,000   500,000
Series C    2/96    8.00        250        108     27,000    27,000
Series D    6/97    6.50        250      3,280    820,000        -
--------------------------------------------------------------------
                                               $1,547,000  $727,000
====================================================================

Note 17 Restrictions 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 1998 without prior
OCC approval of up to  $1,641,000  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 presents the computation of net income per common share.
In thousands, except per share data      1997     1996     1995
=================================================================
Net income                            $ 1,069   $  945   $  802
Dividends paid on preferred stock         (46)      (2)      -
-----------------------------------------------------------------
Net income applicable to basic common
  shares                                1,023      943      802
Interest expense on convertible
  subordinated debentures, net of income
  taxes                                    13       13       13
-----------------------------------------------------------------
Net income applicable to diluted common
  shares                              $ 1,036   $  956   $  815
=================================================================
Number of average common shares
Basic                                 114,141  113,498  111,141
-----------------------------------------------------------------
Diluted:
  Average common shares outstanding   114,141  113,498  111,141
  Average common shares converted from
    convertible subordinate debentures 13,850   13,850   13,850
-----------------------------------------------------------------
                                      127,991  127,348  124,991
=================================================================
Net income per common share
Basic                                  $ 8.98   $ 8.31   $ 7.22
Diluted                                  8.11     7.51     6.51
=================================================================

The stock options  outstanding  are not included as common stock  equivalents in
the diluted net income per share calculation because they are not dilutive.

Note 19  Related party transactions
Certain directors 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
1997 and 1996. 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.
<PAGE>
                                       32

Total loans to the  aforementioned  individuals  and  organizations  amounted to
$336,000 and $352,000 at December 31, 1997 and 1996,  respectively.  The highest
amount of such  indebtedness  during 1997 was $357,000  and in 1996  amounted to
$375,000.  During  1997,  $16,000 of new loans were made and  paydowns  totalled
$32,000.

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.

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, 1997 and 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  are reported at their fair values based on 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, 1997 and 1996. 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, 1997 and 1996.
<PAGE>
                                       33

The following table presents the carrying amounts and fair values of financial 
instruments at December 31:
                                   1997                1996
---------------------------------------------------------------------------
                            Carrying     Fair   Carrying     Fair
In thousands                   Value    Value      Value    Value
===========================================================================
Financial assets
Cash and other short-term
  investments               $ 13,300 $ 13,300  $ 11,741  $ 11,741
Investment securities AFS     32,694   32,694    30,997    30,997
Investment securities HTM     29,666   29,638    29,866    29,517
Loans                         56,122   58,607    56,378    57,368
Loans held for sale              807      807       291       291

Financial liabilities
Deposits                    $119,717 $117,965  $115,854  $115,804
Short-term borrowings          4,213    4,213     5,175     5,175
Long-term debt                 3,749    3,726     1,749     1,634
===========================================================================

Note 21 Commitments 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.

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 31,1997 and 1996 the Bank had mortgage commitments of $7,187,000 and
$3,183,000, unused corporate lines of credit of $23,100,000 and $13,200,000, and
$257,000 and $1,543,000 of other loan commitments, respectively.

The  aforementioned  commitments  and  credit  lines are made at both  fixed and
floating rates of interest based on the Bank's prime lending rate.
<PAGE>
                                       34

Note 23  Parent Company Information
Condensed financial statements of the parent company only are presented below.

Condensed Balance Sheet
                                                 December 31,
In thousands                                    1997     1996
================================================================
Assets
Cash and cash equivalents                    $    21  $    26
Investment securities held to maturity           773       -
Investment securities available for sale         100       -
Investment in subsidiary                      10,627    9,726
Due from subsidiary                              249      249
Other assets                                      20       45
-----------------------------------------------------------------
Total assets                                 $11,790  $10,046
=================================================================
Liabilities and stockholders' equity
Other liabilities                            $     9  $    10
Long-term debt                                 1,749    1,749
-----------------------------------------------------------------
Total liabilities                              1,758    1,759
Stockholders' equity                          10,032    8,287
-----------------------------------------------------------------
Total liabilities and stockholders' equity   $11,790  $10,046
=================================================================

Condensed Statement of Income
                                       Year Ended December 31,
In thousands                           1997     1996     1995
=================================================================
Income
Interest income                     $    29  $    -   $    -
Dividends from subsidiary               271      194      141
Interest from subsidiary                 20       20       20
-----------------------------------------------------------------
Total income                            320      214      161
-----------------------------------------------------------------
Expenses
Interest expense                         99       99       20
Other operating expenses                  1        7       -
Income tax benefit                      (12)     (34)      -
-----------------------------------------------------------------
Total expenses                           88       72       20
-----------------------------------------------------------------
Income before equity in undistributed
  net income of subsidiary              232      142      141
Equity in undistributed income
  of subsidiary                         837      803      661
-----------------------------------------------------------------
Net income                          $ 1,069  $   945  $   802
=================================================================
<PAGE>
                                       35

Condensed Statement of Cash Flows
                                       Year Ended December 31,
-----------------------------------------------------------------
In thousands                           1997     1996     1995
=================================================================
Operating activities
Net income                          $ 1,069   $  945   $  802
Adjustments to reconcile net income
  to cash used in operating activities:
    Equity in undistributed net income
      of subsidiary                    (837)    (803)    (661)
    Decrease (increase) in other assets  25      (34)      (1)
    Decrease in other liabilities        (1)      -        -
-----------------------------------------------------------------
Net cash from operating activities      256      108      140
-----------------------------------------------------------------
Investing activities
Purchase of investment securities
  available for sale                   (764)      -        -
Purchase of investment securities
  held to maturity                     (100)      -        -
Capital contribution to subsidiary       -      (500)  (1,700)
------------------------------------------------------------------
Net cash used in investing activities  (864)    (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                                 820      527      200
Dividends paid                         (217)    (156)    (140)
------------------------------------------------------------------
Net cash from financing activities      603      416    1,560
------------------------------------------------------------------
(Decrease) increase in cash and
  cash equivalents                       (5)      24       -
Cash and cash equivalents at
  beginning of year                      26        4        4
------------------------------------------------------------------
Cash and cash equivalents at
  end of year                      $     21 $     28  $     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, 1997, 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 the FDIC about  capital  components,  risk
adjustments and other factors.

Management  believes  that, as of December 31, 1997,  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>
                                       36

The following is a summary of the Bank's actual capital amounts and ratios as of
December  31,  1997 and 1996,  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, 1997
  Leverage (Tier 1)
      capital     $10,617   7.90%  $5,375  4.00%   $6,719   5.00%
  Risk-based capital:
    Tier 1         10,617  17.17    2,473  4.00     3,709   6.00
    Total          11,639  18.83    4,846  8.00     6,182  10.00
December 31, 1996
  Leverage (Tier 1)
     capital        9,771   7.01    5,578  4.00     6,972   5.00
  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
==============================================================================

Note 25  Summary of quarterly financial information (unaudited)
                                         1997
------------------------------------------------------------------
Dollars in thousands,        First   Second   Third    Fourth
  except per share data      Quarter Quarter  Quarter  Quarter
==================================================================
Interest income              $2,301  $2,432   $2,424   $2,414
Interest expense              1,005   1,126    1,120    1,079
------------------------------------------------------------------
Net interest income           1,296   1,306    1,304    1,335
Provision (credit) for
  possible loan losses           27      23      (7)      116
Net gains (losses) on sales of
  investment securities          21      19     (21)      (1)
Other operating income          301     288      273      319
Other operating expenses      1,194   1,195    1,163    1,078
-------------------------------------------------------------------
Income before income
  tax expense                   397     395      400      459
Income tax expense              144     143      145      150
-------------------------------------------------------------------
Net income                   $  253  $  252   $  255   $  309
===================================================================
Net income per share
  (basic)                    $ 1.83  $ 2.21   $ 2.22   $ 2.72
===================================================================
Net income per share
  (diluted)                  $ 1.66  $ 1.99   $ 2.00   $ 2.46
===================================================================

                                        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 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
  tax expense                   418     450      227      354
Income tax expense              146     157       82      119
-------------------------------------------------------------------
Net income                  $   272 $   293  $   145  $   235
===================================================================
Net income per share
  (basic)                   $  2.37 $  2.55  $  1.25  $  2.14
===================================================================
Net income per share
  (diluted)                 $  2.10 $  2.27  $  1.12  $  2.02
===================================================================

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure There were no changes in or disagreements with accounts during 1997.
<PAGE>
                                       37

Part III

Item 10.      Directors and Executive Officers of the Registrant
The information  required is incorporated herein by 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 21, 1998.

Item 11.      Executive Compensation
The information  required is incorporated herein by 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 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 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)(a)   The   Corporation's   Restated   Articles   of   Incorporation
                  (incorporated  herein by  reference  to Exhibit  (3)(d) of the
                  Corporation's Current Report on Form 8-K dated July 28, 1992).

         (3)(b)   Amendments  to the  Corporation's  Articles  of  Incorporation
                  establishing  the   Corporation's   Non-cumulative   Perpetual
                  Preferred Stock, Series A (incorporated herein by reference to
                  Exhibit (3)(b) of the Corporation's Annual Report on Form 10-K
                  for the year ended December 31, 1995).

         (3)(c)   Amendments  to the  Corporation's  Articles  of  Incorporation
                  establishing  the   Corporation's   Non-cumulative   Perpetual
                  Preferred Stock, Series B (incorporated herein by reference to
                  Exhibit (3)(c) of the Corporation's Annual Report on Form 10-K
                  for the year ended December 31, 1995).

         (3)(d)   Amendments  to the  Corporation's  Articles  of  Incorporation
                  establishing  the   Corporation's   Non-cumulative   Perpetual
                  Preferred Stock, Series C (incorporated herein by reference to
                  Exhibit (3(i) to the Corporation's  Annual Report on Form 10-K
                  for the year ended December 31, 1996).

         (3)(e)   Amendments  to the  Corporation's  Articles  of  Incorporation
                  establishing  the   Corporation's   Non-cumulative   Perpetual
                  Preferred Stock, Series D (incorporated herein by reference to
                  Exhibit filed with the  Corporation's  current  report on Form
                  10-K dated July 10, 1997).

         (3)(f)   The amended By-Laws of the Corporation (incorporated herein by
                  reference to Exhibit (3)(c) of the Corporation's Annual Report
                  on Form 10-K for the year ended December 31, 1991).

         (4)(a)   The  Debenture  Agreements  between  the  Corporation  and its
                  Noteholders  (incorporated  herein  by  reference  to  Exhibit
                  (4)(a) of the Corporation's Annual Report on Form 10-K for the
                  year ended December 31, 1993).

         (4)(b)   Note  Agreement  dated  December  28,  1995 by and between the
                  Corporation and the Prudential Foundation (incorporated herein
                  by reference to Exhibit (4)(b) to the Company's  Annual Report
                  on Form 10-K for the year ended December 31, 1995).

         (10)(a)  The  Employees'  Profit  Sharing Plan of City National Bank of
                  New Jersey  (incorporated  herein by reference to Exhibit (10)
                  of the  Corporation's  Annual Report on Form 10-K for the year
                  ended December 31, 1988).

         (10)(b)  The Employment  Agreement among the Corporation,  the bank and
                  Louis E. Prezeau  dated May 24, 1997  (incorporated  herein by
                  reference to Exhibit 10 to the Corporation's  Quarterly Report
                  on Form 10-Q for the quarter ended June 30, 1997).
<PAGE>
                                       38

         (10)(d)  Lease and Option  Agreement  dated May 6, 1994 by and  between
                  the Resolution Trust Corporation and City National Bank of New
                  Jersey (incorporated herein by reference to Exhibit (10)(d) to
                  the  Corporation's  Annual  Report  on Form  10-K for the year
                  ended December 31, 1995).

         (10)(p)  Asset Purchase and Sale Agreement  between the Bank and Carver
                  Federal Savings Bank dated as of January 26, 1998.

         (11)     Statement regarding computation of per share earnings.  The 
                  required information is included on page 24.

         (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, 1997.

         (21)     Subsidiaries of the registrant.  The required information is 
                  included on page 1.

         (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,
         1997.

<PAGE>
                                       39

                                   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 and Chief                       Chief Financial Officer
      Executive Officer                         and Principal Accounting Officer

Date: March 26, 1998                      Date: March 26, 1998

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, 1998
--------------------------
Douglas E. Anderson                                           


/s/ Barbara Bell Coleman             Director                 March 26, 1998
--------------------------
Barbara Bell Coleman


/s/ Leon Ewing                       Director                 March 26, 1998
--------------------------
Leon Ewing


/s/ Eugene Giscombe                  Director,                March 26, 1998
--------------------------           Chairperson of the Board
Eugene Giscombe


/s/ Norman Jeffries                  Director                 March 26, 1998
--------------------------
Norman Jeffries


/s/ Louis E. Prezeau                 Director,                March 26, 1998
--------------------------           President and Chief
Louis E. Prezeau                     Executive Officer

/s/ Lemar C. Whigham                 Director                 March 26, 1998
--------------------------
Lemar C. Whigham